The Delhi Bench of Customs,Excise and Service Tax Appellate Tribunal(CESTAT)quashed a ₹26.94 crore service tax demand against Bharat Heavy Electricals Ltd. (BHEL) on income from freight and insurance.
Bharat Heavy Electricals Ltd,appellant-assessee,provided various services and paid service tax under forward charge for services like Erection, Commissioning, Installation, Maintenance & Repair, Works Contract, and Consulting Engineer Services. They also paid service tax under reverse charge for services like Legal & Consultancy and Transport of Goods by Road. They availed CENVAT Credit as per the rules.
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During an audit of their Hyderabad and Bhopal units, it was found that they did not pay service tax on freight and insurance income received between 2015 and 2017. The assessee claimed that no service tax was due, as they were not a Goods Transportation Agent or Insurance Service Provider and that contractors/vendors handled transportation and insurance, paying service tax on their behalf.
The Department disagreed, stating that the contract with Telangana State Power Generation Corporation required the petitioner-assessee to perform services related to transportation, unloading, and insurance, which were taxable. A show cause notice was issued proposing a demand of Rs. 26.94 crores in service tax, along with interest and penalties. After adjudication, the demand was confirmed, leading to the current appeal before the Tribunal.
The two member bench comprising Binu Tamta (Judicial Member) and Hemambika R.Priya(Technical Member) heard both sides and reviewed the case records.The issue was whether the additional amounts received by the assessee for transportation and related insurance, shown under “Other Operational Income and Freight and Insurance Income,” were part of the price of goods and works contract, and if they were taxable.
Both sides agreed that the issue had already been settled in the assessee’s favour in an earlier case related to their Bhopal Unit, as per Final Order No. 57972 of 2024 dated 27.11.2024.
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In that case, it was held that no service tax was payable on the amount received for facilitating freight and insurance, since the assessee was not a Goods Transport Agency or Courier Agency. It noted that under Section 66D(p) of the Finance Act, transportation of goods by road was not taxable unless done by a GTA or courier agency.
Since the facts in the present case were the same, the CESTAT followed the earlier ruling and quashed the impugned order.Therefore,the appeal was allowed.
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