2013 (5) TMI 477 - HC - Service Tax

Levy of service tax on packaging activity - palletizing of cargo for export - Section 65(76b) - classification - held that - It is common knowledge that small consignments of goods to same destination are packed in groups and loaded in containers to prevent damage to the goods and to save time and cost in loading and unloading. This is exactly what is done by the appellant. If appellant s service falls within the exception clause of Section 65(23)(b) of the Act, then certainly there is no justification to make an adjudication demanding tax. On the other hand, if appellant is engaged in packaging activity falling under Section 65(76b) then adjudication has to be upheld. In this case the controversy arose only because packing is covered by both sub-sections (23) and (76b) of Section 65. However, we find a distinction between the packing covered by sub-section (23) and the packing covered by sub-section (76b). In our view, the packing covered by sub-section (76b) is the basic packing of products either in the course of manufacturing or subsequent to manufacturing for marketing. This work is not done by the appellant because the appellant is not a manufacturer or packer for manufacturers of goods. On the other hand, the packing i.e. covered by the broad definition of cargo handling service under sub-section (23) is the group packing of cargo for easy handling. As already explained above, the packing done by the appellant is group packing in a rough form just for easy loading into containers or ships, of goods taken by shipping companies in loose form for transport to same destination. So much so, in our view, the packing done by the appellant forming part of cargo handling service is not the type of packing referred to in sub-section (76b). Regarding exemption in relation to export - held that - In fact all kinds of incentives such as tax and duty exemptions are allowed for export cargo to make the Indian goods competitive in international markets. If service tax is demanded at the last point packaging of goods for loading into containers or ships, the same will certainly lead to escalation of cost for export by way of freight increase, and that is the reason why service tax exemption is provided for handling of export cargo. We, therefore, feel the adjudication order defeats the very purpose of exemption covered by sub-section (23)(b) of Section 65. Demand set aside - decided in favor of assessee.

Summary

Issues:
Challenge to adjudication order on service tax liability for palletizing as "packaging activity" under Finance Act, 1994.

Analysis:
1. The appellant contested the adjudication order determining service tax liability on palletizing as "packaging activity" under Section 65(76b) of the Finance Act, 1994, arguing that the order was issued without jurisdiction.
2. The learned Single Judge dismissed the writ petition, citing that adjudication orders should be contested through statutory appeals, not writ proceedings, following the decision in Union of India v. Zaicon Electronics.
3. The Writ Appeal was filed against this judgment, emphasizing that there was no factual dispute, and the issue was whether the adjudication was without jurisdiction.
4. The Service Tax Department claimed that the appellant's palletizing of goods constituted "packaging activity" attracting service tax, while the appellant argued it fell under "cargo handling" exempt from tax for export cargo.
5. The primary question was whether the Single Judge was correct in dismissing the petition without considering the jurisdiction of the adjudicating authority to demand service tax for palletizing export cargo.
6. The Court found no factual dispute as the appellant was engaged in palletizing cargo for shipping companies, which was akin to group packing for easy loading and transport, falling under the exception clause of Section 65(23)(b).
7. The distinction between "cargo handling service" and "packaging activity" was crucial, with the appellant's palletizing being a form of group packing for easy handling, not basic packing as defined under Section 65(76b).
8. The Court clarified that the appellant's activity aligned with "cargo handling service" exempted for export cargo to reduce exporters' costs and maintain competitiveness in international markets.
9. Consequently, the adjudication order demanding service tax on palletizing for export cargo was deemed contrary to the purpose of the exemption under Section 65(23)(b) and was set aside in favor of the appellant.
10. The Court allowed the Writ Appeal, overturning the Single Judge's decision, and vacated the adjudication order demanding service tax on palletizing for export cargo, while noting that service tax could be levied on non-export cargo palletized under "cargo handling service."

This detailed analysis covers the issues involved in the legal judgment comprehensively, outlining the arguments presented and the Court's reasoning behind its decision.