CESTAT Delhi Deletes Service Tax Demand on Separate C&F and GTA Services

Commissioner of Customs Vs Awasthi Brother (CESTAT Delhi)

The Revenue challenged Order-in-Appeal No. IND-EXCUS-000-APP-123-124-19-20 dated 30.08.2019, by which the Commissioner (Appeals) had set aside the service tax demand of Rs. 1,30,31,922/- and consequently the related interest and penalties. The appellant was registered for Clearing and Forwarding Agent Services. During audit for the period 2012-13 to 2016-17, the department alleged that, apart from C&F services, the appellant arranged transportation services for its principal companies and received consideration exceeding the expenses incurred, resulting in short payment of service tax.

A show cause notice dated 27.07.2018 proposed recovery of service tax of Rs. 1,30,31,922/- under Section 73(1) of the Finance Act, 1994, along with interest under Section 75 and penalties under Sections 77 and 78. The adjudicating authority confirmed the demand, ordered recovery of interest, imposed a penalty of Rs. 10,000/- under Section 77 and a penalty of Rs. 65,15,960/- under Section 78.

The Commissioner (Appeals), however, found that the appellant was providing C&F services and transportation services as distinct activities. Although both activities were covered by the same contract, separate rates had been agreed for them and separate invoices were issued for transportation charges. The transportation activity was undertaken by the appellant using its own trucks or hired trucks, and consignment notes were issued in each case. The Commissioner (Appeals) therefore concluded that the transportation service was not part of the C&F Agent service.

Before the Tribunal, the Revenue challenged the setting aside of the demand. The Tribunal considered the impugned order and the submissions of both sides. It found that the appellant was engaged in two services, namely C&F Services and GTA Services, which, although provided under the same contract, were separately indicated and separately charged. In respect of GTA Services, service tax was payable by the recipient under the reverse charge mechanism, and the recipient had undisputedly paid the service tax.

The Tribunal further observed that the Revenue had not produced evidence establishing that the difference between freight reimbursement and transportation expenses represented consideration for taxable C&F Agent Services. It also noted that service tax is a transaction-based tax and that the agreed transaction value for the C&F services had been subjected to service tax.

The Tribunal held that adding the transportation amount to the value of C&F services would result in taxing the same transaction twice: once through service tax paid by the recipient of GTA services under reverse charge and again by adding the amount to the value of C&F services. Relying on the reasoning in the impugned order and the decision in M/s Pranish Carriers LLP vs. Commissioner of Central Goods & Service Tax, Noida reported as 2024 (5) TMI 1195-CESTAT ALLAHABAD, the Tribunal found no merit in the Revenue’s appeal and dismissed it.

Background and Service Tax Demand

The appellant held Service Tax Registration No. AAHFA3182AST001 and was engaged in providing Clearing and Forwarding Agent Services. During audit of records for 2012-13 to 2016-17, the department alleged that the appellant had also arranged transportation services for principal companies and received consideration for those services.

According to the department’s allegation, the expenses incurred in providing transportation were lower than the consideration received. The resulting difference was treated as part of the taxable value of C&F Agent Services, leading to the proposed service tax demand of Rs. 1,30,31,922/-.

Show Cause Notice and Adjudication

The show cause notice dated 27.07.2018 proposed recovery of Rs. 1,30,31,922/- under Section 73(1) of the Finance Act, 1994. It also proposed interest under Section 75 and penalties under Sections 78 and 77 on allegations of suppression and incorrect disclosure of taxable service value in ST-3 returns.

The adjudicating authority confirmed the entire service tax demand, including cess, ordered interest under Section 75, imposed a penalty of Rs. 10,000/- under Section 77 and imposed a penalty of Rs. 65,15,960/- under Section 78, subject to the reduced-penalty provision stated in the order.

Commissioner (Appeals) Sets Aside the Demand

The Commissioner (Appeals) examined whether transportation charges were required to be included in the taxable value of C&F Agent Services. The impugned order distinguished between a composite contract involving a lump-sum consideration for C&F and transportation activities and arrangements where separate services were separately charged.

In the present case, the Commissioner (Appeals) found that separate rates had been decided for C&F and transportation activities and that separate invoices were raised for freight charges. The order also recorded that the appellant had undertaken transportation from the godown to dealers or wholesalers using its own trucks or hired trucks and had issued consignment notes.

The Commissioner (Appeals) therefore found that the transportation activity did not form part of the C&F Agent service and that the two services were required to be assessed separately.

CESTAT Delhi’s Findings

C&F and GTA Services Were Separately Charged

The Tribunal found from the facts reproduced in the impugned order that the appellant was engaged in two services, namely C&F Services and GTA Services. Although both services were provided under the same contract, they were separately indicated and separate charges were applicable to each service.

The Tribunal also noted that, for the GTA services, service tax was required to be paid by the recipient under the reverse charge mechanism. The service recipient had undisputedly paid that service tax, and the payment was also certified by the recipient.

Revenue Did Not Establish C&F Service Consideration

The Tribunal considered the method adopted by the department for determining the alleged short payment. The department had added the difference between freight reimbursement received from the service recipient and the actual expenses incurred in providing transportation to the value of C&F services.

However, the Tribunal found that the Revenue had not produced evidence showing that these amounts had actually been recovered for providing taxable C&F Agent Services under the guise of transportation services. The basis for adding the amount to the taxable value of C&F services had therefore not been established through cogent evidence and reasoning.

Service Tax Is Transaction-Based

The Tribunal observed that service tax is a transaction-based tax and that the value of taxable services is to be determined with reference to the transaction between the parties concerning the relevant services.

According to the Tribunal, the appellant had recovered the agreed transaction value for C&F services and had paid service tax on that value. The transportation charges represented a separate transaction on which service tax had been paid by the recipient under the reverse charge mechanism.

Double Taxation Not Sustainable

The Tribunal held that adding the difference relating to transportation to the value of C&F services would result in taxing the same amount twice: first through service tax paid by the recipient of GTA services under reverse charge and again through its addition to the taxable value of C&F services.

In this context, the Tribunal referred to M/s Pranish Carriers LLP vs. Commissioner of Central Goods & Service Tax, Noida reported as 2024 (5) TMI 1195-CESTAT ALLAHABAD, where the Allahabad Bench had held that the same transaction could not be subjected to service tax both in the hands of the service recipient and the service provider under different categories of services where the tax had already been paid.

Judicial Precedents Referred to in the Order

The impugned order referred to decisions including E. V. Mathai & Co. Vs. CCE, Cochin [2006 (3) STR 116 (Tri.)], Bhagyanagar Services vs. CCE, Hyderabad [2006 (4) STR 22], M/s Sharma Cement Clearing Agency vs. CCE, Gaziabad [2018-TIOL -718- CESTAT-ALL], Jai Jawan Coal Carriers Private Limited vs. CST [2015 (37) STR 506 (Tr i.- Del.)], Jubiliant Life Sciences Limited vs. CCE, Noida [2013 (29) STR 529 (Tri.-Del.)] and CCE, Lucknow vs. Technical Association [2011 (24) STR 567 (Tri.-Del.)].

The Tribunal also referred to M/s Pranish Carriers LLP vs. Commissioner of Central Goods & Service Tax, Noida reported as 2024 (5) TMI 1195-CESTAT ALLAHABAD.

The Department’s counsel had also filed the following judgments for consideration: GKN Driveshafts (India) Ltd. Vs. Income Tax Officer and others, 259 ITR, page 18; Dr. H.S. Bawa Vs. CIT, 25 Taxman, 15 (P & H); Vikram Kothari HUF Vs. State of U.P., 10 Taxman, 280 (Alld); Export Credit Guarantee Corporation of India Vs. Addl. Commissioner of Income Tax, 30 Taxman, 211 (Bom); A.C.I.T. Vs. Rajesh Jhavri, 291 ITR, Page 500 (SC); C.C.I.T. Vs. Kanhaiya Lal Kapoor, 147 Taxman, 12 (Alld); Pooran Mal Vs. Director of Inspection, New Delhi, 93, ITR 505; Deep Chand Daga Vs. I.T.O., 77 ITR, 661 (MP); and Fisher Xomox Sanmar Ltd. Versus Assistant Commissioner of Income-tax, 294 ITR 620 (Mad.).

Final Decision

After considering the impugned order and the submissions made in the appeal and during arguments, the Tribunal found no merit in the Revenue’s appeal. The Tribunal concluded that the transportation services and C&F services had been separately identified and charged, that service tax on the GTA services had been paid by the recipient under reverse charge, and that the Revenue had not established a basis for adding the transportation-related amount to the taxable value of C&F services.

The Revenue’s appeal was accordingly dismissed.

Cases Discussed

• M/s Pranish Carriers LLP vs. Commissioner of Central Goods & Service Tax, Noida reported as 2024 (5) TMI 1195-CESTAT ALLAHABAD
• M/s Sharma Cement Clearing Agency vs. CCE, Gaziabad [2018-TIOL -718- CESTAT-ALL]
• Jai Jawan Coal Carriers Private Limited vs. CST [2015 (37) STR 506 (Tr i.- Del.)]
• Jubiliant Life Sciences Limited vs. CCE, Noida [2013 (29) STR 529 (Tri.-Del.)]
• CCE, Lucknow vs. Technical Association [2011 (24) STR 567 (Tri.)]
• E. V. Mathai & Co. Vs. CCE, Cochin [2006 (3) STR 116 (Tri.)]
• Bhagyanagar Services vs. CCE, Hyderabad [2006 (4) STR 22]
• GKN Driveshafts (India) Ltd. Vs. Income Tax Officer and others, 259 ITR, page 18
• Dr. H.S. Bawa Vs. CIT, 25 Taxman, 15 (P & H)
• Vikram Kothari HUF Vs. State of U.P., 10 Taxman, 280 (Alld)
• Export Credit Guarantee Corporation of India Vs. Addl. Commissioner of Income Tax, 30 Taxman, 211 (Bom)
• A.C.I.T. Vs. Rajesh Jhavri, 291 ITR, Page 500 (SC)
• C.C.I.T. Vs. Kanhaiya Lal Kapoor, 147 Taxman, 12 (Alld)
• Pooran Mal Vs. Director of Inspection, New Delhi, 93, ITR 505
• Deep Chand Daga Vs. I.T.O., 77 ITR, 661 (MP)
• Fisher Xomox Sanmar Ltd. Versus Assistant Commissioner of Income-tax, 294 ITR 620 (Mad.)

FULL TEXT OF THE CESTAT DELHI ORDER

This appeal has been filed by the Revenue is directed against the Order-in-Appeal No. IND-EXCUS-000-APP-123-124-19-20 dated 30.08.2019. By the impugned order, the Commissioner (Appeals) following has been held:-

”In this regard, I find that the appeal filed by the Appellant No.1 has already been allowed by the undersigned by setting aside the demand of Rs. 1, 30, 31, 922/ confirmed by the adjudicating authority in terms of my findings in aforesaid paras. Since the demand itself has been set aside, the recovery of interest and penalty imposed by the adjudicating authority has also been set aside by me ”

2.1 The appellant is holding Service Tax Registration No. AAHFA3182AST001 and engaged in providing >Clearing and Forwarding Agent Services?

2.2 During the audit of the records of the appellant for the pe riod 2012-13 to 2016-17, it was observed that apart from providing C & F Agent Service, the appellant also arranged the service of transportation to the principal companies and received consideration for the same. They did not discharged service tax on this amount. The expenses incurred by the appellant for providing these services was less than the consideration received. Resulting in short payment of service tax as indicated in the table (table as per the appeal memo) below:-

It was alleged that the appellant short paid service tax to the extent of the extent recovery made over expenses incurred for providing transportation of good servicesand thereby suppressed the value C & F Agent Services provided by them.

2.3 A show cause notice dated 27.07.2018 was issued asking them to show cause as to why:-

”(i) The Service Tax amounting to Rs.1,30,31,922/- (Service Tax Rs. 1,25,49,788/-, Education Cess Rs.1,21,613/-, S&H Education Cess Rs.60,807/-, Swachha Bharat Cess Rs.1,83,092/ and Krashi Kalyan Cess Rs.1,16,622/-) not paid by them on the amount received by them against provision of taxable services during the period 2012- 13 (01.10.2012 onwards) to 2016-17. should not be recovered from them under provisions of Section 73 (1) of the Act,

(ii) Interest at appropriate rate should not be charged & recovered from them under Section 75 of the Act in the event of confirmation of demand;

(iii) A penalty should not be imposed upon them under Section 78 of the Act for suppressing the fact with intent to evade payment o f service tax;

(iv) A penalty should not be imposed upon them under Section 77 of the Act insomuch as they have not disclosed the value of taxable service properly under the ST-3 return filed by them.=

2.4 The said show cause notice was adjudicated as per the order-in- original No.28/ADC/ST/IND/2018-19 dated 26.02.2019 holding as follows:-

”i) I confirm service tax demand of Rs. 1,30,31,922/- (including Cess) (Rs. One Crore Thirty Lakh Thirty One Thousand Nine Hundred Twenty Two Only) (Service Tax Rs.1,25,49,788/-, Education Cess Rs.1,21,613/, S&H Education Cess Rs.60,807/-, Swachha Bharat Cess Rs.1,83,092/- and Krashi Kalyan Cess Rs.1,16,622/-) for the period 2012-13 (01.10.2012 onwards) to 2016-17 under Section 73 of the Finance Act. 1994 against M/s. Awasthi Brothers, Khandelwal Complex, Lasudia Mori, Dewas Naka, Indore -452001(Μ.Ρ.).

(ii) I order for recovery of interest at the applicable rates on the amount of Service Tax (including Cess) confirmed in (i) above under Section 75 of the Finance Act, 1994.

(iii) I do not impose penalty under Section 76 of Finance Act, 1994 upon the Noticee.

(iv) I impose a penalty of Rs. 10,000/- (Rs. Ten Thousand only) under Section 77 of the Finance Act, 1994 upon the Noticee for failure to furnish the correct Returns.

(v) 1 impose penalty of Rs. 65,15,960/- (Rs. Sixty Five Lakh Fifteen Thousand Nine Hundred Sixty Only) under the provisions of Section 78 of the Finance Act, 1994. However, if such service tax and the interest payable thereon is paid Within thirty days from the date of communication of this order, the amount of penalty liable to be paid by the assessee shall be twenty-five per cent of amount of service tax and confirmed at (i) above, in terms of second proviso to Section 78 of the Finance Act, 1994; however, the benefit of reduced penalty shall be available only if the amount of penalties have also been paid with other dues within the period of said thirty days.

48. The above referred Show Cause Notice No. 07/ST/ADC/AUDIT/IND/2018-19 dated 27.07.2018 issued under F.N. IV (16)01/Tech/Audit/Ind/37/2017-18/2275 stands disposed off accordingly.=

2.5 Aggrieved, the appellant filed appeal before the Commissioner (Appeals). Revenue also filed the appeal before the Commissioner (Appeals). The appeal of the appellant was allowed and the appeal of the Revenue was dismissed as per the impugned order. 2.6 Aggrieved, Revenue has filed this appeal. 3.1 We have heard Shri Anand Narayan, Authorized Representative for the Department-appellant and Shri A. K. Batra, Chartered Accountant for the Respondent.

4.1 We have considered the impugned order along with the submissions made in the appeal and in the course of the arguments.

4.2 The impugned order on the issuerecords as follows: –

”10. Now coming to the issue as to whether the cost of transportation of goods from the premises of C & F Agent to the dealers/ buyers premises is to be included in the taxable value of C & F Agent Service for the purpose of payment of Service Tax, I find that it depends upon the nature of contract between the ser vice provider and service receiver which is very significant to determine as to whether both services are provided as two distinct activities and charged accordingly by the Appellant No.1 or provided as one composite service and charged accordingly in lump sum by the Appellant No.1.

10.1 In this regard, it is observed that in one type of contract, there can be a composite contract mentioning a lump sum rate for all the activities from receipt of goods up to delivery of goods to the dealers/buyers on behalf of the principal.

Other type of contract may be the case of separate contract for C & F agency and separate contract for transportation of goods up to dealers/ buyers’ premises or the case of a single contract mentioning the rates for C. & F activities and transportation activity separately. Another type of contract may be the case of arranging of transport by the C & F Agent and payment of transportation charges by the C & F Agent on behalf of the Principal which are reimbursed by the Principal later on to the C & F Agent.

10.2 In this case, the contention of the department is that there is a single contract for C & F agent service in which the C & F agent has been asked to arrange for the transportation of good s. As such the amount of transportation charges recovered by the Appellant will form part of remuneration of C & F Agent service.

However, the show cause notice as well as the adjudicating authority is silent as to how rates for both services are decided in the said agreement. It has not been mentioned in the show cause notice as well as the impugned adjudication order that the rate s are agreed upon in lump sum for both activities together. Whereas, it is admitted fact that the charges for transportation of goods are recovered by the Appellant No.1 by issuing separate invoices. So I find that it is not case of composite contract for provision of both the services wherein the charges are paid in lump sum for both services.

10.3 Here I also find that present case doesn’t fall in the category of reimbursement of transportation expenses by the Principal to the C & F Agent because the Appellant No.1 has not arranged the transport of goods on behalf of their Principal but has actually undertaken the transportation of goods from the godown to th e dealers/wholesalers by using their own trucks or hiring the trucks of others and had issued consignment notes in each case. The copies of consignment notes have been produced before the adjudicating authority as well as appellate authority. So it is a fact on record that the Appellant No.1 has undertaken transportation service for M/s Hindustan Unilever Ltd. and M/s. Berger Paints separately, apart from acting as C & F agent for them and the observation of the adjudicating authority that the Appellant no. 1 has arranged the transportation of goods is factually incorrect.

10.4 As regards the nature of contract between the Appellant No.1 and their Principal, I find that in present case there are no separate contracts for C & Fagent service and transportation service. Although there is single contract for C & Fagent service and transportation service, but the rates of each activity are decided separately and revised separately. They are also raising separate invoices for charging freight charges from their service receivers. So, in such circumstances it is to be examined as to whether the transportation charges recovered by the Appellant No.1 from their service receivers are to be included in the value of C & F agent service as held by the adjudicating authority.

xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx

11.3 Hence, I find that if there is composite contract which includes C & F activities along with transportation of goods from the premises of the C & F Agent up to dealers / buyers premises and consolidated amount in lump sum is charged for the same, then the service tax is payable on entire amount charged by the C & F Agent. So it is clear that the transportation charges will form part of C & F agent service in such cases.

xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx

12.1 As regards above factual position, I find that the adjudicating authority has incorrectly recorded his observations that the consignment notes were issued by the transport companies. But, he has failed to mention as to which transport companies have issued the consignment notes and as to how the adjudicating authority got hold of these consignment notes, when there is no mention of issuance of consignment notes by the transporters in the show cause notice itself. So, these observations of the adjudicating authority are not sustainable.

12.2 Here I find that in cases where there is a contract specifying separate rates for providing two distinct services and bills are raised separately, then their assessment has to be done separately under two distinct service category because these two services cannot be considered as composite service for clubbing their taxable value for assessment purpose.

Further, I also find that in present case, since the contract rates for providing transportation service are separately decided which are other than the charges agreed upon for C & F agent service and also charged separately, this transaction between the Appellant No.1 and their service receiver client is on Principal to Principal basis. So the Appellant No.1, while providing the transportation service, does not satisfy the condition of working as Agent of their Principal to fall under the service category of C& F Agent services. Therefore, I find that transportation service will not be covered as part of the service of C&F Agent service.

4.3 From the facts as reproduced above, it is evident that the appellant is engaged in providing two services, namely, C & F Services and GTA Services. Both services though provided under the same contract are indicated separately with separate charges for each. In respect of GTA Services provided, the service tax on the value of such services was to be paid by the recipient of the services on the reverse charge basis. Undisputedly, this service tax was paid by the service recipient and this fact is also certified by the recipient of the services.

4.4 As available from table reproduced in Para 2.2, we find that determination for service tax is being made by adding the difference of reimbursement of freight from the service recipient to the actual expenses incurred in providing the services by adding the same to the C & F services provided to the appellant. There is no produced by the revenue to show that the appellant has recovered these amounts from the service recipients for providing the taxable service under the category of C & F agent services in garb of the services of transportation of goods by road services. The reason for which this amount has been sought to be added for determining taxable valu e of C & F Services has not been established on the basis of cogent evidences and reasoning.

4.5 The service tax is a transaction-based tax and the value of taxable services is to be determined on the basis of the transaction between the parties in respect of the services. Undisputedly Appellant have recovered and paid service tax on the basis of agreed transaction value for provision of the taxable services under the category of C & F services.

4.6 in respect of the amount charged towards the transportation of goods, the service tax has been paid by the recipient of the service under reverse charge basis. By adding the difference to the value of C & F Services, it was amount to tax the same amount twice,-

(i) on the basis of tax paid by the recipient of the GTA service on reverse charge basis

(ii) by way of addition to the value of C & F Services.

4.7 Impugned order records that the view taken is supported by the following decisions:-

(i) E. V. Mathai & Co. Vs. CCE, Cochin [2006 (3) STR 116 (Tri.)]

(ii) Bhagyanagar Services vs. CCE, Hyderabad [2006 (4) STR 22]

(iii) M/s Sharma Cement Clearing Agency vs. CCE, Gaziabad [2018-TIOL -718- CESTAT-ALL]

(iv) Jai Jawan Coal Carriers Private Limited vs. CST [2015 (37) STR 506 (Tr i.- Del.)]

(v) Jubiliant Life Sciences Limited vs. CCE, Noida [2013 (29) STR 529 (Tri.-Del.)]

(vi) CCE, Lucknow vs. Technical Association [2011 (24) STR 567 (Tri.)]

4.8 We find that in case of M/s Pranish Carriers LLP vs. Commissioner of Central Goods & Service Tax, Noida reported as 2024 (5) TMI 1195-CESTAT ALLAHABAD, the Allahabad Bench hav e held as follows:-

”5. Admittedly, in the present case entire tax due has been paid in respect of these transactions between the Appellant and his client. That being so, we are of the view that the same transaction could not be levied to service tax both at the hands of the service recipient and the service provider under different category of services. In this case, if these transactions were to be taxed under the category of SOTG, as has been held by the impugned order, entire amount paid by the service recipient under the categor y of GTA services on the reverse charge basis should have been refunded. There is no scope of double taxation under the statute. The demand made in the present case after noting the payment of tax at the hand of service recipient, the same transaction goes contrary to Article 265 of the Constitution and hence cannot be sustained.=

4.9 In view of the above discussion, we find no merit in this appeal.

5.1 The appeal is dismissed.

(Dictated & pronounced in the open Court)