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ST – Law is settled that movement of goods within factory premises cannot be classified as service of cargo handling: CESTAT

2019-TIOL-2309-CESTAT-DEL

IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST BLOCK NO 2, R K PURAM, NEW DELHI-110066
BENCH-DB
COURT NO. IV

Service Tax Appeal No. ST/52008/2016 [DB]

Arising out of Order-in-Appeal No. BHO/EXCUS/001/APP/339/15/16, Dated: 05.04.2016
Passed by the Commissioner (Appeals), Customs, Central Excise and Service Tax, Bhopal

Date of Hearing: 06.03.2019
Date of Decision: 06.03.2019

SHOKAT ALI

Vs

CGST AND CENTRAL EXCISE
BHOPAL

Appellant Rep by: Mr A K Pandey, Adv.
Respondent Rep by: Mr G R Singh, DR

CORAM: Bijay Kumar, Member (T)
Rachna Gupta, Member (J)

ST – The assessee is engaged in providing taxable services falling under category of Cargo Handling Service – Department noticed that the assessee is providing services of cargo handling about handling soya seeds, DOC and coal in the factory premises and for local transport from the factory to Mandideep Railway Station for loading in the racks but they have not paid the appropriate service tax despite that the services of cargo handling have been made taxable w.e.f. 16.08.2002 – Resultantly, vide a SCN, the service tax for the period w.e.f. 2007-08 to 2011-12 was proposed to be recovered alongwith interest under Section 75 of the Finance Act and the penalties under Section 76, 77 and 78 thereof – The main contention of assessee is that the activity rendered by him is mainly of transportation that too not even being a GTA – The opening line makes it clear that the contract is for transportation and loading of cargo from factory at Mandideep to railway goods shed – The contract has 13 terms therein – Cumulative reading and the apparent interpretation, is that the contract was entered into with an intention for the products of M/s Bhaskar Exxoils Pvt. Ltd. to be transported from their factory to the railway shed – It is also apparent from the contract that in fact the goods were loaded from the factory into the trucks of assessee and were directly transferred to the railway wagons except in case of delay where an additional charge of Rs. 1 per bag has been agreed to be paid for the labour charges – It becomes clear that the activity actually is of trans-shipment of goods through the trucks of assessee – Loading thereof was merely incidental – Coming to the second aspect of adjudication, apparently and admittedly, the value relied upon by the Department does not merely include the transport/freight charges rather in addition includes charges as that of freight on DOC (rate), freight on soya seed purchased (agricultural produce) – Further, it is observed that these freights are for the movement of the soya seed, produced, within the factory premises – The law has already been settled that the movement of goods within the factory premises cannot be classified as the service of cargo handling – Inclusion of all such prices in the impugned demand is therefore highly unjustified on the part of the adjudicating authorities – The factum of the bifurcation of amount received is also apparent from the statement of Shri MP Singh, Manager Finance of M/s Bhaskar Exxoils Pvt. Ltd – The said statement has duly been relied upon by the Department itself as is apparent from the SCN – The silence of adjudicating authority qua the said clarification is therefore opined unreasonable – The second controversy also stands decided in favour of assessee – The demand is otherwise observed as being barred by time except for the one year thereof, period of demand being 2007-08 to 2011-12 and SCN being of October 2012 – There is no apparent evasion on the part of assessee – The taxable service stands already been paid under reverse charge mechanism by M/s. Bhaskar Exxoils Pvt. Ltd., the recipient of transport service – Seeing from this angle as well, the demand confirmed is not sustainable: CESTAT

Appeal allowed

Case laws cited:

Shreem Coal Carriers Pvt. Ltd. Vs. C.C., Nagpur – 2014-TIOL-2975-CESTAT-MUM… Para 8

R.K. Transport Company Vs. C.C.E., Raipur 2012 (27) S.T.R. 469 (Tri. – Delhi)… Para 8

FINAL ORDER NO. 50398/2019

Per: Rachna Gupta:

The appellant herein is engaged in providing taxable services falling under the category of Cargo Handling Service as defined under Section 65 (23) of the Finance Act, 1994 (the Act, hereinafter). Department on an intelligence gathered, noticed that the Appellant is providing the services of cargo handling about handling soya seeds, DOC, coal, etc. in the factory premises and for local transport from the factory to Mandideep Railway Station for loading in the racks but they have not paid the appropriate service tax despite that the services of cargo handling have been made taxable w.e.f. 16.08.2002. Resultantly, vide a SCN No. 9417 dated 15.10.2012 the service tax amounting to Rs. 45,94,688/- for the period w.e.f. 2007-08 to 2011-12 was proposed to be recovered alongwith the interest under Section 75 of the Finance Act and the penalties under Section 76, 77 and 78 thereof. The said proposal was confirmed initially vide Order-in-Original No. 25 dated 26.03.2014. The Appeal thereof was rejected vide the Order-in-Appeal No. 339-15-16 dated 05.04.2016. Being aggrieved thereof, the appellant is before this Tribunal.

2. We have heard Mr. A.K. Pandey, Ld. Advocate for the appellant and Mr. G.R. Singh, Ld. DR for the Department.

3. It is submitted on behalf of the appellant that the activity of the appellant was that of the local transport of the cargo/ goods from the factory to Mandideep Railway Station. It is submitted that appellant is merely a truck owner and is in the business of transporting goods for the various people without even issuing the consignment notes. It is impressed upon that the activity was merely transportation of the goods which is specifically excluded from the definition of cargo handling. Otherwise also, the transportation was of the export cargo which also stands excluded from being called as a cargo handling. In addition, it is submitted that the demand confirmed has covered the entire payment received by the appellant which includes not merely the transportation charges but also the charges for handling soya seeds, the agricultural produce, and for the transfer thereof even within the factory. All those charges have also been considered as the charges towards the transportation for cargo handling. The proposal and the confirmation thereof is, therefore, alleged as inappropriate and unjustifiable. The Order under challenge is accordingly prayed to be set aside and Appeal is prayed to be allowed.

4. While rebutting these arguments, Ld. DR has impressed upon the contract as entered into by the appellant, emphasizing that the contract was mainly for the loading of the cargo. Para 9 thereof has been made major emphasis impressing upon that the agreed price at the rate of Rs. 63 per MT of cargo loaded is mentioned to have included the transportation charges as well. It is submitted that the intent of contract is clear that the transportation was not the main activity rather it was the loading of the cargo. Hence, there is no infirmity while confirming the alleged impugned demand. With respect to the charges, Ld. DR has brought to our notice the letter of the appellant bearing No. 1 dated 28.03.2011 where the appellant himself had given the bifurcation of the payments received. The said details have duly been recorded in the SCN, para 10 thereof. Perusal makes it clear that the major payment was received against the handling charges. Seeing from any angle, the Order under challenge has no infirmity. Appeal is accordingly prayed to dismissed.

5. After hearing both the parties at length and perusing the entire record of the appeal we are of the opinion as follows:

5.1 Two controversies need adjudication here –

(i) whether the service as rendered by the appellant amounts to cargo handling service.

(ii) whether the entire amount received by the appellant is for the alleged cargo handling service only.

5.2 While adjudicating upon the first controversy, the definition of cargo handling is foremost relevant to be looked into. The term ‘Cargo Handling Service’ has been defined under Section 65(23) of the Finance Act, 1994 which reads as follows:

“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 handling service incidental to freight; and

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.

The CBEC had clarified vide Circular No. 1/2002 dated 01.08.2002 that the services liable to tax are thos provided by cargo handling agencies who undertake the activity of packing, unpacking, means loading and unloading of goods meant to be transported by any means of transportation namely truck, rail, ship or aircraft. The notice has undisputedly undertaken the activity of loading and unloading the goods meant to be transported.

The perusal thereof makes it clear that for anything to be defined as cargo handling service, it should be a bundle of activities as that of loading, unloading, packing or unpacking of the cargo alongwith providing for freight with or without the containers. The definition itself has an exclusion clause for excluding handling of export cargo or passenger baggage. Even mere transportation of goods is also specifically excluded.

6. The main contention of the appellant is that the activity rendered by him is mainly of transportation that too not even being a GTA. It has been submitted that otherwise also, the liability for transportation has been discharged by M/s. Bhaskar Exxoils Pvt. Ltd., the recipient of the services, under reverse charge mechanism. The same was informed at the time of submitting reply to the SCN vide letter dated 13.03.2018. We observe that the said submission in the said reply has nowhere otherwise been denied by the Department.

7. To appreciate the main contention of the appellant, we look into the contract. The opening line makes it clear that the contract is for transportation and loading of cargo from factory at Mandideep to railway goods shed. The contract has 13 terms therein. Cumulative reading and the apparent interpretation, to our opinion for these terms is that the contract was entered into with an intention for the products of M/s Bhaskar Exxoils Pvt. Ltd. to be transported from their factory to the railway shed. It is also apparent from the contract that in fact the goods were loaded from the factory into the trucks of the appellant and were directly transferred to the railway wagons except in case of delay where an additional charge of Rs. 1 per bag has been agreed to be paid for the labour charges. It becomes clear that the activity actually is of trans-shipment of the goods through the trucks of the appellant. We are of the firm opinion from the terms of this agreement that loading thereof was merely incidental. Though Ld. DR has laid emphasis on para 9 thereof which reads that the agreed value per metric ton is inclusive of transportation while emphasizing that transportation is not the main activity but we are not convinced with the said submission in the light of the remaining other 12 terms and conditions. Use of word ‘inclusive of transportation’ is opined to be a mere language error. The main activity of the appellant appears to be that of the transportation.

8. From the Order under challenge we observe that the Ld. Adjudicating Authority while confirming the demand has relied upon the case law of Shreem Coal Carriers Pvt. Ltd. Vs. C.C., Nagpur 2015 (37) S.T.R. 1067 (Tri. – Mumbai) = 2014-TIOL-2975-CESTAT-MUM. We observe that the said decision stands no more a good law. We draw our support from the decision of R.K. Transport Company Vs. C.C.E., Raipur 2012 (27) S.T.R. 469 (Tri. – Delhi) which reads as follows:

“Nothing in the two contracts indicates that these contracts had any significant component of cargo handling other than transportation. In the activities carried out by the appellants there appears to be a small component of loading and unloading of cargo. The contract with BALCO has an integrated rate of Rs. 485 per ton for mining, transportation, loading and unloading. IN the case of HINDALCO there are two components in the compensation rate, one for mining and other for transportation. No separate activity of cargo handling is mentioned or rate specified. Obviously the component for transportation will depend on the distance of transportation. But the main activities are that of mining and transportation. By now it is well settled that handling or transportation of goods within a factory or mining area does not amount to cargo handling because at that stage the goods are not cargo within the common meaning of the word. AS per records of the case, on the entire component of transportation the receiver of the service has already paid service tax under the category of services of transportation of goods by road. No separate component of compensation for loading and unloading is seen from the contract. IN this respect, the contract under consideration is different from the contract considered in the case of Gajanand Agarwal where there was a rate for loading of railway wagons based on the number of wagons loaded. In the contracts under consideration there is a predominant activity of transportation. The cargo handling activity is incidental to transportation. Revenue’s attempt to convert such services into cargo handling service to deny the abatement available to value of services of transportation of goods by road is too farfetched to find any legal support. It can be seen from clause 4 of the contract with HINDLCO that the base transportation charge was fixed at Rs. 588 per ton for a distance of 460 Km. There is no attempt to show that this is an unreasonable rate for transportation, jacked up on account of value of cargo handling incidental to freight. The definition does not specifically include transportation. It specifically excluded ‘mere transportation’. So the definition cannot be interpreted to mean that if a transporter who transports goods for 460 Km does loading and unloading also, the service rendered by the transporter will no longer be transportation but cargo handling service. So we see merit in the contention of the appellants that they were providing services of transportation of goods and not cargo handling service.”

In view of the entire above discussion, we adjudicate the first controversy in favour of the appellant holding that the services rendered by the appellant do not amount to cargo handling service.

9. Coming to the second aspect of adjudication, apparently and admittedly, the value relied upon by the Department does not merely include the transport/ freight charges rather in addition includes charges as that of freight on DOC (rate), freight on soya seed purchased (agricultural produce). Further, it is observed that these freights are for the movement of the soya seed, produced, within the factory premises. The law has already been settled that the movement of goods within the factory premises cannot be classified as the service of cargo handling. Inclusion of all such prices in the impugned demand is therefore highly unjustified on the part of the adjudicating authorities.

10. The factum of the bifurcation of the amount received is also apparent from the statement of Shri MP Singh, Manager Finance of M/s Bhaskar Exxoils Pvt. Ltd. The said statement has duly been relied upon by the Department itself as is apparent from the SCN. The silence of the adjudicating authority qua the said clarification is therefore opined unreasonable. Seeing from this discussion, the second controversy also stands decided in favour of the appellant.

11. The demand is otherwise observed as being barred by time except for the one year thereof, period of demand being 2007-08 to 2011-12 and SCN being of October 2012. There is no apparent evasion on the part of the appellant. The taxable service stands already been paid under reverse charge mechanism by M/s. Bhaskar Exxoils Pvt. Ltd., the recipient of transport service. Seeing from this angle as well, the demand confirmed is not sustainable. Order under challenge is set aside; Appeal stands allowed with consequential benefits, if any.

(Dictated and pronounced in the open Court)

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