Marketability test excludes effluent transport from goods transport levy; penalties fail where bona fide belief is shown.

Freight paid for transporting effluents was held outside the Goods Transport Agency levy because, for service tax purposes, "goods" were read with the Sale of Goods Act definition and had to satisfy the marketability test; waste effluents not capable of sale were therefore not taxable as transported goods. Penalties were also held unwarranted because the assessee acted under a bona fide belief that crude oil condensate and effluents were not goods for levy purposes, the related liabilities had been discharged before the show cause notice, and part of the dispute arose from quantification. The impugned demand on effluent transportation and the connected penalties were set aside, while the conceded demands were sustained.

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Issues: (i) Whether freight paid for transportation of effluents is taxable as transportation of goods under the Goods Transport Agency service. (ii) Whether penalties were sustainable in respect of the conceded demands and the amount arising out of the quantification dispute.

Issue (i): Whether freight paid for transportation of effluents is taxable as transportation of goods under the Goods Transport Agency service.

Analysis: The definition of goods for service tax purposes is borrowed from section 2(7) of the Sale of Goods Act, 1930 through section 65(50) of the Finance Act, 1994. Effluents were treated as waste being disposed of, not as movable property capable of being sold in the market. The Tribunal followed the earlier view that, for this purpose, goods must satisfy the test of marketability. On that basis, transportation of effluents could not be treated as transportation of goods under the relevant service tax entry.

Conclusion: The demand of service tax on freight paid for transportation of effluents was not sustainable and was set aside.

Issue (ii): Whether penalties were sustainable in respect of the conceded demands and the amount arising out of the quantification dispute.

Analysis: The assessee had entertained a bona fide belief that crude oil condensate and effluents did not constitute goods for the purpose of the levy, and the related liabilities had also been discharged before issuance of the show cause notice. The amount relating to the outward transportation dispute was also small and arose from quantification. In these circumstances, penalty was held unwarranted.

Conclusion: The penalties were set aside.

Final Conclusion: The appeal succeeded in part, with the impugned tax demand on effluent transportation and the connected penalties being set aside, while the conceded tax demands were sustained.

Ratio Decidendi: For service tax on transportation of goods, the expression goods must satisfy the statutory meaning drawn from the Sale of Goods Act and must also meet the test of marketability; waste effluents not capable of sale are outside that levy, and penalty cannot survive where bona fide belief is established.

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