2020 (2) TMI 1441 - AT - Service Tax

Non-payment of service tax - storage warehousing service - wrongly utilized Cenvat credit of input services consumed in exempted output services for payment of service tax on dutiable output services - demand of interest and penalty. Demand of service tax under the head Storage and Warehousing Services - HELD THAT - There are no force in the argument of the Ld. Counsel that Soya Bean Meal is an agricultural produce. It is true that soya bean is an agricultural produce but once the soya beans reach the oil mill they extract soya oil and what is left over is the soya bean meal. Soya oil and soya bean meal are two products of the oil extraction industry. It cannot be said that soya bean meal is an agricultural produce just as a cotton fabric or a cotton garment cannot be called as an agricultural produce simply by virtue of the fact that cotton which is the initial raw material was a crop. Similarly articles of steel or even refrigerators etc. are made up with metal which had originally come out as a product of mining of the ore. For that reason all these cars washing machines refrigerators etc. do not become products of mining. Otherwise everything that we use must be classified as a product of agriculture or mining or forests which is absurd. What is relevant is that activity which produces the goods in question which in this case is the oil mill. As far as the payment in question is concerned the demand is on the entire amount which the appellant has received under the agreements - the appellant is also getting paid a separate amount for storage in their godown from their clients apart from the amounts which they receive for the stevedoring services. This is confined to cargo stored beyond a certain period. Undoubtedly such service is in the nature of storage and warehousing service and is chargeable to service tax as such. In our considered view the demand on the appellant has to be restricted to the extent the amounts which they have received towards godown rents separately for storage over and above the normal stevedoring charges. The appellant is not liable to pay service tax under Storage Warehousing Services on the service charges which they have received for stevedoring/cargo handling - They are liable to pay service tax on storage and warehousing charges of any amount received on account of storage of goods by warehousing charges ground rent or any type of rent etc. - appellant is liable to pay interest as applicable. Recovery of Cenvat credit wrongly utilized - HELD THAT - It is found that Rule 6(3)(c) as it stood during the relevant period prohibited utilization of Cenvat credit in excess of 20% but did not forbid availment of Cenvat credit. After 1-4-2008 when Rule 6(3)(c) was amended the accumulated Cenvat credit did not lapse as there was no provision to that effect in the amended rules. Nothing stopped the appellant from utilizing the Cenvat credit post 1-4-2008. Therefore the appellants have utilized Cenvat credit to the extent of 80% well before they were entitled to do so. At this point of time since more than a decade has passed post 1-4-2008 it does not make any difference whether they had utilized the Cenvat credit to the extent of 80% prior to 1-4-2008 or post this date - the demand on this accounts needs to be dropped. All penalties are set aside. Appeal allowed in part.

Summary

Issues Involved:
1. Liability to pay service tax under 'Storage & Warehousing Service' for Soya Bean Meal.
2. Eligibility for availing Cenvat credit under Rule 6(3)(c) of CCR, 2004.

Issue-wise Detailed Analysis:

1. Liability to Pay Service Tax under 'Storage & Warehousing Service' for Soya Bean Meal:

The appellant was engaged in providing services like 'Cargo Handling Service', 'Port Service', 'Clearing and Forwarding Agent Service', and 'Storage & Warehousing Service'. The department alleged that the appellant did not pay service tax on 'Storage & Warehousing Service' for Soya Bean Meal and wrongly utilized Cenvat credit. The department's investigation concluded that the appellant short-paid service tax amounting to ?1,37,12,690/- for the period 2004-05 to 2008-09.

The appellant argued that they provided stevedoring/cargo handling services, not warehousing services, under an agreement at Visakhapatnam Port. The agreement included various services like arranging berths, providing labor, stowing cargo, handling cargo at the port, warehousing and storage, among others. The appellant contended that the services were primarily stevedoring and cargo handling, not warehousing.

The tribunal noted that the definition of 'Cargo Handling Service' excluded handling of export cargo. The appellant argued that Soya Bean Meal, being an agricultural produce, should be excluded from service tax under 'Storage & Warehousing Service'. However, the tribunal disagreed, stating that Soya Bean Meal, derived from oil extraction, is not an agricultural produce.

The tribunal found that the services provided included storage and warehousing, but the primary service was stevedoring and cargo handling. The demand for service tax should be limited to the amounts received for storage beyond the normal stevedoring charges.

2. Eligibility for Availing Cenvat Credit under Rule 6(3)(c) of CCR, 2004:

The appellant utilized Cenvat credit to the extent of 100% for common input services, which was against Rule 6(3)(c) of CCR, 2004, allowing only 20% utilization. The appellant argued that the rule restricted utilization, not availment, and post 1-4-2008, the restriction was removed.

The tribunal agreed with the appellant, citing a previous decision in Duraflex Services & Construction Technologies Limited v. Commissioner of Customs, Central Excise & Service Tax, Visakhapatnam-I, which held that the restriction was on utilization, not availment. The accumulated Cenvat credit did not lapse post 1-4-2008, allowing the appellant to utilize it subsequently.

Order:

1. The appellant is not liable to pay service tax under 'Storage & Warehousing Services' for stevedoring/cargo handling charges.
2. The appellant is liable to pay service tax on amounts received for storage beyond normal stevedoring charges.
3. The appellant must pay applicable interest on the above amount.
4. The demand for recovery of Cenvat credit is set aside.
5. All penalties are set aside.

Conclusion:

The tribunal concluded that the demand for service tax should be limited to storage charges beyond normal stevedoring services, and the recovery of Cenvat credit was not justified. The appellant's liability was restricted, and penalties were set aside.