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2025 (6) TMI 185 - AT - Service TaxRecovery of service tax with interest and penalty - GTA service using a sub-contractor or not - demand of service tax on the profit which the appellant had earned by charging its client more and paying its sub-contractor less under the head business auxiliary service - extended period of limitation - interest - penalties. HELD THAT - What is undisputed is the nature of the service for which the appellant received consideration from its client and also the nature of the service which the appellant had received from Shri Bhupesh Kumar Agarwal. Both are essentially the same. The appellant earned a profit by paying Bhupesh Kumar Agarwal less and charging Jakodia Minerals more. Goods were transported to the premises of Jakodia Minerals by the appellant engaging Bhupesh Kumar Agarwal as its sub-contractor for the purpose. The appellant treated this activity as GTA service by the appellant and as the recipient of the services of Bhupesh Kumar Agarwal it paid service tax under reverse charge. It needs to be remembered that GTA services were chargeable to service tax under reverse charge both before 1.7.2012 and after this date. The service recipient had to pay service tax. The period in dispute covers both before and after 1.7.2012. Service tax is not a tax on profit or income or any amount received. What is important is to see if any service was rendered and if so what was the consideration for the service. The nature of the service can be seen from the contract between the parties (be it written or oral or formal and informal). The activity or service provided in this case was GTA and it is undisputed that it chargeable to service tax under reverse charge and the service recipient has to pay the service tax. It is the same activity which the appellant had received from its sub-contractor and provided to its client. There is no separate activity. If that be so it can only be called GTA service and the recipient has to pay service tax. For the appellant its sub-contractor was the service provider and the appellant paid service tax under reverse charge. For Jhakodia Minerals the appellant was the provider of GTA service. That being so the demand of service tax if any could have been only under GTA service on Jhakodia minerals under reverse charge. Conclusion - The demand of service tax on the profits earned by the appellant is beyond the scope of Finance Act 1994 and it cannot be sustained. The demand of service tax and interest and imposition of penalties on the appellant therefore cannot be sustained and need to be set aside. The impugned order is set aside - appeal allowed.
The core legal questions considered by the Tribunal in this appeal are:
(i) Whether the profit margin earned by the appellant in providing Goods Transport Agency (GTA) services through a subcontractor constitutes a separate taxable service under the head "Business Auxiliary Service" or is part of the GTA service itself; (ii) Whether service tax is payable on the profit margin earned by the appellant, in addition to the service tax already paid under reverse charge on the subcontracted GTA services; (iii) Whether the extended period of limitation and penalties under the Finance Act, 1994 are justified in the absence of evidence of fraud, collusion, wilful misstatement, or suppression of facts; (iv) The correct interpretation and application of the Finance Act, 1994 provisions relating to service tax liability, interest, and penalties in the context of GTA services and related transactions. Issue-wise Detailed Analysis 1. Taxability of Profit Margin as Business Auxiliary Service The legal framework involves the Finance Act, 1994, particularly sections 65(19) (definition of Business Auxiliary Service), 65B(44) (services not under negative list after 1.7.2012), and provisions relating to GTA services and reverse charge mechanism under Notification No. 30/2012-ST dated 20.6.2012. The question is whether the profit margin earned by the appellant by charging its client more than what it paid to the subcontractor amounts to a separate taxable service distinct from GTA service. The Tribunal noted that the appellant is registered under GTA service and had paid service tax under reverse charge on the subcontracted GTA services received from Bhupesh Kumar Agarwal. The appellant charged its client Jakodia Minerals Rs. 200 per metric ton per trip but paid only Rs. 140 to the subcontractor, earning a profit of Rs. 60 per metric ton per trip. The Revenue's position was that this profit margin constituted a separate "Business Auxiliary Service" and was thus taxable under section 65(19) before 1.7.2012 and as a service not under the negative list after 1.7.2012. The Tribunal rejected this argument, emphasizing that service tax is levied on taxable services provided or received, not on profit or income per se. The nature of the service is determined by the contract and the actual activity performed. Here, the service rendered by the appellant to Jakodia Minerals was GTA service, the same as that received from the subcontractor. There was no evidence of any separate service provided corresponding to the profit margin. Therefore, the profit margin cannot be severed and treated as a separate taxable service under Business Auxiliary Service. The Tribunal held that the entire consideration received by the appellant from Jakodia Minerals was for GTA service, and the service tax liability, if any, would be under GTA service provisions. 2. Applicability of Service Tax on Profit Margin and Reverse Charge Mechanism The Tribunal examined the service tax treatment of GTA services, noting that GTA services are taxable under reverse charge both before and after 1.7.2012. The recipient of the service is liable to pay service tax. In this case, the appellant paid service tax under reverse charge on the amount paid to the subcontractor for GTA services. The appellant then charged its client the full amount including its profit margin. The Tribunal reasoned that since the appellant's service to Jakodia Minerals was GTA service, the liability to pay service tax lies with Jakodia Minerals as the service recipient. The appellant had discharged its tax liability on the GTA service it received from its subcontractor. The profit margin earned by the appellant is part of the GTA service consideration and not a separate taxable service. Hence, the demand for service tax on the profit margin under Business Auxiliary Service was beyond the scope of the Finance Act, 1994 and unsustainable. 3. Extended Period of Limitation and Penalties The Assistant Commissioner invoked the extended period of limitation under proviso to section 73(1) read with section 73(2) of the Finance Act, 1994, and imposed penalties under sections 77 and 78 for alleged suppression of facts and evasion of service tax. The appellant contended that there was no evidence of fraud, collusion, wilful misstatement, or suppression of facts to justify invocation of extended limitation or imposition of penalties. The Tribunal did not find merit in the invocation of extended limitation or penalties since the fundamental demand for service tax on the profit margin was itself unsustainable. Without a valid demand, the foundation for penalties and extended limitation collapses. 4. Interpretation of Service Tax Provisions and Application to Facts The Tribunal underscored that service tax is levied on taxable services provided or received, not on profits or income. The nature of the service is to be ascertained from the contract and the actual service rendered. Here, the appellant's service to Jakodia Minerals was GTA service, identical to the GTA service it received from its subcontractor. The appellant acted as a service provider to Jakodia Minerals and as a service recipient from the subcontractor, paying service tax under reverse charge accordingly. The Tribunal held that the Revenue's attempt to bifurcate the consideration into service tax on subcontracted GTA services and separate tax on profit margin as Business Auxiliary Service was erroneous. There was no separate service rendered corresponding to the profit margin. Consequently, the demand of service tax on the profit margin, interest, and penalties were set aside. Significant Holdings The Tribunal held: "Service tax is not a tax on profit or income or any amount received. What is important is to see if any service was rendered and if so what was the consideration for the service." It further stated: "The service which the appellant provided to Jakodia 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." The Tribunal concluded: "The demand of service tax on the profits earned by the appellant is beyond the scope of Finance Act, 1994 and it cannot be sustained. The demand of service tax and interest and imposition of penalties on the appellant therefore, cannot be sustained and need to be set aside." Thus, the core principles established are:
Accordingly, the Tribunal allowed the appeal, set aside the impugned order, and granted consequential relief to the appellant.
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