Profit from Subcontracted GTA Service Not Taxable under Business Auxiliary Service: CESTAT [Read Order]
CESTAT held that profit earned by a GTA through subcontracting cannot be taxed separately under Business Auxiliary Service.
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The Principal Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), New Delhi, ruled that the profit earned by a Goods TransportAgency (GTA) while subcontracting transport services cannot be treated as a separate taxable service under Business Auxiliary Service (BAS).
Balajee Structural India Ltd., the appellant, was registered as a service provider under the category of Goods Transport Agency (GTA) and had been providing transportation services to its client, Jakodia Minerals.
During an audit conducted by the department for the financial years 2012–13 and 2013–14, it was found that the appellant was charging Rs. 200 per metric ton from its client but paid Rs. 140 per metric ton to a subcontractor for actually carrying out the transport. The appellant discharged service tax liability on the Rs. 140 paid to the subcontractor under the reverse charge mechanism, as applicable to GTA services at that time.
The audit team concluded that the remaining Rs. 60 per ton, which was the appellant’s profit margin, should be treated as a separate service under Business Auxiliary Service prior to July 1, 2012, and as a taxable service under the negative list regime thereafter. A show cause notice was issued, and the adjudicating authority confirmed the demand of Rs. 1,12,171 in service tax along with interest and penalties. The Commissioner (Appeals) upheld the order. Aggrieved by the decision, the appellant approached the Tribunal.
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The appellant’s counsel argued that it had not provided any service other than GTA service and that the entire transaction was in the nature of transportation. They submitted that the profit earned was not from any auxiliary activity but from subcontracting the same GTA service, which does not create a separate taxable service.
They further argued that service tax is not a tax on profit margins and that taxing the difference between the amount billed and the amount paid to the subcontractor was incorrect. They also stated that there was no suppression of facts and that the extended period of limitation and the imposition of penalties were unjustified.
The revenue counsel argued that the Rs. 60 difference per metric ton was income arising from a separate activity and therefore taxable under Business Auxiliary Service. They claimed that the appellant had not disclosed this margin and had suppressed information, justifying the extended limitation period and penalties imposed under the Finance Act.
The two-member bench comprising Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) observed that both the services provided to Jakodia Minerals and those received from the subcontractor were GTA services. It found no basis to treat the profit margin as a separate service.
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The tribunal further observed that the appellant did not render any additional service other than arranging transportation through a subcontractor and that there was no contract to support the revenue’s claim of a distinct taxable activity.
The tribunal held that service tax cannot be levied on profit margins and that no separate liability arises simply because a GTA subcontracts part of its services. The demand raised under Business Auxiliary Service, along with interest and penalties, was found to be without legal foundation. The appeal was allowed with consequential relief to the appellant.
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