2018 (11) TMI 85 - AT - Service Tax

Cargo Handling service - mining of coal which are provided to various organisations including the National Thermal Power Corporation Ltd (NTPC) - loading charges - Held that - The sale of coal has not taken place at the time the loading takes place. The sale takes place after loading is completed. In other words, the coal continues to be owned by the respondent herein at the time of handling of the coal. Therefore, there is no client to whom the service has been rendered by the respondent herein. The invoices raised by the respondent on NTPC show very clearly that the coal handling charges which they charge from NTPC is only an additional element in the cost of coal for delivering the coal as per the convenience of NTPC. Therefore, they have also paid VAT on the full cost of coal including the loading charges - there is no case to charge service tax on cargo handling services for loading charges collected by the respondent from NTPC - demand set aside. Appeal dismissed - decided against appellant.

Summary

Issues:
1. Whether loading charges for coal supplied to a public sector undertaking are liable to service tax under cargo handling services.
2. Whether the loading charges are part of the coal price itself or a separate service rendered.

Analysis:
1. The appeal filed by the department raised the issue of whether loading charges for coal supplied to a public sector undertaking, including the National Thermal Power Corporation Ltd (NTPC), are subject to service tax under cargo handling services. The department contended that the loading charges, collected in addition to the coal price, constitute a separate service chargeable to service tax. However, the respondent argued that the loading charges are part of the coal price itself, as they undertake extra work for NTPC, making it not liable for service tax.

2. The first appellate authority dropped the demand for service tax based on several grounds. Firstly, it was noted that the contract between the respondent and NTPC was for the delivery of coal through a rapid loading system created by the respondent, not for loading incidental to the sale of coal. Secondly, it was highlighted that the ownership of the coal remained with the respondent during loading, and the service was essentially to themselves, not to NTPC. Lastly, it was emphasized that the respondent was not a cargo handling agency, thereby not liable for service tax.

3. The appeal against the dropping of the demand was based on various grounds. It was argued that post-mining activities like handling and transportation of coal are chargeable to service tax under cargo handling services, irrespective of the mechanical systems used. The concept of ownership was disputed, stating that ownership transfer does not affect the levy of service tax. Additionally, it was contended that since the loading charges were billed separately to NTPC, the respondent was indeed rendering services to NTPC, making the charges taxable.

4. After considering arguments from both sides, the tribunal upheld the Order-in-Original. It was observed that the sale of coal occurred after loading was completed, with the coal still owned by the respondent during handling. The loading charges were found to be an additional element in the cost of coal for NTPC's convenience, included in the VAT paid on the coal price. Consequently, the tribunal concluded that no service tax was chargeable on the loading charges collected from NTPC, as they were not separate cargo handling services but part of the coal price.

5. Therefore, the appeal was rejected, affirming that the loading charges for coal supplied to NTPC were not subject to service tax under cargo handling services, as they were integral to the coal price and not a separate taxable service. The tribunal's decision was based on the understanding that the loading charges were not distinct cargo handling services but a component of the coal price paid by NTPC for the convenience provided by the respondent.