CARGO HANDLING SERVICES IN COALFIELDS

[Dr. Sanjiv Agarwal]

One of the issues in taxability of cargo handling services faced by a group of assessees is that whether services provided to various coalfields in relation to providing pay loaders for loading of coal into railway wagons by way of letting out the pay loaders for loading of coal are taxable or not.  Such services are provided by contractors under an agreement for transfer of coal within the time frame at fixed prices.

The taxability of services of cargo handling in coalfields may include, loading and unloading alongwith transportation could be examined under cargo handling services.

According to amendments made by Finance Act, 2008, cargo handling service has been redefined under section 65(23) to mean loading, unloading, packing or unpacking of cargo and shall include -

•      cargo handling service provided for freight in special containers or for non-commercialised freight, service provided by a container freight terminal or any other freight terminal, for all mode of transport, and cargo handling service incidental to freight; and

•      services of packing together with transportation of cargo or goods with or without one or more of other services like loading, unloading, unpacking, but shall not include, handling of export cargo or passenger baggage of mere transportation of goods.

According to section 65(105)(zr) of Finance Act 1994, taxable service means any service provided or to be provided to any person, by a cargo handling agency in relation to cargo handling services.

CBEC had clarified as follows in relation to cargo handling services vide letter No 11/1/2002- TRU dated 1.8.2002-

        "A point has been raised as to what would be the value of service tax in a case where transport and cargo handling service is provided in a composite manner. The measure of tax is the gross amount charged by the cargo handling agency from the customer. Therefore, if lumpsum amount is charged for both transportation and cargo handling, the tax will be payable on the entire amount. On the other hand, if the bill indicates the amount charged for cargo handling and transportation separately on actuals basis (verifiable by documentary evidence), then the tax would be leviable only on the cargo handling charges.

Another point raised relates to cases where the CFS offers a total package rate, which includes transportation and handling in respect of imported laden containers from Port to CFS. The question is if the cost of transportation is shown separately in the bill raised, will it be excluded from the levy of service tax. If the cost of transportation is claimed on actuals basis, then it will not be includible in the taxable value of cargo handling services".

In yet another clarification, CBEC vide Circular No 104 dated 6.8.2008 clarified that -

"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 transpiration 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".

Though there have been several judicial pronouncements in relation to cargo handling service providing similar service, most of them favoring assessee holding that composite service would not fall under cargo handling service, department has been making demand on assesses under cargo handling services.

In Sainik Mining & Allied Services Ltd. v. CCE & C & ST, BBSR[2008 -TMI -3500- CESTAT, KOLKATA], it was held that mechanical transfer of coal from coal face to tippers and subsequent transportation within mining area is not covered within cargo handling service. Movement of coal within mine area is a dominant activity and loading and unloading are merely incidental and as such, service tax liability does not arise.

In CCE & C, Bhubaneshwar II v. B.K. Thakkar [2008 -TMI - 3503 - CESTAT, KOLKATA],it was held that activities of excavation, transportation and feeding of non ores to crusher plant for processing are primarily in the nature of mining and not covered under cargo handling services. Moreover, iron ore can not be commercially called cargo and that incidental activities of loading and unloading does not give entire contracted activities the character of cargo handling service.

Following cases are also relevant in this regard-

Summary of cases relied upon

Serial No.	Citation	Summary
01	N. Rajashekar & Co. v. CCE, Mysore. [2008 -TMI -30666 - CESTAT BANGLORE]	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'.
02	CCE, Jaipur v Giriraj Brothers [2008 -TMI - 4409 - CESTAT, NEW DELHI]	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.
03	CCE, Jaipur v Laxmi Trading  Co.[ 2008 -TMI - 4429 - CESTAT, NEW DELHI]	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.
04	S.B. Construction Company v Union of India [2007 -TMI - 809 - HIGH COURT, RAJASTHAN]	Held that handling of coal service rendered by the petitioner under subject contract did not fall under ambit of " cargo handling service"
5	Modi Construction Co.v.CCE Ranchi 2008 -TMI - 30465 - CESTAT, KOLKATA	Services of shifting / transpiration of raw materials from one place to other does not fall under cargo handling services (following Sainik Mining case [ (supra) - refer  S.No-06]. Cargo in commercial parlance   has a definite connotation which is carried as freight in ship, plane, rail or train
6	Dalveer Singh v. CCE 2008 -TMI - 3441 - CESTAT, NEW DELHI	Under agreement, unloading fertilizer from railway wagon and transporting same to company's warehouse/ railway station  which incidentally included loading and unloading not covered under Cargo Handling Service.
7	CCE & C & ST, Bhubaneshar - II v. Vinshree Coal Carrier  Pvt. Ltd.[ 2008 -TMI - 4221 - CESTAT, KOLKATA	Transporation of coal involving loading and unloading not covered under cargo handling service ( Sainik Mining  & Allied Services Ltd. Case (supra) followed - refer  S.No.06 )
8	Triveni Earthmovers Pvt. Ltd., CCE Salem [2008 -TMI - 31427 - CESTAT, CHENNAI]	Service tax liability on movement of lime stone in unpacked condition stayed ( Sainik Mining and B.K. Thakkar cases (supra) followed )
9	R.K. Transport v. CCE Raipur [2008 -TMI - 31829 - CESTAT, NEW DELHI]	Demand stayed under cargo handling service for series of activities undertaken such as mining, sorting, breaking, stacking and further transportation as prime facie   held that loading and unloading being part of transport activities ( S.B.. Thakkar and Laxmi Trading cases followed (supra)

In contract of the nature mentioned in the problem, service providers enter into an agreement with service recipients (mainly coal fields) for providing pay loaders for loading of coal to wagons for the purpose of loading of cargo (coal) which include certain other works like loading of wagons, expenditure  towards wages of labour etc.

In Gajanand Agarwal v. CCE, BBSR [2009 -TMI - 32162 - CESTAT KOLKATA]and bunch of other appeals, it has been held that letting out of the pay loaders was not the primary object of the contract but the pay loader was an aid to perform the service of loading of cargo with certain contractual obligations defined by the contract executed by them. Once the activity carried out is found to be loading of cargo, such an activity would be covered under the category of cargo handling service.

Combined reading of provision of section 65(105)9zr) and 65(23) of the Act throw light that cargo handling agencies are taxable entities. Cargo han­dling service provided by such entities attract the levy of service tax. Section 65(23) has a wide amplitude and has brought all like nature activities to its fold expressly and by inclusion of such like nature activities under the class 'cargo handling services'. However, classification of service under this category is subject to two exceptions/exclusions: viz.,: (1) handling of export cargo or passenger baggage and (2) mere transportation of goods. These two activities are beyond the scope of such class from taxation for rationale behind them. Accordingly, cargo handling services provided in respect of domestic cargo only are liable to tax. Event of levy arises when service relating to or in relation to handling of cargo is provided by a cargo handling agency irrespective of mode of transport  used for movement of such cargo. Precisely, following activities which are con­templated to be taxed as cargo handling service are:

(1)   By express terms:

     (A) Loading, unloading, packing or unpacking of cargo;

(2)   By inclusive terms:

     (B) Handling service relating to cargo:

           (i)  Provided for freight in special containers or for non­ containerized freight;

          (ii)   Provided by a container freight terminal or, by any other freight terminal; and

(3) Cargo handling service provided which is incidental to freight.

What that appears to be necessity of law for taxation under the class cargo handling service is that the service provided should be relating to or in relation to cargo handling by a cargo handling agency. The service provided should be integrally or inseparably connected with handling of cargo or attributable thereto without being a mere activity of transportation of such cargo since transport service independent of cargo handling is an exception under the scheme of levy by Section 65(23) of the Act. Thus it can be said that loading, unloading, packing or unpacking of cargo and handling of cargo for freight in special containers or non-containerized freight and service provided by container freight terminal or other freight 'terminal for- all modes of transport are subject matter of taxation under the class "cargo handling service". That apart, any activ­ity incidental to freight of cargo is also liable to be taxed under such class. Mode of transport is irrelevant for incidence of levy once the service provided meets the test of handling of cargo in the manner envisaged by law. It is also not neces­sary that the cargo should only be meant t for transport either by vessel in ships or aircrafts.

The nature of activity that was carried was to load the cargo, i.e, coal in the railway wagons and such an activity squarely falls under cargo handling service. It was also held that the format of agreement and nomenclature of work order are not determinants of tax liability vis-à-vis statutory provisions. Mode of transport is irrelevant for incidence of levy once the activity is covered. Only mere transportation is excluded.

In view of above discussion and departmental clarifications , the service of loading of cargo may be covered for the service tax purposes under cargo handling service if it is not a case of mere transportation .

Discussions to this article

[Sunil Batra]

Very good and nice article.

[mahesh joshi]

pleas provide details for cargo handling services by foreign agency upto mumbai port. shall it be covered under service tax

[sanjiv Agarwal]

Foreign agency providing services will be taxed under reverse charge and service recepient will be liable.