10th August, 2020

The Deputy/Assistant Commissioner of GST and Central Excise

Puducherry Division III
No 14 Municipal Street
Azeez Nagar
Reddiarpalayam
PUDUCHERRY
605010

Sir,

Please refer to Show Cause Notice No.17/2020-Audit-1 in File C.No.V/15/ST/21/2020-Audit-1-C1G2

dated 16.03.2020 issued as being answerable to you.

It has been proposed under this notice to demand ₹ 6,37,761/= under Section 73 (1) along with interest
under Section 75 and to impose Penalties under Sections 77 & 78 of the Finance Act, 1994.

At the outset, it is evident from the Final Audit Report No 314/2019-20 in File No.III/10/1856/2017-
C5G1 dated 27.05.2020 that this notice has been issued as an offshoot of a service tax audit undertaken
by the Audit Team from the Office of the Commissioner, Audit-1, Chennai.

Whether this Notice can be considered as legally valid?

Before going into the merit of the case, it is imperative to examine the validity of the notice which has
been issued by the Assistant Commissioner, Audit-1, based on an audit finding.

In the pre GST Regime, it was only Rule 5A of the Service Tax Rules 1994, which authorized the service
tax audit. Nevertheless, the validity of this rule, the Integrated Audit Manual 2015 and Circulars
995/2/2015-CX dated 27.02.2015 and 181/7/2014-S.T. dated 10.12.2014, has been struck down by the
Hon Delhi High Court in the case of MEGA CABS PVT. LTD. Vs UNION OF INDIA 2016 (43) S.T.R.67 (Del.)
by holding that the rule making power cannot be extended to include power not given by legislature
and Rule 5A being in excess of legislative delegation, ultra vires of Finance Act, 1994.

The Hon High Court of Calcutta in the case of INFINITY INFOTECH PARKS LTD. Vs UNION OF INDIA 2018
(18) G.S.T.L. 223 [Cal.] has followed the decision of the Delhi High Court in the case of Mega Cabs Pvt.
Ltd. While quashing the Notice issued under Rule 5A of the Service Tax Rules, 1994.

In view of this position, even if it is assumed that the notice has been issued based on an audit
conducted in accordance with Rule 5A of the Service Tax Rules 1994, it is still to be considered as being
legally invalid.

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The next question is whether the audit conducted can be considered as being satisfied the conditions
of Rule 5A?

In this case, service tax audit which relates to the period prior to the GST regime was ultimately
conducted during the GST regime where Chapter V of the Finance Act, 1994 and the rules made
there under, have been repealed vide Section 173 of Central Goods and Services Tax Act, 2017 and
Section 174 (2) of Central Goods and Services Tax Act, 2017 (CGST Act, 2017) has not saved Rule 5A.

It has been held by the Hon High Court of Gujarat in the cases of OIL FIELD WAREHOUSE AND SERVICE
LTD. Vs UNION OF INDIA 2019 (20) G.S.T.L. 14 (Guj.) and OWS WAREHOUSE SERVICES LLP Vs UNION OF
INDIA 2018 (19) G.S.T.L. 27 (Guj.) the Hon High Court of Jharkhand in the case of SULABH
INTERNATIONAL SOCIAL SERVICE ORGANIZATION Vs UNION OF INDIA 2019 (25) G.S.T.L. 28 (Jhar.) and
the Hon High Court of Delhi in the name of T.R. SAWHNEY MOTORS PVT. LTD. Vs UNION OF INDIA 2019
(24) G.S.T.L. 176 (Del.) that any fresh audit proceeding after the repeal of the service tax rules is not
legally valid in as much as there was no saving to Rule 5A of Service Tax Rules, 1994 under Clause (e) of
Section 174(2) of Central Goods and Services Tax Act, 2017.

Be that as it may, even if it is assumed that Rules 5A of the Service Tax Rules, 1994 has been validly
saved by the GST Act 2017, it is still required by this rule that the audit must be conducted by satisfying
its conditions thereon, which reads as herein below:

5A. Access to Registered Premises.

(1) An officer authorized by the [ Principal Commissioner or Commissioner ] in this behalf shall have
access to any premises registered under these rules for the purpose of carrying out any
scrutiny, verification and checks as may be necessary to safeguard the interest of revenue.

(2) Every assesse, shall, on demand make available to the officer empowered under Sub-Rule (1) or
the audit party deputed by the Commissioner or the Comptroller and Auditor General of India
or a Cost Accountant or Chartered Accountant nominated under section 72A of the Finance Act
1994.

(i) the records maintained or prepared by him in terms of Sub-Rule (2) of Rule 5;

(ii) the cost audit reports, if any, under Section 148 of the Companies Act, 2013 (18 of 2013);
and

(iii) the income-tax audit report, if any, under Section 44AB of the Income-tax Act, 1961 (43 of
1961), for the scrutiny of the Officer or the audit party, or the Cost Accountant or Chartered
Accountant, within the time limit specified by the said Officer or the audit party or the Cost
Accountant or Chartered Accountant, as the case may be.

In view of this statutory position, only an officer authorized by the Principal Commissioner or
Commissioner under Sub Rule 1 of Rule 5A or the audit party deputed by the Commissioner under Sub
Rule 2, is authorized to conduct service tax audit in the registered premises.

However, in the present case, there was no such general or specific authorization by the Principal
Commissioner or Commissioner for conducting the audit. Further, the Principal Commissioner or
Commissioner had neither deputed the audit team himself nor delegated this power to any of his sub
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ordinate office. It was noticed that the intimation for the audit was sent by the Asst. Commissioner,
Audit-1 that the audit team comprising of Shri A. Thirunavukarasu, Supdt. & Shri S. Karthikeyan, Supdt.
will take up the audit in the month of October 2017 and consequently this audit team had made regular
correspondences on the documents to be produced and raised queries till 13.04.2018 and thereafter it
stopped proceeding further. However, in December 2019, it was only the team headed by Shri Suneel
Kumar, Supdt. & Shri Akhil Jaiswal, Inspector actually conducted the audit in our premises, after sending
a simple e-mail.

Now the point is that in the absence of proper authorization by the Commissioner under Rule 5(1) or
order of deputation by the Commissioner either directly or through delegation of power under Rule
5A(2), there was not any valid authorization for deputing this particular audit team under Rule 5A.
Further, the first audit intimation sent by the Asst. Commissioner, Audit-1 has deputed only the audit
team comprising of Shri A. Thirunavukarasu, Supdt. & Shri S. Karthikeyan, Supdt. and the audit team
headed by Shri Suneel Kumar, Supdt. & Shri Akhil Jaiswal, Inspector were neither authorized nor
deputed by the proper authority. The records and correspondences including the note sheet of Audit-1
Commissionerate so far as they relate to conducting of audit in our concern [obtained under RTI] clearly
shows that Shri Suneel Kumar, Supdt. had self derived the authority for conducting the service tax audit
in our premises by virtue of his placement in the group without possessing any authorization as
provided under Rule 5A. It is pertinent mention that “ group ” merely refers to the smallest formation
of the Commissionerate audit set up whereas “ team ” is to be a collection of individual officers, who
are linked together to achieve a common task and it is changeable every time one member newly
enters or leaves.

Hence, we point out that the audit conducted by Shri Suneel Kumar, Supdt. was never validly authorized
by the proper authority in terms of Rule 5A.

In view of this position, even if it is assumed that rules 5A was still valid, the audit conducted by Shri
Suneel Kumar, Supdt. has not satisfied the conditions of Rule 5A and hence not to be considered as
having been authorized by Rule 5A. Consequently, this notice being issued based on such audit finding
ought to have been considered as having been issued without the authority of law.

MERIT OF THE NOTICE

Now we take up the merit of the notice without prejudice to our contentions as above.

The main contention of the notice is that we had provided courier service as a franchisee to M/s
Startrek Logistics Pvt. Ltd. (presently known as Spoton Logistics Pvt. Ltd.) and have not paid the service
tax payable thereon despite paying service tax in the cases of M/s Criticalog India Pvt. Ltd. & M/s TNT
India Pvt. Ltd. for similar services.

Even while contending so, the notice has admitted in para 1 that we had provided pickup and delivery
service to M/s Startrek Logistics Pvt. Ltd. [presently known as Spoton Logistics Pvt. Ltd.].

The fact that we had provided only pickup and delivery service which is nothing but goods
transportation by road was brought to the attention of the audit team, during the course of audit and
also in the related correspondences made with audit team. However, our disputation has not been duly
considered and deliberately omitted in this notice.

Whether we have provided courier service as franchisee?

“Franchise means an agreement by which the franchisee is granted representational right to sell or
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manufacture goods or to provide services or undertake any process identified with franchisor, whether
or not a trade mark, service mark, trade name or logo or any such symbol as the case may be and it is
the Franchisee who makes payments to the Franchisor for the licensed use and the franchisor being the
service provider is liable to pay service tax”.

“Courier Agency is defined under interpretation under Clause 20 of Section 65B Chapter V of the
Finance Act 1994, as to mean any person who engaged in the door-to-door transportation of time-
sensitive documents, goods or articles utilizing the services of a person, either directly or indirectly, to
carry or accompany such documents, goods or articles”.

The provisions as above would make it clear that a franchisee is to be a person who is providing service
to the customers as a licensed user of trade mark or trade name of the franchisor and Courier Agency is
to be a person providing courier service [door-to-door transportation] to the customers.

In the present case, it may be seen from relevant agreements and the invoices issued by us that we
have neither acted as a franchisee or agent of the courier agency nor provided any courier service to
the customers under any franchise arrangement. As a matter of fact, it was M/s Startrek Logistics Pvt.
Ltd. [presently known as Spoton Logistics Pvt. Ltd.] who had provided the courier agency service to the
consumers by covering the entire movement of goods that included the road transportation made by
us, done all related transactions directly in their own name, issued a consignment note, account
creation, raised invoices with requisite service tax, received consideration and eventually paid service
tax on the entire value, as a courier agency.

Quite strangely, the notice seeks to demand service tax on the very same activity again under the same
courier service. Any service tax levy again on the very same activity would lead to double taxation.

The Hon High Court of Kerala at Ernakulam has held in the case of SPEED & SAFE COURIER SERVICE Vs
CCE 2010 (18) S.T.R. 550 [Ker.] that there was no statutory provision to tax the same service charges
twice and it leads to double assessment.

The Tribunal in the cases of FRANCH EXPRESS NETWORK PVT. LTD. Vs CST, Chennai 2008 (12) S.T.R. 370
(Tri.-Chennai) and BONANZA SPEED COURIERS PVT. LTD. 2010 (19) S.T.R. 675 (Tri.-Bang.) Vs
COMMISSIONER OF CUS. & C. EX., Cochin has held that mere agents cannot be franchisees. The
tribunal decision in the case of FRANCH EXPRESS NETWORK PVT LTD Vs CST, Chennai has been up held
by the Hon Supreme Court 2016 (44) S.T.R. J60 (S.C.).

Further, as clearly stated in para 13 & 14 of the relevant agreements, one cannot be a business partner
or agent of the other.

As held by the Tribunal in the case of UNITED BUSINESS XPRESS INDIA PVT LTD Vs COMMISSIONER OF
S.T., Delhi 2017 (48) S.T.R. 270 (Tri – Del.), the provision of courier service involves collecting the goods
from the person booking the consignment, transporting the same to the destination and ultimate
delivery by hand to the recipient. The consideration for the service also will be collected by the agency.
When service was rendered to the courier agency on principal to principal basis, it cannot be said that
the service has been rendered on behalf of the courier agency. Consequently, activity cannot be
covered under the definition of BAS or support service.

All these factors clearly evidence that we never acted on their behalf as their agent or franchisee and
never provided courier service as a franchisee, either directly or indirectly.

Moreover, Courier service by its very nature is a composite service involving chain of activities which
may include transportation by road, ship and air, hired from others. Incidentally, road transportation
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though an integral part of courier service, when done independently, it merits for classification as a
distinct service and not as a courier service.

Further, we note that the presumption that we had provided courier service as a franchisee has been
inferred only from our ST3 Returns. The classification as “franchisee” was adopted by us in the ST3
Returns was highly tentative as we were unsure of the correct classification. Moreover, classification is
irrelevant for the purpose of depositing the service tax collect as such, in terms of Section 73A (2) of the
Finance Act, 1994. If the revenue really has any case that we had provided courier service as a
franchisee, then it must have established the same through material facts viz a viz the relevant
provisions and not from an apparent incorrect / uncertain classification adopted in the ST3 Returns.

We point out that this has not been done by the revenue in this case.

In view of the foregoing, the notice contention that we have provided courier service as a franchisee is
to be highly misconceived and apparently made without appreciating what is to be a franchisee service
or courier service for the purpose of levy of service tax.

The case ought to be decided strictly within the parameter of the show cause notice

we also point out that this show cause notice has been issued for demanding service tax as if we had
provided courier service as a franchisee and in case we prove that we had not provided this particular
service ,the show cause notice must fail automatically and no scope for making claims not figured in
the notice .As held in catena of decisions of the Tribunal and Courts , the adjudicating authority is
duty bound to decide the issue within scope of the notice and not by traversing beyond.

We have provided only pickup and delivery service

Pickup and delivery service is eventually an established category of service of the industry of goods
transportation by road.

It may be seen from the schedule- I of the relevant agreements entered with M/s Spoton Logistics Pvt.
Ltd. That all services required to be rendered to them are ancillary to the main service of pickup and
delivery service which is nothing but goods transportation by road. Our invoices would make clear that
we have provided only pickup and delivery service to the service recipient M/s Spoton Logistics Pvt. Ltd.
And they have not received any courier service from us.

We point out that Goods transportation by road is a composite service including various intermediate
and ancillary services provided in relation to the main service and such intermediate and ancillary
services may include services like loading/unloading, packing/unpacking, transshipment, temporary
warehousing etc. This position has been well clarified vide Circular No.104/7/2008-S.T. dated
06.08.2008 F.No.137/175/2007-CX of the Central Board of Excise & Customs. The same circular has also
clarified that so long as the entire transportation of goods is by road and the person transporting the
goods issues a consignment note, it would be classified as “GTA Service”.

Further Circular No. 186/5/2015-S.T. dated 05.10.2015 of the CBEC ibid has confirmed the same
position under the negative list regime that the GTA service is a composite service which may include
various ancillary services which are provided in the course of transportation of goods by road and it
should be treated as a single service based on the main or principal service. Thus, if ancillary services
are provided in the course of transportation of goods by road and the charges for such services are
included in the invoice issued by the GTA who issued a consignment note, such services would form
part of GTA service. The same circular has also clarified that transportation of goods by road by a GTA,
in cases where GTA undertakes to reach/deliver the goods at destination within a stipulated time,
should be considered as “services of goods transport agency in relation to transportation of goods”.

As held by the Tribunal in the case of KATARIA TRANSPORT CORPORATION LTD Vs. CST, Delhi 2012 (26)
S.T.R. 583 (Tri.-Del.), if intermediary service is subservient to the original transaction, mere break of the
original transaction in transit does not bring out a different transaction. If the character of the service
provided by intermediary in transit is GTA without the original transaction coming to an end, the service

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provided by an intermediary may not be construed to be a different transaction.

As held by the Tribunal in the case of KINGFISHER AIRLINES LTD. Vs CST, Mumbai-I 2015 (40) S.T.R. 1159
(Tri.-Mumbai], carrying of excess baggage by the Airlines being incidental to the service of ‘transport of
passengers by Air‘, the same is not separately classifiable.

As held by the Tribunal in the case of INDIAN OIL CORPORATION LTD. Vs CCE 2020 (32) G.S.T.L. 350
(Tri.-Kolkata], when the entire transportation is covered by a single contract, there is no service in the
intermediate operations of transportation and as service tax has already been paid on entire
transportation, charging service tax for intermediate facilities is legally unsustainable.

In view of the above factors, we have performed only the service of goods transportation by road as an
intermediate service which is also composite and it cannot be considered as courier service.

Goods transport by road is covered under the Negative List

Clause P of the Negative List of Services under Section 66D of the Finance Act, 1994 covers, services by
way of transportation of Goods by road except the services of a goods transportation agency or a
courier agency.

As stated above, we have not provided this service as a courier agency.

Now, the moot question is whether we can be considered GTA agency, referred under the Negative
List?

As interpreted under Clause 26 of Section 65B Chapter V of the Finance Act 1994, only a person who
provides service in relation to transport of goods by road and issues consignment note, by whatever
name called, can be a “ Goods Transport Agency ”. Thus, the issuance of a consignment note is the
sine-qua-non for a Goods Transport Agency and in the instant case the consignment notes have been
issued only by the courier agency viz. M/s Spoton Logistics Pvt. Ltd. For the transportation of goods.
Therefore, we cannot be considered as a Goods Transport Agency despite providing the service of
goods transportation by road.

In view of these positions, our activity is clearly covered by the negative list and as per Section 66B, the
Finance Act 1994, service tax cannot be levied on those services specified in the negative list.

Service Tax not paid as being inapplicable

It is stated that we have paid service tax in the case of M/s Criticalog India Pvt. Ltd. And M/s TNT India
Pvt. Ltd. And have not paid service tax in the case of M/s Startrek Logistics Pvt. Ltd. [presently M/s
Spoton Logistics Pvt. Ltd.].
As a matter of fact evidenced by relevant agreements, in all the three cases, we have provided only
pickup and delivery services, which is nothing but transportation of goods by road and in view of the
above statutory positions we had a bona fide belief that the service got covered under the negative list
of services under section 66D of the Finance Act 1994 and being out of the ambit of service tax levy.
Even so, we had remitted the service tax in other two cases because the service recipients had agreed
to pay the service tax and having collected the service tax in those cases, we were required to deposit
the same with the Central Government in accordance with Section 73A [2] of the Finance Act, 1994.
However, in the case of M/s Startrek Logistics Pvt. Ltd. [presently M/s Spoton Logistics Pvt. Ltd.] they

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were of the view that service tax was not applicable and did not agree to pay service tax by citing the
above legal positions. It is why service tax was not paid in this case.

It is not a commission

It is the notice contention that the consideration we had received is to be a commission. This not to be
correct in view of the fact that as clearly stated in para 1.1 and para 2.1 of the relevant agreements
dated 01.01.2016, we had received only charges for pickup and delivery services based on weight or
consignment and in the absence of any agency service on their behalf, the question of receiving any
commission doesn’t arise at all.

Liability never accepted as per notice contention

The notice has also contended that we had initially agreed to pay service tax and later retracted. This is
not to be correct. It may be seen from the related correspondences that we initially agreed to pay
service tax only under the GTA category that too on being not fully aware of the relevant provisions.
Later, we came to aware of the correct position as explained in the above paras that we cannot be even
the provider of GTA services. It is pertinent to mention that even under the GTA service, it is the
recipient of service who is liable to pay the service tax under the RCM and not the service provider.

Suppression / Penalty

This notice dated 16.03.2020 seeks to make demand for the period from October 2014 to June 2017 by
alleging suppression, which it explicitly presumes from the non declaration of facts in the ST3 Returns
filed. However, the facts remain that we had been duly registered under the Service Tax Rules 1994,
regularly paying the service tax and filing ST3 Returns. Only in the case of M/s Startrek Logistics Pvt.
Ltd.[presently M/s Spoton Logistics Pvt. Ltd.] tax was not paid under the bona fide belief that the
activity is covered by the negative list and not taxable. Moreover, details relating to transactions of a
service covered in the negative list are not required to be declared in the ST3 Returns, unless it is a case
covered by Rule 6 of the CENVAT Credit Rules, 2004 as amended. Otherwise, the transactions have
been duly and openly reflected in the books of accounts maintained in the ordinary course of business,
which were available for any verification or audit at any time and there was no mala fide to suppress
facts. Further, the issue involves interpretation of the taxing statue and as such being contentious,
there is no element of any fraud or suppression or deliberate defiance of the provisions of law or non-
compliance with the provisions of service tax.

As such, no suppression, misstatement or mala fide intention can be attributed to us so as to justify

invoking of longer period of limitation. Hence, the demand is barred by limitation. As regards penalty,
the issue involved is a bona fide legal dispute on the interpretation of law and does not reflect upon any
mala fide intention on our part. Accordingly, the extended period of limitation is not invokable and
penalty is not imposable.
We rely on the following decisions :

KINGFISHER AIRLINES LTD. Vs. CST MUMBI-I 2015 (40) S.T.R. 1159 (Tri. – Mumbai)

INDIAN HOTELS CO. LTD. Vs. CCE 2015 (40) S.T.R. 990 (Tri. – Mumbai)

ANJUMAN ISLAHUL MUSLIMIN Vs. COMMISSIONER [A], C.C.E. & S.T. 2019 (27) G.S.T.L. 685 [Tri-All.]

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JHARKHAND ISPAT PVT. LTD. 2018 (9) G.S.T.L. 300 (Tri. – Kolkata)

CCE Vs. DEEPAK CONSTRUCTION CO. 2018 (9) G.S.T.L. 187 (Tri. – Kolkata)

SUNDARAM FINANCE LTD 2018 (11) G.S.T.L. 305 (Tri. – Chennai)

In view of the foregoing submissions, we request that the proceeding initiated under this notice may
please be dropped.

Yours faithfully,

Encls : as above
 ___________________________________________________
# 1 Agathiar Street, First Floor, ECR, Lawspet, Puducherry-605008
Tel : 0413 2255849, Email : fairlinepny@gmail.com