No Service Tax Payable On Cartage Charges: CESTAT
Pranav B Prem
The Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), comprising Dr. Rachna Gupta (Judicial Member) and Mrs. Hemambika R. Priya (Technical Member), has held that no service tax is payable on cartage charges when such payments are not made directly to a Goods Transport Agency (GTA). The Tribunal emphasized that merely accounting such expenses under “Freight and Cartage” in the balance sheet does not attract tax liability under GTA services in the absence of actual engagement with a transporter.
The judgment came in an appeal filed by the Revenue against M/s Globe Civil Projects Pvt. Ltd. (GCPL), a service provider registered under the categories of “Commercial or Industrial Construction Service”, “Construction of Complex Service”, and “Works Contract Service”. GCPL was subjected to investigation by the Anti-Evasion Branch of Service Tax Commissionerate, Delhi, which culminated in a show-cause notice alleging short payment of service tax under multiple heads including construction income, advances, miscellaneous income, and cartage charges for the financial years 2009–10 to 2013–14.
Revenue’s Allegations
The department contended that GCPL had failed to discharge service tax liability on amounts shown under “Freight and Cartage Expenses” in its balance sheet, arguing that such expenses were in the nature of transportation charges falling within the ambit of GTA services. It was alleged that since the transportation of goods had taken place in furtherance of GCPL’s construction activity, the liability to pay service tax on such expenses under reverse charge mechanism squarely applied.
Defense by the Respondent
GCPL strongly refuted the department’s allegations. It contended that the cartage charges were not paid directly to any goods transport agency. Rather, the charges were embedded within the payments made to suppliers of materials such as ready-mix concrete, and included incidental expenses like on-site pumping, handling, and placement. The company also pointed out that some of the cartage-related entries represented payments made to cab operators or were reimbursements, and were therefore unrelated to GTA services.
It was further submitted that during the course of investigation, the company had furnished all books of accounts, trial balances, ledger details, and copies of ST-3 returns. The show cause notice had wrongly assumed that all entries under the head “Freight and Cartage” pertained to taxable transportation services without verifying the nature of each transaction.
Tribunal’s Findings and Reasoning
The Tribunal agreed with GCPL’s submission and noted that there was no direct payment made to any transporter. It also found that the adjudicating authority had carefully analyzed the nature of expenses and rightly concluded that they did not fall within the taxable ambit of GTA services. The Tribunal observed: “The entire demand is based merely on the figures as shown under the head ‘Freight and Cartage’ in the trial balance and ledger statements. There is no supporting evidence that payments were made to any transporter for goods transportation… No consignment note or similar document issued by a GTA has been placed on record.”
The Tribunal also took note of the factual matrix laid down in the Order-in-Original, which had provided a detailed classification of the expenses. The breakup of cartage charges included transportation and pumping of ready-mix concrete, payments to cab suppliers, and insurance expenses. These were not covered under the scope of GTA services.
It reiterated the definition of Goods Transport Agency as per Rule 2(d) of the Service Tax Rules, which requires the issuance of a consignment note by the transporter. In the present case, there was no such evidence to establish that the respondent had availed the services of a GTA. Hence, no service tax liability could arise.
No Malafide or Suppression of Facts
The Tribunal further clarified that the respondent had maintained proper records and disclosed all transactions during the audit. There was no willful suppression or malafide intent found on part of the assessee. In this regard, the Tribunal relied on the principle that entries in balance sheets alone, without corroborative evidence, cannot be the sole basis for imposition of tax liability.
“It is a settled legal position that the burden of proof lies on the department to establish the taxability of an activity. In the present case, there is no document to support the conclusion that the charges were incurred for services provided by a GTA.”
Verdict
In conclusion, the Tribunal upheld the Order-in-Original and dismissed the appeal filed by the department. It held that the Revenue failed to establish that the cartage charges involved were for taxable GTA services. Since the payments were made to suppliers and not to transporters, no service tax liability could be imposed under the reverse charge mechanism.
Appearance
Shri S.K. Meena, Authorized Representative for the Appellant
Shri B.L. Narasimhan and Shri Ashutosh Choudhary, Advocates for the Respondent
Cause Title: Commissioner of Service Tax – Delhi III V. M/s. Globe Civil Projects Pvt. Ltd.
Case No: Service Tax Appeal No. 54328 of 2015 [DB]
Coram: Hon’ble Dr. Rachna Gupta [Member (Judicial)], Hon’ble Mrs. Hemambika R. Priya [Member (Technical)]
[Read/Download order]
