2008 (6) TMI 163 - AT - Service Tax

Pay loaders for loading of coal to wagons - agreement of the parties that time was essence of the contract, nature of activity that was carried by the Appellants squarely falls under the definition of cargo handling service - any activity incidental to freight of cargo is liable to be taxed under cargo handling service - Mode of transport is irrelevant for incidence of levy once the service provided meets the test of handling of cargo in the manner envisaged by law appeal partly allowed

Summary

Issues Involved:

1. Whether the job undertaken by the appellants was covered under the definition of "Cargo handling Agency".
2. Whether the amount of Service Tax levied along with penalty and interest is sustainable under the Finance Act '94.
3. Whether the demand of Service Tax is partly barred by limitation.

Issue-wise Detailed Analysis:

1. Definition of "Cargo Handling Agency":

The appellants provided services to Mahanadi Coalfields Ltd. using pay loaders for loading coal into railway wagons. The Revenue adjudged these services as "cargo handling services" and levied service tax. The appellants contended that they merely hired out pay loaders and did not engage in cargo handling. However, the Appellate Authority examined the nature of the activity and found that the appellants' work included prompt loading of wagons, incurring labor wages, and operating pay loaders. These activities were deemed to fall under "cargo handling agency service". The appellants had also sought registration and paid service tax under this category, reinforcing this classification.

2. Sustainability of Service Tax, Penalty, and Interest:

The Appellate Authority upheld the levy of service tax, stating that the activities carried out by the appellants brought them within the tax ambit. The penalties were imposed for violations of the law. The appellants argued that their agreements with Mahanadi Coalfields Ltd. were for hiring pay loaders and not for cargo handling. They relied on various legal citations and the TRU letter dated 29-2-08 to support their claim. However, the Authority found that the primary object of the contracts was loading coal into railway wagons, not merely hiring out pay loaders. The activities were thus taxable under "cargo handling service". The Authority dismissed the appellants' plea to set aside the tax and penalties.

3. Limitation and Suppression of Facts:

The appellants argued that the service tax demands were time-barred as the Department was aware of their activities. The Appellate Authority, however, held that the appellants had suppressed facts, rendering the proceedings not time-barred. The Authority noted that the appellants' obligations under the contracts included operating pay loaders and loading coal, which constituted cargo handling services. The appellants' plea that their activities were merely hiring out tangible goods was rejected as baseless.

Conclusion:

The Appellate Authority confirmed the orders appealed except for the order under Appeal No. 41/06, where the penalty was waived due to the lack of willful suppression and confusion during the infancy stage of the law's implementation. The appellants were required to pay the service tax with interest, but penalties under different sections of the law were waived. The Authority emphasized that the appellants' activities clearly fell under "cargo handling service" as defined by Section 65(23) read with Section 65(105) of the Finance Act, 1994. The operative part of the order was pronounced in open court on 20-6-2008.