2008 (10) TMI 82 - AT - Service Tax

Packaging service refund claim - packaging activity came under the service tax net only with effect from 16-6-2005 - Commissioner (Appeals) was correct in holding the view that prior to that date whatever tax was paid under any of the category is liable to be refunded - appellants have also shown evidence to the effect that the tax paid by them under the category of Business Auxiliary Services was not passed on to their customers refund allowed

Issues Involved:
1. Classification of Services: Whether the activities performed by the appellants fall under 'cargo handling service' or 'packaging service'.
2. Tax Liability and Adjustments: Whether the service tax paid under 'Business Auxiliary Service' can be adjusted towards 'cargo handling service'.
3. Refund Claims: Entitlement to refund claims for service tax paid under 'Business Auxiliary Service'.
4. Time-barred Demand: Applicability of the extended period for recovery of service tax.
5. Interest and Penalty: Liability for interest and penalty under the Finance Act, 1994.

Issue-wise Detailed Analysis:

1. Classification of Services:
The main issue to be decided was whether the activities undertaken by the appellants (packaging unitization, strapping, loading of coils, seals, attending improper straps and seal feed, and offline strapping) fall under 'cargo handling service' or 'packaging service'. The revenue argued that these activities constitute 'cargo handling service', while the appellants contended that they are 'packaging services', taxable only from 16-6-2005.

The Tribunal found that the activities performed by the appellants are more appropriately described as packaging activities. The definition of 'cargo handling service' under section 65(23) of the Finance Act, 1994, and the Board's Circular dated 1-8-2002, were considered. It was concluded that the activities of the appellants do not qualify as 'cargo handling service' since they do not involve transportation, which is a necessary component of cargo handling as per the definition and judicial precedents.

2. Tax Liability and Adjustments:
The appellants had paid service tax under 'Business Auxiliary Service' for the period before 'packaging service' became taxable. The Tribunal held that it was incorrect to adjust the service tax paid under 'Business Auxiliary Service' towards 'cargo handling service'. Since the activities were classified as 'packaging service', which became taxable only from 16-6-2005, any tax paid under 'Business Auxiliary Service' prior to this date could not be adjusted against 'cargo handling service'.

3. Refund Claims:
The appellants filed refund claims for the service tax paid under 'Business Auxiliary Service', arguing that their services were actually 'packaging services'. The Original Authority rejected the refund claims, holding that the services fell under 'cargo handling service'. However, the Commissioner (Appeals) allowed the refund claims, stating that the services were 'packaging services' and not taxable under any other category before 16-6-2005.

The Tribunal upheld the decision of the Commissioner (Appeals), agreeing that the appellants were entitled to a refund since the services were indeed 'packaging services'. The Tribunal also noted that the appellants had provided evidence that the tax burden was not passed on to their customers, negating the need for further verification of the unjust enrichment aspect.

4. Time-barred Demand:
The Tribunal considered whether the extended period for recovery of service tax could be invoked. It was found that there was no suppression of facts by the appellants, as they had brought the relevant details to the department's notice. Given the varying interpretations of 'cargo handling' and the existence of different viewpoints among adjudicating officers, the Tribunal concluded that the extended period could not be invoked.

5. Interest and Penalty:
Since the service tax was not payable under 'cargo handling service', the Tribunal held that no interest could be demanded, and the penalties imposed were unjustifiable. The Tribunal referred to section 80 of the Finance Act, 1994, which provides relief from penalties if the assessee proves reasonable cause for failure to comply with the provisions.

Conclusion:
The Tribunal allowed the appeals, holding that the activities performed by the appellants were 'packaging services' and not 'cargo handling services'. Consequently, the service tax paid under 'Business Auxiliary Service' could not be adjusted towards 'cargo handling service', and the appellants were entitled to refunds for the tax paid under 'Business Auxiliary Service'. The demands for service tax under 'cargo handling service' were set aside, and no interest or penalties were warranted.

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