CESTAT Rules, Profit Earned In GTA Service Through Sub-Contractor Not Taxable As Business Auxiliary Service
Pranav B Prem
The New Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that the profit earned by an assessee in rendering Goods Transport Agency (GTA) services through a sub-contractor cannot be subjected to service tax under the category of Business Auxiliary Service. The ruling came in the appeal filed by M/s Balajee Structural India Ltd. against the order passed by the Commissioner (Appeals), Raipur, which had upheld the adjudication order confirming service tax demand on the differential amount earned by the assessee.
The Bench comprising Dr. Rachna Gupta (Judicial Member) and Mr. P.V. Subba Rao (Technical Member) dealt with a case involving the transportation of goods for Jakodia Minerals, Raipur, during the period 2012–13 and 2013–14. The appellant charged Jakodia Minerals ₹200 per metric ton per trip for transportation but engaged one Bhupesh Kumar Agarwal as a sub-contractor and paid him only ₹140 per metric ton per trip. Since GTA services were chargeable under reverse charge, the appellant discharged the service tax liability on the ₹140 paid to the sub-contractor. However, during audit, authorities formed the view that the ₹60 per ton retained as profit was taxable as Business Auxiliary Service under Section 65(19) of the Finance Act, 1994 for the pre-1.7.2012 period and as a taxable service outside the negative list under Section 65B(44) post 1.7.2012.
Accordingly, a show cause notice dated 21.09.2016 was issued to the appellant demanding service tax on the ₹60 differential, treating it as a separate consideration for providing Business Auxiliary Service. The Assistant Commissioner confirmed the demand of ₹1,12,171 along with interest under Section 75 and imposed penalties under Sections 77 and 78 of the Finance Act. The appeal filed before the Commissioner (Appeals) was rejected, prompting the assessee to approach the Tribunal.
The appellant contended that it was merely providing GTA service to Jakodia Minerals using a sub-contractor and that the entire transaction was covered under the GTA classification. They argued that as per Notification No. 30/2012-ST dated 20.06.2012, the service tax liability for GTA services rests with the recipient under reverse charge. Further, the appellant had already discharged tax on the payments made to the sub-contractor. It was submitted that the profit margin earned on this transaction was not a separate service and could not be classified as Business Auxiliary Service.
The Tribunal agreed with the assessee’s position and emphasized that the same activity—transportation of goods—was carried out both by the sub-contractor for the appellant and by the appellant for Jakodia Minerals. It found no evidence of any separate or additional service that could be classified under Business Auxiliary Service. The Tribunal observed that “service tax is not a tax on profit or income or any amount received,” and that “the nature of the service can be seen from the contract between the parties.” It concluded that the service rendered in the case was clearly GTA service, and that service tax liability, if any, would only arise under reverse charge in the hands of the recipient.
The Tribunal stated, “Revenue’s attempt to charge service tax on the profit calling it business auxiliary service cannot be accepted because the service which the appellant provided to Jhakodia Minerals was GTA service. Part of the consideration received cannot be treated as a separate service because there is no evidence of any other service being provided.” Accordingly, the Tribunal held that the demand of service tax on profits was outside the scope of the Finance Act, 1994. It set aside the impugned order passed by the Commissioner (Appeals) and allowed the appeal, granting consequential relief to the appellant.
Appearance
Counsel for Appellant/ Assessee: Ankur Upadhyay
Counsel for Respondent/ Department: Aejaz Ahmad
Cause Title: M/s Balajee Structural India Ltd. V. Commissioner of Central Excise & Service Tax
Case No: Service Tax Appeal No. 50124 Of 2018
Coram: Dr. Rachna Gupta [Judicial Member], P.V. Subba Rao [Technical Member]
