2025 (9) TMI 1273 - AT - Service Tax

Tax demand for cargo-handling and subcontractor services upheld on merits but barred by proviso to s.73(1) of FA 1994

M/s. Chettinad Logistics Pvt. Ltd. Versus Commissioner of GST and Central Excise, Chennai

CESTAT, Chennai (AT) held that services rendered in the separately demarcated CCTL-CFS area constituted taxable cargo-handling services by the appellant ... Liability of the appellant to service tax on the basis that the service rendered by them amounts to cargo handling service - invocation of extended period of limitation. Liability of the appellant to service tax on the basis that the service rendered by them amounts to cargo handling service - HELD THAT:- It is found that CCT-CFS is a separately demarcated area leased out to a consortium of Private entities and functions independently of the Rules and Regulations Governing the Ports and have their own Tariff rates and therefore the services rendered in CCTL-CFS area cannot be treated as port services. Based on the Master Circular No. 96/7/2007-S.T., dated 23-8-2007, the OIO has brought out the fact that a sub-contractor is essentially a taxable service provider. The fact that services provided by such sub-contractors are used by the main service provider for completion of his work does not in any way alter the fact of provision of taxable service by the sub-contractor - the impugned order has rightly upheld the demand of Tax under Cargo Handling services, and also as a sub-contractor to CCTL - the issue is answered against the Appellant and in favour of the Respondent-Department. Legality of the demand invoking Proviso to Section 73(1) of FA 1994 for an extended period of time - HELD THAT:- It is found that time and again, it has been held by various courts including the Supreme Court that invocation of larger period is a draconian provision and has to be invoked with caution. This is a case of classification involving interpretation of Statutes, where one cannot find any suppression/misstatement warranting invocation of larger period. Revenue has picked up the figures from the balance sheet and profit and loss account maintained by the assessee. The balance sheet and profit and loss account has been held to be public documents by various decisions and it stands concluded that when the income arising from various activities stand reflected in the said public documents, it cannot be said that there was any suppression or misstatement on the part of the assessee so as to invoke the longer period of limitation. Reference can be made to Tribunal's decision in the case of C.S.T., New Delhi v. Kamal Lalwani [2016 (12) TMI 398 - CESTAT NEW DELHI], laying down that extended period is not invocable if services rendered are reflected in balance sheet and income tax returns and no evidence stands produced that non- payment of duty was due to any mala fide. The demand is barred by limitation since the SCN does not adduce any evidence of any positive act of wilful suppression or misstatement of facts with intent to evade service tax that has been made by the appellants. On the contrary, we observe that the appellants have been regularly filing their ST-3 returns and have not paid the service tax on the bonafide belief that the services rendered by them are port services and not liable to tax based on several decisions by Tribunals/Courts in their favour. The demand sustains on merits but fails on the grounds of limitation - Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether services of seal cutting and de-stuffing rendered within a container freight station area leased to a private operator are taxable as 'cargo handling service' or as 'port service'. 2. Whether a subcontractor performing seal cutting and de-stuffing is independently liable to service tax when the principal operator of the terminal has paid tax for overall terminal activities. 3. Whether invocation of the extended period of limitation under the proviso to Section 73(1) is justified on the facts - i.e., whether there is suppression of facts or willful misstatement to evade tax - and consequent validity of penalties under Sections 77/78. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Classification: Cargo handling service v. Port service Legal framework: Definitions of 'port service' and 'cargo handling service' under the Finance Act, 1994 were applied. 'Port service' covers services rendered within a port or other port; 'cargo handling service' includes loading, unloading, packing or unpacking of cargo and specific container freight terminal services. Precedent treatment: The appellant relied on earlier departmental clarification and tribunal authority suggesting that services wholly within a port are to be treated as port services; the Department relied on decision(s) and analysis treating services in privately leased CFS areas as outside port services and falling within cargo handling. Interpretation and reasoning: The Tribunal examined the factual character of the location - a segregated area leased to a private consortium operating a container freight station (CFS) with independent tariff and governance - and determined that such area is not under port trust control so as to attract the broad ambit of 'port service'. The nature of the activity (seal cutting and de-stuffing) was analysed on its intrinsic character as unloading/unpacking of cargo, which squarely falls within the statutory description of 'cargo handling service'. The Tribunal rejected the appellant's reliance on an earlier circular because that circular had been superseded by a later Master Circular clarifying that sub-contractors' services remain taxable irrespective of their use as inputs by main contractors. Ratio vs. Obiter: Ratio - where services of seal cutting and de-stuffing are performed as unloading/unpacking in a CFS area leased out to a private operator not controlled by the port trust, they constitute 'cargo handling service'. Obiter - discussion of broader equivalence between 'port handling' and 'cargo handling' derived from non-statutory sources (e.g., general descriptions) is explanatory and not essential to the statutory conclusion. Conclusion: Classification as 'cargo handling service' is sustainable on merits; demand of service tax on that basis is upheld. Issue 2 - Liability of subcontractor notwithstanding principal operator's tax payment Legal framework: Taxability of services rendered by subcontractors and the principle that tax is leviable on any taxable service provided by any person, whether or not used as an input by another service provider. Precedent treatment: The appellant argued that the main contractor's tax discharge should exempt the subcontractor; the Tribunal applied the Master Circular and authorities holding subcontractors are taxable service providers regardless of the main contractor's payments. Interpretation and reasoning: The Tribunal relied on the Master Circular position that subcontracted services remain taxable in the hands of the subcontractor; the fact that the principal has paid tax for overall terminal activities does not absolve a subcontractor from independent tax liability where the subcontracted activity itself is a taxable service. Ratio vs. Obiter: Ratio - subcontractors performing taxable services are themselves liable to service tax; payment by the principal for aggregate activities does not automatically negate the subcontractor's separate tax liability. Obiter - policy considerations about overlap of levies where both port and cargo handling definitions intersect. Conclusion: The appellant, as subcontractor performing cargo handling activity, is independently taxable; reliance on principal operator's payments does not negate liability. Issue 3 - Extended period under proviso to Section 73(1) and penalties under Sections 77/78 Legal framework: Proviso to Section 73(1) permits extended limitation where there is suppression of facts with intent to evade tax; burden lies on Revenue to prove willful suppression or misstatement beyond mere non-payment. Relevant authority affirms that invocation of extended period is draconian and must be cautiously applied. Precedent treatment: Tribunal and higher court authorities were cited to the effect that if taxable receipts are reflected in public documents (balance sheets, profit & loss accounts, returns) and there is no positive act of concealment, extended limitation is not invokable; an honest classification error does not amount to suppression with intent to evade. Interpretation and reasoning: The Tribunal found that the Department's figures were taken from the appellant's published accounting records; the appellant regularly filed returns and bona fide believed classification as port service based on contemporaneous circulars and decisions. There was no evidence of positive concealment or deliberate misstatement. Thus, the essential ingredient of suppression with intent to evade tax under the proviso was not established. Consequentially, penalties tied to invocation of the extended period cannot stand. Ratio vs. Obiter: Ratio - where taxable receipts appear in public accounts/returns and there is no evidence of deliberate concealment or mala fide, extended limitation under the proviso to Section 73(1) is not invocable and associated penalties are not sustainable. Obiter - general observations on the draconian nature of extended period provisions and cautionary invocation. Conclusion: Invocation of the extended period was improper; demand, interest and penalties premised on that invocation are vacated. Although the classification-based demand is sustained on merits, the claim is time-barred and cannot be enforced. Cross-reference The conclusions on limitation and penalties (Issue 3) directly affect the practical outcome of the liability determined under Issue 1 and Issue 2: while the services are taxable and the subcontractor liable, the demand is barred by limitation and penalties cannot be imposed in the absence of proved suppression.