2025 (7) TMI 1779 - AT - Service Tax

Transportation of Goods by Road Not Taxable Under Section 66D(p); No Penalty or Interest Applied

M/s. Bharat Heavy Electricals Ltd. (HPBP-SSTP) Versus Commissioner of GST and Central Excise, Trichy Commissionerate

The CESTAT Chennai held that the appellant's transportation of goods by road does not attract service tax under Section 66D(p) of the Finance Act, as they ... Levy of service tax - Freight Income shown in financial records which was incurred by the Appellants but also reimbursed by its customers - invocation of extended period of limitation under Proviso to Section 73(1) Finance Act - penalty. HELD THAT:- As per Section 66D (p) (i) of Finance Act 1994, Services by way of transportation of goods -(i)by road except the services of -(A)a goods transportation agency; or (B) a courier agency is covered under the negative list of services. Since admittedly, the appellant is neither the GTA, nor the Courier agency hence, the activity of transportation of goods by road by them is well covered under the aforesaid provision. The amount in question is an amount incurred towards facilitation of transportation and insurance. A mere perusal of section 66D (p) of the Finance Act 1994 itself is sufficient to hold that the service tax on the said amount has wrongly been demanded. It can be seen that the Appellant has dispatched the goods to the client site as per the contract terms and collected the transport charges involved thereon. Along with the transportation, admittedly they have also performed i.e., unloading, handling, storage and insurance. Apart from that wherever and whenever it is required, they have done testing and installation - Rule 4B of Service Tax Rules, 1994 mandates issue of consignment note by any goods transport agency which provides service in relation to transport of goods by road in a goods carriage to the recipient of service. We have noted the appellant’s contention that they have not issued any Consignment note and so cannot be termed as GTA but provided transport services on behalf of the recipient which was paid by the Appellant on RCM basis and later on got reimbursed as laid down in the LOA. There is a difference between the transportation charges paid and freight charges reimbursed. The reimbursement is on the expenditure incurred by them and said to be lower than what was incurred as discussed in the impugned order. In the case of M/s. Bharat Heavy Electricals Ltd. Versus Commissioner of CGST, Dehradun (UTTARAKHAND) [2025 (5) TMI 648 - CESTAT NEW DELHI] the issue has been decided in favor of the appellant which held that no service tax is leviable on the amount towards facilitation of freight and insurance - As such, the demand of service tax on the issue of transportation charges / freight income shall fail to survive. Extended period of limitation - HELD THAT:- The grounds which were relied upon by the Adjudicating Authority are that the Appellant has failed to disclose the taxable income in the ST 3 Returns, non-payment of tax could be found out only on scrutiny of the financial statements and but for the Audit action, the fact of provision of Taxable services and non-payment of service would not have come to light - The Department has neither made any investigation nor recorded any statement from the Assessee to establish the allegation made in the notice and there is no averment in the notice that the invoices were deliberately prepared showing only Freight Charges. It is a settled matter that the demand cannot be raised merely on the basis of financial records. Further the Balance Sheet is a public document as M/s. BHEL is a public listed company and is bound by disclosures of their financial performance to the public. When that entire demand of tax is based on the figures / facts available in the financial records, it cannot be said that the Appellant has not made appropriate disclosures. In the case of Hindalco Industries Ltd. Vs. Commissioner of C.EX., Allahabad [2003 (3) TMI 237 - CEGAT, NEW DELHI], the Tribunal has held that suppression of the fact cannot be alleged when the demand is raised on the basis of information appearing in Balance sheet. Therefore, the invocation of extended period of limitation is not tenable. Levy of penalty - HELD THAT:- The ingredients for invocation of extended period of limitation under Section 73(1) of the Act and imposition of penalty under Section 78 of the Act are identical. It is found that once the extended period of limitation cannot be invoked in the facts of the present case, there is no question of imposition of any penalty under Section 78 of the Act and so, it is ordered to be set aside as the issue is decided on the basis of merit and also on the limitation in favor of the appellant. The demand made in the impugned Order-in- Original being untenable, the demand of consequential interest and the penalty imposed also do not sustain - appeal allowed. ISSUES: Whether the freight income shown in the financial records is subject to service tax under the Finance Act, 1994'Whether the appellant's activity of arranging transportation of goods amounts to a taxable service or falls under the negative list exemption for transportation services by road except Goods Transport Agency (GTA) services'Whether the invocation of the extended period of limitation under the Proviso to Section 73(1) of the Finance Act, 1994 is justified on the facts of the case'Whether penalty under Section 78 of the Finance Act, 1994 can be imposed in the absence of justification for extended period invocation? RULINGS / HOLDINGS: The demand of service tax on freight income reimbursed by customers is not sustainable as the appellant is not a Goods Transport Agency and the activity of transportation of goods by road by the appellant is covered under the negative list of services specified in Section 66D(p) of the Finance Act, 1994.The appellant's role in arranging transportation and incurring freight and insurance charges, which are reimbursed by customers, does not constitute a taxable service distinct from the exemption provided under Section 66D(p); hence, service tax demand on such amounts is 'wrongly demanded.'The invocation of the extended period of limitation under the Proviso to Section 73(1) is not justified as there is no evidence of 'suppression of facts with an intention to evade payment of tax,' and the demand is based solely on financial records which are public documents.Since extended period invocation is unjustified, penalty under Section 78 of the Finance Act, 1994 cannot be imposed and is accordingly set aside. RATIONALE: The Court applied the statutory framework of the Finance Act, 1994, particularly Section 66D(p) which provides a negative list exemption for 'services by way of transportation of goods by road except the services of a Goods Transport Agency or a courier agency.' The appellant, not being a GTA, falls within this exemption.The Court relied on the principle that post the Finance Act (Amendment Act of 2012), all services are taxable except those specifically exempted under the negative list, and the appellant's activity of facilitating transportation is exempt under this provision.The Court examined contractual documents and internal orders showing bifurcation between supply and service contracts and found that transportation charges were reimbursed expenses, not a separate taxable service rendered by the appellant.Precedential decisions of the Tribunal in related cases involving sister units of the appellant were followed, where similar service tax demands on freight facilitation were quashed based on the same legal reasoning.The Court emphasized settled law that invocation of extended limitation requires proof of suppression or evasion of tax, which was absent here, especially given the appellant's status as a public sector undertaking whose financial statements are publicly disclosed and audited by the Comptroller and Auditor General (CAG).In interpreting the phrase 'services by way of transportation of goods by road except the services of a GTA,' the Court held that the exclusion applies narrowly to GTA services and does not extend to indirect or facilitation services, supported by authoritative case law on statutory interpretation emphasizing the non-restrictive nature of terms like 'such as,' 'includes,' and 'in relation to.'The Court also noted the absence of consignment notes issued by the appellant, a mandatory requirement for GTA services under Rule 4B of the Service Tax Rules, 1994, reinforcing that the appellant cannot be classified as a GTA.The Court held that penalty and interest demands are consequential on the tax demand and thus fail once the tax demand is set aside on merits and limitation grounds.