Sub-Agent Not Liable to pay Service Tax When Principal Discharges Duty on Transportation Activity: CESTAT [Read Order]

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal held that a sub-agent cannot be held liable to pay service tax under the reverse charge mechanism for GoodsTransport Agency services where the principal has already discharged service tax on the same transportation activity.

The appellant, M/s. Vinoth Shipping Services, engaged in steamer agency and logistics services at Tuticorin Port, was subjected to audit scrutiny in respect of freight charges incurred for transportation of cargo arranged for M/s. Aspinwall & Co. Pvt. Ltd. The Department alleged liability under the reverse charge mechanism for Goods Transport Agency services under Rule 2(1)(d)(v) of the Service Tax Rules, 1994.

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The appellant contended that it acted merely as a subcontractor/sub-agent facilitating transportation on behalf of Aspinwall, which alone issued consignment notes, raised invoices on customers, and discharged service tax on the gross value after availing applicable abatements. It was further submitted that the appellant neither functioned as an independent Goods Transport Agency nor assumed liability as consignor or consignee under the relevant provisions.

The appellant also relied on documentary evidence and undertakings from Aspinwall confirming discharge of service tax on the transportation component.

The counsel strongly relied upon the appellant’s reply dated 19.09.2008 furnished during audit proceedings, wherein the entire modus operandi and subcontracting arrangement with Aspinwall had been disclosed to the Department.

The Department, however, contended that since the appellant had engaged transporters and paid freight charges, it squarely fell within the scope of Rule 2(1)(d)(v) of the Service Tax Rules, 1994 read with Notification No. 36/2004-ST, thereby attracting service tax liability.

The Tribunal of Vasa Seshagiri Rao, Member (Technical) and Ajayan T.V., Member (Judicial) observed that “We are unable to sustain the finding that the appellant independently rendered taxable GTA service or became the person liable to pay freight under Rule 2(1)(d)(v) of the Service Tax Rules, 1994. The records overwhelmingly establish that the appellant merely functioned as contractor/sub-agent facilitating transportation on behalf of M/s. Aspinwall & Co. Pvt. Ltd., which alone issued consignment notes, billed customers and discharged service tax on the transportation component.

Confirmation of the impugned demand against the appellant would therefore result in impermissible double taxation of the very same transportation activity and is consequently unsustainable in law and liable to be set aside.”

Accordingly, the impugned demand along with interest and penalties was set aside and the appeal was allowed in favour of the appellant.

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