CA Pradeep Jain & CA Preeti Parihar
INTRODUCTION:- “Though no one can go back and make a brand new start, anyone can start from now and make a brand new ending….” But ending is not the fate of every start, some issues only have start and no end seems even after passing of no. of years – It is surely applicable on the service tax on goods transport operator services. Service tax on transportation had a bad innings right from its first levy. It has gone through the ups and downs since it was levied for the first time on 16.11.1997. The levy was challenged and was withdrawn on 2.6.1998 just after few months. Though government did retrospective amendments twice in this category of service, yet the issue does not seem to be settled till date. The levy of service tax for the mid-period of 16.11.97 to 2.6.98 is still in limelight by one reason or another. Here is the anatomy of the issue that has been on fire since past so many years.
HISTORY:- The history of service tax on transportation begins with Finance Act, 1997 which proposed the levy under the category of “Goods Transport Operator”. Notification no. 41/97, dated 5-11-1997 was issued in this regard which was effective from 16.11.1997. Clarifications regarding the levy were issued vide Circular F. No. B 43/11/97-TRU, dated 6-11-1997. But it was a bleak tax right from the beginning.
WHAT WAS THE UN-DIRECTIONAL PATH IN SERVICE TAX LEVY?
Notification No. 42/97-ST dated 5.11.1997 was issued which inserted Rule 2(1)(d)(xvii) of the Service Tax Rules, 1944 whereby the customer of the goods transport operator was made responsible for collecting the service tax. In other words, the liability to pay the service tax was shifted to the customer, i.e. the person who hires the service of transporter. This was unconventional method of taxation which was initiated by the government; as such it faced a lot of opposition from public. The transporters went on country-wide strike against this levy. Various petitions were filed for reversing the levy. The issue was settled (as it seemed then) by the hon’ble Supreme Court in the case of Laghu Udyog Bharti.
JUDGEMENT OF APEX COURT:- The levy of service tax on goods transport operator’s services was set at zilch by the Hon’ble Supreme Court in the case of M/s. Laghu Udyog Bharati V/s Union of India [1999 (112) E.L.T. 365 (S.C.)] who has held that the levy of tax from the receiver was illicit as the same is ultra vires the Finance Act, 1994. In this case, it was held that the levy of service tax on the recipient of the service instead of person providing the service was clearly illegal and unsustainable in law. It was further held that all the refund claims, if filed within time, are required to be finalized within 12 weeks from the date of filing. The amount duly worked out and verified should be effectively refunded to the claimant or the consumer welfare fund, as the case may be, within the period of 12 weeks as per the decision of Supreme Court rendered on July 27, 1998.
WITHDRAWN OF LEVY:- In view of the aforesaid judgment of the Supreme Court, levy of the service tax on the services provided by the goods transport operator was exempted vide Notification No. 49/98-ST, dated 2.6.1998. As a consequence of this notification, various trade notices were issued which directed the field formations to drop the show cause notices issued under this levy. The recoveries were seized and the service tax already paid was directed to be refunded.
FINANCE ACT 2000:- Finance Act, 2000 made amendments to the relevant provisions with retrospective effect. Amendment sought to validate levy and collection of service tax for the period between 16-7-1997 to 12-5-2000 in respect of services of goods transport operators. The amendment also sought to deny refund of service tax to users and also for recovery of refund already granted consequent to the judgment of the Supreme Court in Laghu Udyog Bharti. Recovery of refunds already granted was to be done within 30 days from the date when the Finance bill, 2000 received the assent of the President. In the event of non-payment of service tax so refunded by an assessee, the interest @ 24% p.a. was to be charged after the said period of 30 days.
Fresh show cause notices were issued to the appellant on different dates in 2002 demanding service tax from them for the services received from goods transport operators. Show cause notice proposed to invoke extended period of limitation and there was also a proposal for imposition of penalty and demand of interest. It is the case of the appellants that no show cause notice could have been issued to them under Section 73 even after the amendment brought under Finance Act, 2000.
BUDGET, 2003:- The Government of India has come for a fresh dose of retrospective law with Budget 2003. This budget amended the section 68 retrospectively for making the customer of GTO as the person liable to pay the service tax. A new section 71A was inserted for making customer liable to furnish the service tax return within six months from the date on which the Finance Bill, 2003 received the assent of the President. Rule 7A was inserted according to which return was also to be furnished for the period from 16.11.97 to 2.6.98 within six months from 13.5.2003, failing which, all the consequences like interest and penalty were to be followed.
CONSEQUENCES OF RETROSPECTIVE AMENDMENTS:- But inspite of all these retrospective amendments, there remained certain errors and the case bended on part of the assessees. The section governing the issue of show cause notice, i.e. section 73 left to be amended. The language of this section still had the language that the show cause notice can be issued if there is default in filing of return under section 70 and whereas the recipient of GTO services were to file the return under section 71A. This lacuna was followed by the no. of judgments. Further, the limitation clause also benefitted the assessees but it couldn’t stop the proceedings initiated by the department.
ü In case of L.H. SUGAR FACTORIES LTD. V/s COMMISSIONER OF C. EX., MEERUT-II [2004 (165) E.L.T. 161 (Tri. – Del.)], Tribunal passed the order rejecting the Show Cause Notices issued under section 73 for recovering the allotted refund as well as interest and penalty stating that since Appellant is required to submit the Return under section 71A then SCN cannot be issued u/s 73 as only be issued only the case of assessees who are liable to file return under Section 70.
ü In case of CCE, Vadodara-II V/S Welspun Gujarat Stahl Rohren Ltd. [200-TIOL-108-CESTAT-AHM], Tribunal held regarding Time Limitation of issuance of SCN relating to filing of Return by the recipients of the said service that the SCN must be issued within one year from the relevant date which was the 14/11/2003 i.e. date of insertion of section 71A in Finance Act through BUDGET 2003. The decision has been made relying upon the decision made in case of Mangalam Cement Ltd. as reported in [2007-TIOL-906-CESTAT-DEL]. From this decision one law point was cleared that SCN can be issued after one or two or three or so on years but should be within one year from new amendment in law itself relating to same matter.
OUTCOMES OF JUDICIAL PRONOUNCEMENTS:- The decision of L.H. Sugar Factories Ltd was corrected by substituting the section 73. Finance (no. 2) Act, 2004 substituted this section w.e.f. 10.9.2004. After this amendment, the show cause notice can be issued on failure to file the return under section 70 as well as section 71A read with rule 7A of the Service Tax Rules, 1994.
But the conflicting decisions given on the issue of limitation resulted into reference to larger bench. The larger bench decided the reference in favour of the Revenue. This decision is cited as M/s Agauta Sugar & Chemicals Vs CCE, Noida [2010-TIOL-1185-CESTAT-DEL-LB] wherein it is held that show cause notice demanding the service tax for the period from 16.11.1997 to 1.6.1998 issued in 2004 after the amendment to Section 73 of the Finance Act, 1994 is valid. Thus, the larger bench struck off the expectations of the poor assessees. But this also did not ended the issue. Again a decision came in favour of the assessees during the last quarter of year 2010.
LATEST JUDGEMENT:- The latest judgement in this sequence has been reported in 2010-TIOL-1208-CESTAT-AHM in case of CCE, VAPI V/S M/s. Mutual Industries Ltd. in which the CESTAT again dismissed the Appeal of Revenue. The view taken by the hon’ble Tribunal was that demand for the period from 16.07.1997 to 15.10.1998 was confirmed on the basis of retrospective amendments to pertinent provisions. In such a case, question of suppression of facts, fraud or collusion does not arise. So, SCN issued after one year but within 5 years is no more sustainable. So, even after the decision of larger bench, the issue is not yet settled.
BEFORE PARTING:- In spite of all retrospective modifications have been made by the Government of India, they are not able to collect the service tax on “Goods Transport Operator” service for that numinous period between November, 1997 and June, 1998. One question is arising from all the recipients of the said service that why the department is so meticulous about collecting the tax for that tiny period? Will any further alteration of retrospective nature in law solve the matter absolutely? No one knows, but everyone is waiting to have this issue dumped forever.
(Republished- Article was First Published on 10th March 2011)