Case Law Details
M/s. MBA & Company Vs Commissioner of Customs (CESTAT Hyderabad)
The term cargo is not defined in Finance Act, 1994. Therefore, we take the dictionary meaning of the word which refers to goods carried on ship, aircraft or motor vehicle. Thus, for the activity to be classified as cargo handling services, the goods in question must be cargo, i.e., the goods must be put on a motor vehicle or ship or aircraft etc., and moved out of or into factory.
The contract requires the handing to be done within the godown of the mill premises but is silent on whether this handling is meant for movement within the factory or it is handling of cargo to be shifted out of the factory.
Usually, goods are moved within the factory, using material handling equipment such as cranes and forklifts although trucks etc., can also be used. In this case, as per para 3.3 of the agreement, loading & unloading of the reels/reams/bundles/pallets is in trailer/truck in the godown within the mill premises as per the requirement of the company from time to time.
As per para 4 of the agreement, the quantity will be measured on the total dispatches made during the month by day wise stock report. Thus, it is evident that the goods in question are not meant for movement within the factory or godowns but are meant for dispatches.
The primary distinction between the cases relied upon by the assessee and the cases relied upon by the Department is whether the goods moved from the factory or not.
If the goods are moved out of the factory or into the factory they meet the definition of “cargo” and the activities of handling it is “cargo handling service”. We, therefore, find that the activity under taken by the appellant/assessee must be classified as cargo handling service.
FULL TEXT OF THE CESTAT JUDGMENT
Heard both sides and perused the records.
2. The appellant herein have entered into an agreement with M/s ITC Limited, Bhadrachalam as they have the experience to undertake work of loading and unloading of reels/reams/bundles/pallets on to and from trailer/trucks in the godown within the company’s mill. M/s ITC Ltd., appointed the appellant as contractor on the following major terms:
i) the scope of service to be provided by the contractor shall include deputing trained and licensed manpower and supervisors for loading and unloading of reels/reams/bundles/pallets in trailer/truck in the godown within the mill premises of the company.
ii) the contractor shall ensure that it has adequate resources to meet the requirements of the company without engaging any workman beyond eight hours per a day. They undertake loading and unloading of reels/reams/bundles/pallets in trailers/truck in the godown within the mill premises as per the requirement of company from time to
iii) M/s ITC Ltd., will pay them an amount of Rs. 13.68 per MT. The quantity will be measured on the total dispatches made during the month by day wise stock report. The above rates include all wages to the workmen, profit and other expenses under the Workmen Compensation Act.
iv) In addition, M/s ITC Ltd., will reimburse an amount towards the annual leave of the workers as per the eligibility. The appellant have been rendering these services since 17.04.2008 but they had taken a registration of service tax on 13.07.2005 for providing Manpower Supply and Business Auxiliary services. They have not taken any registration for cargo handling services and they have not paid any tax from 01.04.2006 onwards. Further, it is seen from the ST-3 return filed for the half year ending September, 2005 that they paid service tax under the category of Manpower supply and Business Auxiliary service. Show cause notice was issued on 17.04.2008 alleging that services rendered by them do not fall under the category of Business Auxiliary Service but fall under the category of Cargo Handling Services as they involved loading or unloading of reams/ reels/bundles / pallets in trailer/truck in the godown. It was alleged that the Cargo Handling Service is leviable to service tax from 16.08.2002 and a demand of service tax of Rs. 56,54,529/- (including cess paying the differential service tax payable) along with interest was made and it was proposed to impose penalties under Section 76, 77 & 78. Order-in-Original No. 12/2008-ST-ADJN-HYD-III-Commnr. dated 20.11.2008 (impugned Order-in-Original) was passed by the Commissioner after following due process of law, confirming the classification of this service under Cargo Handling Services but reducing tax liability taking the amounts which were received as cum tax value. The Learned Commissionr also confirmed the interest and imposed penalties under Section 76, 77 & 78. The appellant filed an appeal against this order challenging the confirmation of the demand.
The Department also filed an appeal No. ST/316/2009 on the following grounds:
i) Extending the benefit of cum tax value for the period prior to 10.09.2004 is not correct because the concept of cum tax value introducing in 2004 by amending Section 67 of the Finance Act, 1994. It cannot be applied retrospectively as held by the Tribunal in the case of RPG Enterprises Ltd., [2008 (11) STR 448 (Tri. – Mumbai)].
ii) Extending the benefit of cum tax value from the period 09.2004: As per the agreements, the appellant can claim service tax of 10% (or as applicable at the relevant time) from M/s ITC Ltd., on the above payment. Thus, the payment was not inclusive of Service Tax and hence cum tax benefit cannot be given to them.
iii) As per Section 78 the penalty has to be equal to the amount of service tax not levied or paid which is Rs. 54,64,952/- and not Rs. 43,91,890/- as determined by the Commissioner.
3. The Learned Counsel for the appellant narrated the scope of the agreements with the M/s ITC Ltd., and argued that the show cause notice is barred by limitation; the impugned order is based on incorrect interpretation of the law and facts; the Department was aware of the nature of services rendered by the appellant. At the time of obtaining registration under the provisions of service tax, Departmental officers had advised that the services were classifiable under the category of Manpower Recruitment Service and Business Auxiliary Services. They have also paid service tax under these headings; merely because the Revenue now changed its view on the correct classification of the services it would be unfair to allege malafides.
i) even otherwise the appellants noticed that all the services rendered by them are within the premises of the factory and no part of the services rendered by the appellant is outside the premises of the factory area as is evident from the agreement itself. The term “cargo” refers to goods which are moved by train or truck, airplane or other carrier etc., as there is no transport of goods there is no cargo handling of the goods within the factory their services cannot be called cargo handling services. It is only material handling within the The show cause notice is based on mere surmises and conjectures and not based on any evidence. The burden of proof is on the Revenue and it has not discharged the same with any cogent or reasoned evidence.
ii) The entire exercise is Revenue Neutral, since, if the service tax is paid, they can recover the same from M/s ITC Ltd., who, in turn, get credit of the same. Thus, it is Revenue Neutral, both from their point of view and from the point of view of the M/s ITC Ltd., and also from the point of view of the Department and therefore no intention to evade service tax can be alleged on them. There were inadvertent delays and technical lapses on part of the accountant of the assessee in filing figures and tax payment in relation to Manpower Supply and Business Auxiliary Service. Appellants had paid interest for delayed payments. Immediately upon noticing some discrepancy and pending verification of accounts, the appellants had voluntarily paid tax of Rs. 5,70,023/- on 10.03.2008. The Manpower Supply service also includes that the appellant is not merely supplying workers but actually has the responsibility to supervise and execute the work of loading, unloading etc.
iii) the Deputy Commissioner of Labour, Government of Andhra Pradesh has registered them for manpower provision. No penalty can be imposed on them under Section 76 & 78. Appellant had acted under the bonafide belief and no penalty is imposable. He relied on the following case laws:
a) M/s SCRAP Material Handling Co. [2009 –TIOL-588-CESTAT-Delhi] in which, the principal Bench of CESTAT held that mere transportation of goods for purpose of processing within the plant cannot be held as cargo handling service.
b) Modi Construction Co. [2008 (12) STR 34 (Tri. – Kolkata.)] in which, it was held that the service of shifting and transportation of raw materials, waste materials and finished goods from one place to another, inside plant does not amount to cargo handling service.
c) B. Construction Company [2006 (4) STR 545 (Raj.)] in which, it was held that the coal is handled or moved from railway wagons to the site of thermal power station with the aid of wagon tippling system to be fed in boiler bunkers through conveyor system does not amount to providing cargo handling services.
d) K. Thakkar [2008 (9) STR 542 (Tri. – Kolkata)] in which, it was held that the excavation and transportation and feeding of iron ores to crusher plant for processing in the plant does not amount to providing cargo handling services.
e) S. N. Uppar & Co. [2008 (11) STR 34 (Tri. – Bang.)] in which, it was held that the labour supply work as assigned by client carried out inside the factory premises does not amount to providing cargo handling services.
4. The Learned Departmental Representative opposed the appeal of the assessee. He further argued that the demand should have been confirmed as per the show cause notice issued by the Commissioner and penalties imposed accordingly. He argued that, the cum tax benefit given by the Commissioner is not correct because during the relevant period the law did not provide for the same. He relied on the following case laws:
a) Maharaja Group & Associates [2016 (41) STR 681 (Tri.-Delhi)] in which, it was held that the packing stacking and loading of the cement packed bags into wagons and trucks amounts to providing a cargo handling services.
b) J. K. Transport [2006 (2) STR 3 (Tri.- Del.)] in which, the appellant engaged in the contract of loading and unloading Blast furnace granulated slag at the site of M/s ACC Jamul Cement Works, the Tribunal held that it amounts to providing cargo handling service.
c) RPG Enterprises Ltd., [2008 (11) STR 488 (Tri. Mum.)] in which, it was held that the service tax to be paid of gross amount and the gross amount cannot be considered as including service tax as the relevant period was prior to the introduction of the Explanation 2 of Section 67 of the Finance Act, 2004 w.e.f. 10.09.2004.
5. We have considered the arguments on both sides. The following issues needs to be decided:
i) whether the services rendered by the appellant in this case is cargo handling services or not.
ii) whether the extended period of limitation cannot be invoked and demand raised accordingly.
iii) whether the amount paid by M/s ITC Ltd., by the appellant should be considered as cum tax amount or not.
iv)whether interest is leviable on the service tax, if it is payable.
iv) whether penalties under Section 76, 77 & 78 are imposable upon the assessee.
We proceed to deal with the first issue. The cargo handling services has been defined in the Service Tax Act as follows:
“(23)” “cargo handling service” means loading, unloading, packing or unpacking of cargo and includes 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 handing service incidental to freight, but does not include handling of export cargo or passenger baggage or mere transportation of goods.”
The term “cargo” is not defined in Finance Act, 1994. Therefore, we take the dictionary meaning of the word which refers to “goods carried on ship, aircraft or motor vehicle.” Thus, for the activity to be classified as cargo handling services, the goods in question must be cargo, i.e., the goods must be put on a motor vehicle or ship or aircraft etc., and moved out of or into factory. The contract requires the handing to be done within the godown of the mill premises but is silent on whether this handling is meant for movement within the factory or it is handling of cargo to be shifted out of the factory. Usually, goods are moved within the factory, using material handling equipment such as cranes and forklifts although trucks etc., can also be used. In this case, as per para 3.3 of the agreement, loading & unloading of the reels/reams/bundles/pallets is in trailer/truck in the godown within the mill premises as per the requirement of the company from time to time. As per para 4 of the agreement, the quantity will be measured on the total dispatches made during the month by day wise stock report. Thus, it is evident that the goods in question are not meant for movement within the factory or godowns but are meant for dispatches. The primary distinction between the cases relied upon by the assessee and the cases relied upon by the Department is whether the goods moved from the factory or not. If the goods are moved out of the factory or into the factory they meet the definition of “cargo” and the activities of handling it is “cargo handling service”. We, therefore, find that the activity under taken by the appellant/assessee must be classified as cargo handling service. Coming to the second question of extended period of limitation, firstly, it is not in dispute that this is a classification issue and the Department had issued the show cause notice in 2008 whereas, the assessee had been paying service tax under various other headings namely Manpower supply and Business Auxiliary Service from 2005 onwards. Thus, the nature of activity undertaken by the assessee is within the knowledge of the Department from 2005-2006 onwards. Under these circumstances, it appears that the Department has changed its opinion regarding the classification of the services rendered by the assessee. Otherwise, when the fist return was filed for the period ending September, 2005 the Department while scrutinizing the term could have noticed that the assessee has not classified the services appropriately. It is also almost after three years, the show cause notice was issued. We also find strong force in the arguments made by the appellant that the service recipient M/s ITC Ltd., was liable to reimburse the service tax to the appellant as per para 4 of the contract if it was applicable. Therefore, after paying service tax the service recipient M/s ITC Ltd., would have been able to claim credit of the service tax so paid. Thus, the entire exercise is Revenue Neutral from the point of view of the appellant, M/s ITC Ltd., service recipient as well as from the point of view of the Revenue. Thus, we find that there is no ground to invoke extended period of limitation in this case. Thirdly, the benefit of taking the amount received by the appellant as cum duty account is not correct because explanation 2 of Section 67 was not applicable during the part of the relevant period. Further, as per the contract itself, the amount received by the appellant is excluding the service tax amount. However, as we have held that the extended period of limitation is not applicable this decision may become irrelevant. Fourthly, as it is the question of interpretation of classification of services, where the Department appears to have changed its opinion, we find no penalties under Section, 76, 77 & 78 are imposable. The penalties are therefore set aside and the demand along with interest within the normal period of limitation is upheld. The demand for extended period is set aside. The appeal is disposed of as indicated herein above.
(Order pronounced on in open court)
