Tribunal rules appellant not liable for service tax on freight, waives penalty

The tribunal ruled in favor of the appellant in a case concerning the liability of service tax on freight procured from a supplier. The department claimed the appellant was liable for the service tax on freight, resulting in a confirmed demand and penalty. However, the tribunal found that as the supplier paid the freight and the consignee was not specified in the LR, the liability for service tax did not fall on the appellant. The tribunal held that it was not the appellant's responsibility to verify the supplier's payment of service tax, ultimately ruling in favor of the appellant and waiving the service tax, penalty, and interest requirements.

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Issues:
1. Liability of service tax on freight procured from a supplier.
2. Interpretation of Rule 2(1)(d)(v) of Service Tax Rules.
3. Responsibility to verify payment of service tax by the supplier.

Analysis:
1. The issue in this case revolves around the liability of service tax on freight procured by the appellant from a supplier. The department contended that the appellant is liable to pay the service tax on freight, resulting in a confirmed demand of Rs.2,40,558/- for a specific period. Additionally, a penalty equal to the service tax demand was imposed under Section 78 of the Finance Act, 1994.

2. The appellant, represented by a Chartered Accountant, argued that the service tax demand was based on the consignee being mentioned as the party liable for service tax in the LR. Reference was made to Rule 2(1)(d)(v) of the Service Tax Rules, which states that service tax is payable on transportation charges by the entity paying the freight. The appellant highlighted that the supplier included the freight element in the input supplied, and the transportation was organized by the supplier, absolving the appellant of direct involvement in paying the freight.

3. On the other hand, the department's representative contended that since the LR indicated the consignee as liable for service tax, the appellant should have ensured whether the supplier had indeed paid the service tax. However, the tribunal, after considering both arguments, found that the LR did not specify the freight amount, while the invoice indicated that the freight was inclusive. Consequently, the tribunal concluded that when the supplier pays the freight, the liability for service tax shifts to the supplier, not the appellant. The tribunal emphasized that it was not the appellant's responsibility to verify the supplier's payment of service tax. As a result, the tribunal ruled in favor of the appellant, waiving the pre-deposit requirement of service tax, penalty, and interest, and allowing the stay petition during the appeal's pendency unconditionally.

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