Cargo handling is not port service; tax liability must be recomputed after credit for prior payments and subcontractor tax.

Export cargo handling for movement, storage, cleaning, fumigation, transport and loading of wheat and maize was treated as cargo handling, not port service, so the service tax demand on that classification was set aside. For RINL cargo handling and stevedoring, liability was required to be recomputed after verifying service tax already paid and any tax paid by subcontractors, with credit for payments to the Dock Labour Board and Visakhapatnam Port Trust. The CHA service demand was also rejected because taxing 15% of the composite contract value was found arbitrary and the demand was time-barred on the facts. The remaining liability was directed to be reworked by the Original Authority after verification of actual payments and admissible credits.

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Issues: (i) Whether the services rendered under the contract with PEC Ltd. for export cargo were classifiable as port services and taxable as such; (ii) whether the demand relating to RINL cargo handling and stevedoring required recomputation after giving credit for service tax already paid and tax, if any, paid by subcontractors; (iii) whether the demand relating to CHA services was sustainable.

Issue (i): Whether the services rendered under the contract with PEC Ltd. for export cargo were classifiable as port services and taxable as such.

Analysis: The contract covered movement, handling, storage, cleaning, fumigation, transport and loading of wheat and maize meant for export. These activities constituted cargo handling in relation to export goods. The classification adopted by the Commissioner as port service was not sustainable, and cargo handling of export goods fell outside the service tax levy as applied in the case.

Conclusion: The demand raised on this count was held unsustainable and was set aside in favour of the assessee.

Issue (ii): Whether the demand relating to RINL cargo handling and stevedoring required recomputation after giving credit for service tax already paid and tax, if any, paid by subcontractors.

Analysis: The services rendered for RINL amounted to cargo handling, including stevedoring. Liability could not be avoided merely because part of the work was subcontracted, but the amount already paid to Dock Labour Board and Visakhapatnam Port Trust had to be accounted for. Credit, if any, for tax paid by subcontractors also required verification before finalising liability.

Conclusion: The matter was remanded for recomputation of liability after verification of payments and credits, with the assessee remaining liable to the extent tax had not been discharged.

Issue (iii): Whether the demand relating to CHA services was sustainable.

Analysis: The assessee had been filing returns regularly and had charged CHA services on the contractual basis. Levying tax on 15% of the composite contract value was found to be arbitrary. The demand was also held to be barred by limitation on the facts of the case.

Conclusion: The CHA demand was set aside in favour of the assessee.

Final Conclusion: The appeal succeeded in part, with major portions of the demand set aside and the remaining service tax liability directed to be reworked by the Original Authority after verification of the actual tax payments and admissible credits.

Ratio Decidendi: Export cargo handling does not become port service merely because it is performed within the port area, and where liability is otherwise exigible, amounts already paid and verified subcontractor payments must be given due credit before final quantification.

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