2023 (11) TMI 525 - AT - Service Tax

Classification of services - business of operation and maintenance of Air cargo terminal, providing Cargo Handling services in respect of domestic as well as international cargo, transported by air through Rajiv Gandhi International Airport - Unloading/Acceptance of cargo from consignor - Checking label marks and number - Taking gross weight and volumetric weight - Facilitating Customs examination of cargo in case of international cargo which may involve packing and un-packing - After examination receiving Let Export Order from the Customs - Again checking marks and labels and other documents against AWB and acknowledging the same to agent - Loading cargo in trolleys for screening - Screening of cargo through X-Ray machines - Build-up of cargo in pallets for loading on Aircraft, by ground handling company - to be classified under Cargo Handling Services (CHS) or Airport Services (APS) and Storage and Warehousing Services (SWS)? Unloading/Acceptance of cargo from consignor - Checking label marks and number - Taking gross weight and volumetric weight - Facilitating Customs examination of cargo in case of international cargo which may involve packing and un-packing - After examination receiving Let Export Order from the Customs - Again checking marks and labels and other documents against AWB and acknowledging the same to agent - Loading cargo in trolleys for screening - collection of Terminal Processing Charges as SWS or not? - HELD THAT - Keeping in view the nature of activities being performed and the charges being collected, it would be relevant to understand the flow of goods and the role of the Appellants in the cargo terminal. It is not disputed that the activities are being performed by the Appellants in the cargo terminal for which they are collecting certain charges either from the exporters/freight forwarders/agents or from the Airlines. It is also not in dispute that the goods in question are cargo and they are intended for loading into Aircraft for transportation. It is also not in dispute that cargo is meant for export. When the cargo is received at the cargo terminal, the Appellants are unloading and also storing the same in the terminal in the designated area, for completion of certain formalities, documentations, screening, etc. - the activities undertaken are in relation to the cargo within the cargo terminal , provided to the exporters/freight forwarders/agents in connection with the movement of export cargo. Generally, it is called prescreening. Sometimes for certain reasons the goods may not be cleared for export and the goods continue to lie in the designated area, for which they are charging demurrage charges. Whereas, sometimes the Airlines are unable to lift the load and thus the export-cleared cargo lies in the sterile area, for which they may charge demurrage from the Airlines. In all these cases, there is a free time and demurrage is charged only beyond free time. Merely by resorting to what they felt and what they were recovering as Terminal storage charges would not make this Appellant also a warehouse keeper. The scope of the service has to be determined in terms of express wordings of that classification in Finance Act Rules, and not in terms of nomenclature used for collecting the revenue for the services provided to the service recipients, in this case, exporter/freight forwarder/agent. In fact, the same notification also indicates that charges can be collected by the authority or any authorized cargo handling agency for various services (emphasis supplied). This precisely supports the contention that the activity being performed by the Appellant is that of Cargo Handling Agency for which they are collecting certain charges in the name of terminal storage processing charges. Therefore, Commissioner was not correct in holding the activities as covered from under SWS. Another aspect which is relevant is that in any cargo or freight terminal, where goods are received and processed for export, the area in which this is required to be done is called Customs area, notified by Revenue. Within the customs area all the activities of loading, unloading, storage, examination, etc., being done by authorized person only, known as customs cargo service provider (CCSP). These activities are regulated by Customs Area Regulations 2009. A plain reading will also suggest that cargo handling activities are performed before the cargo is exported. Thus such activities are in the nature of handling of cargo only. Screening of cargo through X-Ray machines - Build-up of cargo in pallets for loading on Aircraft, by ground handling company - to be classified under APS or not? - HELD THAT - It is observed that these are required for safe passage of export cargo in the Aircraft. These are required to be done in terms of certain mandatory requirements and on specific request from Airlines for safe and easy movement of cargo and its loading and unloading in the Aircraft. These two activities are neither charged to the customers using the terminals, nor are these directly related to the activities concerning CHS. Here, the amount is being collected from the Airlines to whom specific services are being provided as per their requirement. The scope of APS as it existed even prior to its amendment in 2010, includes services provided to Airlines as well as for cargo and passenger baggage handling such as security, transit facilities, landing charges, parking charges etc. It is an admitted fact that services are provided to the Airlines on their specific request and not at the behest of the exporter/freight forwarder/agent. Therefore, these services appear to be classifiable under the category of APS. Prior to 01.07.2010, when proviso was added to Sec 65(105)(zzm), Airport service is read as service provided to any person, by Airport authority or by any other person, in any airport or civil enclave. Further, prior to 01.07.2010, we find that Cargo Handling service as defined under Sec 65(23) of the Finance Act includes also activities like loading, packing in special containers or for non-containerized freight, services provided by a container freight terminal or any other freight terminal, for all modes of transport, and cargo handling service incidental to freight, but does not include handling of Export cargo or passenger baggage or mere transportation of goods. The services being screening of cargo through X-ray machines and build-up of cargo in pallets for loading on Aircraft, by ground handling company also fall both under the Cargo Handling service as well as under Airport service. However, by virtue of provisions of Sec 65A, giving the guidance as to classification, as Sec 65(23) occurring earlier than sub-clause (zzm) of Sec 65(105), it is held that these services shall also be classifiable under Cargo Handling service. There are merits in the Appeal of Appellant/Assessee - appeal allowed.

Summary

Issues involved: Classification of services provided by the Appellant and the applicability of service tax under the categories of Cargo Handling Services (CHS), Airport Services (APS), and Storage and Warehousing Services (SWS).

Issue 1: Classification of Services as CHS, APS, or SWS

The core issue is whether the services provided by the Appellant fall under CHS, APS, or SWS. The Department proposed that activities from S.No. 1-7 should be classified under SWS and activities from S.No. 8-9 under APS. The Appellant argued that all activities should be classified under CHS.

Issue 2: Activities from S.No. 1-7

The Tribunal analyzed the activities from S.No. 1-7, which include unloading, checking, weighing, facilitating customs examination, receiving export orders, checking documents, and loading cargo for screening. The Tribunal noted that these activities are incidental to the main activity of handling cargo and are performed within the cargo terminal for processing cargo before export. The Tribunal concluded that these activities fall under CHS and not SWS, as the terminal is not primarily for storage and warehousing but for processing cargo.

Issue 3: Activities from S.No. 8-9

The Tribunal examined the activities from S.No. 8-9, which involve screening cargo through X-ray machines and building up cargo in pallets for loading on aircraft. These services are provided to airlines on their specific request and not to exporters or agents. The Tribunal found that these services could be classified under both CHS and APS. However, applying Section 65A of the Finance Act, which provides guidelines for classification, the Tribunal held that these services should be classified under CHS, as it provides the most specific description.

Issue 4: Department's Contradictory Stand

The Appellant argued that the Department accepted the classification of CHS for import cargo but not for export cargo, which is contradictory. The Tribunal agreed with the Appellant, noting that the Department's stand was inconsistent.

Issue 5: Reliance on Notifications and Circulars

The Department relied on various notifications and circulars to classify the services under SWS and APS. The Tribunal emphasized that the scope of services should be determined based on the express wording of the classification in the Finance Act and Rules, not on the nomenclature used for collecting charges.

Conclusion

The Tribunal allowed the Appeal, setting aside the Impugned Order and all penalties. The Tribunal held that the services provided by the Appellant should be classified under CHS, as they are integrally related to cargo handling and not primarily for storage and warehousing or airport services. The Tribunal left the ground of limitation open.

Final Order

The Appeal was allowed with consequential benefits, and the judgment was pronounced in the Open Court on 10.11.2023.