TAXABILITY OF TRANSPORTATION OF TIMBER IN FORESTS – A CASE STUDY

[Dr. Sanjiv Agarwal]

Facts

The service provider ‘A who is primarily   engaged in the activities of “Transportation” of fire woods/ timber has participated in the tender and awarded the work by Conservator of Forests.

In terms of Work Order issued by Conservator of Forest, Department of Forest,   the service provider was awarded contract for “transportation” of fire wood which also included loading, transportation, weighment and unloading at forest department’s godown as ancillary jobs to said transportation. This godown was far away from the area of collection of firewood but within the forest area. The charges for transportation varies according to actual distance.

The contract awarded to the service provider primarily a contract for transportation of fire wood and timber from various sites in forest area to sale depots of Forest Department. The activity of loading and unloading of such fire wood form various sites to sale depots of Forest Department would be considered an activity ancillary/incidental to the main activity of transportation, It is pertinent to mention here that any activity of “transportation” cannot be undertaken without loading of  goods at the starting point of transportation and unloading the same  at the end point of transportation.

The agreement with Forest Department as well as Work Orders issued by Forest Department reveal that -

a) The contract awarded by the Forest Department is mainly for transportation of fire wood  from various sites to sale depots of Forest Department.

b) The terms of the said contract clearly indicate that no separate rates are provided for loading / unloading and weighment. The total value of contract is for transportation charges and therefore the activity of loading and unloading is ancillary and incidental to the activity of transportation. The activity of loading and unloading of fire wood is part and parcel of the transportation of goods services.

c) The service provider has raised bills of transportation charges as per the contract only  and Forest Department has also clearly mentioned “transportation charges” in payment advise.

The activities of assessee   cannot be considered cargo handling services as per legal position as discussed below.

Departmental  Clarification

Since the main activity of the assessee was transportation of fire wood / timber and the loading / unloading/ weighment activities were ancillary to the main activities, it is believed that he was providing composite services and a composite service, even if it consists of more than one service, should be treated as a single service based on the main or principal service and accordingly classified. While taking a view, both the form and substance of the transaction is to be taken into account – the guiding principle being to identify the essential features of the transaction. This has also been clarified by CBEC vide F. No. 334/4/2006-TRU dated 28.2.2006.

The levy of Service tax on ‘Goods Transport Operators’ was introduced from 1^st January,2005 by the Finance Act, 2004. As clarified by the CBEC, ancillary services including cargo handling and packing may also be provided by GTAs and such services shall be treated as a GTA services and not as a cargo handling services. (Vide Circular No. 104/07/2008-ST dated 6.8.2008).

Classification Principles

Section 65A lays down the basic principles of classifying the taxable services. The classification is based on specific description or essential character of the service. If the service cannot be classified on these criteria, classification will be based on sequence of entry of services in section 65 (105). Clause 105 of section 65 arranges the taxable services in the order in which they came under the tax net, i.e., on FIFO basis. The taxable service which was taxed first is placed above the service which was taxed later. Thus, in case of a confusion or doubt, a service will be classified in the category which was first taxed.

Service tax shall be charged only under a specific category of taxable service and not on any assumption or arbitrary basis. At the same time, merely because there is any dispute or doubt about classification, the taxability of service cannot be vitiated altogether. A person can register himself and pay service tax from any one or more services rendered by him.

The main activity of the service provider  is are transportation of fire wood and the loading / unloading/ weighment activities were only ancillary and incidental to carrying out the main activities. The service provider’s   case is that he was providing composite services and a composite services and a composite service, even if it consists of more than one service, should be treated as a single service based on the main or principal service and accordingly classified in terms of section 65 A of the Finance Act, 1994. While taking a view, both the form and substance of the transaction is to be taken into account – the guiding principle being to identify the essential features of the transaction. This has also been clarified by CBEC vide F. No. 334/4/2006-TRU dated 28.2.2006.

Is it a Cargo Service?

For a taxable cargo service, following tests should be satisfied —

(a) Cargo handling service should be provided or to be provided to any person;

(b) Service must be provided by a cargo handling agency;

(c) Service should be in relation to any service of cargo handling;

(d) Both, cargo and handling are important for determining taxability.

CBEC had vide letter No. F.No. B 11/21/2002-TRU dated 1.8.2002 clarified that The services which are liable to tax under this category are the services provided by cargo handling agencies who undertake the activity of packing, unpacking, loading and unloading of goods meant to be transported by any means of transportation namely truck, rail, ship or aircraft. Well known examples of cargo handling service are services provided in relation to cargo handling by the Container Corporation of India, Airport Authority of India, Inland Container Depot, Container Freight Stations. This is only an illustrative list. There are several other firms that are engaged in the business of cargo handling services.

CBEC vide Circular No. 104/07/2008-ST dated 6.8.2008 clarified that as follows -

“Cargo handling service (Section 65(105)(zr) means loading, unloading, packing or unpacking of cargo and included the service of packing together with transportation of cargo with or without loading unloading and unpacking transportation is not the essential character of cargo handling service but only incidental to the cargo handling service. Where service is provided by a person who is registered as GTA service provider and issues consignment note for transpiration of goods by road in a goods carriage and the amount charged for the service provided is inclusive of packing then the service shall be treated as GTA service and not cargo handling service”.

Judicial Pronouncements

The Hon’ble CESTAT in number of cases  and the High Court has come to a definite conclusion  that the activity of loading and unloading  should be considered as an activity ancillary/incidental to the main activity of transportation. Some of the cases are as under:-

a) The Hon’ble bench of  CESTAT Delhi  in the case of CCE, Jaipur v Laxmi Trading Co. 2008 -TMI - 4429 - CESTAT, NEW DELHI has held that loading and unloading is incidental to mining, transportation and delivery of limestone from mines to designated place and  hence respondent cannot be considered as rendering the services of cargo  handling. This case is squarely similar to that of service provider.

b) Hon’ble Calcutta Bench of CESTAT in Sainik Mining & Allied Services Ltd. V. CCE & ST 2008 -TMI - 31373 - CESTAT, KOLKATA has held that activity of mechanical transfer of coal from coal face to tippers and subsequent  transportation of coal does not constitute cargo handling service and hence not chargeable to service tax. Loading and unloading are merely incidental to such transportation.

c) Hon’ble Kolkata Bench of CESTAT in CCE & C v B,K Thakkar 2007 -TMI - 3503 - CESTAT, KOLKATA has held that excavation  transportation and feeding of iron ore to plant does not constitute cargo handling service and loading and unloading undertaken are only incidental activities to such transportation and such incidental  activities does  not give the entire  contracted activities the character of cargo handling service.

d) The Hon’ble bench of CESTAT, Delhi in the case of CCE, Jaipur v Giriraj Brothers. 2008 -TMI - 4409 - CESTAT, NEW DELHIhas held that where a series of activities starting from mining to delivery of the lime stone to the designated place of the client is undertaken by the respondent, respondent cannot be considered as an agent in the context of rendering the service of cargo handling.

e) The Hon’ble bench of CESTAT Bangalore, in the case of N.Raja shekar & Co. v. CCE, Mysore. 2008 -TMI - 30666 - CESTAT BANGLOREhas held that although the asseessee is engaged in the various activities of breaking, crushing of limestone boulders into jelly of required sizes; no doubt it was engaged in transporting, loading and unloading of boulders and jelly, but that was incidental to its main activity of transportation, and hence, said activity could not be classified under ‘cargo handling service’. This case squarely applies to service provider.

f) The Hon’ble High Court of Rajasthan (Jaipur bench), in the case of S.B. Construction Company v Union of India 2006 -TMI - 809 - HIGH COURT OF JUDICATURE FOR RAJASTHAN (JODHPUR) has held that handling of coal service rendered by the petitioner under subject contract did not fall under ambit of “ cargo handling service”

In Gupta Enterprises v. Additional Commissioner, Jaipur-I, Commissioner of Central Excise (Appeal –I), Jaipur has in a totally similar case vide his Order in Appeal dated 6.6.2011 held that the transportation, loading, unloading, were the intermediate and ancillary services and it’s covered under the category of GTA.  Transportation is not the essential character of cargo handling service but only incidental to the cargo handling service. Where service is provided by a person who is registered as GTA service provider and issues consignment note for transportation of goods by road in a goods carriage and the amount charged for the service provided is inclusive of packing, then the service shall be treated as GTA service and not cargo handling service.

Conclusion

While concluding that the main activity undertaken by the appellant was transportation; loading and unloading were the intermediate and ancillary services. The present case is squarely covered by the aforementioned Board Circular dated 6.8.2008 and as per the clarification given by the Board the services provided by the appellant are covered under the category of GTA Services and not under Cargo Handling Services. Even the various case laws cited also support this view. Accordingly, levy of service tax on transportation of timber wood under the category of Cargo Handling Services may not be sustainable.

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