CESTAT Sets Aside Service Tax Demand on GTA Services, Holding Liability Lies on Consignors/Consignees Under RCM [Read Order]

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has granted substantial relief to the appellant, setting aside service tax demands raised under the Reverse ChargeMechanism (RCM) for Goods Transport Agency (GTA) services and deleting the penalty imposed under Section 78 of the Finance Act, 1994 in related proceedings. The Bench delivered the ruling while disposing of two connected appeals involving overlapping issues.

The proceedings arose from two Orders-in-Original dated March 10, 2016, wherein the Principal Commissioner had confirmed service tax under multiple categories, including port service, renting of immovable property, and GTA service under RCM, besides imposing penalties. In one of the appeals, the assessee, M/s Seaport Logistics Pvt. Ltd, contested only the penalty under Section 78 insofar as port service and renting of immovable property were concerned, while in the other, it disputed the liability under RCM for GTA services rendered during the relevant period.

Section 78 reads as follows:

“Penalty for suppressing value of taxable service.

(1) Where any service tax has not been levied or paid or has been short-levied or short-paid

or erroneously refunded, by reason of —

(a) fraud; or

(b) collusion; or

(c) wilful mis-statement; or

(d) suppression of facts; or

(e) contravention of any of the provisions of this Chapter or of the rules made thereunder with intent to evade payment of service tax, the person, liable to pay such service tax or erroneous refund, as determined under sub- section (2) of section 73, shall also be liable to pay a penalty, in addition to such service tax and interest thereon, if any, payable by him, which shall be equal to the amount of service tax so not levied or paid or short-levied or short-paid or erroneously refunded:

Provided that where true and complete details of the transactions are available in the specified records, the penalty shall be reduced to fifty per cent of the service tax so not levied or paid or short-levied or short-paid or erroneously refunded:

Provided further that where such service tax and the interest payable thereon are paid within thirty days from the date of communication of the order of the Central Excise Officer determining such service tax, the amount of penalty liable to be paid by such person under the first proviso shall be twenty-five per cent of such service tax:

Provided also that the benefit of reduced penalty under the second proviso shall be available only if the amount of penalty so determined has also been paid within the period of thirty days referred to in that proviso:

Provided also that in case of a service provider whose value of taxable services does not exceed sixty lakh rupees during any of the years covered by the notice or during the last preceding financial year, the period of thirty days shall be extended to ninety days.

(2) Where the service tax determined to be payable is reduced or increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the court, then, for the purposes of this section, the service tax as reduced or increased, as the case may be, shall be taken into account:

Provided that in case where the service tax to be payable is increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the court, then, the benefit of reduced penalty under the second proviso to sub-section (1), shall be available, if the amount of service tax so increased, the interest payable thereon and twenty-five per cent. of the consequential increase of penalty have also been paid within thirty days or ninety days, as the case may be, of communication of the order by which such increase in service tax takes effect:

Provided further that if the penalty is payable under this section, the provisions of section 76 shall not apply.”

During the hearing, the appellant’s counsel submitted that this very issue of whether Seaport Logistics was liable to pay tax under RCM for GTA services had already been adjudicated by the same Chennai Bench in the assessee’s own case for a different period. In that earlier final order dated February 7, 2025, the Tribunal had categorically held that the liability to discharge service tax on GTA services rested on the consignor or consignee who paid or was liable to pay freight, provided such entity fell within the specified categories under the service tax law. Consequently, the GTA itself (Seaport Logistics) was not liable to pay service tax under RCM for the services it provided.

Relying extensively on its own earlier ruling, the Tribunal comprising P. Dinesha (Judicial Member) and Vasa Seshagiri Rao (Technical Member) reiterated that once the customers of the appellant being the recipients of GTA services had themselves confirmed to the Department that they had discharged the applicable service tax, the burden could not be shifted back to the service provider. The Bench observed that the statute nowhere mandated the GTA to furnish proof that the service recipient had discharged its liability, nor did it provide that failure of the recipient to pay tax would result in liability reverting to the transporter.

The Tribunal criticised the adjudicating authority’s approach in confirming the demand merely on the basis of an allegation that details submitted by the appellant did not tally, without indicating what discrepancies were noticed or why the explanation was insufficient. It held that such a “bland statement” could not override statutory provisions clearly placing the tax burden on the service recipient.

Accordingly, in the first Service Tax Appeal, the Tribunal set aside the demand raised under RCM for GTA services, holding that Seaport Logistics was under no obligation to pay the tax.

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In the second Service Tax Appeal challenging the penalty imposed under Section 78 for port services and renting of immovable property, the Bench noted that a substantial portion of the tax had been paid even before the issuance of the show cause notice and that the remaining non-payment was not attributed to fraud, suppression, wilful misstatement, or collusion. In the absence of any evidence of deliberate intent to evade tax, the Tribunal held that the ingredients required to sustain a Section 78 penalty were clearly missing.

Holding that the penalty was unwarranted, CESTAT set aside the same and allowed the appeal to that extent.

Both appeals were thus allowed in favour of Seaport Logistics, with consequential relief.

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