2018 (2) TMI 939 - AT - Service Tax

Classification of services - cargo handling services or transportation services? - appellants have argued that loading and unloading done is a kind of self-service necessary to undertake the service of transportation undertaken by them. Held that - Loading in the riverbed is not a simple activity of loading as the sand has to be mined using an excavator or other machine. The location of riverbed is not fixed. The loading in the stockyard is, however, simple activity of loading. The contract describes it to be a contract for excavation from riverbed, transportation from riverbed to warehouse and transportation from warehouse to bunker. Rates have been quoted for both on per MT basis but the rate changes with the distance between the origin and destination. In these circumstances it is to be examined if the activity is primarily an activity of transportation or of cargo handling. There is no doubt that the activity of removing/excavating sand from the riverbed amounts to mining activity. However for the period in dispute mining was not a taxable service. In any case, the activity of movement of sand from warehouse to bunker cannot be considered as mining activity. From the terms of the contract it is apparent that the prime purpose of the contract is to bring the sand from the riverbed/ warehouse to the bunker. The loading or unloading are merely necessary requirements to complete activity of movement of the sand. The contract is primarily intended for the purpose of transportation of sand and the activity of loading/unloading is merely incidental. No tax under the head of Cargo Handling Service can be levied in these circumstances. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Classification of services provided by the appellants.
2. Taxability of loading and unloading activities.
3. Applicability of Cargo Handling Services.
4. Nature of the contract between appellants and Western Coalfield Ltd. (WCL).
5. Determination of the principal activity (transportation vs. cargo handling).
6. Quantification of the demand.
7. Applicability of extended period of limitation and penalties.
8. Adjustment of service tax paid by WCL.

Detailed Analysis:

1. Classification of Services Provided by the Appellants:
The appellants, M/s. Khandelwal Transport and M/s. Khandelwal Earth Movers, provided services under a composite contract with WCL. The contract involved mining sand from the riverbed, loading it onto tippers, transporting it to stockyards/bunkers, and unloading it. The Revenue classified these services under Cargo Handling Services due to the inclusion of loading and unloading activities.

2. Taxability of Loading and Unloading Activities:
The appellants argued that loading and unloading are incidental to the principal activity of transportation. They relied on Circular No. 104/7/2008-ST, which states that intermediate and ancillary services provided in the course of transportation should be treated as a single composite service under Goods Transportation Agency (GTA) services. The tribunal agreed, noting that loading and unloading were necessary for the transportation process and should not be taxed separately.

3. Applicability of Cargo Handling Services:
The Revenue contended that the entire consideration received by the appellants should be taxed under Cargo Handling Services. However, the tribunal pointed out that the definition of Cargo Handling Services under Section 65(23) of the Finance Act, 1994, does not include mere transportation of goods. The tribunal also noted that the term "cargo" refers to goods in transit, and once the transport ends, they revert to being goods simpliciter.

4. Nature of the Contract Between Appellants and WCL:
The contract described activities such as excavation, transportation, and unloading of sand. The tribunal examined the nature of the contract and concluded that it primarily aimed to transport sand from the riverbed/warehouse to the bunker. The loading and unloading activities were incidental to this primary purpose.

5. Determination of the Principal Activity:
The tribunal emphasized that the principal activity was transportation, not cargo handling. The appellants' contracts were primarily for transporting sand, with loading and unloading being necessary but ancillary activities. The tribunal relied on the case of Singh Transporters vs. CSST, Raipur, where similar activities were classified under transportation services.

6. Quantification of the Demand:
The show cause notice considered the gross payment received by the appellants as the basis for service tax demand. The tribunal noted that the contract did not provide a separate bifurcation for loading and unloading activities. Therefore, the demand should be limited to the loading and unloading portion, not the entire transportation charges.

7. Applicability of Extended Period of Limitation and Penalties:
The tribunal found that the issue involved interpretation of statutory provisions and classification of services. WCL had sought clarification from the department on the applicability of service tax, but no response was received. Therefore, the tribunal held that the extended period of limitation and penalties should not be invoked.

8. Adjustment of Service Tax Paid by WCL:
The tribunal agreed with the appellants' contention that the service tax paid by WCL on the said activity should be adjusted against the appellants' tax liability, if any. Additionally, the amount received should be treated as cum-duty.

Conclusion:
The tribunal concluded that the services provided by the appellants were primarily transportation services, with loading and unloading being ancillary activities. Therefore, the services should not be classified under Cargo Handling Services, and no service tax should be levied under this head. The appeals were allowed, and the demand for service tax, interest, and penalties was set aside.