Trading on own account excludes cargo handling service where unloading and distribution are incidental to resale arrangement.

Imported urea acquired and resold on the assessee's own account was held not to give rise to taxable cargo handling or business auxiliary service, because unloading, bagging, standardisation and distribution were incidental to its trading activity and formed part of the commercial procurement and resale arrangement. The amounts retained under the government distribution mechanism were treated as part of that transaction, not consideration for service rendered to the government. The extended period of limitation was also unavailable, as the arrangement was openly carried out and suppression or wilful misstatement could not be established. As a result, the demand, interest and penalties were unsustainable.

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Issues: (i) Whether the appellant's receipt of amounts for unloading, bagging, standardisation and distribution of imported urea amounted to taxable cargo handling services or business auxiliary service, or was only part of a purchase and sale transaction carried out on its own account; (ii) Whether invocation of the extended period of limitation was justified.

Issue (i): Whether the appellant's receipt of amounts for unloading, bagging, standardisation and distribution of imported urea amounted to taxable cargo handling services or business auxiliary service, or was only part of a purchase and sale transaction carried out on its own account.

Analysis: The contractual documents, letter of credit, government invoice, and the appellant's own invoices showed that the imported urea was endorsed to the appellant, duty was paid by it as importer, the goods were accounted for and sold by it under its own invoices, and VAT was discharged on the outward clearances. The amounts retained from the government were treated as part of the commercial arrangement for procurement and resale, not as consideration for a service rendered to the government. On the facts, unloading, bagging and distribution were incidental to the appellant's trading activity and did not constitute cargo handling services or business auxiliary service. The activity was also treated as one connected with the discharge of a governmental distribution policy, so it was not a taxable service rendered to the government.

Conclusion: The demand was not sustainable because the activity was a purchase and sale transaction on the appellant's own account and not a taxable service.

Issue (ii): Whether invocation of the extended period of limitation was justified.

Analysis: Since the transaction was carried out openly as part of the government's urea distribution mechanism, with the appellant acting on the footing of importer and seller and the department being aware of the arrangement, suppression or wilful misstatement could not be established to sustain the extended limitation period.

Conclusion: The extended period of limitation was not available to the Revenue.

Final Conclusion: The demand, interest and penalties were unsustainable in law and on facts, and the assessee succeeded in the appeal.

Ratio Decidendi: Where the material shows that imported goods are acquired and resold on the assessee's own account, ancillary unloading, bagging and distribution activities are part of the trading transaction and do not become taxable services merely because the underlying arrangement is described as a handling contract.

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