2025 (1) TMI 682 - AT - Service Tax

Exemption from service tax - Business Auxiliary services or not - Cleaning Grading service - Handling Transportation service - extended period of limitation - HELD THAT - The cleaning and grading of agricultural produce is held to be covered under production and processing of goods. It is observed that the production and processing of goods for, or on behalf of, the client if provided in relation to agricultural is exempted from whole amount of tax vide Notification No. 19/2005 dated 07.06.2005 which amended the previous Notification No. 14/2004 dated 10.09.2004 with respect to exemption to specified services in relation to Business Auxiliary Service - Circular No. 143/12/2011 dated 26/5.2011 which clarifies that the agricultural produce when subject to processing if retain their essential characteristics at the output stage, the process undertaken on or behalf of client should be considered as covered by the expression in relation to the agriculture . Cleaning and grading service - HELD THAT - The cleaning and grading activity was for few of the agricultural products which were warehoused by the appellants for their clients and that this activity did not change the essential characteristics of the agricultural product stored /warehoused by the appellant, the activity has to considered as the one in relation to the agriculture which is exempted from payment of tax - The Hon ble Apex Court in the case of COMMISSIONER OF CUSTOMS, CENTRAL EXCISE SERVICE TAX VERSUS M.L. AGRO PRODUCTS LTD. ETC. ETC. 2018 (7) TMI 1581 - SC ORDER has held that threshing and redrying of tobacco leaves, being an activity in relation to agriculture is covered under entry production of goods on behalf of client in relation to agriculture which is entitled for exemption under Notification No. 14/2004-S.T. Hence, Service Tax is not payable C.B.E. C. Circular No. 143/12/2011-S.T. dated 26- 5-2011, also clarifies the same. Thus even with the introduction of negative list, said activity remained non-taxable. Handling and transportation charges - HELD THAT - The cargo handling service under section 65 (21) means loading, unloading, packing, or unpacking of cargo and includes cargo handling service provided for freight in special container service provided by a container freight terminal or any other terminal meant to be transported by any means of transportation namely truck, rail, ship or aircraft buy the authorities likecontainer cooperation India, Airport Authority of India, in Land Container Depot, Container Freight Station etc. The department clarification no. B11/1/2002 -TRU dated 1.08.2002 clarifies that the cargo handling services provided in relation to storage of agricultural produced are covered under storage and warehousing services and have been exempted from the levy of service tax. In view thereof, the handling and transport of agricultural produce was also not taxable even prior 1.07.2012 hence the demand is held to have been wrongly confirmed. Conclusion - The two activities are held to be part of one service i.e. storage and warehousing of agricultural produce. The said composite activity is out of service tax net for pre as well as post negative list period, hence it is held that even partial demand of Rs.3,66,314/- has wrongly been confirmed by the adjudicating authority below. Appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal issues presented and considered in this judgment are:

• Whether the activities of 'Cleaning & Grading' and 'Handling & Transportation' provided by the appellant are exempt from service tax as they are integral to the principal activity of 'Storage and Warehousing' of agricultural produce.
• Whether the demand for service tax is time-barred due to the invocation of the extended period of limitation.
• Whether the penalties imposed under sections 77 and 78 of the Finance Act 1994 are justified.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Exemption from Service Tax for Cleaning & Grading and Handling & Transportation Activities

• Relevant legal framework and precedents: The definition of 'Business Auxiliary Service' under section 65 (19) of the Finance Act and the relevant exemptions under Notification No. 14/2004 and Notification No. 19/2005. The court also considered Circular No. 143/12/2011 and the precedent set by the Supreme Court in Commissioner v. M.L. Agro Products Ltd.
• Court's interpretation and reasoning: The court interpreted that the activities of cleaning and grading, as well as handling and transportation, are integral to the storage and warehousing of agricultural produce. These activities do not alter the essential characteristics of the agricultural products and are therefore exempt from service tax.
• Key evidence and findings: The court relied on the fact that the appellant provided storage facilities for agricultural produce and that the activities in question were ancillary to this service. The court also noted the applicability of the negative list post-1.7.2012, which exempts services related to agricultural produce.
• Application of law to facts: The court applied the exemption notifications and circulars to conclude that the activities were exempt from service tax both before and after the introduction of the negative list.
• Treatment of competing arguments: The court considered the department's argument that these activities were taxable but found them unpersuasive in light of the exemptions and precedents.
• Conclusions: The court concluded that the activities of cleaning and grading, as well as handling and transportation, are exempt from service tax as they are part of the composite service of storage and warehousing of agricultural produce.

Issue 2: Time-barred Demand and Penalties

• Relevant legal framework and precedents: The provisions of the Finance Act 1994 regarding the limitation period for service tax demands and the conditions under which the extended period can be invoked.
• Court's interpretation and reasoning: The court found that there was no suppression of facts with the intent to evade tax, and therefore, the extended period of limitation could not be invoked.
• Key evidence and findings: The appellant's compliance with the agreements for storage of agricultural produce and the lack of evidence of intentional suppression of information.
• Application of law to facts: The court applied the legal standards for invoking the extended period and found them unmet in this case.
• Treatment of competing arguments: The court dismissed the department's reliance on the extended period due to lack of evidence of suppression.
• Conclusions: The demand for service tax was time-barred, and the penalties under sections 77 and 78 were unjustified.

3. SIGNIFICANT HOLDINGS

• Preserve verbatim quotes of crucial legal reasoning: "The cleaning and grading activity was for few of the agricultural products which were warehoused by the appellants for their clients and that this activity did not change the essential characteristics of the agricultural product stored/warehoused by the appellant, the activity has to be considered as the one in relation to the agriculture which is exempted from payment of tax."
• Core principles established: Activities ancillary to the storage and warehousing of agricultural produce, which do not alter the essential characteristics of the produce, are exempt from service tax. The invocation of the extended period of limitation requires evidence of intentional suppression of facts.
• Final determinations on each issue: The court set aside the demand for service tax and penalties, allowing the appeal. The activities in question were found to be exempt from service tax, and the demand was deemed time-barred.