Brief Facts of the Case s1

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BRIEF FACTS OF THE CASE

1. Briefly stated the facts of the case are that M/s. R.K. Cement Services (India) Pvt. Ltd., E-3, Nikumbh Complex, Behind Maradia Plaza, C.G. Road, Ahmedabad [here-in-after referred to as “the said assessee” for the sake of brevity] are providing taxable services under the categories of ‘Clearing & Forwarding Agent Services’, and ‘Supply of Tangible Goods services’, as defined under section 65(105)(j) and section 65(105)(zzzzj), respectively, and hold Service Tax Registration No. AAACR5075PST001.

2. During the course of audit, it was observed that the said assessee had shown income as ‘truck operating income’ during the years 2008-09, 2009-10 and 2010-11. Such figures for the subsequent years 2011-12 and 2012-13 were also obtained from them vide letter dated 03.09.2013. It was learnt that the said assessee had entered into agreement with M/s. ACC Concrete Limited [M/s ACC for brevity] as a ‘Goods Transport Agency’ for transport of Ready Mix Concrete (RMC). As per the agreement, the said assessee was to provide Transit Mixers (TMs) with TM supervisor, driver etc. for transportation of ready mix concrete from the plant of M/s. ACC to their customers at the sites on payment of freight on monthly basis. Clause 13 of the agreement specified that the freight amount payable in a month to the assessee consist of a fixed and variable fee for delivery of a monthly target load by each TM. As per clause 1.9 of agreement, fixed fee means a fixed amount payable to the transporter per TM per month, irrespective of the amount of load lifted or the number of trips done by that TM in the given month, without considering its utilization, which would however, subject to 100% availability of the TM on all business days as otherwise a pro-rata deduction will be made on fixed fee. Further, as per Clause 6, the said assessee will paint each truck and mixer as per the specification given by M/s.ACC and if for any reason, any truck and mixer no longer utilized to perform concrete delivery service, then all reference to the ACC’s brand will be permanently removed; and that the said assessee has the legal right towards the vehicle without any sort of interference by M/s. ACC. Thus, on going through the agreements and various terms and conditions specified thereunder, it appeared that the said assessee was solely responsible for the vehicle and the custodial rights and responsibilities in respect of the goods transported, and that since the said assessee was not responsible for the title of goods transported, the consignment note, which is a document of title to the goods, was not issued by them.

3. As per the definition of “Goods Transport Agency” (GTA) given under section 65(50b) of Finance Act, 1994, ” goods transport agency” means any person who provides service in relation to transport of goods by road and issues consignment note, by whatever name called ”. Further, rule 4A and also rule 4B of Service Tax Rules, 1994 provide that every “Goods Transport Agency” shall issue consignment note. It is, thus, evident that a person providing goods transport service by road can only be a GTA only if he issues consignment note. In the present case, the said assessee was not issuing any consignment notes and hence cannot be considered as GTA, with the result that they cannot charge service tax under category of GTA Service. It further appeared that such type of contract is generally made for transferring or not, the right to use the vehicle rather than for providing service of transportation. It also appeared that the main responsibility of the said assessee, as the supplier of vehicles, is to ensure the availability of the vehicles in time and in proper condition. The agreements do not demonstrate that they have any special rights or responsibility about the goods as is the case of goods entrusted to a GTA. This obviates the need to issue consignment notes which normally is a document of title for the goods when it is in the custody of the transporter. There is one clause to the effect that the said assessee will obtain proper receipts from customers after the goods are delivered. This by itself cannot make the contract to be that of “Goods Transport Agency” as defined in Section 65(50b) of Finance Act, 1994.

4. The said assessee has given transit mixer to M/s. ACC on monthly payment basis and received fixed plus variable freight. As per clause 1.9 of agreement, use of transit mixer has no relevance for payment of fixed fee and availability of transit mixture should be 100% during the month. Hence, it appeared that the said monthly fixed fee plus variable freight is nothing but rent for supply tangible goods. Definition of the term ‘Supply of Tangible Goods Service’ has been given under section 65(105)(zzzzj) as: “a service provided or to be provided to any person, by any other person in relation to supply of tangible goods including machinery, equipment and appliances for use, without transferring right of possession and effective control of such machinery, equipment and appliances”. It thus appeared that the service provided by the said assessee falls under the category of ‘supply of tangible goods’, however, with mutual consent of M/s. ACC, they prepared agreements so as to classify the service under GTA service for getting undue advantage. It also appeared that the said viewpoint is supported by the judgment of Hon’ble High Court in GS Lamba & Sons cited at (2011) 43 VVST 323 (A.P) and the decision of Hon’ble Tribunal in re Birla Ready Mix - 2013(30) S.T.R.99 (Tri.-Del.).

5. It, thus, evidently appeared that the services provided by the said assessee in providing TM with supervisor, driver etc. for transportation of ready mixed concrete from the plants of M/s. ACC to their customers at different sites on payment of freight amounts on monthly basis cannot be categorized under “Goods Transport Agency Service”; that the agreements executed by them revealed that there is no transfer of right of possession which satisfies the essential ingredient of the “taxable service” as “supply of tangible goods” as defined under Section 65(105)(zzzzj); that the said assessee has never transferred the right of possession and effective control of TM to M/s. ACC’ which satisfied the essential ingredients for the said taxable service; and that even after the introduction of Negative List based levy of service tax with effect from 01.07.2012, the service of supply of tangible goods remained a taxable service as the same is not under the Negative List provided under Section 66D of the Finance Act, 1994.

6. As per agreements, M/s. ACC was paying service tax on reverse charge mechanism under Rule 2(1)(d)(v) considering the same under GTA service and hence the said assessee was not paying any service tax on the income shown in their books of accounts. Accordingly, M/s. ACC was discharging service tax under GTA Service by availing 75% abatement in terms of Notification No.13/2008-ST dated 01.03.2008. However, in view of the aforesaid discussions, the services provided by the assessee to M/s ACC do not fall under GTA but covered under supply of tangible goods service, and hence the said assessee is liable to pay service tax on the services provided by them to M/s. ACC. Since the liability of payment of service tax lies with the assessee, the service tax paid by M/s. ACC by considering the services under GTA cannot be considered for calculation of service tax to be recovered from the said assessee in terms of provision laid down under Section 73. Therefore, it appeared that the truck operating income received by the said assessee from M/s. ACC as shown in their books of accounts for the years 2008-09 to 2012-13 totaling Rs. 8,16,38,535/- is to be considered as taxable income whereupon they are required to pay service tax of Rs. 89,77,938/-.

7. The aforesaid facts and circumstances indicated that there was an element of willful suppression of material facts by the said assessee with intent to evade appropriate payment of service tax. The proviso to Sub-Section (1) of Section 73 provides that if service tax has not been levied or paid or has been short levied or short paid or erroneously refunded by reason of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any provisions of the Finance Act, 1994 or Rules made there under, with intent to evade payment of service tax, the service tax shall be demanded by invoking extended period of five years. In order to cause an inquiry, jurisdictional range officers had issued summons and letters to the assessee to provide requisite documents and to give the statement. First summons was issued to the assessee on dated 29.07.2013 vide letter No. SD-02/R-8/RKC-IAD/2012-13 to appear on 12.08.2013, to provide the documents and to give the statement under Section-14 of Central Excise Act, 1944, which is made applicable under the provisions of Section-83 of the Finance Act, 1944, but he failed to appear. Again, another summons was issued to the assessee on dated 05.09.2013 vide letter No.SD-02/R-8/RKC-IAD/2012-13 to appear on 10.09.2013 which was also not attended to. Further, letters No.SD-02/R-8/RKC-IAD/2012-13 dated 28.06.2013, 09.07.2013, 12.08.2013, 16.08.2013, 22.08.2013, 27.08.2013, 03.09.2013 and 10.09.2013, were issued to them seeking their appearance on various dates, none of which were attended to. Thus, the assessee was deliberately avoiding their appearance and submission of documents and recording their statement, in order to avoid the material facts.

8. By their aforesaid acts of omission and commission, it appeared that the said assessee has contravened the provisions of section 68 read with rule 6 of the Service Tax Rules 1994 in as much as they failed to pay service tax at the specified rates in such manner and within such period as prescribed thereunder; section 70 read with rule 7 in as much as they failed to file their periodical ST-3 returns in the manner as provided thereunder. It further appeared that such non-payment and short payment of service tax was made by the said assessee by way of willful suppression of facts, mis-declaration and in contravention of provisions of Finance Act, 1994 relating to levy and collection of Service Tax and the Rules made thereunder with intent to evade payment of Service Tax, and hence Service Tax is recoverable from them by invoking extended period of five years as per first proviso to subsection (1) of section 73 of the Finance Act, 1994. Further, they are also liable to pay interest at the appropriate rates for the period from due date of payment of Service Tax till the date of actual payment as per the provisions of Section 75. The aforesaid contravention of law also appeared to have rendered themselves liable for penal action under section 77(1)(c), section 77(2) and section 78 of the Finance Act, 1994.

9. Therefore, a show-cause-notice No. STC/4-33/O&A/13-14 dated 19.10.2013 was issued to the said assessee by the Commissioner of Service Tax, Ahmedabad calling upon them to show cause as to why:

(i)  The amount of Rs. 8,16,38,535/- received by the said assessee during the period 2008-09 to 2012-13 should not be considered taxable value under the category of Supply of Tangible Goods;

(ii)  Service tax amounting to Rs. 89,77,938/- should not be demanded under proviso to section 73(1) read with section 68 of the Finance Act, 1994, by invoking extended period;

(iii)  Interest at the prescribed rate should not be charged in terms of the provisions of Section 75;

(iv)  Penalty under the provisions of Section 76 should not be imposed upon them for failure to pay service tax within the stipulated time limit;

(v)  Penalty under Section 77(1)(c) should not be imposed on them as they did not comply to the summons and letters issued to them;

(vi)  Penalty under Section 77(2) should not be imposed on them as they did not file correct Service Tax returns under the provisions of Section 70 of the Finance Act, 1994 read with Rule 7 of the Service Tax Rules,1994; and

(vii)  Penalty under Section 78 should not be imposed on them for suppressing and not disclosing the income from the said taxable service provided by them before the department with an intention to evade payment of service tax as mentioned above.

DEFENCE REPLY

10.1. The said assessee submitted their defence reply on 03.12.2013, inter alia, stating that they have not provided taxable service under the category of supply of tangible goods; that the trucks provided for transportation of goods by road are not machinery, equipment and appliances as defined for the said taxable service; that M/s. ACC is a public limited company which will discharge service tax liability as recipient of service; that the freight is payable as per the agreement based on per cubic meter per km of RMC transported; that only if the right of possession and effective control is not transferred, the services rendered would be classified under the category of ‘supply of tangible goods’; that the two conditions of (i) right of possession of goods should not be transferred, and (ii) effective control of goods should not be transferred, are required to be cumulatively fulfilled for classification of the service under the said category; that in the present case, both the possession of goods as well as effective control are with M/s. ACC; and that the ratio of decisions in re GSLamba and Sons - (2011) 43 VVST 323 and Petronet LNG Limited - 2013-TIOL-1700-CESTAT-DEL are squarely applicable in their case.

10.2. They claimed that the services rendered by them fall under the category of transport of goods by road service, and stated that as per section 65A(1)(a) most specific description has to be adopted for classification of service; that provision of the TM for transportation of RMC on payment of freight rate shall be taxed under GTA service being most specific description over the general description i.e. of supply of tangible goods service; that supply of tangible goods service is applicable to all the tangible goods whereas GTA service shall be applicable to only transaction of transportation; that transportation of goods is carried out by trucks duly registered under the provisions of the Motor Vehicles Act, 1988 and according to section 2(14) of the Motor Vehicles Act, 1988 “goods carriage” means any motor vehicle constructed or adapted for use solely for the carriage of goods, or any motor vehicle not so constructed or adapted when used for the carriage of goods and hence trucks are goods carriage; that there was a delivery challan/consignment note issued by M/s. ACC was to be received for every day by the said assessee and therefore, allegation made in the SCN that no consignment note was issued, was wrong; that M/s. ACC has to be considered as consignor and the person to whom RMC was transported is to be considered as consignee; that the said assessee would be responsible for the goods while transporting the same is mentioned in the agreement entered into between the assessee and M/s. ACC; and that para 12.6 of the agreement states that consignment note is to be prepared and “if the customer does not acknowledge the delivery in total as dispatched from the plant or accepts the delivery with remarks pertaining to quality or quantity, the TM driver will immediately intimate the same to company representative at plant and will leave the customer site only after confirmation from the company representative. If the Transporter/TM driver fails to obtain/Produce copy of consignment note and delivery challan signed by the Company’s customer after delivery then the transporter must pay the price of the delivered concrete”. They also stated that all the ingredients of GTA service has been fulfilled by them and hence their service would rightly cover under GTA service.