Service tax on gta

Hi friends, please help me regarding service tax issue. The issue is:

My client is a mines owner. He supplies Materials from his mines to Railway Sidings from where the materials are reached to various buyers through rail.

He uses the service of a transporter for transporting the material from his mines to the railway siding. The transporter gives him a bill in which he charges service tax on 25% of the value of the bill (as per Notification No. 32/2004 as amended by Notification No. 13/2008)

Further, my client also issued a bill for transportation on the buyers of the material in which he also charged service tax on 25% of the value of the bill.

Now, as per above notifications, in case of GTA service, ST is to be paid by the Service receiver and that too in cash through GAR-7 challans i.e. the service receiver cannot adjust the liability through cenvat credit. Yes, he may, later on, avail the cenvat credit on the basis of that GAR-7 challan.

Now, the issue is, my client has not deposited any amount as Service Tax on the transport service received by him from the transporter (as a service receiver). Rather, he paid the entire bill amount (including Service Tax) to that transporter. Further, the buyer to whom he issued the transporting bill has also made the full payment (including Service Tax). Now, my client, while filing the Service Tax Return, shown the service tax paid to the transporter as Input Service Tax and the service tax received from the buyer as output service tax and hence, adjusted both of them with each other.

Now, the buyers are demanding a certificate from my client which says:

“We hereby certify that we have deposited Service Tax amounting to Rs……… vide challan no……. dated……, which we have received from XYZ Ltd.(Buyer) against our Bill No……dated……

The said amount have been shown in the half yearly return of the period April to September and further we have neither taken any input/capital goods credit nor availed benefit of Notification No.12/2003 ST dated 20.06.2003 and Notification No. 32/2004 ST dated 03.12.2004 nor taken any refund for the same.

For ABC (my client)

Authorized Signatory”             

Now, I have 2 questions:

1. What is the correct way of complying with Service Tax Rules w.r.t to each party (transporter, my client & the buyer)?
2. What is the remedy as my client has neither deposited any amount as Service Tax and has also availed benefit of Notification No. 32/2004?

Thanks & Regards.