TaxTMI 
TaxTMI 
2026 (3) TMI 437
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....Handling Service are naturally bundled service under 'Cargo Handling Service' and that the respondents have artificially bifurcated the amount of value of service under 'Rail freight', 'Terminal Handling Charges' and 'Goods Transport Agency Services' for availing abatement wrongly and to evade payment of service tax. 2. Accordingly, Revenue issued three show cause notices, dated 10.10.2014, 29.05.2015 and 15.09.2015, covering the period 01.04.2009 to 30.09.2013, 01.10.2013 to 31.03.2014 and 01.04.2014 to 31.03.2015 respectively, proposing to demand service Tax of Rs 40,66,90,262, along with interest and penalties, also proposing to impose penalty on Mr. Siddharth Niyati, Sr. Manager (F&A) of the Respondent. Commissioner, Service Tax, Delhi-IV, Gurgaon, adjudicated these three show cause notices by a common Order-in-Original dated 31.12.2015; The adjudicating authority dropped all the proceedings initiated against the respondent for demand of Service Tax, interest and penalties; also dropped the penalty proposed against Mr. Siddharth Niyati, Sr. Manager (F&A) of the Respondent Company. 2.1. Aggrieved by the aforesaid Impugned Order, the Department has preferred Appeal No. ST/6....
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....pany is pending before the High Court; in the case of Gajananad Agarwal the issue before Hon'ble Court was taxability of the service and penalty, which is not the issue here. Any activity incidental to freight of cargo is also liable to be taxed under such class. Mode of transport is irrelevant for incidence of levy once the service provided meets the test of handling of cargo in the manner envisaged by law (v). The Adjudicating authority's reliance on CBEC Circular No. 186/5/2015-ST dated 05.10.2015 is incorrect as the same is applicable to cases where entire Transportation is through road; the present case involves Handling of cargo at ICD/Port and transportation through Multi-modes. (vi). The Adjudicating Authority has failed to take due cognizance of the fact of splitting the value in the invoices and failed to appreciate substantial evidence brought on record. The Adjudicating authority discussed the case of M/s Khanna Paper Mill Limited, wherein the rail charges and terminal handling charges are same as those of M/s Adani Wilmar Ltd, though they are at various distance from the port; this fact conclusively proves that all charges are bifurcated artificia....
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....rging composite rate in the invoices came to the notice of the Department. (vi). the services are separately identifiable and customers have a choice to avail or not to avail; therefore, they cannot be treated as a bundled service Even after 01.07.2012. (vii). There is nothing wrong in having constant freight and terminal charges for the various destinations, situated at different places and the distances from Mundra, in respect of Contract with Adani Wilmar Ltd, M/s Khanna Paper Mills Limited and M/s Balkrishna Tyres. 5. Learned Special Counsel reiterates grounds of appeal and submits that the Respondent was providing a comprehensive bundle of services which squarely fit in the category of CHS at a single rate for the complete bundle of services; it can be seen from the contracts with M/s Mahavir Champas Pvt Ltd, M/s Jindal Waterways Limited, M/s Excellent Clearing Agency, M/s J.M.Kothari & Sons, M/s Balkrishna Tyres, and contract with M/s Maruti Suzuki India Ltd that the respondent provided a complete end-to-end logistics, including multimodal transportation; customers had no option to choose any of the services provided by the Respondent; correct classificat....
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....to choose any of the services provided, is wrong, as all the rates are fixed after considering all aspects of the services and after negotiation; the responsibility of the Respondent starts from the handling of cargo at the port till the delivery of cargo; therefore, all different elements of service are integral to one overall service; contracts with M/s Khanna Paper Mill Limited and M/s Adani Wilmar Ltd indicate that the rail charges and terminal handling charges are the same; though, the Adjudicating Authority discussed these cases, wrongly accepts the argument of the respondent on bifurcation, which is artificial. He submits that the Respondent claims that rate split was required for revenue purposes for preparing invoices in Terminal Operating System (TOS); however, it's clear that they were splitting the revenue in such a way that they had to pay minimum tax and they could claim unavailable abatements. 8. Learned Special counsel supports the proposal to levy penalty on Shri Siddharth Nyati Senior Manager (Finance &Accounts); he was well aware of all facts relating to the nature of the contract and service and bifurcation of the service contract value as he confirmed in his....
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....arried out by an agent nominated by the customers; Respondent undertakes only the activity of stuffing and de- stuffing, which is classifiable under 'Cargo Handling Service'. In cases where the custom clearance procedure is delayed, at the receiving ICD/ Terminal, then on customers' requirement, the containers stuffed with cargo are stored at the Respondent's warehouse at the terminals; Service Tax for storage of cargo is charged under taxable category of "Storage and Warehousing Service"; the service of transportation of cargo from receiving ICD / Terminal to customers' premises via road is provided by the Respondent (on customers' requirement basis) wherein the Service tax is paid by the recipient of service under the taxable category of "GTA Service", under RCM. 9.4. Export of Goods: * transport of cargo to/from customer's premises (on request from customer) to Dispatch ICD/Terminal- Service tax paid by recipient of service under RCM for "GTA Service" * loading/ un-Loading of cargo at the ICD/Terminal and loading/ unloading at railway terminals-Respondent pays Service Tax under 'Cargo Handling Service'; Transport of cargo from Dispatch ICD/Terminal ....
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....into with customers have terms and conditions specifically set out in writing and the same have been agreed and acted upon by both the parties; department has no jurisdiction to interfere with or interpret the contracts between the parties. He relies on * Mahindra & Mahindra1995 (76) E.L.T. 481 (S.C.) * Maharashtra State Electricity Distribution Company Limited vs. Ratnagiri Gas and Power Private Limited & Ors 2023 INSC 993 * Transmission Corporation of Andhra Pradesh Ltd v. GMR Vemagiri Power Generation Limited (2018) 3 SCC 716 * Essar Projects Pvt. Ltd. vs. CCE 2004 (33) STR 696 (Tri. - Ahm.). 12. Learned Counsel for the respondents submits in addition that the issue is no longer res-integra and is squarely covered in favor of the respondent; the SCN dated 10.10.2014 itself records the fact that the services availed and payments for the same are indicated separately in the invoices; CBEC, vide Circular F. No. B.11/1/2002-TRU dated 01.08.2002, clarified that when services are separate mentioned in the contract and separate invoices have been issued for the same the services cannot be treated as naturally bundled. He relies on United Shippers ....
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....e no options were provided to pick and choose the services and therefore, entire contract should be considered to be one for providing CHS; The said statement is totally baseless; the Department failed to discharge the onus of proving that the services are in the nature of CHS; Revenue must find out the essential character of the service for the purposes of bringing the assessee within the framework of the said activity, as held in Salem Starch & MFR's Service INDL Co-op. Society Ltd2014 (33) STR 16 (Mad.); stand of the department is contrary to Section 66F of the Finance Act, 1994' in the instant case, though there is one contract with one customer, each service is separately identifiable and has a separate rate; department wrongly alleges that the Respondent was providing complete end-to-end logistics solutions i.e. comprehensive bundle of services to its customers, including multi-modal transportation; the contracts show a single rate for the complete bundle of services and that only in the invoices, rates were artificially split; it was held, that the burden of proving the applicability of a taxing provision is on the Revenue as held in Garware Nylons Ltd1996 (87) ELT12 (SC....
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....oad, transportation of goods by rail and cargo handling service (terminal handling charges) has been shown separately; the same rates were reflected in the invoices raised; it is not even the case of the department that the rates mentioned in the invoices were at variance to the rates mentioned in the agreement. He submits that the argument of the department that the contracted price is artificially split, is contrary to the plain and clear tenor of the agreement; even the 8 agreements relied upon in the show cause notice clarify that in each and every contract, rates of every services were provided separately; all the services were clearly independent of each other with complete discretion provided to the service recipient to avail services it desires to avail; department has made the present case on incorrect facts and with a premediated mind set; as an example, the department relies upon the contract with Maruti Suzuki to contend that the agreement was to provide a complete package for movement of imported goods, ignoring Schedule 2 of agreement, which clearly provides for rates of different services. 19. He submits with respect to cargo handling services, tax has been paid b....
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.... as essential service then the Respondent was not required to pay any tax at all as the entire liability was on the recipient of the service; the argument of the department is totally bereft of merits as under the Finance Act, service is to be classified under Section 65(A) (pre-negative list) and Section 66(F)(post negative list) under the subclause that provides the most specific description. He submits that department has also not challenged the finding of the adjudicating authority, with respect to GTA, that the service tax paid by the recipients was not disputed by the Jurisdictional Commissionerate; the said assessment has attained finality. 22. Revenue wrongly applied the Provisions of Law: Learned Counsel submits that whole case of the department has been made out by placing reliance on Section 65A (2) (b) (pre negative list) by treating the service as composite service and Section 66F(3) for period (post negative list); provisions of Section 65A(2)(b) can be invoked only in cases where the department is unable to classify the services under Section 65(2)(a); Section 65(2)(a) provides that the sub-clause which provides the most specific description shall be preferred to ....
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....nsportation by Rail, Cargo Handling etc to their customers, under various agreements; the respondents are billing the customers item wise in the invoices, claiming that though the agreements quote rates for all the services, the customers are free to avail the services they want; the respondents/their customers paid service tax on different categories based on the nature of different services. The department alleges that the agreements are comprehensive and as such the services cannot be vivisected and need to be treated as one service, classifiable under the main Service i.e. Cargo Handling Service before 1.7.2012 and after 1.7.2012 as a bundle of services. The Respondents offer services the logistics solutions by road, rail and sea for handling a wide range of cargo, including containers, as per the requirements of customers, from/to ports/Inland Terminal Depots/ Railway Terminals in respect of domestic, import and export cargo. Thus, the main issue that requires our consideration as to whether each activity undertaken by the respondents to their customers is taxable under respective category of service or whether the entire gamut of activities performed by the respondents is cla....
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....be classifiable under 66(1).Invocation of Section 66(3) itself is bad in law. (vi). Entire demand is barred by limitation. 26. We find that the entire case hinges on the contracts that are entered into by the respondents with their customers and the manner in which they were operationalized. Learned Commissioner finds that firstly, there were contracts wherein separate charges were quoted for providing cargo handling service and service of transportation of cargo by road and railway; accordingly, invoices were raised as per services availed by the customers and Secondly, there were contracts wherein composite rates were indicated for all the services but the contract was later on changed by mutual consent and the composite rate was bifurcated; based on availment of services by the customer, invoices were raised as per mutual understanding. 27. On going through some of the contracts, copies of which are made available by rival parties, it is seen that some contracts, as with M/s Sical Multi Model Services Pvt Ltd, M/s Maruti Suzuki etc are elaborate detailing each item of work, the process, obligations of either party, conditions etc, while contract with some like som....
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....vices. It is not proper to say that the respondents have artificially bifurcated the charges in to various components. It can also be not said that the main service is cargo handling and other services are incidental to the same. We find that the Learned Commissioner has rightly held that 9.7 I have gone through sample contracts and agreements mentioned in the show cause notices and related invoices and found that the Noticee bifurcated charges for different activities in the invoices. The bifurcation was made with mutual consent of both the parties. I observe that the Noticee followed standard practice of bifurcation of separately identifiable activity for all contracts. SCN alleged that Noticee deliberately bifurcated the composite amount to avail abatements which was ideally classifiable under 'cargo handling service' on full value. The purpose of bifurcation was that each and every customer didn't avail all services provided by the Noticee. Customers availed services of transportation, loading, unloading, stuffing etc. as per their requirement. That is, every transaction was considered as separate scope of work. 29. We find that the learned commissioner discusse....
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....ces i.e. terminal handling service, transportation of cargo by road and transportation of cargo by rail as well. In providing the above three different services, the Noticee charged Rs. 3,500/- for Terminal Handling Charge Rs. 18.390/- for Road Transportation Charge and Rs. 28,000/- for Rail Charges which amounted to Rs. 49,890/- in total for providing all the three services. It can be seen that Terminal Handling Charges which falls under 'cargo handling service' is very nominal amount, consisting only 7% of the total charges and majority of the revenue generated from transportation by road or rail. 9.13 Therefore, it cannot be considered that transportation is the purpose of loading and unloading but the contrary is true. That is loading and unloading is for transportation. To qualify for a service under Cargo Handling Service, transportation part should be incidental contrary to that in the present case, terminal handling service is incidental to transportation service. Any person dealing with the situation perceives the services as one for transportation and not for loading and unloading. Every contract is to be construed with reference to its object and the whole of th....
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.... learned commissioner have a legal basis. We find that the Tribunal in the case of Balmer Lawrie & Co. Ltd. 2014 (35) S.T.R. 800 (Tri. - Mumbai) held that 5.1 The C.B.E. & C. vide Circular No. B-11/1/2002-TRU, dated 1-8-2002, inter alia clarified that in case where the Cargo Handling Service and transportation services are rendered and if in the bills raised for the services rendered, transportation is shown separately (on actual basis, verifiable by documentary evidence), the tax would be leviable only on the cargo handling charges. This clarification issued by the Board applies even to the facts of the present appeal. Since the appellant has discharged the Service Tax liability on both these services, the question of leviability of Service Tax on whole amount under one taxable service of Cargo handling is not sustainable in law. 32. We find that the Tribunal in the case of United Shippers Ltd 2015 (37) S.T.R. 1043 (Tri. - Mumbai) held that 5.4 As regards the second issue as to whether in a composite contract for transportation services and cargo handling services which provides for separate rates for these activities, can Service Tax be levied under a single ....
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....ld be included in the value of taxable services in respect of cargo handling service. 33. Moreover, we find that the unmissable feature of the agreements is the offer given by the respondents for the multimodal Logistics solution for transport of goods; cargo handling is incidental to the transportation by rail/road. We find that the learned Commissioner has correctly evaluated the position of Law by reading the contracts in the tenor and spirit they have been entered in to and executed. We find that department, while treating the individual vivisect able, separately charged services as a bundle of services, could not establish that the essential character of the service is Cargo Handling Service and not Goods Transport Agency Service. Learned Commissioner demonstrated with examples that the essential service, if any, is pf transportation and not of Cargo Handling. We find that Revenue has to find out the essential character of the service for the purposes of bringing the assessee within the frame work of the said activity. We find that department has not discharged its onus and the attempt to classify the services as a composite or bundle of services is contrary to the provisio....
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....ale was confirmed. Thereupon, the buyer took delivery of the goods. 16. As far as maintenance of records were concerned, there is no denial of the fact that the assessee-maintained records on receipt of the amount and the stock received and available after the sale. On a reading of the nature of activity thus rendered by the assessee, it is clear that except for receiving the goods which were brought to its door steps by its Principal and displaying the goods received for sale, practically, nothing else was done by the assessee in the matter of taking the goods from the Principal and for further dispatching of the goods to the buyer by engaging transporter or on its own transporter. The conduct of the assessee, handling the goods on receipt raising invoices on sale or maintaining of the records as to the stock availability, at best, showed it only as an agency offering storage facility. This act, per se, does not convert the assessee's transaction as that of a clearing and forwarding agency. Thus, when the burden is on the Revenue to prove that the assessee, in fact, received the goods from the premises of the Principal and arranged dispatch of goods as per the directions ....
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.... the definition, in order to constitute Bundled Services, there should be provision of various services; such provision of various services should be provided combined with an element of one service with other and such combination be offered as per the nature of service or as a general trade practice. Learned Adjudicating authority finds that 9.26 Further, if the service provider clubs various service to provide a single service to the receiver and if such single service finds place in the statute book as a separate entry vide Negative list or Mega exemptions or declared services, then the service would be classifiable under that specific entry instead of applying the provisions of bundle of services. Example a software development service which includes implementation and training. Only if the single service is not finding a specific entry in statue, then the concept of bundle of services would be applicable and taxability to be determined as explained below. Example Child care services which include pick up and drop, food in the afternoon etc. 9.27 Thus, for services to be naturally bundled in the ordinary course of business, services provided should be such tha....