By TIOL News Service

MUMBAI, DEC 11, 2014: THE CCE, Thane-II confirmed a total service tax demand of Rs.58.53 crores against the appellant by concluding that the services provided by the appellant merit classification under the category of 'Cargo Handling Services'.

In the matter of the Stay applications filed by the appellant, the CESTAT had inter alia came to the prima facie conclusion that the activity of stevedoring, unloading, transportation from the mothership to the jetty in barges and, thereafter, to the customers' destination are all the activities which form a composite service classifiable under the head of 'Cargo Handling Service' as defined under Section 65(23) of the Act. However, so far as the issue of transport of goods from one minor port to another minor port was concerned, the impugned order dated 4 September 2013 prima facie concluded that the same cannot be classified under the head 'Cargo Handling Service'. The Bench had accordingly ordered the appellant to make a pre-deposit of Rs.25 crores after noting that no financial hardship had been pleaded.

The appellant had filed an appeal in the Bombay High Court against this order of pre-deposit and the High Court had ordered thus-

7. We have considered the rival submissions. We find that the issue on merits would require detailed consideration which could appropriately be done at the final hearing. However, we note that the Tribunal has not considered the contention of the appellant that the demand to the extent of Rs.28 Crores is time barred. We find that the appellant has a strong prima facie case with regard to the limitation in view of the fact that as late as in February 2008, the audit wing of the Department carried out a detailed examination of the appellant's activities including barging and directed the appellant to pay service taxes under the head 'Port Services'. Thus, the department itself was of the view that the activity of barging is not classifiable under the head 'Cargo Handling Service'. However, all of a sudden for the first time in its show cause notice dated October, 2008, the above service was sought to be classifiable under the head 'Cargo Handling Service'. Therefore, considering the overall prima facie case on limitation and that the demand of approximately Rs.7 Crores attributable to transport of goods from one minor port to another, is prima facie held to be not sustainable, the pre-deposit would need to be reduced. It would meet the ends of justice if the appellant is directed to deposit an amount of Rs.10 Crores for the purpose of its appeal being entertained on merits by the Tribunal, including the amount of Rs.5 Crores already appropriated by the Department.

We reported this order as - 2014-TIOL-127-HC-MUM-ST.

The appeals were heard recently and after considering the exhaustive submissions made by both sides the Bench inter alia observed thus -

(a) Whether barge (shipping) charges collected towards transportation of the imported goods from the mother vessel anchored at Bombay Floating Lights to Dharamtarjetty where the goods were unloaded, which forms part of the transaction value of the imported goods can be once again levied to service tax under the category of cargo handling services?

++ Since the transaction involves a customs transaction and a service transaction, it is necessary to decide where the customs transaction ends and the service transaction begins.

++ The issue as to what constitutes 'imports' has been settled by the apex court in the case of Garden Silk Mills Ltd. - 2002-TIOL-19-SC-CUS. Thus when the goods are being transported by the barges from the mother vessel to the jetty onshore, that activity is part of the import transaction of bringing the goods into India from a place outside India. The question of rendering any service in respect of such goods by way of cargo handling or otherwise can take place only after the customs transaction is completed. Therefore, the question of levying to service tax the transportation by barges from the mother vessel to the jetty onshore, would not arise at all since the said activity is part of the import transaction leviable to import duty and we hold accordingly.

++ This is also evident from the fact that section 14 of the Customs Act, 1962 relating to determination of value of imported goods for the purposes of levy of customs duty and the Customs Valuation Rules, 2007 were amended (w.e.f 10.10.2007) to specifically include barge charges and handling charges in the transaction value of the imported goods vide Finance Act, 2007 to overcome the adverse decision in the case of Ispat Industries- 2006-TIOL-127-SC-CUS.

++ Thus the question of demand of service tax on barge charges and the handling charges connected therewith would not arise at all with effect from 10/10/2007 as they form an integral part of the transaction value for levy of customs duty. Even for the period prior 10-10-2007, the same position would apply for the reason that the import transaction is complete only when the goods reach the customs barriers and the bill of entry for home consumption is filed.

(b) Whether in a composite contract for transportation services and cargo handling services which provides for separate rates for these activities, can service tax be levied under a single category of cargo handling service, by treating transportation as sub-ordinate to cargo handling?

++ This issue has been settled in favour of the appellant and against Revenue by this tribunal in a number of cases. Hira Industries Ltd. - 2012-TIOL-566-CESTAT-DEL Jet Airways (India) Ltd vs. Commissioner of Service Tax, Ahmedabad - 2008-TIOL-979-CESTAT-AHM and R.K. Transport Company vs. CCE, Raipur - 2012-TIOL-290-CESTAT-DEL refers. Following the ratio of these decisions, we answer this question in favour of the appellant and against the Revenue, in the facts of the case before us.

++ The CBEC Circular B/11/1/2002-TRU dated 01/08/2002 also makes this position very clear. In Annexure II to the said circular, in para 4 thereof, it has been clarified if the bills raised for the services rendered indicates the amount charged for cargo handling and transportation separately on actual basis, then the tax would be leviable only on the cargo handling charges. The contracts entered into with the customers show separately the charges towards shipping charges of cargo from Mother Vessel to Dharamtar jetty. Therefore, there is no merit in the contention that transportation charges should be included in the value of taxable services in respect of cargo handling service.

(c) Whether coastal transportation of goods is leviable to service tax under cargo handling services?

++ Transport of coastal goods and goods transported through inland water came under the purview of service tax levy vide Finance Act, 2009, with effect from 06/07/2009.

++ Vide notification No. 30/2009-ST dated 31/08/2009 transport of coastal goods in respect of items specified in the Table annexed thereto were exempt from service tax. The appellant herein undertook coastal transportation of fertilizers, which is one of the items specified in the notification as eligible for exemption.

++ It is a settled position in law that when a new entry is brought under service tax levy, the same activity cannot be subjected to levy under an existing entry unless the new entry is carved out of the existing entry as held in Indian National Shipowner's Association - 2008-TIOL-633-HC-MUM-ST. Therefore, there cannot be any demand for service tax on coastal transportation of goods prior to July, 2009. Further the goods transported by the appellant is also covered by Notification 30/2009-ST. The demand of service tax under the category of cargo handling service has to be set aside especially when the activity is squarely covered under the entry of coastal transportation of goods.

(d) Is extended time period invokable in the facts of the present case for confirmation of service tax demand and consequent imposition of penalty?

++ In the present case, the Department initially sought to recover the tax under the entry for ''Port Services' vide letter dated 22.02.2008 but changed its stance to 'Cargo Handling Service' upon being informed by the Appellant vide letter date 27.02.2008 that it did not possess the requisite port authorisation for the barging to be classified under 'Port Services'. Uniworth Textiles Ltd. vs. CCE, Raipur - 2013-TIOL-13-SC-CUS refers.

++ The facts available on record clearly show that the department itself was not clear as to the classification of service rendered by the appellant and has been changing their stand. In such a scenario, the allegation of suppression with intent to evade service tax cannot be sustained. Thus the appeal succeeds on account of time bar also apart from merits.

Held: The orders classifying the services rendered by the appellant under "cargo handling service" and confirming the service tax demands are clearly unsustainable in law. Accordingly,the same are set aside and the appeals allowed with consequential relief.

(See 2014-TIOL-2500-CESTAT-MUM)