Handling of export cargo is excluded from taxability and cannot be said as exempted service

St. John CFS Park Private Limited Vs Commissioner of Central Excise (CESTAT Chennai)

CESTAT Chennai held that handling of export cargo is excluded from the purview of service tax. The same is not exempted service. In nut-shell, any activity on which no service tax is payable doesn’t make such activity an exempted service.

Facts- The appellant is a Cargo Handling Agency engaged in providing services under the category of cargo handling service, management maintenance or repair service, storage and warehousing service and goods transport agency service. It appeared that the appellant had availed CENVAT Credit of Service Tax paid on hire charges for the use of Fork Lift and Cranes for providing cargo handling services in the Inland Container Depot, which were hired from M/s. St. John Heavy Equipment Ltd., for loading, unloading and transporting both export and import cargos.

Entertaining thus a doubt that the handling of export cargo was not amenable to Service Tax being an exempted service, the Department issued Show Cause

Notices proposing that the appellant was not eligible to take CENVAT Credit of the input services since no separate accounts of input service were maintained in terms of Rule 6 of the CENVAT Credit Rules (CCR), 2004 as, apparently, common input services were used for providing both taxable and exempted services and that, therefore, the appellant was liable to pay duty on the value of services rendered and received in respect of export of cargo, equal to 8% or 6%, along with applicable interest and penalty.

Conclusion- We are thus of the clear view that the words “does not include” in the definition of cargo handling service takes the service very much out of the purview of taxability, thereby touching upon the jurisdiction of the taxing authority and hence, the same, at no stretch of imagination, could be held or equated with an exempted service. Hence, the services rendered by the appellant in this case, insofar as the same related to the handling of export cargo, is excluded from taxability and thus, the same cannot be brought as ‘exempted’ under Rule 2(e) ibid. Once it is held as ‘excluded’, there is also no scope to consider the same as an ‘exempted’ service just for the purposes of Rule 6 of the CENVAT Credit Rules, 2004.

FULL TEXT OF THE CESTAT CHENNAI ORDER

This appeal is filed by the assessee against the Order-in-Appeal No. 103/2012 dated 26.11.2012 passed by the Commissioner of Central Excise (Appeals), Madurai.

2. Brief and undisputed facts, which are relevant for our consideration are as under.

2.1 The appellant is a Cargo Handling Agency engaged in providing services under the category of cargo handling service, management maintenance or repair service, storage and warehousing service and goods transport agency service. It appeared that the appellant had availed CENVAT Credit of Service Tax paid on hire charges for the use of Fork Lift and Cranes for providing cargo handling services in the Inland Container Depot, which were hired from M/s. St. John Heavy Equipment Ltd., for loading, unloading and transporting both export and import cargos.

2.2 Entertaining thus a doubt that the handling of export cargo was not amenable to Service Tax being an exempted service, the Department issued Show Cause Notices, as under: –

(1) Show Cause Notice No. 26/ADC/ST/2010 dated 20.10.2010 covering the period from 01.04.2009 to 31.03.2010; and

(2) Show Cause Notice No. 22/ADC/ST/2011 dated 15.09.2011 covering the period from April 2010 to March 2011

proposing, inter alia, that the appellant was not eligible to take CENVAT Credit of the input services since no separate accounts of input service were maintained in terms of Rule 6 of the CENVAT Credit Rules (CCR), 2004 as, apparently, common input services were used for providing both taxable and exempted services and that, therefore, the appellant was liable to pay duty on the value of services rendered and received in respect of export of cargo, equal to 8% or 6%, along with applicable interest and penalty.

2.3 It appears that the appellant filed its reply in response to the Show Cause Notices, but however, not satisfied with the replies, the Adjudicating Authority, after due process, proceeded to confirm the demands, as proposed, vide common Order-in-Original No. 14/ADC/ST/2011 dated 30.12.2011.

3. Feeling aggrieved, the appellant preferred appeal before the First Appellate Authority and the First Appellate Authority having dismissed their appeal by upholding the demands in the Order-in-Original, the same has been assailed by the appellant in this appeal before this forum.

4. Heard Smt. Radhika Chandrasekhar, Learned Advocate for the appellant and Shri M. Ambe, Learned Deputy Commissioner for the Revenue.

5. The contentions of the Learned Advocate for the appellant could be summarized as below: –

(i) The appellant is not engaged in providing any exempted service, as defined under Rule 2(e) of the CCR, 2004.

(ii) The Fork Lifts and Cranes were used for handling the cargo meant for export, which per se cannot be treated as an exempted service.

(iii) There is no provision in the Finance Act to treat the activity as “exempted” unless it is so specified under Rule 2(e)

(iv) Any activity on which no Service Tax is payable does not make such activity an exempted service.

(v) These services, alleged to have been provided by the appellant, were in respect of export cargo and hence, the same is outside the ambit of Service Tax.

(v) When cargo handling services were brought under the Service Tax net, the Board itself had clarified that the services provided in relation to export of cargo and passenger baggage were excluded from the tax net.

(vii) The Board had clarified vide Circular No. 868/6/2008 dated 09.05.2008 that export of service without payment of Service Tax would not be treated as exempted service for the purpose of the CCR, 2004.

(viii) Unless and until a transaction is considered as an “exempted service”, Rule 6(3) of the CCR could not be invoked.

(ix) Even the amended definition of Rule 2(e) of the CCR specifically excluded the service which is exported, in terms of Rule 6A of the Service Tax Rules, 1994.

(x) Reliance was placed on the following decisions/orders: –

(a) Commissioner of C.Ex., Mangalore v. Konkan Marine Agencies [2009 (13) S.T.R. 7 (Kar.)];

(b) Ruth Shipping Agencies Pvt. Ltd. v. Commr. of C.Ex., Thirunelveli [2010 (19) S.T.R. 39 (Tri. – Chennai)];

(c) Reliance Industries Ltd. v. Commissioner of C.Ex., Mumbai-III [1999 (112) E.L.T. 653 (Tribunal)];

(d) India Poly Fibres Ltd. v. Collector of C.Ex., Allahabad [1999 (111) E.L.T. 48 (Tribunal)];

(e) JCT Ltd. v. Commissioner of C.Ex., Chandigarh [1999 (114) E.L.T. 618 (Tribunal)];

(f) Commissioner of C.Ex., Vadodara v. Steelco Gujarat Ltd. [2000 (121) E.L.T. 557 (Tribunal)];

(g) Samcar Glass Ltd. v. Commissioner of C.Ex., Jaipur [2001 (128) E.L.T. 464 (Tri. – Del.)];

(h) Commissioner of C.Ex., Baroda v. Panchmahal Steel Ltd. [2002 (144) E.L.T. 573 (Tri. – Mum.)];

(i) Punjab Stainless Steel Industries v. Commissioner of Ex., Delhi-I [2008 (226) E.L.T. 587 (Tri. – Del.)];

(j) Commissioner of C.Ex, Chennai v. Indian Organic Chemicals Ltd. [2001 (138) E.L.T. 209 (Tri. – Chennai)];

(k) The India Cements Ltd., Sobha Developers Ltd. & ors. v. Commissioner of Central Excise, Hyderabad & ors. [Appeal No. E/483/2010 & ors. – Final Order Nos. 85 to 99/2012 dated 08.02.2012 – CESTAT, Bangalore];

(l) Sobha Developers Ltd. v. Commissioner of C.Ex., LTU, Bangalore (Appeal No. ST/569/2008 & ors.) [2011-TIOL-1170-CESTAT-BANG].

6.1 Per contra, the Learned Deputy Commissioner for the Revenue relied on the findings of the lower authorities. He would also submit that the scope of Section 65(105) of the Finance Act, 1994 excludes the handling of export cargo from “taxable service” and thus, Service Tax is not leviable under Chapter V of the Finance Act, 1994 as the same is exempted.

6.2.1 He would distinguish the ratio of the case in M/s. Konkan Marine Agencies (supra) on the ground that the facts were totally different and so also the applicable Service Tax provisions.

6.2.2  With regard to M/s. Ruth Shipping Agencies Pvt. Ltd. (supra), he would contend that the said order dealt with the secondary services used by the primary service provider, that is to say, the case dealt with brokerage charges from steamer agent for providing services under business auxiliary service, which fact is not applicable to the facts of the case on hand.

6.2.3 Similarly, he would submit that the facts in the other cases relied upon by the Learned Advocate for the appellant, like M/s. Reliance Industries Ltd. (supra), M/s. India Poly Fibres Ltd. (supra), M/s. Steelco Gujarat Ltd. (supra), M/s. Samcar Glass Ltd. (supra), M/s. Panchmahal Steel Ltd. (supra) and M/s. Punjab Stainless Steel Industries (supra) dealt with inputs used in export goods, either in MODVAT regime or CENVAT regime and that in all those cases, the exported goods were dutiable goods, but duties were not exported.

7. We have heard both sides and considered the rival contentions. We find that the only issue that arises for our consideration is: whether the Revenue is justified in demanding Service Tax at the rate of 8/6% of the value of services rendered and received in respect of export of cargo by treating the handling of export cargo as an exempted service?

8. Section 65 (23) of the Finance Act, 1994 defines “cargo handling service”, which reads as under: –

“(23) “cargo handling service” means loading, unloading, packing or unpacking of cargo and includes, —

(a) cargo handling services provided for freight in special containers or for non-containerised freight, services provided by a container freight terminal or any other freight terminal, for all modes of transport, and cargo handling service incidental to freight; and

(b) service of packing together with transportation of cargo or goods, with or without one or more of other services like loading, unloading, unpacking,

but does not include, handling of export cargo or passenger baggage or mere transportation of goods;”

(Emphasis supplied by us, in bold, for clarity)

9. The definition of “taxable service” as per Section 65(105) of the Finance Act, 1994, reads as under: –

“(105) “taxable service” means any service provided or to be provided, –

…..”

and sub-clause (zr) of Section 65(105) of the Act is extracted here in below: –

“(zr) to any person, by a cargo handling agency in relation to cargo handling services;”

10. The contentions of the Learned Counsel are to be examined in the light of the above definition to ascertain whether the cargo handling service alleged to be rendered by the appellant could be considered as handling the cargo meant for export and thereby, an exempted service.

11. The Learned Departmental Representative has referred to the provisions of Section 66 ibid., which reads as under: –

“Section 66. Charge of service tax –

There shall be levied a tax (hereinafter referred to as the service tax) at the rate of twelve per cent. of the value of taxable services referred to in sub-clauses (a), (d), (e), (f), (g,) (h), (i), (j), (k), (l), (m), (n), (o), (p), (q), (r), (s), (t), (u), (v), (w), (x), (y), (z), (za), (zb), (zc), (zh),(zi), (zj), (zk), (zl), (zm), (zn), (zo), (zq), (zr), (zs), (zt), (zu), (zv), (zw), (zx), (zy), (zz), (zza), (zzb), (zzc), (zzd), (zze), (zzf), (zzg), (zzh), (zzi), (zzk), (zzl), (zzm), (zzn), (zzo), (zzp), (zzq), (zzr), (zzs), (zzt), (zzu), (zzv), (zzw), (zzx), (zzy), (zzz), (zzza), (zzzb), (zzzc), (zzzd), (zzze), (zzzf), (zzzg,) (zzzh), (zzzi), (zzzj), (zzzk), (zzzl), (zzzm), (zzzn), (zzzo), (zzzp), (zzzq), (zzzr), (zzzs), (zzzt), (zzzu), (zzzv), (zzzw), (zzzx), (zzzy), (zzzz), (zzzza), (zzzzb), (zzzzc), (zzzzd), (zzzze), (zzzzf), (zzzzg), (zzzzh), (zzzzi), (zzzzj), (zzzzk), (zzzzl), (zzzzm) (zzzzn), (zzzzo), (zzzzp), (zzzzq), (zzzzr), (zzzzs), (zzzzt) (zzzzu), (zzzzv) and (zzzzw) of clause (105) of section 65 and collected in such manner as may be prescribed.”

12.1 Rule 2(e) of the CENVAT Credit Rules, 2004, during the relevant period, reads as under: –

“Rule 2. Definitions. — In these rules, unless the context otherwise requires, –

…..

(e) “exempted services” means taxable services which are exempt from the whole of the service tax leviable thereon, and includes services on which no service tax is leviable under section 66 of the Finance Act;”

12.2 Rule 2(e) ibid., as it stood during 2011 (w.e.f. 01.04.2011), reads as under: –

“Rule 2. Definitions. — In these rules, unless the context otherwise requires, –

…..

(e) “exempted services” means taxable services which are exempt from the whole of the service tax leviable thereon, and includes services on which no service tax is leviable under section 66 of the Finance Act [and taxable services whose part of value is exempted on the condition that no credit of inputs and input services, used for providing such taxable service, shall be taken.

Explanation: For the removal of doubts, it is hereby clarified that “exempted services” include trading];”

13. It is clear from the definition under Rule 2(e) ibid.,as was applicable for the periods under dispute, that an exempted service is one on which no Service Tax is leviable. That is to say, but for the fact that it is exempted, otherwise the tax is leviable. Further, no service could be treated as an exempted service unless it is specified so under Rule 2(e) ibid.

14.1 The definition of “cargo handling service” per Section 65 (23) ibid. clearly excludes the handling of export cargo and hence, the lis between the appellant and the Revenue here is whether the ‘exclusion’ tantamounts to ‘exemption’ and consequently, whether the same could be brought within the definition under Rule 2(e) ibid.

14.2  The Hon’ble High Court of Karnataka in the case of M/s. Konkan Marine Agencies (supra), while interpreting the scope of cargo handling service, has held as under: –

“14. A bare reading of the aforesaid definition further makes it clear as day that in any case handling of export cargo would not attract service tax at all. After having gone through the aforesaid definition, it leaves no amount of doubt in our mind that such a service tax could not have been levied on the assessee which was handling loading of cargo, meant for export purpose.”

14.3 Further, in the context of Service Tax levy on export of services, the Board vide Circular No. 56/5/2003-S.T. dated 25.04.2003 has clarified as under: –

“3. The Board has examined the issue. In this connection I am directed to clarify that the Service Tax is destination based consumption tax and it is not applicable on export of services. Export of services would continue to remain tax free even after withdrawal of Notification No. 6/99, dated 9-4-99. Further it is clarified that service consumed/provided in India in the manufacture of goods which are ultimately exported, no credit of service tax paid can be availed or reimbursed at present as inter-sectoral tax credit between services and goods are not allowed.”

15.1 The above discussion identifies “exclusion” and “exempted” as two different categories. Broadly, for our understanding we may correlate this with the jurisdiction of civil courts. Under taxing statutes, there is no dispute that against an Assessment Order or Adjudication Order, an appeal lies with the authorities specified and that ‘excludes’ the jurisdiction of civil courts. To continue further, every citizen needs to file Income Tax Return, subject to exemptions, like those earning less than Rupees Five Lakhs (as fixed by the Central Government in the Annual Budget) need not file the same, but it excludes those who are having no income at all.

15.2  Viewed thus, the services which are ‘excluded’ cannot be given the colour of ‘exemption’ just to fit it somewhere so that a benefit flowing from the statute to a taxpayer is denied.

16. We are thus of the clear view that the words “does not include” in the definition of cargo handling service takes the service very much out of the purview of taxability, thereby touching upon the jurisdiction of the taxing authority and hence, the same, at no stretch of imagination, could be held or equated with an exempted service. Hence, the services rendered by the appellant in this case, insofar as the same related to the handling of export cargo, is excluded from taxability and thus, the same cannot be brought as ‘exempted’ under Rule 2(e) ibid. Once it is held as ‘excluded’, there is also no scope to consider the same as an ‘exempted’ service just for the purposes of Rule 6 of the CENVAT Credit Rules, 2004.

17. In view of the above discussions, we hold that the Revenue is not justified in demanding the Service Tax by treating the handling of export cargo as an exempted service and consequently, we set aside the impugned order and allow the appeal.

(Order pronounced in the open court on 12.04.2023)