Recently in a notable ruling, the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ), Eastern Zonal Bench, Kolkata, quashed a service tax demand on the transportation of food grains, reaffirming the exemption for agricultural products under the 2010 notification no. 04/2010-S.T., upholding the appeal of a public sector corporation.
The case revolved around the imposition of service tax on the appellant for availing Goods Transport Agency (GTA) services for transporting food grains, which are agricultural products.
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The appellant, Bihar State Food and Civil Supplies Corporation Ltd, a public sector undertaking (PSU) operating under the Government of Bihar, is engaged in the business of receiving and storing food grains in godowns. They also earn rental income from renting out immovable properties. A Show Cause Notice was issued to them on October 22, 2013, covering the period from 2008-09 to 2011-12, accusing them of not discharging their service tax liabilities under the reverse charge mechanism for GTA services. The central issue was that the PSU had not paid service tax on the transportation of goods by road. The adjudicating authority upheld this demand through an Order-in-Original dated July 3, 2015, confirming the demand, along with interest and penalties. Additionally, an amount of Rs. 60,654 was demanded based on rental income.
Aggrieved, the appellant challenged the order before the CESTAT, arguing that the transportation of food grains, as agricultural products, was exempt from service tax under Notification No. 33/2004-S.T. issued on December 3, 2004. The counsel for the appellant argued that their PSU had been under the bona fide belief that grains were exempt from service tax as part of the agricultural product category. The counsel pointed out that the exemption for agricultural products was extended further in Notification No. 04/2010-S.T. dated February 27, 2010, which specifically included grains and pulses. This, according to the appellant, indicated the legislative intent to exempt grains from the very beginning, which should have relieved them from the service tax liability on grain transportation.
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Additionally, the appellant contested the validity of the extended period invoked in the Show Cause Notice issued in 2013. They argued that the extended period provisions were unjustified, as no suppression of facts, fraud, or willful misstatement could be alleged against a PSU operating under a bona fide belief. The counsel cited a precedent set by the Gujarat High Court in Gujarat Pulses Manufacturing Association v. Union of India [2018 (15) G.S.T.L. 584 (Guj.)], where the court ruled that the extended period of limitation could not be applied in such cases, especially when there was no intention to evade taxes.
In response, the Revenue argued that the exemption introduced in 2010 could only be applied prospectively and not retrospectively. According to the Revenue, the amendments brought by Notification No. 04/2010-S.T. were effective only from the date of issue, and the appellant was liable for service tax for the period before February 27, 2010. The Revenue thus justified the demand, insisting that the retrospective application of the exemption was not legally supported.
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After carefully examining the facts and legal arguments, the CESTAT bench, consisting of Mr R. Muralidhar, Member (Judicial), and Mr K. Anpazhakan, Member (Technical), ruled in favor of the appellant. The Tribunal took note of the Gujarat High Court’s ruling in Gujarat Pulses Manufacturing Association, which addressed a similar issue, observing that the exemption notification had indeed caused confusion regarding the taxability of agricultural products like grains before 2010. The Tribunal concluded that the appellant had acted under a reasonable and bona fide belief that service tax was not applicable, and there was no evidence of fraud or suppression of facts.
The Tribunal further held that the extended period of limitation could not be applied, as the appellant had not willfully evaded the payment of service tax. Citing Section 73 of the Finance Act, 1994, the Tribunal highlighted that the extended period of five years could only be invoked if fraud, collusion, willful misstatement, or suppression of facts was established, none of which were present in this case.
Consequently, CESTAT quashed the entire service tax demand for the period from 2008-09 to 2011-12. The appeal was allowed on the ground of limitation without delving into the merits of the exemption claim itself.
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