Pranav B Prem

The Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), comprising Ms. Binu Tamta (Judicial Member) and Ms. Hemambika R. Priya (Technical Member), has held that Bharat Heavy Electricals Ltd. (BHEL) is not liable to pay service tax on amounts received towards facilitation of freight and insurance. The Tribunal quashed a demand of nearly ₹27 crores and held that BHEL, not being a Goods Transport Agency or Courier Agency, is covered under the exclusion granted in Section 66D(p) of the Finance Act, 1994.

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Background

BHEL, a public sector engineering and manufacturing company, is registered with the Service Tax Department for rendering various taxable services under the forward charge, including Erection, Commissioning and Installation, Maintenance and Repair, Works Contract, Supply of Tangible Goods, and Consulting Engineering services. It is also registered under the reverse charge mechanism for services like Manpower Supply, Legal Consultancy, Transport of Goods by Road (GTA), and is availing CENVAT credit under the CENVAT Credit Rules, 2004.

During an audit of BHEL’s units at Hyderabad and Bhopal, it was noticed that the company had received substantial income categorized under “Freight and Insurance Income” during FY 2015–16 to 2017–18 (up to June 2017). Specifically, BHEL received ₹90.12 crore, ₹80.49 crore, and ₹11.95 crore respectively for these three years, which was not subjected to service tax.

The Department issued a show cause notice dated 23.12.2020 proposing a service tax demand of ₹26,93,70,551 along with interest and penalty, alleging that the said amounts constituted consideration for taxable services as defined under Section 65B(44) of the Finance Act, 1994. The adjudicating authority confirmed the demand through Order-in-Original No. 24/COMMR./DDN/2022 dated 31.03.2022, which was challenged before CESTAT.

Appellant’s Submission

BHEL contended that it was not acting as a Goods Transport Agency (GTA) or Insurance Service Provider. Rather, the company only facilitated the transportation and insurance of goods through external contractors/vendors. It submitted that it had already discharged service tax where applicable on services received from such vendors under reverse charge.

It was also pointed out that the amounts in question were not standalone service charges, but part of overall contractual obligations under turnkey projects involving supply, transportation, erection, and commissioning of equipment. The company placed reliance on a Work Contract dated 27.12.2014 with Telangana State Power Generation Corporation Ltd., and a sample invoice dated 07.03.2017, to demonstrate that the freight and insurance facilitation was incidental to the main contract.

Department’s View

The Department argued that based on the scope of work under the contract, BHEL was required to undertake unloading, inter-site and intra-site transportation, erection, testing, commissioning, and insurance—all on behalf of its clients. Therefore, the consideration received for these services was independently taxable under Section 66B of the Finance Act.

Tribunal’s Findings

The Tribunal noted that the exact issue had already been adjudicated in BHEL’s favour for its Bhopal Unit in Final Order No. 57972/2024 dated 27.11.2024. In that decision, CESTAT held that BHEL was neither a Goods Transport Agency nor a Courier Agency, and therefore, the activity of transporting goods by road undertaken by BHEL itself fell within the exclusion clause under Section 66D(p).

Quoting the relevant portion of that earlier decision, the Tribunal reiterated: “Since admittedly the appellant is neither the GTA, nor the Courier agency, the activity of transportation of goods by road by them is well covered under the aforesaid provision. The amount in question is an amount towards facilitation of freight and insurance by the appellants themselves. The perusal of section 66D(p) in itself is sufficient to hold that the service tax on the said amount has wrongly been demanded.”

The Tribunal further observed that there was no independent freight or insurance service provided by BHEL to its clients. The activity was performed through third-party vendors, on which appropriate service tax had already been paid wherever applicable. As the consideration was incidental to the composite works contract, it could not be carved out and taxed separately under the service tax regime.

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Verdict

Holding that the impugned demand was not sustainable either in law or on facts, the CESTAT quashed the service tax demand of ₹26.93 crore along with interest and penalty. It followed its own earlier ruling in favour of BHEL and reiterated that service tax is not leviable on facilitation amounts received towards freight and insurance when the appellant is neither a GTA nor an insurance service provider. The appeal was allowed and the Order-in-Original dated 31.03.2022 was set aside. The Tribunal concluded that the demand for service tax on freight and insurance facilitation was unsustainable.

Appearance

Present for the Appellant: Ms. Pankhuri Srivastava and Shri Alekshendra Sharma, Advocates for the appellant.

Present for the Respondent: Shri Shashank Yadav, Authorised Representative 

Cause Title: BHEL V. CGST Commissioner

Case No: Service Tax Appeal No. 51700 Of 2022

Coram: Ms. Binu Tamta [Judicial Member], Ms. Hemambika R. Priya [Technical Member]

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