By TIOL News Service

MUMBAI, DECEMBER 14, 2018: AGAINST confirmation of service tax demand on GTA Services received, the appellant had filed an appeal before the CESTAT and contended 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 under reverse charge basis.

Reliance was also placed on the decision of the Tribunal in Rajalakshmi Paper Mills Pvt. Ltd  -  2011-TIOL-1726-CESTAT-MAD.

The Bench while dismissing the appeal 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…."

Please see - 2017-TIOL-910-CESTAT-MUM.

The appellant has, therefore, filed an appeal before the Bombay High Court.

The High Court considered the submissions and inter alia observed-

On merits:

+ All the authorities under the Act, on facts, have come to the conclusion that the arrangement arrived at between the appellant and its dealers was so as to reduce the payment of service tax obligation of the appellant.

+ This factual finding of the authorities was based on detailed scrutiny of the invoices and documents, in particular, the ledger account maintained by the appellant which shows the amount, which was reduced from the invoice is also accounted as freight reimbursement.

+ It was in these facts that the authorities have held that the freight paid by the dealers was for and on behalf of the appellant. Thus, the appellant would be liable for payment of service tax.

+ Thus, on the basis of the definition as provided in Rule 2(1)(d)(v) of the Service Tax Rules, the payment made by the agent would be a liability of the principal for the purposes of service tax.

On Limitation:

++ Once the authorities have found on facts that there was an arrangement arrived at between the parties so as to reduce the payment of service tax, invocation of extended period of limitation cannot be faulted with.

The appeal was dismissed.

(See 2018-TIOL-2586-HC-MUM-ST)