Service Tax Exemption On Services Of Providing Vehicles On Hire Basis To GTA: CESTAT

The Delhi Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that the service tax exemption on services of providing vehicles on a hire basis to the Goods Transport Agency (GTA).

The bench of Rachna Gupta (Judicial Member) and Hemambika R. Priya (Technical Member) has observed that the definition of GTA is given under Section 65B(26) of the Finance Act. A person can be said to be a goods transport agency if they provide services in relation to the transportation of goods by road and issue the consignment note. The transportation services provided by GTA against the consignment note are taxable, but not the transportation of goods by any other person. A person who provides goods transport service but does not issue a consignment note cannot be brought under the ambit of GTA, and his receipt cannot be taxed.

The appellant or assessee is registered under the category of construction services for residential, commercial, industrial complexes, or other civil structures. From the third-party data received from the Directorate General of Service Tax for the Financial Year 2014–15, it was observed by the service tax commissionerate that the appellant has received amounts during this financial year that have been booked as income under Section 194C of the Income Tax Act. Thus, income is related to payments made to contractors and subcontractors. An investigation was initiated against the appellant by the officers of the Anti-Evasion Branch of CGST Hqrs., Udaipur.

The appellant was using its truck lorries and trucks for the transportation of petroleum products instead of giving its tankers and trucks on hire to M/s. Shreenath & Co. and M/s. Hari Priya Filling Station. They were not even paying any rent for getting truck lorries or tankers from the appellant. Both of these companies were contracted by BPCL/Essar for this purpose. They subcontracted the activity to the appellant.

The assessee contended that the subcontracting does not change the nature of the activity, i.e., the transportation of branded fuel. The contracts between the appellant, subcontractor, and companies are absolutely silent about taking the trucks and tanks of the appellant on hire. Thus, the activity performed by the appellant was the transportation of goods by road. The only flaw is that the consignment note was issued by the appellant in favor of M/s. Vishnu Priya Filling Station, but the same was not issued in the case of transporting fuel on behalf of M/s. Shreenath & Co. and on behalf of M/s. Hari Priya Filling Station. The nature and intent of the contracts in the case of three of the companies are otherwise the same. The demand against M/s. Vishnu Priya Filling Station has already been dropped. Based on the same reason, the demand against the appellant for transporting on behalf of M/s. Shreenath & Co. and M/s. Hari Priya Filling Station is also liable to be dropped.

The department contended that the ledger accounts provided by the appellant show the amount to be received as transportation income. But in their reply to show cause notice, the appellant acknowledged the amount to be received as hire charges. Though later the mention is asserted to be a clerical mistake, the reply amounts to an admission on the part of the appellant that the contracts are for taking the appellant's truck lorries or tanks on hire against the charges. Otherwise, the appellant had failed to provide invoices showing that the receipts were with respect to freight charges. While informing about filing a declaration under the Service Tax Voluntary Compliance Encouragement Scheme, 2013, the appellant has described the service provided by him as “tanker provided to transport agency/construction services." The companies for whom the appellant was providing tankers or trucks were also not registered as GTA.

The appellant contended that it is eligible for exemption under Notification No. 25/2012 and is also not sustainable for the same reason as the absence of the consignment notes. In the case of contractor M/s. Vishnu Priya Filling Station, since consignment notes were issued, the adjudicating authority has already dropped the demand, extending the benefit of the said notification. But for the remaining two contractors, the demand has therefore been rightly confirmed.

As per Sr. No. 22(b) of Notification No. 25/2012-ST dated June 20, 2012, services by way of giving on hire to a goods transport agency are exempted from GST.

The tribunal noted that even if the contention of the department is accepted that the appellant is not providing the transport of goods services to M/s FCPL and providing the vehicles on a hire basis, the demand for service tax is still not sustainable.

The tribunal held that since the activity is held purely to be a service of transportation of goods (branded fuels) by road, not by GTA, it is covered under the negative list or list of exempted services in terms of Section 66D(p)(i)(A) of the Finance Act. Therefore, the tax liability confirmed by the appellant vis-à-vis transporting fuel without issuing consignment notes is held liable to be set aside. .

Counsel For Appellant: Jwaria Kainaat

Counsel For Respondent: Harshvardhan

Case Title: M/s. Manak Chand Agarwal Versus Commissioner of Central Goods and Service Tax, Excise and Customs, Udaipur

Case No.: Service Tax Appeal No. 52210 of 2019 [DB]

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