Service Tax on GTA – the CAG refuses to give up
“WHAT will the poor assessees do if the officers who are meant to be there to solve their problems themselves create confusion?” -11.04. 2005 , asked when the DGST issued the controversial circular on Service Tax on GTA and since then it had been litigation galore and for us in TIOL it was a crusade. The good Board put all litigation and confusion to rest when it issued a Section 37B order on 12.3.2007. In TIOL-DDT- 571-13.03.2007, we offered A Bouquet with the choicest flowers to the Board. And remarked, “We are extremely happy to report that finally reason, law and good sense have prevailed over ridiculous clarifications . For nearly two years we have been running a virtual crusade on the issue of abatement for GTA. And finally the good Board has put the issue to rest, even clarifying that notices need not be issued pursuant to CAG's objections. The Board is meant to issue this kind of clarifications and we join thousands of harassed assessees all over the country in thanking the Board for the wise decision.”
The DGST had withdrawn his circular, the Board had given a section 37B order but the AG Audit is adamant – they don't want to drop their point.
Now in this year's report to Parliament, the CAG has come up with a new objection. Read his report:-
Incorrect grant of exemption of service tax
By a notification dated 3 December 2004, seventy five per cent value of the taxable service provided by a goods transport agency (GTA) to a customer is exempt from the levy of service tax, subject to the conditions that cenvat credit on inputs or capital goods used for providing such taxable service is not taken and exemption under notification dated 20 June 2003 is not availed of by the GTA.
The Board clarified on 27 July 2005 that the person availing of exemption under the notification dated 3 December 2004, will have to obtain a declaration from the GTA on the consignment note to the effect that the conditions of the aforesaid notification have been satisfied. The Board again examined the issue in consultation with the Ministry of Law and issued order on 12 March 2007 under section 37B reiterating that earlier instructions of 27 July 2005 must be followed.
Twelve assessees, in Vadodara II, Surat I, Vapi, Daman, Rajkot and Ahmedabad III commissionerates, engaged in the manufacture of various excisable goods, availed of the services of GTA. These assessees paid service tax after availing of exemption of seventy five per cent on the gross freight charges paid to the GTA during the period between January 2005 and March 2006. The declarations as required under the Board's instructions cited above for satisfying the conditions of the notifications, were not obtained in any of the consignment notes issued by the GTA. Exemption of service tax amounting to Rs. 2.42 crore availed of by the assessees was, therefore, incorrect.
On this being pointed out (between March 2006 and January 2007), the department admitted the audit observations in two cases and intimated (September 2006) recovery of tax of Rs. 4.62 lakh in a case. In the other two cases, it stated (April and May 2007) that show cause notices for Rs. 25.43 lakh were being issued. In two cases relating to Vapi commissionerate , it contended that the exemption availed of was correct as the assessees had declared that credit had not been availed.
The reply is not tenable as declaration was required to be given on each consignment note by the GTA in terms of notification dated 3 December 2004 read with Board's clarification dated 27 July 2005 and hence exemption availed of was not correct. Reply of the Ministry has not been received (November 2007).
In this case of GTA , the Board had been outright bold and fair – even this had been clarified in a recent letter in F.NO. Dated: August 21, 2008 in which it was clarified, “that the benefit of availment of abatement may also be extended in past cases if the taxpayers produce a general declaration from the GTA to the effect that neither credit on input or capital goods used for the provision of service has been taken nor the benefit of notification No. 12/2003-ST has been taken by them. We reported this in TIOL-DDT–937-26.08.2008 with the caption, Service tax on GTA – Ghost of abatement availability rears its head again only to be exorcised by the Board.
The Board, especially the present Chairman deserves all praise for this revolutionary decision, even against Audit Objection. By this single action, the Board had killed over 25000 useless Show Cause Notices, but the CAG seems to be determined to revive some of them.
I asked a colleague to do a story on the CAG report – He says, ” A perfect recipe for insanity”