2023 (5) TMI 99 - AT - Service Tax

Appeal allowed as services deemed labor contracts, not 'Cargo Handling Service' triggering Finance Act penalties.

The Tribunal allowed the appeal, determining that the services provided did not fall under 'Cargo Handling Service' but were labor contracts on a ... Demand of service tax and Penalty u/s 78 of FA - classification of services - Cargo Handling Service/Business Auxiliary Service, or not - issue involved is of interpretation - HELD THAT:- The appellant are engaged in services which involve unloading of milk cans and bottle crates from various incoming vehicles, dumping milk in weighment vessel, cleaning cans, plastic crates, and bottles, putting milk pouch in crates, putting bottles/pouch in crates, cleaning or pre-pack machine and department, loading the creates in the vehicle for dispatch - the appellant is supplying labour to their clients and the charges are based on individual item of work given in the table in the work order. It is seen that all the activities are conducted within the factory premises. All the seven activities listed in the table above do not individually quality as ‘Cargo Handling Service’. The appellant in only providing labour on piece rate basis and at no stage it is the appellant who has taken the custody of goods. The goods do not become cargo as any movement of goods within the factory does not make it a cargo. It is noticed that the contracts are not in the nature of ‘Cargo Handling’ but are in the nature of labour contract on piece rate basis. Thus, classification of these services under ‘Cargo Handling Service’ cannot be sustained. Revenue has relied on the decision of SIGNODE INDIA LIMITED VERSUS COMMR. OF CEN. EXCISE & CUSTOMS-II [2017 (3) TMI 934 - SUPREME COURT]. In the said case, it has clearly been held that only packing of goods for the purpose of transport would get covered in the category of ‘Cargo Handling Service’ - In the above case, it is seen that the entire activity under taken by the appellant is a stage prior to the goods becoming cargo. Thus, the decision is not relevant for the instant case. Appeal allowed. Issues Involved:1. Classification of services provided by the appellant.2. Imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994.Issue 1: Classification of Services Provided by the AppellantThe appellant contested the demand for service tax and interest on services provided to Rajkot Dairy, arguing against their classification under 'Cargo Handling Service' for the period 2004-2005 to 15.06.2005 and under 'Business Auxiliary Service' (BAS) for the period 2005-2006 (w.e.f. 16.06.2005) and 2006-2007. The appellant was registered under 'Manpower Recruitment and Supply Agency Service' and 'Business Auxiliary Service,' discharging tax liabilities and filing returns accordingly.The Tribunal analyzed the nature of services, which included unloading milk cans, dumping milk in weighment vessels, cleaning cans, packing milk pouches, and loading crates for dispatch. The Tribunal found that these activities were performed within the factory premises and did not individually qualify as 'Cargo Handling Service.' It emphasized that the appellant provided labor on a piece-rate basis without taking custody of the goods, which did not become cargo as they remained within the factory.The Tribunal referenced the case of Signode India Ltd., where it was held that only packing goods for transport is covered under 'Cargo Handling Service.' Since the appellant's activities were a stage prior to the goods becoming cargo, the Tribunal concluded that the classification under 'Cargo Handling Service' could not be sustained.Issue 2: Imposition of Penalties under Sections 76, 77, and 78 of the Finance Act, 1994The original adjudicating authority did not impose a penalty under Section 76, and this decision was upheld, dismissing the Revenue's appeal on that ground. The Commissioner (Appeals) set aside the penalty under Section 77, recognizing the issue as one of pure interpretation. The Tribunal agreed, noting that the appellant's actions were based on an interpretation of the law, and thus, the penalties under Sections 76 and 77 were not warranted.However, the penalty under Section 78 was contested by the appellant. The Tribunal, considering the nature of the services and the interpretation issues, allowed the appeal, setting aside the impugned order and the penalties imposed.Conclusion:The Tribunal allowed the appeal, setting aside the impugned order, and concluded that the services provided by the appellant did not fall under 'Cargo Handling Service' but were labor contracts on a piece-rate basis. Consequently, the penalties under Sections 76, 77, and 78 of the Finance Act, 1994, were not justified.