2009 (7) TMI 1086 - Commissioner - Service Tax

Issues Involved:
1. Classification of services provided by the appellants.
2. Applicability of Service Tax on the services.
3. Validity of the Show Cause Notices (SCNs) issued.
4. Allegation of suppression of facts and invocation of the extended period of limitation.

Issue-wise Detailed Analysis:

1. Classification of Services Provided by the Appellants:
The primary issue was whether the activities of the appellants, which included bailing, packing, loading, unloading, handling, and transportation of bagasse, fell under 'cargo handling services' or 'manpower recruitment & supply agency service'. The Assistant Commissioner had classified these activities under 'cargo handling services'. However, the appellants contended that bagasse, a residual waste of sugarcane used as fuel, could not be treated as cargo. They argued that their activities should be classified under 'manpower recruitment & supply agency service' as per the Board's clarification in Circular No. B1/6/2005-TRU, dated 27-7-2005. The Commissioner (Appeals) had previously ruled in favor of similar cases, stating that such activities within factory premises could not be considered as 'cargo handling services'.

2. Applicability of Service Tax on the Services:
The Assistant Commissioner had imposed Service Tax on the appellants under 'cargo handling services'. However, the definition of 'cargo handling service' under Section 65(23) of the Finance Act, 1994, includes loading, unloading, packing, or unpacking of cargo, but excludes handling of export cargo, passenger baggage, or mere transportation of goods. Since bagasse is not considered cargo, the activities of the appellants could not be taxed under 'cargo handling services'. Instead, their services could be considered under 'manpower recruitment & supply agency service' effective from 16-6-2005.

3. Validity of the Show Cause Notices (SCNs) Issued:
The second appellant pointed out that for the same activities and period, the department had issued another SCN treating the services under 'manpower recruitment & supply agency service'. This inconsistency indicated that the department was unsure of the correct classification. The issuance of two SCNs for the same period under different service categories was deemed impermissible and unjust, further supporting the appellants' stance.

4. Allegation of Suppression of Facts and Invocation of the Extended Period of Limitation:
The appellants argued that there was no deliberate suppression of facts or intent to evade tax. They claimed a bona fide belief that their activities were not taxable under 'cargo handling services'. The Supreme Court decisions in Padmini Products v. CCE and Cosmic Dye Chemicals v. CCE supported the view that suppression must be deliberate with guilty knowledge. Furthermore, the second appellant highlighted that the department had knowledge of their activities in May 2006, but issued the SCN only in September 2007, making it time-barred. The Assistant Commissioner failed to rebut this claim, and the Apex Court's decision in Kushal Fertilisers (P) Ltd. v. Commissioner reinforced that SCNs must be issued within one year from the date of knowledge of the activities.

Conclusion:
The Commissioner (Appeals) concluded that the appellants' activities did not fall under 'cargo handling services' and should be classified under 'manpower recruitment & supply agency service'. The impugned orders were set aside on the grounds of incorrect classification, time-barred SCNs, and lack of deliberate suppression. Consequently, the appellants were not liable to pay Service Tax, interest, or penalties under 'cargo handling services'. Both appeals were allowed, and the orders passed by the Assistant Commissioner, Central Excise, Sangli Division, were set aside.

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