ST - Contract is primarily for transportation of sand and activity of loading/unloading is merely incidental - No tax under Cargo Handling Service: CESTAT
By TIOL News Service
MUMBAI, MAR 20, 2018: THE appellant is a transporter and has entered into an agreement with Western Coalfield Ltd. (WCL), mining owner, for the purpose of transportation services.
The agreement is of the following nature:
i) Mining of the sand from the riverbed with the help of excavators, loading of the same on the tippers and then its transportation from riverbed and unloading at bunker/stockyard.
ii) Transportation of the sand from stockyard to the bunker i.e. within the mine movement.
The sand is to be transported for a distance of 0-1 km to 18 - 19km by tippers. The contract between the Appellants and WCL is composite in nature as there is no separate bifurcation between transportation and the loading and unloading activity. WCL has paid service tax on the transportation of the sand from riverbed to stockyard/bunker under 'Goods Transportation Agency' service under reverse charge mechanism from 1.1.2005 on the entire consideration paid to the Appellants.
However, WCL has not paid service tax on within the mine movement.
The demand raised in this matter and confirmed by the Revenue against WCL was set aside by the CESTAT but Revenue has filed an appeal before the Supreme Court and the same is pending.
Incidentally, it is alleged by Revenue that the aforesaid service rendered by the Appellants to WCL is classifiable under the category of 'Cargo Handling Services' as it involves loading and unloading activity. In absence of any data or bifurcation, the department has raised the service tax demand on the entire consideration received by the Appellants from WCL under the head 'Cargo Handling Agency Services'.
The matter is now before the CESTAT.
The appellants challenge the orders by inter alia arguing that the agreements between the parties are essentially in the nature of Transportation of the goods; that loading and unloading of the goods are services incidental to principal activity of transportation and the entire activity is a composite service of transportation. Reliance is placed on the Board Circular No. 104/7/2008-ST dated 06.08.2008to assert that where intermediate and ancillary services like loading/unloading, packing/unpacking are provided in the course of transportation of goods, the same should be treated as single composite service and should be taxed under the category of GTA service.
After considering the submissions made by both sides, the CESTAT observed -
+ Loading in the riverbed is not a simple activity of loading as the sand has to be mined using an excavator or other machine. The location of riverbed is not fixed. The loading in the stockyard is, however, simple activity of loading.
+ Coal mines use the sand to fill the void created by the mining of the coal. Thus the purpose of the entire activity is to fill the voids created by the coal mining activity by using sand mined from the riverbed. This activity done by the appellants is to assist in movement of sand for this purpose from riverbed to stockyard/bunker in the premises or from stockyard to bunker. Loading and unloading done during this process of movement of sand in these circumstances becomes only an ancillary activity. In this regard the Circular No. 104/7/2008-ST dated 06.08.2008issued with reference to GTA service becomes relevant.
+ It can be seen that the contract describes it to be a contract for excavation from riverbed, transportation from riverbed to warehouse and transportation from warehouse to bunker. Rates have been quoted for both on per MT basis but the rate changes with the distance between the origin and destination.
+ There is no doubt that the activity of removing/excavating sand from the riverbed amounts to mining activity. However for the period in dispute, mining was not a taxable service. In any case, the activity of movement of sand from warehouse to bunker cannot be considered as mining activity.
+ From the terms of the contract it is apparent that the prime purpose of the contract is to bring the sand from the riverbed /warehouse to the bunker. The loading or unloading are merely necessary requirements to complete activity of movement of the sand. In these circumstances we hold that the contract is primarily intended for the purpose of transportation of sand and the activity of loading/unloading is merely incidental. No tax under the head of Cargo Handling Service can be levied in these circumstances.
Both the appeals were allowed.
(See 2018-TIOL-884-CESTAT-MUM)
