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BRIEF FACTS OF THE CASE :
1. M/s Ajay Transport, Ahmedabad having Service Tax Registration NO:ADKPN3442LST001,
ONGC Vendor Code 121863, 197/3, Near Swati Auto link, beside Sardar Patel Ring Road,
Chandkheda-Kalol Highway, Chandkheda, Ahmedabad - 382 424 (here in after referred
to as the said noticee/noticee, for the sake of brevity), are engaged in supplying vehicles
on Hiring to M/s ONGC-Ahmedabad-Asset, but not paying appropriate service tax
payable thereon under "Supply of Tangible Goods Service" as specified under Section 65
(105) (zzzzj) of the Finance Act, 1994. The said noticee is also engaged in providing
Goods and Transport Services.
2. The case was investigated by the Directorate General of Central Excise Intelligence,
(here-in-after referred to as DGCEI for the sake of brevity), Ahmedabad Zonal Unit,
Ahmedabad (AZU) for the period 16/05/10 to 31/03/10 and found that the said noticee
was/ is supplying Tankers (Fluid Tankers) under the contract to perform carriage of fluid
such as mud, brine, effluent, technical water etc. From operational base to worksite /
worksite to worksite in the oil field conditions prevailing at the worksite / Working areas
of Ahmedabad-Asset. The work also includes loading / unloading of fluids into / from
the tanker(s) by means of fighter pump attached with the tanker as and when required
for services by hiring them on monthly fixed charges basis to the assets of M/s ONGC,
Ahmedabad-asset. In such cases, the said noticee is rendering the services of "Supply of
Tangible Goods" and not "Goods Transport Agency Services", as they were not
providing the service of transportation of goods and also not issuing any LR or
Consignment Note for goods transported by M/S ONGC in hired vehicle as required
under sub clause 50b of section 65 of the Finance Act, 1994. The said noticee issue only
monthly bills for hiring charges for vehicles supplied to M/s ONGC on hire under the
agreements. The said noticee has not been paying service tax on such hiring charges
collected from M/s ONGC.
3. Whereas, it appeared that the said noticee are liable to pay service tax on such hiring
charges under 'Supply of Tangible Goods'. However, it was observed that M/s ONGC is
paying service tax on 25% of such hiring charges by availing abatement under GOODS
TRANSPORT AGENCY service. Accordingly, it appeared that service tax is being paid only
on 25% of the gross value whereas the said noticee are liable to pay service tax under
the category of SUPPLY OF TANGIBLE GOODS [STG] services on full value without any
abatement on the value.
3. Whereas it appeared that service provided by said noticee is classifiable under Supply of
Tangible Goods instead of Goods Transport Agency.
3.1 The relevant definitions under GOODS TRANSPORT AGENCY services and SUPPLY OF
TANGIBLE GOODS services are reproduced below:a.
Definition of taxable service viz. "GOODS TRANSPORT AGENCY” Services under
sub clause [zzp] of clause 105 of section 65 of the Finance Act, 1994:'to a customer, by a goods transport agency, in relation to transport of goods by road In
a goods carriage;'
b.
Definition of service provider viz 'GOODS TRANSPORT AGENCY' sub clause 50(b)
of section 65 of the Finance Act, 1994:"goods transport agency" means any person who provides service in relation to
transport of goods by road and issues consignment note, by whatever name called'
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c.
Definition of taxable service viz. 'SUPPLY OF TANGIBLE GOODS' services under
sub clause (zzzzj) of clause 105 of section 65 of the Finance Act, 1994:-
"to any person, by any other person in relation to supply of tangible goods including
machinery, equipment and appliances for use, without transferring right of possession
and effective control of such machinery, equipment and appliances;’
3.2
As per the definition of 'Goods Transport Agency' service, issue of
'Consignment Note' by GTA is mandatory. Thus the important and mandatory condition
for GTA services is issue of "Consignment Note' in whatever form. Accordingly, it can be
said that 'Goods Transport Agency' service is mainly based on transportation of
consignments of goods. Further, in Goods Transport Agency service, gross value of
services provided are also valued and charged on the basis of quantum of the
consignment [goods] transported. The wordings of Notification No. 34/2004 whereby
value based exemption for each consignment is given under sub para [i] and [ii], also
supports the view that consignment to be transported is an essential part of 'Goods
Transport Agency' service.
3.3
As per para 4.5 of Board's circular No.:79/9/2004- dated 17-12-2004, Goods Transport
Agency are required to issue a Consignment Note and the said Consignment Note
should be serially numbered and should contain the name of consigner and consignee,
registration Number, place of origin destination and person liable for paying service tax.
4.
Whereas it appeared in the said noticee’s case, they are not fulfilling any of the above
condition relevant for classifying the service under GTA service. The said noticee supply
the vehicles to M/s ONGC on hire for their usage as per the terms and conditions of M/s
ONGC under an agreement. At the time of agreement the said noticee does not know
the type of goods that will be transported and the hiring charges are decided not on the
basis of the quantum of goods to be transported in future. The hiring charges are fixed
based on duration of supply of the vehicle. In these case M/s ONGC may use that vehicle
or may not use the vehicle but fixed hiring charges will be paid to the service provider.
The right of possession of vehicles i.e. ownership of the vehicle has not been transferred
to M/s ONGC Ltd. The said noticee on the hiring charges received has not paid any VAT.
Accordingly, it appears that the noticee has fulfilled all features of the definition of
"Supply of Tangible Goods services".
5.
The benefit of exemption from payment of service tax under Notf. No. 1/2009 ST dated
05-01-2009 to the said noticee under Supply Of Tangible Good services also appears to
be not available in light of the fact that M/s ONGC is not a receiver of GTA services,
6. Whereas it appeared that the amount recovered against such supplying of vehicles is liable
for service tax under the category of taxable service 'Supply of Tangible Goods for use
Services' under Section 65 [105] [zzzzj] of the Finance Act, 1994. Accordingly, M/s Ajay
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Transport, Ahmedabad was required to pay service tax on the amount recovered by them in
the name of Transportation Charges' which they had not paid.
7.1. Statement of Shri Rajendra Prahaladbhai Nayak, partner of M/s Ajay Transport, 197/3 near
Swati Autolink, besides Sardar Patel Ring Road, Chandkheda-Kalol Highway, Chandkheda,
Ahmedabad - 382424., was recorded under section 14 of the Central Excise Act, 1944
before the Superintendent of Central Excise, Directorate General of Central Excise
Intelligence, Ahmedabad Zonal Unit, Ahmedabad on 16-09-2010.
7.2. On being asked he had stated his personal Bio-Data and further stated that his firm was in
the business of transportation and hiring of fluid tanker for the last six years, at present,
they are two partners, one is himself and the second partner is Smt Pritamaben M Nayak,
she is his sister-in-law, he was in complete control of the whole business of the firm and
active partner in their family partnership business. They have 22 fluid tankers and are
mostly on contract service with ONGC, Ahmedabad assets, at present, his firm is having no
business with other companies, firms or individuals and all their fluid tankers were
engaged with ONGC Ahmedabad assets. He took all policy decision of the firm and he
is/was the final authority.
7.3. On being asked , about the existence of agreement / contract between his firm and ONGC,
he stated that his firm entered into agreement with ONGC before hiring of their fluid
tankers, he produced Notification of award for hiring of fluid tankers dated 31-05-2007, 2007-2007, and 17-07-2010. According to the said agreement, his firm was required to give
certain specified number of fluid tankers to ONGC. These fluid tankers had to be supplied
as per the specification and requirement of the ONGC. As per the condition of
agreement/contract Driver of the Vehicle must at least have two years driving experience
on such vehicle, the vehicle should also have one cleaner, his firm had to pay for the cost
of the fuel, driver and cleaner but the vehicle was in total control of ONGC and all
instructions for the location of deployment of tankers shall be issued by DGM (Logistics.),
Sabarmati Complex, Ahmedabad assets, Ahmedabad, on their direction jobs were
performed for the day, the tankers have to handle crude oil and water belonging to ONGC
from one place to another place of ONGC assets. In the evening, they receive work
performance report of each vehicle. Based on this work performance at the end of the
month his firm prepared a single Bill for the month, his firm receives payment within 30
days from the date of issue of the Bill. Full payments are made on the Bill amount as the
same is as per the performance and as per contract/ agreement.
7.4. On being asked regarding service tax registration and payment thereof he stated that as
per the agreement/contract payment of service tax is being discharged by ONGC on the
basis of their Bill submitted. On being further asked about issue of consignment note, he
stated that his firm only issues monthly Bill prepared based on work performance reported
by ONGC.
7.5. He further stated that his firm has not paid any service tax on the amount received from
ONGC, as his firm was unaware about payment of service tax on hiring of fluid tanker to ONGC,
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which is rightly covered under the definition of taxable service viz. 'SUPPLY OF TANGIBLE
GOODS' services introduced from 16-05-2008. Nonpayment of service tax would be brought to
notice of the ONGC as they have undertaken to pay service tax as per the agreement,
8.
The scrutiny of the Contract / Agreement, correspondence and statement recorded
reveals the following facts regarding the nature of service provided by the said noticee:
9.
M/s Ajay Transport, Ahmedabad has not paid VAT/Sales tax on the amount recovered
from ONGC-asset. This amount was recovered on the basis of the Bill raised for Hiring of
Tankers on monthly basis.
10.
Whereas it appeared in the said noticee's case, they are not fulfilling any of the
conditions relevant for classifying the service under GTA services. The said noticee supply the
vehicles to M/s ONGC on hire for their usage as per the terms and conditions of M/s ONGC
under an agreement. At the time of agreement the said noticee did not know the type of goods
that would be transported and the hiring charges are decided not on the basis of the quantum
of goods to be transported in future. The hiring charges are fixed on the basis of duration of
supply of the vehicle. In these case M/s ONGC may use that vehicle or may not use the vehicle
but fixed hiring charges will be paid to the service provider. The right of possession of vehicles
i.e. ownership of the vehicle has not been transferred to M/s ONGC Ltd. The said noticee on the
hiring charges received has not paid any VAT. In the said noticee case, it goes to prove that the
Tankers are handled by the ONGC, Ahmedabad-asset for their own material transfer and they
are in total control of the hired Tankers. As per contract / agreement M/s ONGC may use that
vehicle for reasons whatsoever or may not use the vehicle but fixed hiring charges will be paid
to the service provider. Accordingly, it appears that all features of the definition of "Supply of
Tangible Goods services" has been fulfilled in the said noticee's case as against satisfying the
features of the definitions of Goods Transport Agency services.
Condition of Agreement or Notification of Award :No:AMD/MM/ASSETS/SC/33/2009-10 dated 17-07-2010, for 15 crude oil tankers for a period of
three years & No:AMD/MM/ASSEST/SC/81/BP/2010-11/P-7 (A) dated 28/02/2011 valid for a
period of 180 days, for 11 crude oil tankers.
M/s Ajay Transport, Ahmedabad the Notification of Award for hiring the services of Tankers in
accordance with the technical specifications and scope of work of tender document. Some of
the important conditions of the contract are as under:
i. The services under the contract is to perform carriage of fluid such as mud, brine,
effluent, technical water etc. From operational, base to worksite / worksite to worksite
in the oil field conditions prevailing at the worksite / Working areas of AhmedabadAsset. The work also includes loading / unloading of fluids into / from the tanker(s) by
means of fighter pump attached with the tanker as and when required for services by
hiring them on monthly fixed charges basis to the assets of M/s ONGC, Ahmedabadasset.
ii. M/s Ajay Transport (Contractor) shall provide specified number of Tankers with
driver and helper under the contract, hired by ONGC on dedicated monthly basis.
iii. The vehicles provided under the contract must confirm to the prescribed technical
specification and manned by a competent driver and other required manpower as
mentioned in the contract. All the valid and up-to-date vehicle documents relating to its
registration, road-tax payment, fitness, permit, insurance, PUC, Fire extinguisher,
Reverse horn etc. must be available in the vehicle. The vehicle should also be equipped
with suitable spare wheel and required tools like Jack, spanner etc.
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iv. After successful inspection/acceptance, ONGC shall place work order with the
contractor for placement of vehicle for duty. Contractor shall place the accepted vehicle
for duty as per the date mentioned in the work order.
v. Any vehicle deployed under contract and found not confirming to above technical
specifications, at any time during currency of contract, shall not be accepted on ONGC
duty.
vi. The vehicle under the contract shall not be deployed for any purpose other than the
duties assigned by ONGC and must remain under ONGC'c disposal for all the days of the
month throughout the currency of the contract.
vii. Service tax, if any and applicable to service under the contract, shall be
reimbursed by ONGC on providing the required documents.
viii. Rates:- The rates are firm and final and valid for the entire period of contract and for
the entire Scope of Work and is in accordance with the Terms and Conditions of the
Tender Documents and is inclusive of all taxes (except service tax), duties, levies Work
Contract Tax, freight, Supply of all consumables etc. Any variations, on account of
increase or decrease in taxes, duties, levies etc. after submission of price bid / revision
price bid shall be governed by the clause on 'CHANGE IN LAW1 of General condition of
Contract.
Schedule of rates.
11. The terms and conditions of the agreement cited above clearly indicate that the vehicles
have been given to ONGC only for their usage, without transfer of right of possession and
effective control. Thus, it appears that the services clearly fall within the ambit of "Supply of
Tangible Goods Services".
12.
Legal Provisions:-
12.1. The relevant portion of various statutory provisions discussed in the Show Cause Notice
with regard to taxable services for charging Service Tax is reproduced below:12.2. Definition of "Taxable Service": Under Section 65 (105) (zzzzj) of the Finance Act, 1994
"taxable service" on 'Supply of Tangible Goods' means any service provided or to be provided:
'to any person, by any other person in relation to supply of tangible goods including
machinery, equipment and appliances for use, without transferring right of possession
and effective control of such machinery, equipment and appliances;'
13.
On the basis of the above cited definition, to decide the leviability of service tax on the
services of Hiring of Vehicles by M/s ONGC Ahmedabad-Asset under the category of supply of
tangible goods, the following main ingredients should be there:-
[a] Service Provider should be 'any other person',
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[b] Service Receiver should be 'any person'.
[c] The service should be in relation to supply of goods
[d] The goods should be Tangible' in nature,
[e] The supply of goods should be for use.
In case of leviability of service tax on services provided by M/s Ajay Transport, all the above said
essential ingredients are available. The detailed discussion in this regard is as under:-
14.
Service Provider should be 'any other person' and Service Receiver should be 'any
person’:- With regard to taxable service ‘Supply of Tangible Goods Service', as per definition
under 65 [105][zzzzj] of the Finance Act, service provider and service receiver both should be a
'person'. Now the question arises here is whether 'M/s Ajay Transport' and 'ONGC AhmedabadAsset' are to be treated as 'persons'. M/s Ajay Transport and 'ONGC Ahmedabad-Asset' both
appears to be 'person' and they are to be treated as service provider and service receivers on
the following grounds:
(i)
It is a settled law that the word 'Person' when generally used without any
qualification means not only a natural person but also a Juristic or Artificial Person. Since
the word 'person' has not been specifically defined in the Finance Act, 1994 for the
purpose of service tax, the definition under the General Clause Act, 1897 [Section 3(42)]
can be relied upon. Under section 3[42] of the said Act, 'person' shall include any
company or associations or body of individuals, whether incorporated or not. In
Salmond Jurisprudence at P. 299, it has been stated as follows:
'So for as legal theory is concerned, a person is being whom the law regards as capable
of rights and duties. Any being that is so capable is a person, whether a human being or
not, and no being that is not so capable Is a person, even though he is not a man."
(ii) Thus, as per above explanation, a person will generally include a natural person,
anybody corporate, partnership firm, HUF, body of individuals, any type of corporate
bodies, charitable institutions, Government undertaking/enterprises, co-operative
societies etc. Accordingly, 'M/s Ajay Transport' and 'M/s ONGC, Ahmedabad-Asset' are
'service provider' and 'service receiver' within the meaning of the definition cited in para
above.
15.
Meaning of Goods'
15.1. Under section 65[50] of the Finance Act, the word 'goods' has the meaning assigned to it
in clause [7] of section 2 of the Sale of Goods Act, 1930. The said clause reads as follows:
"'goods' means every kind of movable property other than actionable claims and money; and
Includes stock and shares, growing crops, grass, and things attached to or forming part of the
land which are agreed to be severed before sale or under the contract of sale"
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15.2 This is a specific definition and not an inclusive one and hence reference to any judicial
interpretation or dictionary meaning of the term 'goods' is not required. Thus, 'goods' means
any movable article, which can be bought and sold. The goods include all type of articles,
commodities bought and sold by merchant and traders.
15.3 In the instant case 'Vehicle's (Tankers)' are movable Property and can be sold.
16.
Meaning of word 'Tangible’
16.1. The word 'tangible' is defined as follows;
[i]
American Heritage Dictionary defines the word as:
[a]
Discernible by touch
[b]
Possible to touch
[ii]
Random House Unabridged Dictionary defines the word as:
[c]
Capable for being touch
[d]
Having actual physical existence
16.2. These meanings are self-explanatory and 'Vehicles' appears to fulfill all the meanings as
mentioned above. Accordingly, Vehicles (Tankers') supplied by M/s Ajay Transport to ONGC
Ahmedabad-assets are Tangible Goods' within the meaning of definition cited in para above.
17.
Service 'for use'
17.1. As per the definition cited in para above, supply of goods must be for use'. M/s Ajay
Transport are supplying Vehicles i.e Tankers' to ONGC Ahmedabad-Asset for 'use' i.e. to
transport/Shift their material from one place to another place. Shri Rajendra Prahaladbhai
Nayak, partner of M/s Ajay Transport had also confirmed that as per the agreement his firm is
required to give certain specified number of tankers to ONGC. These tankers have to be
supplied as per the specification and requirement of the ONGC. As per the condition of
agreement/contract Driver of the Vehicle must have at least two years driving experience on
such vehicle, the vehicle should also have one cleaner. The cost of fuel, driver and cleaner of
the vehicle are paid by M/s Ajay Transport. At the end of every month, their firm prepares a
single Bill for the month for all the trucks supplied. There is no 'Consignment Note’ prepared.
Hence, the services are not classifiable under "Goods Transport Agency Services". The terms
and conditions makes it clear that that the services are rightly classifiable under "Supply Of
Tangible Goods Services" only.
18.
Right of possession and effective control must not be transferred:
18.1 As per the said definition, to classify the service under "Supply of Tangible goods" the right
of possession and effective control should not be transferred. In this case, the Vehicles
(Tankers) are not provided to ONGC on sale basis. Right to possession has not been transferred
on supply of Vehicles i.e ONGC. Ownership of the Vehicle is also not transferred from M/s Ajay
Transport to ONGC., but the same are hired as per the specification and condition of ONGC.
These facts were also, confirmed by Shri Rajendra Prahaladbhai Nayak, partner of M/s Ajay
Transport in his statement dated 16-09-2010.
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19.
VAT not paid: M/s Ajay Transport, Ahmedabad is not charging any VAT/Sales Tax in the
bills raised by them. The transaction of allowing ONGC to use the Vehicle[Tankers] without
giving legal right of possession and effective control, is not being treated as sale of goods[not
VAT paid], but treated as rendering of service which is taxable under the category of 'Supply of
Tangible Goods'.
20.
From the facts and discussion in the aforesaid paras, it appeared that M/s Ajay
Transport, Ahmedabad, is engaged in providing the service of ‘Supply of Tangible Goods’ to
ONGC, Ahmedabad -assets. For rendering such service, they are recovering amount at agreed/
contracted rates in the name of 'Transportation Charges'. As per discussion in forgoing paras,
M/s Ajay Transport, Ahmedabad, is a service provider and ONGC, Ahmedabad-asset is recipient
of service and the service provided by M/s Ajay Transport, Ahmedabad, is a taxable service in
the category of "Supply of Tangible goods service” under section 65 [105] [zzzj] of the Finance
Act, 1994. As M/s Ajay Transport, Ahmedabad, is providing taxable service, they are required to
pay service tax on the amount charged and received from ONGC, Ahmedabad – asset for the
period from 19.01.2012 to 19.02.2013, under the category of "Supply of Tangible Goods
Service'. As M/s Ajay Transport, Ahmedabad has not paid service tax during the said period, the
same is required to be demanded and recoverable from them.
Value of Taxable Service
21. As per said section 67 of the Finance Act, 1994, gross amount charged and recovered is
the taxable value and the service provider is liable to pay service tax on the same. M/s Ajay
Transport, Ahmedabad, is recovering 'Hiring Charges' in the name of transportation charges
from ONGC Ahmedabad-asset for providing of Tankers as per the specification and condition of
ONGC Ahmedabad-asset. Therefore, the amount of 'Hiring Charges' (billed as Transportation
charges) recovered by M/s Ajay Transport, Ahmedabad, from M/s ONGC Ahmedabad-asset
towards supply and providing of Tankers at the specified station of ONGC, Ahmedabad asset for
use, for the period 19/1/2012 to 19/2/2013, are to be considered as 'consideration' [gross
value of service] for providing taxable service under the category of "'Supply of Tangible Goods
Service" and service tax on such 'Hiring Charges' (which is Billed as transportation charges) is to
be recovered at the rate prescribed under section 66 of the Finance Act, 1994.
22.
M/s. Ajay Transport has furnished the amount received from 19.01.2012 to 19.2.2013,
a detailed work sheet has been prepared in the form of Annexure "A' to the show Cause
Notice. The said work-sheet shows the details of service tax not paid by M/s Ajay Transport,
Ahmedabad, on the 'Hiring Charges' recovered by them from ONGC, Ahmedabad-asset under
"Supply Of Tangible Goods Services" which is recoverable from M/s Ajay Transport,
Ahmedabad.
23.
As per the said Annexure 'A' , service tax amounting to Rs.24,24,552/- for the period
from 19.1.2012 to 19.2.2013, was required to be demanded and recoverable from M/s Ajay
Transport, Ahmedabad, in terms of section 73(1) of the Finance Act, 1994.
24.
Section 68 of the Finance Act, 1994, provides that every person providing taxable
service shall pay service tax at the rate specified in section 66 in such manner and within such
period as may be prescribed. Rule 6 of the Service Tax Rules, 1994 stipulates that service tax
shall be paid to the credit of the Central Govt., by the 5 th of the month immediately following
the calendar month, in which the payments are received, towards the value of taxable services.
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25.
M/s Ajay Transport, Ahmedabad, has failed to pay service tax for the period from
19.1.2012 to 19.2.2013, as per the provisions of section 67, at the rate of “Tangible Goods
Services" provided by the said noticee as prescribed in section 66 of the Act, and accordingly
contravened the said provisions of Rule 6 of the Service Tax Rules. 1994. In this case the said
service provider had not paid the Service Tax leviable on the taxable value and also not taken
service tax registration under the service Category “Supply of Tangible Goods Services.”
25.1. As per Section 69 of the Act; 'every person liable to pay the service tax under this
Chapter or the rules made there under shall, within such time and in such manner and in such
form as may be prescribed, make an application for registration / amendment to the
Superintendent of Central Excise'. The time, manner and form have been prescribed under Rule
4 of the Service Tax Rules, 1994.
25.2. In this case, it appeared that the Noticee has still not applied for Registration under the
appropriate service category i.e “Supply of Tangible Goods” as discussed above and thereby
violated the provision of section 69 of the Act read with Rule 4 of the Service Tax rules, 1994.
26.
Section 70 of the Finance Act, 1994, provides that every person liable to pay service tax,
shall himself assess the tax due on the services provided by him and shall furnish to the
Superintendent of Service Tax, a Return in such form and in such manner and at such frequency
as may be prescribed. Rule 7 of the Service Tax Rules, 1994, prescribes that every noticee shall
submit a half-yearly return in form ST-3 or ST-3A, as the case may be, along with a copy of the
form TR-6 challan, in triplicate for the months covered in the half-yearly return. Further subrule [2] thereto states that "every noticee shall submit the half yearly return by the 25th of the
month following the particular half-year.
27.
M/s Ajay Transport, Ahmedabad, has also failed to correctly assess the tax due on
services provided by them as they have not assessed the tax on the value of 'consideration' in
money charged and received [Hiring Charges] within the provision of section 67 of the Act as
discussed in the foregoing paras, and accordingly contravened the provisions referred in above
para.
28.
For the period from 19/01/2012 to 19.2.2013, M/s Ajay Transport, Ahmedabad, has not
paid service tax and accordingly also not filed the required returns and documents with the
service tax department with regard to taxable service "Supply of Tangible Goods Service"
service as discussed in the foregoing paras and therefore, contravened the said provisions.
29.
In view of the above, it appeared that M/s Ajay Transport, Ahmedabad, have
contravened the following provisions:(a) Section 68 of the Finance Act, 1994, read with Rule 6 of the Service Tax Rules, 1994,
in-as-much as they have failed to make the payment of service tax as detailed in
Annexure -'A' to the Notice to the credit of the Central Government;
(b) Section 69 of the Finance Act, 1994 read with rule 4 of the Service Tax Rules, 1994, in
as much as they failed to take registration under the appropriate service category with
the Service Tax Department; and
(c) Section 70 of the Finance Act, 1994, read with Rule 7 of the Service Tax Rules, 1994,
in as much as they have not correctly assessed the tax payable by them and not
declared the value of taxable service in their periodical ST-3 Returns.
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30.
All the said acts of M/s Ajay Transport, Ahmedabad, and contraventions of various
provisions discussed above are liable for penal action under section 76 and of the Finance Act,
1994.
31.
M/s Ajay Transport, Ahmedabad, has not declared the taxable services provided by
them for the period from 19.1.2012 to 19.2.2013. They have not charged and not paid the
service tax payable during the said period and not filed any service tax return with the
department with regard to the said taxable service. They are not considering their services of
providing of Tankers on Hiring contract for shifting/Transportation of ONGC material as taxable
service under the category of "Supply of Tangible Goods Service".
32.
All these acts of M/s Ajay Transport, Ahmedabad, it is clear that they have not paid
Service Tax and Education and the same is/are also recoverable.
33.
In light of the facts discussed in the foregoing paras, it appears that M/s Ajay Transport,
Ahmedabad, have not paid service tax which was leviable from them. Therefore, Service Tax
not paid by them is recoverable from them under Section 73 of the Finance Act, 1994 Further,
interest on delayed payment of service tax as per section 75 also appears chargeable and
recoverable from them. They are also liable for penal action under Section 76 and of the
Finance Act, 1994.
34.
Therefore, a Show Cause Notice no. STC/4-4/O&A/13-14 dated 20.9.2013 was issued by
Additional Commissioner, Service Tax, Ahmedabad , for the period from 19.01.2012 to
19.02.2013 to M/s. Ajay Transport., 197/3, Near Swati Auto link, beside Sardar Patel Ring Road,
Chandkheda - Kalol Highway, Chandkheda, Ahmedabad-382 424, as to why–
(i) The services of providing of tankers on Hire contract to ONGC, Ahmedabad-asset
should not be appropriately classified under the category of taxable service "Supply of
Tangible Goods Service" as defined under section 65 [105] [zzzzj] of the Finance Act,
1994; Service Tax amounting to Rs. 24,24,552/- ( Rupees Twenty four lakhs , twenty
four thousand five hundred fifty two only) not paid by them for the period from
19.01.2012 to 19.2.2013 as detailed in Annexure-'A', should not be demanded and
recovered from them under section 73 of the Finance Act, 1994 towards rendering of
"Supply of Tangible Goods Service";
(ii) Interest at appropriate rate for delayed payment of Service Tax, should not be
demanded and recovered from them under Section 75 of the Finance Act, 1994;
(iii) Penalty should not be imposed upon them under Section 77 of the Finance Act, 1994
for failure to take registration/amendment in the proper service category with Service
Tax Department as discussed herein above; and
(v) Penalty should not be imposed upon them under Sections 76
1994, for contraventions mentioned in the foregoing paras.
of the Finance Act,
PERSONAL HEARING
35. The said noticee was granted opportunities for personal hearing on
9.1.2014, 17.2.2014 and 25.2.2014. Nobody appeared on behalf of the
noticee on any of the dates fixed for per sonal hearing. The noticee has
not requested for adjournment with regards any of these dates.
Therefore, in order to avoid further delay, I proceed to decide the notice
in the light of the facts on record .
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DISCUSSIONS AND FINDINGS
36.
I have gone th rou gh the ent ire case re co rd s. Unde r an agree ment with
ONGC, I find that the noticee is supplying trucks which are used for
inter-locational movement, i.e., transportation of ONGC's materials
including oil field equipment, machinery, mud-chemical etc in the oil field
condition prevailing at the work sites of ONGC. ONGC is paying service tax
on 25% of the amount paid by availing abatement under the category of
"Goods transport Agency". It is alleged in the show cause notice that the
noticee is liable to service tax on the gross amount under the category of
"Supply of Tangible goods". Therefore, the basic issue for decision is
whether the services provided by the noticee falls within the category of
"Good s t ran spo rt Agen cy" o r "S up ply of t angib le goo ds".
37.
T o de cide the classification of service, the nature of service provided by
the noticee is to be seen. The show cause notice mention s that the
noticee is supplying trucks under contract for inter-locational movement
of ONGC's materials including oil field equipment, mach inery, mud
chemicals on monthly fixed charged basis to ONGC, Ahmedabad Asset;
and that in such cases, the noticee is rendering the service of "supply of
tangible goods" and not "goods transport agency service" as they were
not providing the service of tran sportation of goods and were also not
issuing any LR or consignment note for goods transported by M/s. ONGC in
hired vehicles as required under sub-clause (50b) of Section 65 of the Act.
The noticee issue only monthly bills for hiring charges for vehicles supplied
to M/s. ONGC under the agreement. The noticee has not been paying
service tax on such hiring charges co l l e ct e d f ro m M / s . O N GC u n d e r
"su p p l y o f t an gib le go o d s " s e r vi ce s f r o m 16.05.2008 and that M/s.
ONGC is paying service tax on 25% of such hiring charges by availing
abatement under "Goods transport Agency services."
38.
I find that Se ct io n 65 (5 0 b ) of t he Act re ad s: "G oo d s t ran sp o rt agency"
means any person who provides service in relation to transport of goods
by road and issues consignment note, by wh atever name called." Section
65(105) (zzp) of the Act reads: " to a customer, by a goods transport
agency, in relation to transport of goods by road in a goods carriage;" Para
4.5 of Board's circular No.- 79/9/2004-ST, dated 17.12.2004 reads: "The
consignment note should be serially n u m b e r e d a n d s h o u l d c o n t a i n t h e
n a m e s o f t h e c o n s i g n o r a n d c o n s i g n e e , registration number of the
goods carriage used for transport of goods, details of goods transported,
place of origin and destination and person liable for pay ing service tax.”
39.
The scope of the levy of service tax under Supply of Tangible Goods’ service can be
better understood by referring to Ministry’s Circular/letter D.O.F. No. 334/1/2008-TRU,
dated 29.2.2008 wherein Para 4.4 clarifies the scope of the service in dispute :
4.4
Supply of tangible goods for use :
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4.4.1 Transfer of the right to use any goods is leviable to sales tax / VAT as deemed
sale of goods [Article 366(29A)(d) of the Constitution of India]. Transfer of right to use
involves transfer of both possession and control of the goods to the user of the goods.
4.4.2 Excavators, wheel loaders, dump trucks, crawler carriers, compaction
equipment, cranes, etc., offshore construction vessels & barges, geo-technical vessels,
tug and barge flotillas, rigs and high value machineries are supplied for use, with no
legal right of possession and effective control. Transaction of allowing another person
to use the goods, without giving legal right of possession and effective control, not
being treated as sale of goods, is treated as service.
4.4.3 Proposal is to levy service tax on such services provided in relation to supply of
tangible goods, including machinery, equipment and appliances, for use, with no legal
right of possession or effective control. Supply of tangible goods for use and leviable to
VAT/sales tax as deemed sale of goods, is not covered under the scope of the proposed
service. Whether a transaction involves transfer of possession and control is a
question of facts and is to be decided based on the terms of the contract and other
material facts. This could be ascertainable from the fact whether or not VAT is payable
or paid.
(Emphasis supplied]
40. Further, I find that the ONGC Vide letter No. AMD/MM/ASSETS/SC/33/2009-10 dated
17.07.2010, awarded the contract to the said noticee for hiring 15 crude oil tankers for
a period of three years & vide AMD/MM/ASSET/SC/81/BP/2010-11/P-7(A) dated
28.02.2011 valid for a period of 180 days, for 11 crude oil tankers to the said noticee,
wherein some of the major conditions, were as follows :
1. The services under the contract is to perform carriage of fluid such as mud, brine,
effluent, technical water etc. From operational base to worksite/ worksite to
worksite in the oil field conditions prevailing at the worksite/working areas of
Ahmedabad-Asset. The works also includes loading/unloading of fluids into/from
the tanker(s) by means of fighter pump attached with the tanker as and when
required for services by hiring them on monthly fixed charges basis to the assets of
M/s. ONGC, Ahmedabad-Asset.
2. M/s. Ajay Transport (Contractor) shall provide specified number of Tankers with
driver and helper under the contract, hired by ONGC on dedicated monthly basis.
3. The vehicles provided under the contract must confirm to the prescribed technical
specification and manned by a competent driver and other required manpower as
mentioned in the contract. All the valid and up-to-date vehicle documents relating
to its registration, road-tax payment, fitness, permit, insurance, PUC, fire
extinguisher, Reverse horn etc. must be available in the vehicle. The vehicle should
also be equipped with suitable spare wheel and required tools like Jack, spanner
etc.
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4. After successful inspection/acceptance, ONGC shall place work order with the
contractor for placement of vehicle for duty. Contractor shall place the accepted
vehicle for duty as per the date mentioned in the work order.
5. Any vehicle deployed under contract and found not confirming to above technical
specifications, at any time during currency of contract, shall not be accepted on
ONGC duty.
6. The vehicle under the contract shall not be deployed for any purpose other than the
duties assigned by ONGC and must remain under ONGC’S disposal for all the days
of the month throughout the currency of the contract.
7. Service Tax, if any and applicable to service under the contract, shall be reimbursed
by ONGC on providing the required documents.
8. Rates;- The rates are firm and final and valid for the entire period of contract and
for the entire Scope of work and is in accordance with the Terms and Conditions of
the Tender Documents and is inclusive of all taxes (except service tax), duties, levies
work Contract Tax, freight, Supply of all consumables etc. Any variations, on
account of increase or decrease in taxes, duties, levies etc. after submission of price
bid/revision price bid shall be governed by the clause on ‘CHANGE IN LAW’ of
General condition of Contract.
40.1
Thus, on going thro’ the conditions of the award, I find that It is evident that the
vehicles were given to M/s. ONGC only for their usage without transfer of right of
possession and effective control.
41.
Further, the essential ingredients for a service to fall within the ambit of “Supply of
Tangible Service” are :
(a) the service provider can be any person;
(b) the service receiver can be any other person other than the service provider;
(c ) the service must be in relation to supply of goods;
(d) the goods supplied must be tangible goods including machinery, equipment and
appliances;
(e) the supply of said goods must be for use, apparently by the service receiver;
(f) the supply of machinery, goods or appliances must be without transferring right of
possession and effective control of those items.
41.1 Further, the Circular No. 334/1/2008-TRU dated 29.2.2008 very clearly gives the two
primary conditions for a service to fall within the ambit of Supply of Tangible Services. A
reading of the contract with the aforementioned clarification clearly shows that as the legal
right to possession and effective control remained with the service provider and as they were
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not discharging any VAT on the said transaction, they were liable to discharge service tax under
Supply of Tangible Service. Board vide the aforementioned Circular dated 29.2.2008 (supra)
has laid to rest all the doubts regarding determining the question of transfer of possession and
effective control. The Circular clearly states that payment of VAT will be the deciding factory in
as far as these facts are to be determined. In the present case, it is evident that no VAT was
discharged by the said noticee.
41.2 Ministry vide the aforementioned Circular has clarified that transaction of allowing
another person to use the goods without giving the legal right of possession and effective
control not being sale of goods is treated as service. In the case of BSNL v/s UOI [2006(3) STT
245], the Hon’ble Apex Court listed the essential attributes of the transaction to constitute
transfer of rights under VAT. Relying on this judgment, the Hon’ble Gauhati High Court in the
case of HLS Asia Ltd v/s State of Assam [2007 (8) VST 314] had held that delivery of physical
possession of goods is not essential precondition for levy of sales tax. Thus for levy of sales tax
it is not necessary that possession must be transferred. While the definition of taxable service
in the case of Supply of Tangible service has not specifically provided that where VAT has been
paid, service tax will not be attracted, the Ministry has however clarified vide the Circular
(supra) that supply of tangible goods for use and leviable to VAT/sales Tax as deemed sale of
goods is not covered under the scope of this service. Therefore, it is clear that wherever VAT
has been paid no service tax will be chargeable. As in present case no VAT is paid, the service
clearly falls within the ambit of “Supply of Tangible Goods” service.
42
Even otherwise, it is felt that the aforementioned service for supply of tankers would
not fall within the ambit of GTA service. As per the definition of ‘Goods Transport Agency’
service, issue of ‘Consignment Note’ by GTA is mandatory as per sub clause 50b of section 65 of
the Finance Act, 1994. It can also be said that ‘Goods Transport Agency’ service is mainly based
on transportation of consignments of goods. Further, in Goods Transport Agency service, gross
value of services provided are also valued and charged on the basis of quantum of the
consignment [goods] transported. The wordings of Not. No. 34/2004 whereby value based
exemption for each consignment are given under sub Para [i] and [ii], also supports the view
that consignment to be transported is an essential part of ‘Goods Transport Agency’ service.
Moreover, in the present case, even if the vehicle was not used, ONGC was supposed to pay
charges.
43.
The question of service tax being demanded twice is not tenable owing to the fact that
the service was wrongly classified and the service tax was paid by wrongly availing the benefit
of abatement under Goods Transport Agency.
44.
The Hon’ble Bombay High Court in the case of Indian National Ship Owners Association
v/s UOI [2009(14) STR 289(Bom)], covering a similar situation, held as follows :
“48. Applying the above conclusions to the instant case, we hold that the services
rendered by the members of the 1st petitioner are either pre-mining or post-mining
activities. They have no direct relation to mining. They were, therefore, rightly not
brought to tax till entry (zzzzj) was introduced to cover transport of tangible goods by
sea without transferring right of possession and effective control thereof. The services
rendered by the members of the 1st petitioner are covered by entry (zzzzj) because they
inter alia supply vessels offshore support vessels, barges, tugs etc. without transferring
right of possession and effective control over them. In contrast entry (zzzy) was
introduced to comprehensively bring under the service tax net activities having a direct
nexus to mining activities. Entry (zzzzj) is not a carve out of entry (zzzy). Both entries are
independent. Entry (zzzzj) was not inserted into the Finance Act by amending entry
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(zzzy). It is not possible to invent a remote connection of the services rendered by the
members of the 1st petitioner to mining activities and hold that they fall in entry (zzzy).
Entry (zzzzj) is not a specie of what is covered by entry (zzzy). Nature of the services
rendered by the members of the 1st petitioner, legislative history of the two entries,
various circulars to which, we have made reference and the relevant judgments which
we have noted hereinabove lead us to hold that the entry contained in Section
65(105)(zzzy) of the Finance Act, 1994 does not apply to services provided by the
members of the 1st petitioner. Needless to say that respondents 1 to 4 and respondent 6
cannot demand service tax from the members of the 1st petitioner on the services
rendered by them to the 5th respondent. As a consequence of this view of ours
proceedings leading to issuance of letters dated 17-12-07, 19-2-08 and 5-3-08 annexed
as Exhibits H, N and R respectively to the petition stand quashed and set aside.”
45.
Further the Hon’ble Tribunal in a similar case of G Karunakar Reddy [2010(20) STR
352 (Tri)] held as follows
“ 2. Facts of the case are that the appellants leased out buses to Andhra Pradesh State
Road Transport Corporation (APSRTC) for transporting passengers under a contract. As
per the contract, the appellant would be supplying the buses along with driver, who
doubled also as a conductor when required. After due process of law, the original
authority demanded service tax from the appellants finding that it had rendered
‘business auxiliary service’ of Section 65(19)(vi) of the Act. This entry provides for taxing
of ‘provision of service on behalf of the client’.
3. Moving the application for waiver of pre-deposit, the ld. Counsel for the appellant
submits that the activity involved was renting out the buses to APSRTC while the
appellant retained the actual possession and control of the buses. This activity was
brought under the tax net w.e.f. 16-5-2008 under the entry of ‘supply of tangible goods’.
We have also heard ld. JDR who submits that as per the agreement basic to the provision
of service Involved, the appellant rendered service to the general public on behalf of the
APSRTC.”
46
The Commissioner(Appeals-III), Ahmedabad vide OIA No. 81/2012(AhdIII)/K.ANPAZHAKAN/Commr.(A)/Ahd dated 03.04.2012 issued from F.No. V2(GTS)1/ST-4/STCIII/2012/2810 to 2813 in the case of M/s. Jay Somnath Transport Co., Mehsana has decided the
same issue in favour of the department.
47.
In view of the above I find that the noticee had contravened the following provisions:
(a)
Section 68 of the Finance Act, 1994, read with Rule 6 of the Service Tax Rules 1994 in
as much as they failed to make the payment of service tax as detailed in Annexure A
to the Noticee to the credit of Central government.
(b)
Section 69 of the Finance Act, 1994 read with Rule 4 of the Service Tax Rules, 1994,
in as much as they failed to take registration under the appropriate service category
with the Service tax department
(c)
Section 70, of the Finance Act, 1994 read with Rule 7 of the Service Tax Rules 1994,
in as much as they did not correctly assess the tax payable by them and not declared
the value of taxable service in their ST-3 returns.
48.
Further as the noticee has short paid service tax he is liable for penalty under Section
76 of the Act. As regards imposition of penalty under Section 76 of the finance Act, 1994 I
observe that in this case the demand of service tax is for the period from 19.01.2012 to
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19.2.2013 wherein the penalty under Section 76 can be imposed upon them as the service
provider has not paid service tax within the stipulated time period as prescribed under Section
68 of the Finance Act 1994 read with Rule 6 of the Service Tax Rules.
49.
The noticee is also liable to pay interest on the total short paid service tax amount at
the appropriate rate under Section 75 of the Finance Act
50.
The noticee is also liable to penalty under Section 77 of the Finance Act as they have
failed to take registration/amendment in the proper service category with Service tax
department and failed to file ST-3 return for the period.
51.
The government has from the very beginning placed full trust on the service provider so
far as the payment of service tax is concerned and accordingly measures like self-assessments
etc., based on mutual trust and confidence are in place. Further, a taxable service provider is
not required to maintain any statutory or separate records under the provisions of Service Tax
Rules as considerable amount of trust is placed on the service provider and private records
maintained by him for normal business purposes are accepted, practically for all the purpose of
Service tax. All these operate on the basis of honesty of the service provider; therefore, the
governing statutory provisions create an absolute liability when any provision is contravened
or there is a breach of trust placed on the service provider.
52.
In light of the facts discussed in foregoing paras, I find that the noticee has not paid
service tax amounting to Rs 24,24,552/-(as detailed in Annexure A of the show cause notice) for
the period from 19.01.2012 to 19.2.2013, on the services rendered by them under the category
of “ Tangible Goods Services”. Therefore the Service Tax not paid is required to be demanded
and recovered from them under Section 73 of the Finance Act, 1994. Further interest on
delayed payment of Service Tax as per Section 75 also required to be charged and recovered
from them. All these acts of contravention of provisions of Section 68, 69 and 70 of the Finance
Act, 1994 as amended read with Rule 4, 6 and 7 of Service Tax rules 1994 also render them
liable to be punished under the provisions of Sections 76 & 77 of the Finance Act, 1994 as
discussed above.
53.
In view of the above discussion, I pass the following order:
ORDER
(i)
I order that the services of providing of tankers on Hire Contract to ONGC,
Ahmedabad-Asset, by the noticee is appropriately classified under the category
of taxable service "Supply of Tangible Goods Service" as defined under section
65 [105] [zzzzj] of the Finance Act, 1994;
(ii)
I confirm the demand of service tax amounting to Rs 24,24,552/- [Rupees
Twenty four lacs, twenty four thousand five hundred fifty two only] for the
period 19.01.2012 to 19.2.2013 and order it to be recovered from the noticee
under Section 73 of the Finance Act, 1994 towards rendering of ‘Supply of
tangible goods service’.
(iii)
I also order to recover interest at the appropriate rate on the amount of Rs.
24,24,552/- under Section 75 of the Finance Act, 1994.
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(iv)
I impose a penalty of Rs. 100/- (One Hundred Only) per day for the period
during which failure to pay the tax continue or at the rate of 1% of the service
tax amount per month, whichever is higher, starting with the first day after the
due date till the date of actual payment of the outstanding amount of service tax
upon the said noticee under Section 76 of the Finance Act, 1994, provided the
total amount of penalty payable in terms of this section shall not exceed the
amount of service tax recoverable from the said noticee.
(v)
I impose upon the noticee a penalty of Rs. 10,000/- (Rupees Ten Thousand Only)
under Section 77 of the Act, for failure to take registration/amendment in the
proper service category with the Service Tax Department, during the material
period.
(J.S NEGI)
Additional Commissioner,
Service Tax, Ahmedabad.
BY REGISTERED AD./HAND DELIVERY
F.No. STC/04- 4/O&A/13-14
Date : 24.02.2014
To
M/s. Ajay Transport,
197/3, Near Swati Auto Link,
Beside Sardar Patel ring road,
Chandkheda,
Ahmedabad – 382 424.
Copy to:
(1)
(2)
(3)
(4)
The Commissioner, Service Tax, Ahmedabad ( Attn : RRA Cell)
The Assistant Commissioner, Service Tax, Division –II, Ahmedabad.
The Superintendent AR-IX, Service Tax Division II, Ahmedabad [with an extra copy of the OIO to
be delivered to the noticee and dated acknowledgement to be submitted later on.)
Guard File/ Office Copy