2014 (9) TMI 596 - AT - Service Tax

Classification of service - incidental activity - scope of the contents of agreement - Storage and Warehousing services or not - MIPL is running a container freight station (CFS) - providing space in the warehouses by MIPL - The department was of the view that the provision of space in the warehouses by MIPL came under the category of storage and warehousing services and liable to service tax - The appellant contested the demand and submitted that the reservation of space was in the context of cargo-handling of export cargo which was specifically excluded from the scope of cargo handling service and hence the demand is not sustainable. Held that - It is a settled position in law that the substance of an agreement has to be considered and not the wording used in the agreement as held by the hon ble apex court in the case of Bhopal Sugar 1977 (4) TMI 151 - SUPREME COURT OF INDIA . Therefore, we reject the contention of the appellant that the storage and warehousing services rendered by the appellant to specific customers on specific terms and conditions are activities incidental to cargo handling in respect of export cargo and hence not liable to service tax. From the scope of the levy, as clarified by the Board, which is the apex agency of the Government implementing service tax levy, it is clear that such service rendered by a Container Freight Station is also covered within the scope of the levy. - from the contract, entered into by the appellant, it is seen that the appellant has been undertaking all these activities and therefore squarely come within the definition of storage and warehousing services. Though the clarification issued by the Board is not binding on this Tribunal, it has a persuasive value and should be given due weight. - contention of the appellant rejected - Decided against the assessee. Storage facility in port is a requirement of law as per section 42 of the Major Port Trusts Act, 1963 and therefore, it forms an integral part of the port services , This is not the position obtaining in the case before us. The appellant has not produced any evidence before us that storage and warehousing is a statutory requirement under any law governing container freight stations. The very fact that the appellant is providing the said service only to selected customers on collection of separate charges itself would show that this is not a statutory requirement. - Decided against the assessee. Extended period of limitation - Held that - The various charges for handling of cargo was substantially increased as detailed in paragraph 4 (iii) above. This manipulation is very evident. Therefore, the ld. Adjudicating authority rightly observed that the appellant suppressed collection of service charges by manipulation for the period 1-2-2005 onwards and confirmed the service tax demand. The appellant is operating under the self-assessment regime and therefore, it is his responsibility to correctly assess and discharge the tax liability and reflect the transaction in the ST3 returns filed. - Decided against the assessee. Levy of penalty - Held that - the penalty imposed under section 76 of the Finance At, 1994 is fully justified in the facts of the present case. However, with respect to the penalty imposed under section 78, in our considered view, the same is not warranted as the issue related to a classification dispute and it is well settled that in classification matters, imposition of penalty is not required. Accordingly we set aside the penalty imposed under section 78. Demand of service tax with interest and penalty u/s 76 confirmed - penalty u/s 78 waived - Decided partly in favor of assessee.

Issues Involved:
1. Classification of services rendered by MIPL.
2. Confirmation of service tax demand for the period 1-2-2005 to 31-3-2006.
3. Dropping of demand for the period 16-8-2002 to 31-1-2005.
4. Imposition of penalties under sections 76 and 78 of the Finance Act, 1994.
5. Allegation of suppression and invocation of extended period for confirmation of demand.

Detailed Analysis:

1. Classification of Services Rendered by MIPL:
The appellant, M/s Maersk India Pvt. Ltd. (MIPL), operates a container freight station (CFS) and entered into a contract with M/s Maersk Logistics Pvt. Ltd. (MLOG) for providing various services including space for storing, stuffing, and consolidation of export cargo. The department classified the provision of space as "storage and warehousing services" and demanded service tax. MIPL argued that the storage was incidental to cargo handling services, which are exempt for export cargo. The Tribunal held that the storage and warehousing services provided to specific customers under specific contracts cannot be considered incidental to cargo handling services. The storage services were deemed a separate activity subject to service tax under "storage and warehousing services" as defined in section 65 (102) of the Finance Act, 1994.

2. Confirmation of Service Tax Demand for the Period 1-2-2005 to 31-3-2006:
The adjudicating authority confirmed a service tax demand of Rs. 53,66,874/- along with interest for the period 1-2-2005 to 31-3-2006. The Tribunal upheld this confirmation, stating that the storage and warehousing services provided by MIPL were taxable and not incidental to cargo handling services. The Tribunal also noted that the appellant manipulated the contract terms post-1-2-2005 to evade tax liability by removing the fixed monthly rental charges and increasing cargo handling charges.

3. Dropping of Demand for the Period 16-8-2002 to 31-1-2005:
The adjudicating authority dropped the demand for the period 16-8-2002 to 31-1-2005, citing that the appellant had informed the department about the space reservation charges in a letter dated 13-3-2003. The Tribunal agreed with this decision, noting that the department failed to take necessary action despite being informed about the charges. Thus, the demand for this period was considered time-barred.

4. Imposition of Penalties Under Sections 76 and 78 of the Finance Act, 1994:
The adjudicating authority imposed penalties equivalent to the tax demand under both sections 76 and 78. The Tribunal upheld the penalty under section 76, which is for the default in payment of service tax, stating that mens rea is not required for its imposition. However, the Tribunal set aside the penalty under section 78, which requires proof of mens rea, as the issue was related to a classification dispute.

5. Allegation of Suppression and Invocation of Extended Period for Confirmation of Demand:
The Tribunal found that for the period prior to 1-2-2005, there was no suppression as the appellant had informed the department about the space reservation charges. However, for the period from 1-2-2005 onwards, the Tribunal agreed with the adjudicating authority that the appellant suppressed the true nature of charges by manipulating contract terms to evade tax liability. Therefore, the extended period for confirmation of demand was rightly invoked for the period from 1-2-2005 onwards.

Conclusion:
The Tribunal upheld the classification of services under "storage and warehousing services" and confirmed the service tax demand of Rs. 53,66,874/- along with interest for the period 1-2-2005 to 31-3-2006. The penalty under section 76 was upheld, while the penalty under section 78 was set aside. The demand for the period 16-8-2002 to 31-1-2005 was dropped, and the appeal of the appellant was partly allowed, while the Revenue's appeal was dismissed.

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