Case Law Details
Quality Services Vs C.C.E. & S.T. – Rajkot (CESTAT Ahmedabad)
CESTAT Ahmedabad held that supplying labour doesn’t qualify as ‘Cargo Handling Services’. The goods do not become cargo as any movement of goods within the factory does not make it a cargo.
Facts- the appellant had entered into an contract with Rajkot Dairy for the work of dispatch of their products namely, Gopal Milk, Gopal Ghee, Amul Milk, Amul Ghee, Amul Flavoured Milk etc. The activity of dispatch comprises various items like unloading of milk cans and bottles crates from various incoming vehicles, dumping milk in weighment vessels, cleaning of cans, plastic crates, and bottles, putting milk pouch in creates, putting bottles/ pouch in crates, cleaning of pre-pack machine, loading the crates in the vehicle for dispatch, etc. The revenue had sought to classify the service provided by them under the category of ‘Cargo Handling Service’ during the period 2004-2005 to 15.06.2005 and under the category of BAS during the period 2005-2006 (w.e.f. 16.06.2005) and 2006-2007.
This appeal has been filed by quality services against confirmation of demand of service tax and imposition of penalty under Section 77 and 78 of the Finance Act, 1994. However penalty under Section 77 was set aside by the impugned order on the ground that issue is of pure interpretation.
Conclusion- Held that the appellant is supplying labour to their clients and the charges are based on individual item of work given in the table in the work order. It is seen that all the activities are conducted within the factory premises. All the seven activities listed in the table above do not individually quality as ‘Cargo Handling Service’. The appellant in only providing labour on piece rate basis and at no stage it is the appellant who has taken the custody of goods. The goods do not become cargo as any movement of goods within the factory does not make it a cargo.
We notice that the contracts are not in the nature of ‘Cargo Handling’ but are in the nature of labour contract on piece rate basis. Thus, classification of these services under ‘Cargo Handling Service’ cannot be sustained.
FULL TEXT OF THE CESTAT AHMEDABAD ORDER
This appeal has been filed by quality services against confirmation of demand of service tax and imposition of penalty under Section 77 and 78 of the Finance Act, 1994. However penalty under Section 77 was set aside by the impugned order on the ground that issue is of pure interpretation.
1.1 The order of original adjudicating authority not imposing penalty under Section 76 was sustained by the impugned order and the Revenue appeal on that ground was dismissed.
2. Learned counsel for the appellant pointed out that they are in appeal against demand of service tax and interest on services provided by them to M/s Rajkot Dist. Co. Op. Milk Prod. Union Ltd. (hereinafter referred to as Rajkot Dairy) and imposition of penalty under Section 78 of the Finance Act, 1994. He pointed out that the appellant had entered into an contract with Rajkot Dairy for the work of dispatch of their products namely, Gopal Milk, Gopal Ghee, Amul Milk, Amul Ghee, Amul Flavoured Milk etc. The activity of dispatch comprises various items like unloading of milk cans and bottles crates from various incoming vehicles, dumping milk in weighment vessels, cleaning of cans, plastic crates, and bottles, putting milk pouch in creates, putting bottles/ pouch in crates, cleaning of pre-pack machine, loading the crates in the vehicle for dispatch, etc. The revenue had sought to classify the service provided by them under the category of ‘Cargo Handling Service’ during the period 2004-2005 to 15.06.2005 and under the category of BAS during the period 2005-2006 (w.e.f. 16.06.2005) and 2006-2007.
2.1 Learned counsel pointed out that the appellant was registered under the category of Manpower Recruiment and Supply Agency Service and Business Auxiliary Service and was discharging service tax liability under the said heading and was also filing returns accordingly. The audit party sought to classify the services provided by them under the head of ‘Cargo Handling Service’ and raised an objection, which culminated in the present proceedings.
2.2 Learned Counsel relied on the decision of Hon’ble Apex Court in the case of Sushil & Company reported in 2016 (42) STR 625. He argued that in the instant case, the appellant was providing labour to work on the machines of the service recipient which is like the facts in the case of Sushil & Company (supra). He also relied on the decision of Tribunal in the case of Gaytri Construction Co. Reported in 2012 (25) STR (259) to hold that where the entire scope of work is movement of goods within the factory premises, then it does not come under the scope of ‘Cargo Handling Service’. He also relied on the decision of Tribunal in the case of P.R. Nayak Associates reported in 2019 (26) GSTL 91, wherein it has also been held that where goods are moved within the factory, they do not get covered in the scope of service of Cargo Handling.
2.3 He further pointed out that Commissioner (Appeals) has clearly held that the issue involved is of interpretation, and therefore, he has set aside the penalty under Section 76 and 77. He pointed out that on the same ground the benefit of limitation may be allowed to the appellant.
3. Learned Authorized Representative relied on the impugned order. He relied on the following decisions:
- Signode India Ltd. 2017 (50) STR 3 (SC)
- ITW India Ltd. 2007 (8) STR 490 (Tri. Kol)
- Deputy Commr. vs Sushil & Company 2016 (42) STR 625 (SC)
3.1 He pointed out that Hon’ble Apex Court in the case of Signode India Ltd. (supra), it has been held that activity of packing would get covered in the definition of ‘Cargo Handling Service’. He pointed out that similar view has been taken by the Tribunal in the case of ITW India Ltd. (supra).
4. We have considered rival submissions. We find that the appellant are engaged in services which involve unloading of milk cans and bottle crates from various incoming vehicles, dumping milk in weighment vessel, cleaning cans, plastic crates, and bottles, putting milk pouch in crates, putting bottles/pouch in crates, cleaning or pre-pack machine and department, loading the creates in the vehicle for dispatch. We find that all the activities are undertaken by the appellant can be divided in the three categories:
a) Unloading of milk cans and bottle crates from various incoming vehicles, dumpling milk in weighment vessel, cleaning cans, plstic crates, and bottles.
b) Putting milk pouch in crate, putting bottle/pouch in crates. Loading the crates in vehicles for dispatch.
c) Cleaning of pre-pack machines and department.
A typical work order was given to the appellant reads as follows:
WORK ORDER
Taking into consideration the rate of your labor contract and in this regarding in pursuance of the discussion had with you on Date: 26.10.2004 the prevailing current work as per consent letter produced by you vide No. 524/QS/RO4/05/102, Date: 30.03.05 you have been appointed to as labor contractor from 01.04.05 to 31.03.06 binding to all previous terms and conditions
|
Sr. |
Nature of Operations | Approved Rate |
| 1. | Dispatch to dispatch work (Gopal + Amul Pouch per crate) | 0.44 Paisa |
| 2. | Dispatch to dispatch Gopal, Amrut Butter mill per crate | 0.44 Ps. |
| 3. | 5 Ltrs. Milk Pouch work per crate | 1.90 Ps |
| 4. | 200 ml Pouch packing work | 0.45 Ps. |
| 5. | Gopal Ghee Packing work per crate | 0.50 Ps. |
| 6. | Gopal Ghee Cartoon packing work per crate | 0.55 Ps |
| 7. | Amul Cool Gopal Active Flavored packing 200 ml Loading and unloading, cleaning and dispatch to dispatch entire work bottle packing and entire work thereto rate per cartoon of Bottle24 Nos. | 6:25PS |
The work detailed as above to be performed as per annexure annexed with.
The work so assigned by respective departments considering the labor to be kept in coordination with the department head and by and organizing labor contractors thus due to lack of labors no work may suffer delay in their department work allied to lack of labor or supervisors if any question shall arise to be resolved in coordination with the Department head, despite this any question rests to be reporting to undersigned
During currency of work in case due to negligence or indiscipline by labor or supervisor if any question arises and dairy production process gets harm the federation can recovery to as penalty from your monthly Bill.
As the dairy is in the process of getting a license under ISO, all the workers will have to submit the prescribed uniform and ID Card by the administration.
Within 15 day of receipt of the work order, you have to provide all the legal documents and required to pay deposit of Rs. 25000/-.
You have to deduct your workers’ P.F. and the amount of ESI regularly and to be deposited to the in time in the government office. If find any defect about this, necessary steps will be taken.
You shall be bound by the rules laid down in the Agreement and the directions given by the authorized officer of the Union from time to time. According to this order, the given work has to be taken care of.
If the performance is not satisfactory during the term of the contract, then the contract can be terminated with or without giving the necessary notice and if you want to terminate the contract with the union itself, you have to give a notice of 1 month. Also, according to the instructions of Hon’ble Federation, the conditions and bids, deposits, etc., should be signed on the Non Judicial stain paper.
If any question arises during the contract, the decision of the Federation Chairman will be final. It will be binding on you. No legal action will be allowed in this regard. According to this order, must take over the work. General Manager
Another work order reads as follows:
WORK ORDER
“Taking into consideration the rate of your labor contract and in this regarding in pursuance of the discussion had with you on Date: 26.10.2004 the prevailing rate as per current work in progress it is granted to work order for federation for the following work and the field of work area and details of approved rate shall be as under the term of this labor contract is from 16.12.04 to 31.03.05 thereafter work shall be reviewed and decide for term.
|
Sr. |
Nature of Operations | Approved Rate |
| 1. | Reg arranging contract system on Dock as annexed | 0.47 Per. Crane |
| 2. | Dispatch to Dispatch Work 1 Crate 10 Ltr.) | (200 0.44 Paisa per Crate Gram Pouch 40 Nos.) |
| 3. | Buttermilk packing dispatch to Dispatch work (20x pouch per crate) | (1 Crate 100.44 Paisa Ltr. |
| 4. | 5 Liter Milk Pouch Packing work | 1.20 |
| 5. | 200 ml. pouch packing work | 0.45 |
The work detailed as above to be performed as per annexure annexed with.
The work so assigned by respective departments considering the labor to be kept in coordination with the department head and by and organizing labor contractors thus due to lack of labors no work may suffer delay in their department work allied to lack of labor or supervisors if any question shall arise to be resolved in coordination with the Department head, despite this any question rests to be reporting to undersigned.
During currency of work in case due to negligence or indiscipline by labor or supervisor if any question arises and dairy production process gets harm the federation can recovery to as penalty from your monthly Bill.
As the dairy is in the process of getting a license under 150, all the workers will have to submit the prescribed uniform and ID Card by the administration.
Within 15 day of receipt of the work order, you have to provide all the legal documents and required to pay deposit of Rs. 25000/-.
You have to deduct your workers’ P.F. and the amount of ESI regularly and to be deposited to the in time in the government office. If find any defect about this, necessary steps will be taken.
You shall be bound by the rules laid down in the Agreement and the directions given by the authorized officer of the Union from time to time. According to this order, the given work has to be taken care of.
If the performance is not satisfactory during the term of the contract, then the contract can be terminated with or without giving the necessary notice and if you want to terminate the contract with the union itself, you have to give a notice of 1 month. Also, according to the instructions of Hon’ble Federation, the conditions and bids, deposits, etc., should be signed on the Non Judicial stain paper.
If any question arises during the contract, the decision of the Federation Chairman will be final. It will be binding on you. No legal action will be allowed in this regard. According to this order, must take over the work
General Manager”
From the above it is seen that the appellant is supplying labour to their clients and the charges are based on individual item of work given in the table in the work order. It is seen that all the activities are conducted within the factory premises. All the seven activities listed in the table above do not individually quality as ‘Cargo Handling Service’. The appellant in only providing labour on piece rate basis and at no stage it is the appellant who has taken the custody of goods. The goods do not become cargo as any movement of goods within the factory does not make it a cargo.
5. From the above, we notice that the contracts are not in the nature of ‘Cargo Handling’ but are in the nature of labour contract on piece rate basis. Thus, classification of these services under ‘Cargo Handling Service’ cannot be sustained.
6. Revenue has relied on the decision of Signode India Ltd. (supra). In the said case, it has clearly been held that only packing of goods for the purpose of transport would get covered in the category of ‘Cargo Handling Service’. In para 8, 9 and 10 following has been observed:
“8. A careful reading of Section 65(23) of the Act, which defines Cargo Handling Service would go to show that though the word packing is included therein, the same is referable to the word “Cargo” whereas in Section 65(76b) “Packing Activity” is defined to mean “Packaging of Goods”.
9. The distinction between the two expressions, namely, “cargo” and “goods” in the two different provisions of the Act becomes evident if cargo is understood to denote goods which are ready for transportation whereas packaging of goods is a stage prior i.e. before they became cargo and in fact on completion of such packaging the goods become cargo. The position becomes more clear if the dictionary meaning of the word “cargo” is taken into account, as set out below:
As per Black Law Dictionary, the word “cargo” means “Goods transported by a vessel, airplane, or vehicle; According to Oxford Dictionary of English, “cargo” means goods carried on a ship, aircraft, or motor vehicle and as per Webster’s Comprehensive Dictionary, “cargo” is Goods and merchandise taken on board a vessel.
10. Admittedly, the appellant has nothing to do with the transportation of goods which it packs within the factory unit of the principal manufacturer prior to the goods leaving the factory.”
In the above case, it is seen that the entire activity under taken by the appellant is a stage prior to the goods becoming cargo. Thus, the decision is not relevant for the instant case.
7. Consequently, the appeal is allowed and the impugned order is set aside.
(Pronounced in the open court on 28.04.2023)
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