2015 (9) TMI 159 - AT - Service Tax

Demand of service tax - Cargo handling service - activity of grinding of rock phosphate - Penalty u/s 76, 77 & 78 - Held that - Payment rates were composite rates not amenable to identification as to what rate/amount was paid to those components of services which were arguably in the nature of cargo handling service. When quantification is not possible, the levy fails. However, without elaborating on this judicial principle, we find that in the case of Commissioner of Central Excise Bhubaneswar versus B.K. Thakkar 2007 (10) TMI 147 - CESTAT, KOLKATA CESTAT while deciding a similar issue held that excavation, transportation and feeding of iron ores to crusher plant for processing were incidental activities for processing, and therefore, the entire contracted activities did not get the character of cargo handling service. Further, it is seen that from 10.09.2004, appellant has been paying service tax on the entire consideration received under business auxiliary service on account of the fact that production of goods on behalf of the client was added to the definition of BAS from the said date Overall nature of contract did not make it amenable for coverage under cargo handling service - when the issue involves interpretation of law, extended period cannot be invoked. Also, the conditions for imposing penalty under Section78 are identical to those required for invoking extended period. Therefore, when 78 penalty has been found to be unimposable, invocation of extended period also cannot be sustained and as a consequence thereof, the entire demand is hit by time-bar. - Decided in favour of assessee.

Summary

Issues:
1. Confirmation of service tax demand without penalty under Sections 76, 77, and 78 of the Finance Act 1994.
2. Interpretation of the contract scope regarding cargo handling service.
3. Time-barred nature of the demand.

Analysis:
1. The appeal challenged the confirmation of a service tax demand without imposing penalties under Sections 76, 77, and 78 of the Finance Act 1994. The period in question was from 16/08/2002 to 9/9/2004, with the show cause notice issued on 02/08/2007. The primary adjudicating authority did not impose penalties citing the involvement of interpretation of law and granted the benefit of Section 80 of the Finance Act 1994.

2. The appellant argued that the primary purpose of the contract was grinding rock phosphate, with other aspects being incidental. They contended that they got registered under business auxiliary service and started paying service tax on the entire contract value when production of goods on behalf of the client was added to the scope of business auxiliary service. The Revenue claimed that the scope of work did involve cargo handling, justifying the service tax under cargo handling service.

3. The Tribunal analyzed the contract and found it primarily focused on grinding rock phosphate, with other tasks being ancillary. Even if some elements could be construed as cargo handling, the composite payment rates made it impossible to identify specific amounts for such services. Referring to a precedent, the Tribunal concluded that incidental activities do not transform the entire contract into cargo handling service. Moreover, the demand was deemed time-barred as it extended beyond the normal one-year period from the show cause notice date. Since penalties were not imposed due to the interpretation of law, the invocation of the extended period was deemed unsustainable, leading to the dismissal of the demand on both substantive and time-bar grounds.

In conclusion, the Tribunal allowed the appeal, setting aside the service tax demand based on the contract's nature and the time-barred aspect, emphasizing the inapplicability of penalties due to the interpretation of law and the corresponding impact on the extended period for demand.