2007 (11) TMI 75 - AT - Service Tax

Port services provided for storage of imported & export goods can t be made taxable under Storage & Warehousing service Impugned port registered as minor post is taxable only w.e.f. 1.7.03 Vivisection of composite activity for taxing storage alone is not valid Appeal allowed

Issues Involved:
1. Classification of services provided by a minor port as "Storage and Warehousing Services" or "Port Services".
2. Applicability of service tax on amounts billed but not received.
3. Timeliness of the show cause notice.
4. Calculation of service tax liability on billed amounts.

Detailed Analysis:

1. Classification of Services:

The primary issue was whether the services rendered by the appellant, a minor port, should be classified under "Storage and Warehousing Services" or "Port Services". The appellant argued that they were registered as a minor port and provided storage and warehousing services as an incidental part of port services, which should be classified as "Port Services" and not "Storage and Warehousing Services". The appellant cited a clarification dated 1st August 2002 from the Department of Revenue, indicating that storage and warehousing facilities at ports should be covered under "Port Services". The adjudicating authority and the Commissioner (Appeals) disagreed, classifying the services under "Storage and Warehousing Services", leading to the confirmation of the demand and penalties.

Upon review, it was noted that the definitions of "port service" and "storage and warehousing" are distinct and do not overlap. The appellant's storage services were deemed necessary for the functioning of the port as per Section 42 of the Major Port Trusts Act, 1963, which mandates ports to provide storage facilities. The Tribunal concluded that the storage services provided by the appellant were integral to port services and should not be separately taxed under "Storage and Warehousing Services". This conclusion was supported by the Tribunal's interpretation that such services were covered under "Port Services" from 1st July 2003, and any attempt to tax them under a different category for the prior period would be inconsistent and legally unsustainable.

2. Applicability of Service Tax on Billed but Unreceived Amounts:

The appellant contended that certain amounts billed to promoters for non-fulfillment of committed tonnage were not received, and thus, should not be subject to service tax. The Tribunal accepted this argument, indicating that tax liability on such amounts was not sustainable and required factual verification and abatement.

3. Timeliness of the Show Cause Notice:

The appellant argued that the show cause notice was time-barred, as they had informed the department about providing storage facilities on 18th March 2002. The Tribunal did not delve deeply into this issue, given the decision to set aside the order on merits.

4. Calculation of Service Tax Liability:

The appellant argued that the service tax liability was incorrectly calculated on the entire billed amount, which should have been considered inclusive of service tax. The Tribunal found merit in this argument and indicated that the order required remanding for re-quantification of the duty on a cum-duty basis.

Separate Judgments:

The Tribunal's decision was not unanimous. One member, M. Veeraiyan, dissented, arguing that the storage rental charges were correctly identified and charged separately, and thus, the services should be taxed under "Storage and Warehousing Services". He proposed remanding the matter for re-quantification and reconsideration of penalties.

The third member, Archana Wadhwa, agreed with the initial member (Judicial), supporting the view that the services provided were integral to port services and should not be separately taxed. She emphasized that the storage facilities were essential for the port's operation and not an independent service. She also highlighted that the appellant was not providing security for the stored goods, a key component of "Storage and Warehousing Services".

Final Order:

In view of the majority decision, the Tribunal set aside the impugned order and allowed the appeal with consequential relief to the appellant. The services provided by the appellant were classified under "Port Services", and the demand for service tax under "Storage and Warehousing Services" was annulled.

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