Cargo handling taxability: loading and unloading work fell outside the levy, with CENVAT credit allowed on tax paid under insistence.

Individuals engaged only in loading or unloading cargo were treated as outside the levy as a cargo handling agency, relying on the CBEC Circular dated 01.08.2002. As the activity itself was held not taxable, service tax paid at the department's insistence was available as CENVAT credit. On that basis, the demand could not be sustained, and the connected interest and penalty also fell away. The service tax demand, interest and penalty were therefore set aside, and the assessee's appeal was allowed.

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Issues: Whether individuals undertaking loading or unloading of cargo were liable to service tax as a cargo handling agency, and whether service tax paid on that activity at the department's insistence was available as CENVAT credit, thereby making the demand and consequential interest and penalty unsustainable.

Analysis: The Circular of the CBEC dated 01.08.2002 was relied upon to hold that individuals undertaking loading or unloading of cargo would not fall within the levy as a cargo handling agency. Since the department's demand proceeded on the basis that the activity was taxable as cargo handling service, the tax had been paid under insistence of the department, and the activity itself was held not leviable to service tax, the assessee was entitled to credit of the tax so paid. Once the principal demand failed, the accompanying interest and penalty could not survive.

Conclusion: The demand of service tax, together with interest and penalty, was set aside and the assessee's appeal was allowed.

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