2019 (10) TMI 48 - AT - Service Tax

Cargo handling service - demand of service tax - the demand was confirmed under the cargo handling service, the said order of the Tribunal was recalled in ROM application and appeal was listed for fresh hearing - extended period of limitation - HELD THAT - Though the Department challenged the recalling of the order before the High Court but High court has dismissed the petition of the Revenue. Since the final order passed by the Tribunal is recalled, the appellant is at liberty to raise all the legal issues. Further in fact going by the principles laid in Section 65A of the Finance Act, 1994, the demand should not have been confirmed under cargo handling service because the essential character of the main activity in the present case is towards transportation charges which is ₹ 53/-pmt whereas loading and unloading, it is only ₹ 20/- pmt. Further we find that any composite service, the classification of the service should be made. The demand of service tax under cargo handling service in the present case is not tenable under law. Time limitation - HELD THAT - In the first round, the period of dispute is December 2002 to June 2004 and the show-cause notice was issued on 07.05.2005 and during the said period, six months was provided for issuing the show-cause notice from the relevant date. Though the Department has invoked the extended period, Department has not brought any material on record to show that there was an intention to evade service tax on the part of the appellant because during the relevant time, this cargo handling service was introduced and a circular was also issued by the Department which clarified the position and the appellant entertained a bona fide belief that they are not liable to pay service tax under loading and unloading of cargo - the extended period has been wrongly invoked and entire demand is barred by limitation. The demands in both the cases on merits as well as on limitation is set aside - appeal allowed.

Issues Involved:
1. Classification of services under 'Cargo Handling Service.'
2. Applicability of extended period of limitation for issuing show-cause notices.
3. Bona fide belief and applicability of penalties under Sections 76, 77, and 78 of the Finance Act, 1994.
4. Composite services and their classification under Section 65A of the Finance Act, 1994.

Detailed Analysis:

1. Classification of Services under 'Cargo Handling Service':
The appellant, a proprietory concern, was engaged by M/s. Grasim Industries Ltd. for handling and transporting goods. The Department issued show-cause notices demanding service tax under 'Cargo Handling Service' for the periods December 2002 to June 2004 and July 2004 to April 2006. The appellant contended that the primary service was transportation, with loading and unloading being incidental. According to Section 65A(2)(b) of the Finance Act, 1994, composite services should be classified based on their essential character. The Tribunal agreed, noting that transportation charges were the primary component, and thus, the demand under 'Cargo Handling Service' was not tenable. The Tribunal relied on several decisions, including Tycoons Industries Pvt. Ltd. Vs. CCE and DRS Dilip Road Lines Pvt. Ltd. Vs. CCE, to support this classification.

2. Applicability of Extended Period of Limitation:
For the period December 2002 to June 2004, the show-cause notice was issued on 07.05.2005, beyond the standard six-month period. The appellant argued that they had a bona fide belief, based on a CBEC circular dated 01.08.2002, that loading and unloading services were not taxable. The Tribunal found no intent to evade tax, citing decisions like Vishal Traders Vs. CCE and Singh Brothers Vs. CCE, which established that confusion or doubt due to departmental circulars negates the invocation of the extended period. Consequently, the Tribunal held that the demand was barred by limitation.

3. Bona Fide Belief and Applicability of Penalties:
The appellant claimed a bona fide belief, supported by the CBEC circular, that loading and unloading services were not taxable. Initially, penalties under Sections 76, 77, and 78 were imposed. However, the Tribunal, in its previous order, set aside these penalties. The Tribunal reaffirmed this stance, noting that mere inaction or non-disclosure does not constitute suppression of facts. The Tribunal referenced cases like Narayan Builders Vs. CCE and Ankleshwar Taluka Ongc Land Loosers Travellers Coop Vs. CCE to support this view.

4. Composite Services and Their Classification under Section 65A:
The Tribunal emphasized that composite services should be classified based on their essential character, as per Section 65A of the Finance Act, 1994. The primary service provided by the appellant was transportation, with loading and unloading being ancillary. The Tribunal cited various decisions, including CCE Vs. Arvind Singh Lal Singh and Pioneer Builders Ltd. Vs. CCE, to substantiate that the demand under 'Cargo Handling Service' was incorrect.

Conclusion:
The Tribunal set aside the demands in both appeals on merits and limitation grounds. The classification of services was determined to be primarily transportation, not cargo handling. The extended period of limitation was deemed inapplicable due to the appellant's bona fide belief and the lack of intent to evade tax. Consequently, the penalties were also set aside. The appeals were allowed, and the demands were annulled.

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