No service tax on Tranportation charges under reverse charge when service recipient reduces charges from invoice value

By | January 25, 2017
(Last Updated On: January 25, 2017)

Held

On perusal of the bill which had been settled by the appellant, to the farmer, clearly indicated that the appellant had deducted an amount paid by them towards harvesting cost to labours and transportation cost of sugarcane to their factory. After reducing the amount paid, appellant settled balance bill to the farmer. We also find that the learned departmental representative putting on record a letter received also includes a bill settled by the appellant wherein it is indicated that appellant had deducted the transportation cost and paid the same to the transporter. On this factual matrix in this case, we have to hold that appellant need not pay Service Tax on the amount of transportation charges. If the appellant had borne and paid transportation charges that would have been liable to pay Service Tax liability under Reverse Charges Mechanism as per the provision of Finance Act, 1994 and Rules made there under. Again there are no provisions for appellant to pay tax on deducted amount, from the final settlement of sale of sugarcane, as it cannot be treated as transportation charges paid by the appellant.

CESTAT, MUMBAI BENCH

Shreenath Mhaskoba Sakhar Karkhana Ltd.

v.

Commissioner of Central Excise, Pune-III*

M.V. RAVINDRAN, JUDICIAL MEMBER
AND C.J. MATHEW, TECHNICAL MEMBER

APPEAL NO. ST/494/2012-MUM

NOVEMBER  18, 2016

Ms. Padmavati Patil, Adv. for the Appellant. A.B. Kulgod, Asstt. Commissioner (AR) for the Respondent.

ORDER

M.V. Ravindran, Judicial Member – This appeal is directed against Order-in-Appeal No. P-III/RS/144/2012 dated 25.04.2012 passed by the Commissioner of Central Excise (Appeals-III), Pune.

2. The relevant facts that arise for consideration is whether during the period 2005-06 to 2006-07, appellant is liable to discharge the Service Tax liability on the amounts paid by them as freight charges for transportation of sugarcane from fields. Both the lower authorities have come to a conclusion that appellant being a sugar factory has to discharge the Service Tax liability under Reverse Charge Mechanism for the transport charges paid, while it is the case of the appellant that transportation of sugarcane is done by the farmers as per the agreement and the said amount paid by the appellant as freight inward/transportation charges are recovered from individual farmers.

3. Learned Counsel would submit that they are contesting the issue on merits as well as on limitation. She would submits that appellant being a sugar factory is required to procure the sugarcane from a designated area as per the tri-partite agreement enforced by Government of Maharashtra which mandates the farmers to deliver the sugarcane in the cane yard of the factory and farmers being under financial stress were not able to make the payment of transportation and harvesting charges and they were always deferring such payments, till the appellant paid the sale value of sugarcane to such farmers. She would submit that in order to keep the factory running, appellant made an agreement with the farmers that appellant would pay the transportation and labour charges and deduct the same from actual bill payable to such farmers. It is her submission that having deducted an amount paid for transportation charges from individual farmers, the allegation upheld by the lower authorities that appellant has paid the transportation charges is incorrect appreciation of factual matrix. She would draw our attention to specimen sale bill settled by the appellant to one of the farmers. It is her further submission that transportation of the goods through motor vehicle is itself not a service covered under Goods Transport Agency services as defined under Section 65(50b) of the Finance Act, 1994 in as much as, truck which deliver the sugarcane to appellant premises do not issue any consignment note and are refer by individual truck owner. This law is now settled by the following decisions:

(i)Chhatrapati SSK Ltd. v. CCE [Appeal No. ST/363/12, dated 28-7-2016]
(ii)Bhima Sahakari Sakhar Karkhana v. CCE [F.O. No. A/991/2015-WZB/STB, dated 16-4-2015]
(iii)Nandganj Sihori Sugar v. CCE [2014] 46 GST 570  (New Delhi – CESTAT)
(iv)(a) Lakshiminarayan Minning Co. v. CST [2010] 24 STT 61 (Bang. – CESTAT)
(v)(b) CST v. Lakshiminarayana Mining Co. [2012] 37 STT 695 (Kar.)
(vi)Caps & Prints (P.) Ltd. v. CST [Order No. A-869/Kol/2012, dated 6-12-2012]
(vii)CCE & C v. Kanaka Durga Agro Oil Products (P.) Ltd. [2009] 22 STT 435 (Bang. – CESTAT)
(viii)Bellary Iron & Ores (P.) Ltd. v. CCE [2010] 24 STT 557 (Bang. – CESTAT)

It is also alternate submission that even if any Service Tax liability arises; the same will be registered to 25% of the total tax liability as per Notification No. 32/2004-ST dated 03.12.2004. It is her further submission that there was no deliberate withholding of information with intent to evade tax, hence show- cause notice dated 22.10.2010 is barred by limitation as in the show-cause notice, demand is raised for the period 2005-06 and 2006-07.

4. Learned departmental representative on the other hand would submit that the first appellate authority has correctly held that the amounts paid by appellant for transportation of sugarcane to their factory is squarely covered under Goods Transport Agency services. He would submit that even if any consignment note is not issued, still the facts remains that sugarcane is transported to the factory and appellant makes payment for such transportation charges. It is his submission that during the last hearing the Bench directed the departmental representative to ascertain the facts whether appellants claim as to they have reduce the cost of transportation from actual bill settled to individual farmer is correct or otherwise; he submit that they have received a letter dated 17.11.2016 which is placed on record.

5. On careful consideration of the submissions made by both sides, we find that the impugned order upheld the confirmed the demand of Service Tax liability with interest and penalty. In our considered view the impugned order is unsustainable and liable to be set aside for more than one reason.

5.1 Firstly, we find that the claim of the appellant before the lower authorities as well as before us is that transportation charges are paid by the individual farmer is correct. We have scrutinised the bill no. 93537 which was produced by the learned Counsel. On perusal of the said bill which had been settled by the appellant, to the farmer, clearly indicated that the appellant had deducted an amount paid by them towards harvesting cost to labours and transportation cost of sugarcane to their factory. After reducing the amount paid, appellant settled balance bill to the farmer. We also find that the learned departmental representative putting on record a letter received also includes a bill settled by the appellant wherein it is indicated that appellant had deducted the transportation cost and paid the same to the transporter. On this factual matrix in this case, we have to hold that appellant need not pay Service Tax on the amount of transportation charges. If the appellant had borne and paid transportation charges that would have been liable to pay Service Tax liability under Reverse Charges Mechanism as per the provision of Finance Act, 1994 and Rules made there under. Again there are no provisions for appellant to pay tax on deducted amount, from the final settlement of sale of sugarcane, as it cannot be treated as transportation charges paid by the appellant.

5.2 Secondly, we find that the learned Counsel was correct in placing on record that similar issue came in before the Bench, for taxability of amount paid to truck owner as per various decision cited at paragraph no. 3 are squarely applicable in this case and are in favour of the appellant herein.

6. In view of the foregoing, in the facts and circumstances of this case we hold that the impugned order is unsustainable and liable to be set aside and we do so.

7. The impugned order is set aside and the appeal is allowed.

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