2017 (3) TMI 934 - SC - Service Tax

Classification of services - whether the service rendered by the appellant amounts to cargo handling service within the meaning of Section 2(23) of the Finance Act, 1994 or the packaging activity ? - Held that - A careful reading of Section 65(23) of the Act, which defines Cargo Handling Service would go to show that though the word packing is included therein, the same is referable to the word Cargo whereas in Section 65(76b) Packing Activity is defined to mean Packaging of Goods - the appellant has nothing to do with the transportation of goods which it packs within the factory unit of the principal manufacturer prior to the goods leaving the factory. It is nobody s case before us that the appellant is a cargo handling agency. All activity undertaken by the appellant, though related to packing activity, is at a stage when the goods are yet to clear the factory gate as manufactured goods for onward transportation. Prior to the amendment made by the Finance Act of 2005 with effect from 16.06.2005, the appellant would not be liable to pay service tax on the service rendered by it in terms of Section 65(23) read with Section 105(zr) of the Act. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Liability of the appellant to service tax as "cargo handling service" or "packaging activity" under Finance Act, 1994.

Analysis:
The core issue in this case is the determination of the appellant's liability to service tax based on whether the service rendered amounts to "cargo handling service" or "packaging activity" under the Finance Act, 1994. The appellant argues that the service falls under "packaging activity" as per the amendments made to the Act. The Tribunal found the appellant liable for service tax prior to 2005 but not after, leading to conflicting decisions by different benches. The legislative intent behind the amendments is crucial in resolving this issue.

The definitions of "cargo handling service" and "packaging activity" under Sections 65(23) and 65(76b) of the Act are pivotal in understanding the distinction between the two services. The insertion of Sections 65(76b) and 65(105)(zzzf) by the Finance Act, 2005, clearly indicates the legislative intent to differentiate between packaging activity and cargo handling service. This legislative intent is significant in determining the appellant's tax liability for the pre-amended period.

The appellant's activities take place within the manufacturing unit of the principal manufacturer, and the charges form part of the assessable value of the manufactured goods. The definitions of "cargo" and "goods" are crucial in distinguishing between cargo handling service and packaging activity. The appellant's role in packaging goods before they become cargo for transportation is a key factor in determining the appropriate tax liability.

A circular issued by the Central Board of Excise and Customs clarifies that services provided by cargo handling agencies involving packing, loading, and unloading of goods for transportation are considered as "cargo handling services." This circular emphasizes that mere transportation of goods is not covered under cargo handling services, further supporting the distinction between cargo handling and packaging activities.

The conclusion reached is that prior to the 2005 amendment, the appellant is not liable to pay service tax under the provisions of the Act related to cargo handling services. The demand for service tax is analyzed in light of the legislative framework and definitions provided in the Act. Consequently, the appeals are allowed, and the Tribunal's order is set aside, granting the appellant the necessary reliefs based on the interpretation of the relevant legal provisions.