CESTAT Allahabad Sets Aside Service Tax Demand Based Solely On ITR Data In Ganpati Transport Case

The Allahabad Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that a service tax demand raised solely on the basis of Income Tax return data, without independent verification of the taxpayer's books of accounts, was unsustainable in the facts of the case.

It further ruled that transportation of goods by road through own trucks without issuance of consignment notes does not qualify as a taxable Goods Transport Agency (GTA) service.

The bench comprising Judicial Member P. K. Choudhary and Technical Member P. Anjani Kumar observed that the demand was initiated solely on the basis of third-party data received from the Income Tax Department. It noted that there was no independent verification of the assessee's books of accounts, which was insufficient to establish tax liability.

Ganpati Transport Service, a partnership firm engaged in transportation of goods by road through its own trucks as well as as a GTA, came under investigation based on third-party data. The data received from the Income Tax Department showed receipts of ₹6.08 crore for FY 2015–16.

Relying solely on this data, the department issued a show cause notice dated December 23, 2020. It demanded a service tax of Rs 88.16 lakh along with interest and penalties, invoking the extended period of limitation. The Tribunal also noted that no pre-show cause notice consultation was conducted despite the demand exceeding Rs 50 lakh. It said this further weakened the proceedings.

The notice was adjudicated ex parte, confirming the demand. In the first round of appeal, the Commissioner (Appeals) dismissed the appeal on the ground of improper pre-deposit. The Tribunal subsequently remanded the matter for a decision on merits.

In the second round, the Commissioner (Appeals) partly upheld the demand. It reduced the amount to Rs 26.26 lakh by treating the appellant as a GTA and taxing 30% of the value. This led to the present appeal.

The appellant contended that a substantial portion of the receipts pertained to transportation carried out through its own trucks without issuance of consignment notes. It argued that such activity falls under the Negative List and is outside the scope of taxable GTA services.

For the remaining transactions where consignment notes were issued, it submitted that the liability to pay service tax was on the consignor or consignee under the reverse charge mechanism. The appellant also relied on Chartered Accountant certificates and affidavits to substantiate the nature of receipts.

Accepting these contentions, the tribunal held that issuance of a consignment note is a sine qua non for classification as GTA service. It observed that mere transportation of goods by a truck owner without issuance of such a note does not amount to GTA service. It added that such activity falls outside the tax net.

The bench noted that, “It is an admitted and recorded finding by the Commissioner (Appeals) that the Appellant owns 31 trucks and that in such circumstances, no consignment notes were issued. The issuance of a consignment note is a statutory sine qua non for classification as “Goods Transport Agency” under Section 65(50b) of the Finance Act, 1994. Mere transportation of goods by a truck owner without issuance of a consignment note does not amount to GTA service. We find that where transportation was carried out through own vehicles without issuance of GR/consignment note, such activity falls outside the ambit of taxable GTA service and is covered under clause (p) of Section 66D (Negative List). Accordingly, receipts attributable to such transportation are not liable to Service Tax.”

It further held that the Revenue failed to produce any evidence to rebut the appellant's claims. It also failed to establish that tax liability had not been discharged under the reverse charge mechanism.

The bench observed that “the Revenue has not produced any evidence to show that the recipients of service did not fall within the specified categories or that the tax was not payable under reverse charge.”

On limitation, the tribunal held that the demand up to October 2015 was time-barred. For the remaining period, it found no evidence of fraud, suppression, or intent to evade tax. It therefore held that the extended period of limitation could not be invoked.

Accordingly, the tribunal held that the demand, interest, and penalties were not sustainable either on merits or limitation. It allowed the appeal with consequent relief.

For Appellant: Advocates S. R. Agrawal, and Stuti Saggi

For Respondent: A. K. Choudhary, Authorized Representative