2017 (2) TMI 382 - AT - Service Tax

Classification of services - services related to godown premises of GPI in relation to handling of Tobacco & Non-tobacco materials and transportation of the same from godown to factory, supply of trained forklift operators at factory and godown, carrying out bright scrap (tobacco leaf) activity including opening of bales, crushing and transferring the bright scrap into bags, weighment and closing of filled bags, etc - whether services classified under cargo handling services or not? - demand of tax, interest and penalty. Held that - the classification accepted by the appellant has been contested in the said SCN but the said SCN did not give the opportunity to the appellant to putforth his argument on proposed classification of services provided by him. Revenue has prejudged the issue and unilaterally decided the classification which is against the principle of natural justice. Further, the SCN has admitted to demand the Service tax on that component of the assessable value on which Service tax was already paid by service recipient. Therefore, we find that the said SCN is unsustainable - appeal allowed - decided in favor of appellant.

Summary

Issues:
- Classification of services under Cargo Handling Service
- Liability for Service tax on transportation charges
- Interpretation of the definition of Cargo Handling Service

Classification of services under Cargo Handling Service:
The appellants provided Manpower Recruitment Agency Service to a client, involving activities related to handling materials and transportation. The Revenue alleged that the services fell under Cargo Handling Service, leading to a Show Cause Notice for Service tax demand. The appellants argued that their services were separately classifiable under Manpower Recruitment Agency Service & Goods Transportation Agency Service. They contended that the activities did not fall under Cargo Handling Service as they were not involved in packaging together with transportation of cargo. The Tribunal found that the Show Cause Notice prejudged the issue and did not allow the appellants to present their arguments on the proposed classification. Consequently, the Tribunal held the Notice unsustainable and set aside the Order-in-Original & Order-in-Appeal, allowing both appeals.

Liability for Service tax on transportation charges:
The Revenue alleged that the appellants did not pay Service tax on the transportation charges received. However, the appellants argued that the Service tax for transportation was paid by the service receivers. They contended that if they were to pay Service tax again, it would lead to double taxation on the same assessable value. The Tribunal found in favor of the appellants, stating that the Show Cause Notice demanded Service tax on a component where tax was already paid by the service recipient, rendering the Notice unsustainable.

Interpretation of the definition of Cargo Handling Service:
The Tribunal examined the definition of Cargo Handling Service under Section 65 of the Finance Act, 1994. The appellants argued that their activities did not fall under Cargo Handling Service as they were not involved in packaging together with transportation of cargo. They highlighted that the definition implied handling cargo as an agent, not as the owner. The Tribunal agreed with the appellants' interpretation, emphasizing that the services provided by the appellants did not align with the definition of Cargo Handling Service, thus supporting the appellants' position.

In conclusion, the Tribunal found in favor of the appellants, ruling that the Show Cause Notice was unsustainable due to prejudgment and lack of opportunity for the appellants to present their arguments. The Tribunal set aside the Orders-in-Original & Order-in-Appeal, allowing both appeals and entitling the appellants to consequential relief.