CESTAT, New Delhi Bench
ACE Construction Mines & Mineral Co-op.Society Vs. Commissioner of Central Excise, Jaipur-II
Section : 65(23)
S.K.Mohanty, Judicial Member And B. Ravichandran, Technical Member
Order No. ST/A/55878/2017-CU(DB), ST/777/2008
August 2, 2017
Circular F. No. B11/1/2002-TRO, dated 1-8-2002 and
Circular F. No. 334/1/2008-TRO, dated 29-2-2008
ORDER
B. Ravichandran, Technical Member – The appeal is against order dated 28.08.2008 of Commissioner of Central Excise, Jaipur. The impugned order confirmed a service tax liability of Rs. 75,08,894./- on the appellant under the category of “cargo handling service”. The original authority imposed penalty of equivalent amount under Section 78 and further penalty under Sections 76 & 77 of the Finance Act, 1994.
2. The brief facts of the case are that the appellants have entered into an agreement with M/s Rajasthan State Mines and Minerals Limited, Jodhpur for providing services of loading limestone gitties into trucks, transportation from Sonu Landstone Mines- I & II to Jaisalmer railway station, unloading the same at railway plots, stacking and then loading these gitties into railway wagons. The Revenue entertained a view that the activities undertaken by the appellant will fall under the taxable category of “cargo handling service” in terms of Section 65 (23) read with Section 65 (105) (zr) of Finance Act, 1994. Proceedings initiated against the appellant to demand and recover service tax on the activities for the period 16.08.2002 to 17.09.2004, resulted in the present impugned order. The ld. Consultant appearing for the appellant submitted that they are not a cargo handling agency. The pre-qualification criteria for the tender itself makes it very clear that the tenderer should have minimum two years experience in the work of transportation and mechanized loading in the railway wagon; should own/maintain a fleet of minimum 50 trucks; should have minimum turnover of Rs. 4 crores; own/maintain 5 numbers of front-end loaders etc. The appellant is a registered cooperative society and also registered with the department under the category of “good transport agency services”.
3. The ld. Consultant extensively referred to the contents of the agreement and also rate schedules of payment for various activities agreed upon, as per the said agreement. It is submitted that they do not get any consideration for loading of lime stone which is done automatically from the hoppers of their client company and they do not undertake any activity except positioning the truck in the correct place. The transportation of lime stone is for a distance of 112 kms/126 kms from mine I/mine II of the client. After transportation, the limestone is stacked in the railway yard, thereafter by mechanized loading, the lime stone is loaded on to the railway wagons. In terms of the agreement, the rates are prescribed for each activity, as stated above. Out of the total payment of Rs. 73/- PMT, Rs. 68/- PMT is for transportation of lime stone. Rs. 5/- is attributable towards stacking (Rs.0.50/-) and mechanized loading into the wagons (Rs.4.50/-). The contract categorically brings out the principal scope of the work undertaken by the appellant, which is transportation of limestone over a long distance of more than 100 kms. The incidental activity of stacking and further loading into railway wagons does not provide the essential character to the contract.
4. The ld. Consultant relied on various decided cases in support of his submissions. He also relied on certain clarifications of the CBEC on this issue.
5. The ld. AR submitted that the work executed by the appellant is pursuant to the single agreement which is composite in nature. Clearly, the appellants are also engaged in stacking and further loading of the cargo in the railway wagons. This is not disputed. In such situation, the original authority is correct in holding the appellant to tax liability under “cargo handling service”. It is further submitted that the responsibility of the appellant gets discharged only after completion of loading of limestone in the railway wagons. When the cargo was unloaded in the railway yard at Jaisalmer, the transportation activity is completed. Normally, no transport agency undertakes a further loading into another transport mode. The ld. AR also relied on certain case laws in support of findings recorded in the impugned order.
6. We have heard both the sides and perused appeals records. The dispute in the present case is relating to service tax liability of the appellant for the activities carried-out by them in terms of the agreement dated 23.10.2003 with M/s Rajasthan States Mines and Minerals Limited. The Revenue concluded that the said activities are liable to service tax under the category of “cargo handling services”. The statutory definition of cargo handling services is as below:
‘cargo handling service’ means loading, unloading, packing or unpacking of cargo and includes cargo handling services provided for freight in special containers or for non-containerized freight, services provided by a container freight terminal or any other freight terminal, for all modes of transport and cargo handling services incidental to freight, but does not include handling of export cargo or passenger baggage or more transportation of goods.”
Section 65(105)(zr) defines ‘taxable service’ as under—
“taxable service” means any services provided or to be provided to any person, by a cargo handling agency in relation to cargo handling services.’
7. We have examined the terms of agreement which is the basis of the activities carried out by the appellant. We have also examined the tender document based on which the appellant offered the tender and was awarded the contract. The qualification to undertake the work for the client, as mentioned in the pre-qualifying criteria for tendering, makes it clear that the tenderer should be basically a fleet operator with minimum of 50 trucks, though equipment and experience for mechanized loading in railway wagons is also one of the criteria. We note that read together the pre-qualification makes it clear that the contract is essentially for transportation and incidentally for loading of transported cargo into the railway wagons.
8. The agreement itself provides for detailed break-up of rates for each of the four activities to be undertaken by the appellant. As already submitted by the appellant, that out of agreed payment of Rs. 73/- PMT for a composite cycle of activities, Rs. 68/- is towards transportation of limestone over a distance of 112 kms, Rs. 0.50 is for stacking, Rs. 4.50 is for mechanized loading of stacked limestone on to the railway wagons. A plain reading of these rate schedules will show that the essence of the contract is for transportation of limestone over a long distance. We note that the Board vide circular dated 01.08.2002 while clarifying the valuation aspect of cargo handling services clarified that the measure of tax is the gross amount charged by the cargo handling agency from the customer. If the bill indicates the amount charged for cargo handling and transportation separately on actual basis, then tax would be leviable only on the cargo handling charges. The Board vide circular dated 29.02.2008 clarified the application of Section 65 A while classifying a composite service. It was clarified that such services shall be classified based on the service which gives the essential character to the activity. There is a need to determine whether a given transaction is the one containing main and ancillary element or the one containing multiple and separate measureable elements. In the case of transaction containing a measure of ancillary elements, classification is to be determined based on the essential features or the dominant element of the transaction.
9. We note that a similar issue came up for decision by the Tribunal in Hira Industries Ltd. v. CCE [2012] 20 taxmann.com 411/35 STT 285 (New Delhi – CESTAT) Tribunal observed as below:
“18. The next issue is the classification of service rendered by the transport contractors whether it is Transportation of Goods or Cargo Handling Service. We are not in agreement with the argument that the service involved is cargo handling service and not transportation service. When there is composite service, the service should be classified as per provisions in Section 65A of Finance Act, 1994. As per this section the sub-clause which gives the most specific description is to be adopted. If this criterion fails then the service is to be classified as the service which gives the essential character of the service. The composite service has elements fitting into the definitions of both the services. So, recourses is to be taken to section 65A(2)(b). Here it cannot be considered that transportation is for the purpose of loading and unloading but the contrary is true. That is loading and unloading is for transportation. Any person dealing with the situation perceives the services as one for transportation and not for loading and unloading. So on this count we are not in agreement with the argument of Revenue.”
10. The Revenue relied on the decision of a Tribunal in Shreem Coal Carriers (P) Ltd. v. CCE [2015] 57 taxmann.com 378/51 GST 489 (Mum. – CESTAT), CCE v. Gayatri Carriers (P) Ltd. [2013] 38 taxmann.com 64/[2014] 43 GST 168 (New Delhi – CESTAT) and Gajanand Agarwal v. CCE [2009] 18 STT 353 (Kal. – CESTAT). We have examined these cases. We note that in Shreem Coal Carriers (P) Ltd’s case (supra), the Tribunal was examining the issue of services rendered by a party by deploying pay loaders of coal. In the said case, the client discharged service tax under GTA service for transportation of coal. For the loading of cargo, the Revenue proceeded to demand service tax under cargo handling service. In Gayatri Carriers (P) Ltd’s case (supra) also, there was a loading of coal using pay loaders. The transport is within the mining area. It was clearly recorded that the party is engaged in loading/unloading/handling of coal in tipper trucks and its transportation within the mining area. In Gajanand Agarwal’s case (supra), the Tribunal was examining almost similar type of activities. It was concluded that the nature of activity carried out by the party was to load coal in the railway wagons and the freight of cargo is incidental to such cargo handling.
11. We find none of these issues will apply to the fact of the present case as already elaborated earlier in this order. The service agreement now under consideration is essentially for transportation of lime stone over a long distance, by trucks. The appellant is not paid any consideration for loading which is automatically done from the hoppers. They are involved in stacking and loading of lime stone in the railway yard after transportation. We find that the proposal of the Revenue to demand service tax on the whole of consideration received by the appellant treating the same is cargo handling service is not legally sustainable.
12. In view of above discussion and analysis, we find the impugned order is without merit and accordingly set-aside the same. The appeal is allowed.