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    Exploring The Controversy Of Service Tax Applicability On Goods Transport Operators

    Introduction:

    Under the erstwhile positive based taxation scheme, service tax on road transport services was initially introduced in the year 1997 and the levy is on ‘Goods Transport Operators’. Considering the hue and cry from the truck operators across the nation, levy of service tax is withdrawn. Levy of service tax is re-introduced in year 2004 on ‘Goods Transport Agency Services’.Now under the Negative list regime effective from 01.07.2012, all goods transport services are covered under Negative list except the services of ‘Goods Transport Agency’ and Courier Agency

    The above mentioned legal developments would certainly indicate that there is no service tax on services of ‘Goods Transport Operator’ services. However recent judicial decisions are contrary to this view on the reasoning that goods transport agency services includes services of truck operators. In this backdrop, an attempt is made to unleash various facets of this controversy.

    Legislative Background in Levy of Service Tax on ‘Goods Transport Agency’ Service:

    As discussed above, after the levy was withdrawn on the services of truck operators, Government has constituted a Committee(Bharadwaj Committee) to suggest the modalities to levy service tax on goods transport services. The key recommendations of this Committee are reproduced as under;

    1. Recommended to levy service tax on services provided by any commercial concern which (is common carrier under the Carriers Act, 1865) books the goods for transportation by road, issues consignment note and provides value added services over and above the mere carriage of the goods be called the goods booking agency.
    2. The committee recommended to make it mandatory to these agencies to issue a consignment note to the sender of goods against the receipt of goods for transportation. For this purpose, it is recommended to amend the Carrier Act, 1865. It is also suggested that till such time the said act is amended, the said requirement can be made mandatory under Service Tax laws or by notifications.
    3. Any organization/person who possesses the vehicle by virtue of ownership under lease/hire agreement etc and is responsible only for affecting the carriage of goods and is not required to issue consignment note. The truck owner can alternatively be called as truck operator. Normal truck operators who hire their vehicles for transportation are not subject to service tax.
    4. As transport sector is unorganized, the committee also recommended implementing reverse charge mechanism keeping the liability to pay service tax to Government either on the consignor or consignee responsible to pay freight.

     

    With these recommendations, service tax is reintroduced in the FY 2004-05 on the services of ‘Goods transport agency’ i.e. those providing services in relation to transport of goods by road and are required to issue consignment note.

    Accordingly, the term ‘Goods Transport Agency’ was defined under the erstwhile section 65(50b)— “means any person who provides service in relation to transport of goods and issues consignment note by whatever name called .”

    With these legal developments and committee recommendations, it is very clear that the legislative intent is not to tax the services of truck owners whether it is individual truck owners or organizations owning trucks. Otherwise there is no requirement to re-draft/rephrase the legal provisions when the levy is re-introduced in the FY 2004-05. Further, this legislative intent is clearly evident by budget speech of Finance Minister. The relevant extract is reproduced as under;

    “149. 58 services have been brought under the net so far. I propose to add some more this year. These are business exhibition services; airport services; services provided by transport booking agents, transport of goods by air; survey and exploration services; opinion poll services; intellectual property services other than copyright; brokers of forward contracts; pandal and shamiana contractors; outdoor caterers; independent TV/radio programme producers; construction services in respect of commercial or industrial constructions; and life insurance services to the extent of risk premium. I may clarify that there is no intention to levy service tax on truck owners or truck operators........................................................ ” (emphasis supplied)

    Now under the Negative List regime, Section 66D provides for negative list of services. Entry(P) of this list provides that all services provided by way of transportation of goods by road except the services of a ‘goods transport agency’ or ‘courier agency’. Further the term ‘Goods Transport Agencny’ has been defined under Section 65B(26) by reproducing the same definition as prevailing under section 65(50b) as stated above.

    Thus the legal provisions both under erstwhile regime as well as under the negative list regime are same and moot the intention to levy service tax only on services of goods transport agency alone. However, the revenue went on to stretch the meaning of the word ‘goods transport agency’ to include services of truck operators also and accordingly the matter landed before the judicial forums.

    Position upheld by Judicial Forums in the initial years of levy:

    The judicial forums in the initial years of levy have resorted to the same interpretation considering the committee report and finance minister speech, concluded that services provided by truck owners are not subject to service tax. The following decisions are for reference.

    1. Lakshminarayana Mining Co vs. CST, 2009(16)STR691(Tri-Bang)
    2. CCE vs. Kanakadurga Agro Oil Products Private Limited, 2009(15)STR399(Tri-Bang)
    3. KMB Granites Private Limited vs. CCE,2010(19)STR437(Tri-Bang)

    Subsequent Regulatory Legislation ‘The Carriage By Road Act, 2007’ in congruence with above position:

    Subsequently, a regulatory legislation ‘The Carriage by Road Act, 2007 was passed by Parliament which

    repealed the earlier Carriers Act, 1865. As stated above, the committee recommended to levy service tax

    on services of common carriers alone excluding the truck operators. Accordingly, ‘Common Carrier’ is

    defined under section 2(a) of the Act as follows;

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