The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Kolkata, has held that transportation of goods by road without issuing a consignment note does not qualify as a Goods Transport Agency (GTA) service.
It set aside a service tax demand of ₹2.73 crore against a truck owner transporting coal and iron, holding that such transportation is covered under the Negative List.
A Bench of Judicial Member R. Muralidhar and Technical Member K. Anpazhakan observed that issuing a consignment note is an essential requirement for an entity to qualify as a GTA under the Finance Act, 1994.
The bench held, “For an entity to qualify as a Goods Transport Agency under Section 65B(26) read with Rule 4B of the Service Tax Rules, 1994, the issuance of a statutory 'consignment note' is an indispensable legislative prerequisite. Where road transportation services are executed without the issuance of a consignment note, the transaction retains its character as simple goods transport by a truck owner/operator, which remains squarely exempt from Service Tax under the Negative List.”
The case arose from proceedings against Manish Kumar Singh, who transported coal and iron for various clients. The Department initiated an inquiry after examining his income tax return for FY 2016-17, which disclosed gross receipts of ₹18.23 crore. Treating the entire amount as consideration for taxable services, it proposed a service tax demand of ₹2.73 crore, inclusive of cesses, along with interest and penalties. The adjudicating authority confirmed the demand.
Singh argued that he merely provided trucks for transportation and had never issued consignment notes. He submitted work orders, transport challans, vehicle records, party-wise ledgers and bank statements to establish the nature of his operations. He also challenged the Department's decision to treat his entire income tax return receipts as taxable service income without examining the underlying transactions.
The tribunal found that the work orders fixed freight charges on a per-metric-tonne basis and confined Singh's role to physical transportation. The transport challans were issued by principal transport companies, with Singh identified only as the vehicle owner. It also found no evidence that he had issued consignment notes.
Relying on its earlier decision in Tabassum Enterprises, which followed the Supreme Court's ruling in CCE, Ahmedabad-II v. Chartered Logistics Ltd., the tribunal reiterated that transportation without consignment notes does not constitute GTA service.
On the Department's reliance on income tax records, the tribunal observed,
“The Department cannot simply pick up the gross receipts shown in the ITR (Rs. 18,23,40,433/-) or Form 26AS, apply the flat rate of 15.00%, and treat the entire turnover as taxable service income by default, ignoring the statutory exemptions and operational realities of the trade.”
It further held that the Department had not independently investigated the transactions to establish their taxability. The tribunal also noted that the liability on freight paid by specified categories of recipients would have to be examined under the reverse charge mechanism, even if certain transactions qualified as GTA services.
The tribunal rejected the invocation of the extended limitation period. Singh had disclosed the nature of his business and furnished his income tax return acknowledgement and audited balance sheet during the inquiry. His inability to produce detailed records during the COVID-19 pandemic did not establish an intention to evade tax.
Accordingly, the tribunal set aside the service tax demand and interest. It also set aside penalties under Sections 77(1)(c)(ii) and 78 of the Finance Act, 1994, but upheld the penalty under Section 77(2).
For Appellant: Kshitij Singh and Ajay Kumar Singh
For Respondent: Biren Sanfui, Authorised Representative