GTA Reverse Charge Not Applicable Where Freight Cost is Economically Borne by Farmers: CESTAT [Read Order]

The Allahabad Bench of the Customs, Excise andService Tax Appellate Tribunal (CESTAT) ruled that service tax under the GoodsTransport Agency (GTA) reverse charge mechanism is not payable where the freight cost is economically borne by farmers.

Rana Sugar Ltd., the appellant, is engaged in the manufacture of sugar. During the relevant period, the appellant procured sugarcane from farmers for use as raw material. The department alleged that the appellant was liable to pay service tax under the reverse charge mechanism on transportation of sugarcane from the farmers’ fields to the factory and raised a demand of service tax along with interest and penalty.

Read More: Annual Customs, Excise and Service Tax Case Digest: CESTATRulings 2025 (Part 13)

The appellant’s counsel argued that the freight charges for transportation of sugarcane were not borne by the appellant. They argued that the freight amount was initially paid but was subsequently deducted from the sugarcane price payable to the farmers.

According to the appellant’’s counsel, the economic burden of freight was borne by the farmers so the appellant could not be treated as the recipient of GTA services for the purpose of reverse charge liability.

The revenue counsel argued that the transportation was arranged by the appellant and the freight payment was made through the appellant. According to the department, this made the appellant liable to pay service tax under the reverse charge mechanism applicable to GTA services.

The two-member bench comprising P.K. Choudhary (Judicial Member) and Sanjiv Srivastava (Technical Member) observed that the freight amount paid for transportation of sugarcane was recovered from the farmers by way of deduction from the cane price. The bench observed that the appellant did not bear the freight cost in economic terms.

Read More: Annual Customs, Excise and Service Tax Case Digest: CESTATRulings 2025 (Part 15)

The tribunal explained that liability under the reverse charge mechanism depends on who actually bears the freight cost. It explained that when the freight cost is ultimately borne by the farmers, the appellant cannot be treated as the recipient of the GTA service.

The bench also pointed out that mere arrangement of transportation or routing of payment does not shift the tax liability when the economic burden of freight lies on another party. The tribunal held that service tax under the GTA reverse charge mechanism was not payable by the appellant and set aside the demand, interest, and penalty.

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