CESTAT, BANGALORE BENCH

VBC Exports Ltd.

v.

Commissioner of Central Excise, Visakhapatnam

DR. S. L. PEERAN, JUDICIAL MEMBER

AND T.K. JAYARAMAN, TECHNICAL MEMBER

FINAL ORDER NO. 160 OF 2008

APPEAL NO. ST/272 OF 2006

February 14, 2008

Section 65 of the Finance Act, 1994 - Port services - Period 2000-01 to 2004-05 - Assessee was a customs house agent - It entered into a contract with ‘P’ Ltd. for handling of maizea and wheat which were exported - Commissioner considering activity of assessee as ‘port service’ demanded service tax - Whether since work of assessee related to activities right from bringing cargo from FCI godowns upto loading them into vessel, it was definitely cargo handling, and, therefore, entire demand was not sustainable, as service tax represented tax on Cargo handling services in respect of export goods which were outside purview of service tax - Held, yes [Para 6]

Section 65 of the Finance Act, 1994 - Cargo handling services - Period 2000-01 to 2004-05 - Assessee entered it contract with ‘R’, for providing services of stevedoring and Cargo handling - It outsourced cargo handling service to two sub-contractor - Whether even if assessee had subcontracted cargo handling to other service providers it was liable to pay service tax in that respect - Held, yes [Para 7]

Section 73 of the Finance Act, 1994 - Recovery - Of service tax not levied or paid or short-levied or short-paid or erroneously refunded - Period 2000-01 to 2004-05 - Assessee was registered with department under ‘customs house agent’ - Assessee entered into contract with ‘P’ Ltd for handling export cargo and to provide CHA services - Revenue invoking extended period of limitation demanded service tax under category of CHA service from assessee on ground that assessee had not discharged correct amount of service tax under that head - Whether demand was time barred as assessee had regularly been filing the service tax returns - Held, yes [Para 8]

FACTS

The assessee had registered for Custom house agents service. It entered into contracts with ‘R’ Ltd. and ‘P’ Ltd. The contract entered with ‘R’ Ltd. related to the import of coking coal and Soda Ash and assessee was required to render CHA service, stevedoring service and also handling of the imported cargo. With regard to the contract entered with ‘P’ Ltd., the contract related to export of Wheat and Maize. In respect of the contract with ‘P’ Ltd. the assessee apart from handling the export cargo undertook the CHA services also. The revenue took view that the assessee had not discharged proper service tax in respect of the services provided under above contracts, and proposed to demand service tax under category of ‘port service’ ‘CHA services’ and cargo handling services. On adjudication the demands were confirmed by the commissioner alongwith interest and penalty. In the instant appeal, the assessee contended that demand under Head ‘Port service’ was actually related to cargo handling of commodity of ‘P’ Ltd. which were completely exported, therefore, it was not liable to pay service tax in that regard. As regards demand relating to services of cargo handling provided to ‘R’ Ltd., the assessee contended that it had entrusted the work to two sub-contractors who were liable for payment of service tax and it was not liable to pay any service tax. As regards the amount demanded in respect of CHA services, it was urged that the demand related to the contract entered by it with ‘P’ Ltd. It was the submission of the assessee that when the department was in the knowledge of fact that the service tax returns have been filed regularly, there was no justification for invoking longer period and, therefore, the demand on account of service tax on CHA paid could not be sustained.

HELD

The Commissioner had confirmed an amount of Rs. 41,83,131 as service tax payable on ‘Port services’. It was seen that said amount represented the service tax in respect of the amount received from ‘P’. It was already on record that in terms of the contract entered with ‘P’, the work related to handling of Maize and Wheat which were exported. The Commissioner had rejected the assessee’s contention that the entire services provided under the contract with ‘P’ was appropriately classifiable under ‘Cargo handling services’ on the ground that the assessee had composite contract and income on ‘stevedoring service’ was shown in its ledger account. His reasoning was that there was no exemption for stevedoring services for export cargo. Therefore, he had demanded service tax on the entire amount relating to export cargo under the ‘port services’. There was no justification for holding that the handling of export cargo could not be called as ‘Cargo handling services’ and should be called as ‘Port services’. After holding it as ‘Port service’, he had charged to service tax. That was not correct. On a careful consideration of the contract of the assessee with ‘P’ Ltd., it was seen that the work related to the activities right from bringing the cargo from the FCI godowns upto loading them into the vessel, it was definitely cargo handling. Moreover it had been held that stevedoring within the port area also amounts to ‘cargo handling’ and not ‘port services’. Therefore the Commissioner’s conclusion that this service was port service was not correct. Therefore the entire demand of Rs. 41,83,131 was not sustainable, as the service tax represented tax on Cargo handling services in respect of export goods which were outside the purview of service tax. [Para 6]

As regards the contract with ‘R’ Ltd., the Commissioner had confirmed the demand of Rs. 28.34 lakhs holding that the service rendered by the assessee amounted to ‘Cargo handling service’. There was no any infirmity in holding that the services rendered by the assessee to ‘R’ amounted to ‘cargo handling service’. That included even stevedoring. The services of stevedoring was carried out by the assessee using labour supplied by Dock Labour board (DLB) and ‘R’ Ltd. Cargo handling activity was outsourced to two other service providers. Even if the assessee had sub contracted the cargo handling to other service providers, it was liable to remit the service tax. Therefore, it was to be held that the assessee was liable to pay service tax in respect of the cargo handled by sub-contractors for ‘R’ Ltd. There was no evidence that the sub-contractors paid the service tax. However it had been shown that the assessee had already paid service tax to DLB and ‘R’ Ltd. to the tune of Rs. 41 lakhs. That had not been taken into account. Therefore, the liability of the assesse in respect of the amount payable on account of the contract entered between them and ‘R’ had to be recomputed after taking into account the service tax already paid. The assessee was duty bound to produce evidence of payment of service tax on services rendered by two sub-contractors. If service tax had not been paid by it, the assessee should pay appropriate service tax. For that purpose the appeal was required to be remanded to the original authority. [Para 7]

As far as the short levy and the demand of service tax on account of CHA services were concerned, it was seen that the assessee had been filing monthly returns regularly. Moreover it had paid service tax at the rate of Rs.1 per MT in terms of the contract. The department had levied service tax on 15 per cent value of the composite contract. This was arbitrary. In any case, the demand was time barred as the assessee had regularly been filing the service tax returns. Therefore, the demand of Rs. 5.16 lakhs was to be set aside. In fine, it was held that the demand of Rs. 41.83 lakhs towards ports services and Rs. 5.16 lakhs towards CHA services could not be sustained for the reasons already stated. As regards the liability in respect of ‘cargo handling services’, the assessee was liable to pay service tax in respect of the gross amount received by it from ‘R’ for the services of stevedoring and cargo handling rendered by it. However, while computing the liability, service tax already paid by it to DLB and ‘R’ Ltd. should be taken into account. Further if sub-contractors had discharged the service tax liability on the amount received by them from the appellants, credit should be given for that also. However, that was subject to verification. The assessee should provide evidence to the adjudicating authority. In any case in the facts and circumstances of the case, there was no any reason for imposing any penalty on the assessee. However, on the recomputed amount, the assessee was liable to discharge the interest, if any, in terms of law. [Para 8]

The appeal was disposed of by way of remand to the original authority in terms of above directions. [Para 9]