2009 (4) TMI 9 - AT - Service Tax

Whether movement of limestone and rejects in the mining area involve Cargo Handling Service - As the appellants were registered with the Department as a provider of mining services with effect from 1.6.2007, the same activity could not be taxed under cargo handling service for the material period prior to 1.6.07 - activity made liable to service tax from a particular date was not taxable under a pre-existing service category when definition of earlier categories was not changed appeal allowed

Issues Involved:
1. Classification of the activity under "cargo handling service" or "mining of mineral, oil, gas" service.
2. Validity of the demand for service tax and penalties imposed.
3. Applicability of the extended period for demanding differential tax.
4. Interpretation of "cargo" and "goods" under the Finance Act, 1994.

Detailed Analysis:

Classification of the Activity:
The primary issue was whether the activity of "loading and transportation of limestone and rejects" conducted by TEPL for CCC in the Dholipatti limestone mines area falls under "cargo handling service" or "mining of mineral, oil, gas" service. TEPL argued that the material moved was not "cargo" as per Section 65(23) of the Finance Act, 1994, but constituted material handling within the mining area. The Tribunal supported this by referencing the Mines Act, 1952, and various precedents, concluding that the activity was indeed covered under "mining of mineral, oil, gas" service, effective from 1.6.2007, and not under "cargo handling service."

Validity of the Demand for Service Tax and Penalties:
The Commissioner had demanded Rs.1,20,26,027/- towards service tax and education cess, along with applicable interest and penalties under Sections 76, 77, and 78 of the Finance Act, 1994. TEPL contended that their registration as a provider of mining services from 1.6.2007 precluded the same activity from being taxed under "cargo handling service" for the prior period. The Tribunal agreed, citing precedents that an activity taxable from a particular date cannot be taxed under a pre-existing category unless its scope is modified.

Applicability of the Extended Period for Demanding Differential Tax:
TEPL challenged the validity of the second Show Cause Notice issued on 22.10.2007, which increased the demanded tax amount based on the same facts as the first notice. TEPL argued that this could not validly invoke the extended period for demanding the differential amount of tax. The Tribunal found merit in this argument, noting that the confusion regarding the scope of the levy and the CBEC's clarifications indicated a bona fide belief by TEPL that tax was not payable, thus barring the extended period for demand.

Interpretation of "Cargo" and "Goods":
The Tribunal examined whether the limestone and rejects moved by TEPL constituted "cargo" or "goods" within the meaning of the Finance Act, 1994. It was determined that the activities undertaken by TEPL, which included loading and transportation within the mining area, did not fit the commercial understanding of "cargo" as freight carried by ship, plane, rail, or truck. This interpretation was supported by precedents in Sainik Mining & Allied Services Limited and CCE Vs. B.K. Thakkar, which held that similar activities within mining areas did not constitute "cargo handling service."

Conclusion:
The Tribunal concluded that TEPL's activities were covered under "mining of mineral, oil, gas" service and not "cargo handling service" for the period prior to 1.6.2007. Consequently, the demand for service tax and penalties under "cargo handling service" was not justified. Both Show Cause Notices were deemed barred by limitation due to the bona fide belief held by TEPL regarding the non-applicability of the tax. The appeal filed by TEPL was allowed, and the impugned order was set aside.

(Operative portion of the order was pronounced in open court on 2.4.2009)

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