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Issues: (i) whether cargo handling services rendered in relation to agricultural produce were exempt from service tax under Notification No. 10/2002-ST dated 01.08.2002; and (ii) whether the penalty imposed under Section 77 of the Finance Act, 1994 was sustainable.
Issue (i): whether cargo handling services rendered in relation to agricultural produce were exempt from service tax under Notification No. 10/2002-ST dated 01.08.2002.
Analysis: The disputed turnover related to cargo handling services, of which a substantial part was shown by the appellant as cargo handling in relation to agricultural produce. The invoices produced indicated handling of agricultural commodities such as onion, grapes and spices, and the exemption claim was also reflected on the bills. The Department did not bring corroborative material to disprove the genuineness of the transactions or to show that the exemption claim was unavailable. The notification exempts taxable service provided by a cargo handling agency in relation to agricultural produce from the whole of service tax leviable under section 66.
Conclusion: The exemption was available and the demand relating to cargo handling services in relation to agricultural produce was set aside.
Issue (ii): whether the penalty imposed under Section 77 of the Finance Act, 1994 was sustainable.
Analysis: The appellant had subsequently obtained service tax registration for renting of immovable property service and later included cargo handling service as well. In view of the overall circumstances and the subsequent compliance, a lenient view was taken on the penal liability under section 77.
Conclusion: The penalty under Section 77 was waived.
Final Conclusion: The appeal succeeded to the extent of deletion of the disputed service tax demand relating to exempt cargo handling of agricultural produce and waiver of penalty under section 77, while the unchallenged renting-related liability was left undisturbed.
Ratio Decidendi: Service tax is not leviable on cargo handling services rendered in relation to agricultural produce where the exemption notification squarely applies and the Revenue fails to dislodge the claim with contrary evidence.
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