By TIOL News Service

MUMBAI, MAR 21, 2017: THE appellant is before the CESTAT against confirmation of demands on GTA Service received by them.

It is submitted that the dealers to whom the appellants are selling the goods are responsible for paying the freight and would, therefore, be liable to pay service tax.

The appellant pointed out that in terms of Rule 2(1)(d) of Service Tax Rules, 1944, in respect of GTA, liability to tax would arise only in respect of person who physically pays the transporter; that in case where they paid the transporters, they are discharging the service tax liability. However, in case where the dealers, who are the consignees of their goods are paying freight to the transporter, they are liable to pay tax; that they have entered into an agreement with the transporter and while the actual payment of freight is done by the dealers to the transporter, the said amount is thereafter paid or reimbursed by the appellants to the dealers. Inasmuch as since the physical payment of freight is done by the dealer to the transporter, the liability would be on the dealer under reverse charge basis. Moreover, no penalty could be imposed since this is a matter of interpretation of law, the appellant added. Reliance is also placed on the decision of the Tribunal in the case of Rajalakshmi Paper Mills Pvt. Ltd - 2011-TIOL-1726-CESTAT-MAD.

The AR submitted that it is not only the person paying freight but also the person who is liable to pay the freight including payment through an agent for transportation who is covered by Rule 2(1)(d) of the Service Tax Rules, 1994. Moreover, the agreement with the transporter entered into by the appellants is indicative that the appellant knew that they were liable to pay service tax but deliberately deviseda mechanism to avoid it.

The Bench observed -

“4. …I find that in the case of Rajalakshmi Paper Mills Pvt. Ltd. (supra) it was not established that the consignee were paying the freight on behalf of the consignor. In the instant case, there is a clear understanding in this regard which can be seen by the manner of invoicing and the internal accounts maintained by the appellants. This is also apparent from the fact that the agreement with the transporter is entered by the appellant themselves and not by the dealer. In these circumstances, it appears to be a mechanism has been devised to mislead the service tax authorities and to avoid payment of service tax. So long as liability to pay transporter is of appellant, the physical payment through dealers for connivance or for practical reasons, does not change the liability to tax….”

The appeal was dismissed.

(See 2017-TIOL-910-CESTAT-MUM)