2010 (3) TMI 435 - AT - Service Tax

Storage and Warehousing Services and Cargo Handling Services- Cenvat Credit- The appellants were visited by the officers when they explained the activities undertaken by them. As regards cargo handling, KSWC appointed handling and transporting contractors (H&T contractors) who undertook the work of loading and unloading of goods at the warehouses. The appellant paid the H&T contractors and charged the clients for the services with a mark up of 15%. It is submitted that the activity of loading and unloading of goods at the warehouses did not amount to Cargo Handling Services taxable under the Act. They had paid excess amount of Rs. 4,65,151/- and Rs. 2,51,806/- respectively under Storage and Warehousing Services and Cargo Handling Services . The appellants had paid Service tax of Rs. 2,38,778/- on services received as input and they were eligible for the credit of the same. In the appeal filed before us, the appellants have challenged the denial of abatement of tax already paid in computing the demand and the penalties imposed relying on various case-laws. Held that- The appellants have claimed that they had availed input service and paid Service Tax qualified as Cenvat credit. Thus, this claim needs to be examined. In the circumstances, vacate the impugned order and remand the matter to the Adjudicating Authority to re-determine the liability of the appellants afresh. Thus, the appeal is allowed by way of remand.

Issues Involved:
1. Liability of Service Tax under 'Storage and Warehousing Services' and 'Cargo Handling Services'
2. Classification of services provided by KSWC
3. Applicability of CBEC Circular No. 89/7/2006-S.T.
4. Bona fide belief and ignorance as grounds for non-payment of Service Tax
5. Imposition of penalties under various sections of the Finance Act, 1994
6. Limitation period for issuing the show cause notice

Detailed Analysis:

1. Liability of Service Tax under 'Storage and Warehousing Services' and 'Cargo Handling Services':
The appellants, M/s. Karnataka State Warehousing Corporation (KSWC), were found to have rendered taxable services under the categories of 'Storage and Warehousing Services' and 'Cargo Handling Services' during the period from 16-8-2002 to 31-3-2005 without adhering to statutory formalities, including payment of service tax. The Commissioner confirmed the demand of Rs. 53,79,256/- for 'Storage and Warehousing Services' and Rs. 25,17,466/- for 'Cargo Handling Services'. The appellants had already paid Rs. 39,03,044/- and Rs. 5,00,000/- towards these liabilities, respectively, which were appropriated by the Commissioner.

2. Classification of services provided by KSWC:
The appellants argued that the activity of loading and unloading of goods at the warehouses did not amount to 'Cargo Handling Services' taxable under the Act. However, the Tribunal held that KSWC was engaged in providing 'Cargo Handling Services' as they charged their clients for this service with a 15% markup over the amount paid to handling and transporting contractors. The language of the entry 'Cargo Handling Services' includes loading and unloading, which justified the classification.

3. Applicability of CBEC Circular No. 89/7/2006-S.T.:
The appellants relied on CBEC Circular No. 89/7/2006-S.T., dated 18-12-2006, which exempts statutory functions performed by sovereign/public authorities from service tax. However, the Tribunal found that KSWC did not satisfy the parameters defined in the Circular for exemption. The activities of KSWC were not purely in public interest or mandated by statute, and the fees collected were not deposited into the Government Treasury. Therefore, the services rendered by KSWC were not excluded from the purview of service tax.

4. Bona fide belief and ignorance as grounds for non-payment of Service Tax:
The appellants claimed that their failure to pay service tax was due to ignorance and a bona fide belief that they were not liable. They cited various case laws to support their claim that no penalty should be imposed. However, the Tribunal did not find sufficient evidence to support this claim and upheld the penalties imposed by the Commissioner.

5. Imposition of penalties under various sections of the Finance Act, 1994:
The Commissioner imposed penalties under Sections 75, 76, 77, and 78 of the Finance Act, 1994. The Tribunal upheld these penalties, noting that being a State Government undertaking, KSWC was in a better position to understand their statutory obligations regarding service tax liability.

6. Limitation period for issuing the show cause notice:
The Tribunal found that the show cause notice issued on 21-3-2006 for demanding service tax for the period 16-8-2002 to 31-3-2005 was not issued within the normal limitation period. Therefore, the demand for the period beyond the normal period with reference to the date of the show cause notice was not sustainable in law.

Conclusion:
The Tribunal vacated the impugned order and remanded the matter to the Adjudicating Authority to re-determine the liability of the appellants afresh. The appeal was allowed by way of remand, and the appellants were to be given an opportunity for a personal hearing before the matter was decided afresh.

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