Service Tax Leviable Even On Pre-2008 Loading Of Goods For Transportation: Hyderabad CESTAT

On 1 April, the Hyderabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held that loading of goods onto trucks for delivery to customers constitutes “cargo handling service” (CHS) and is liable to Service Tax even prior to the 2008 amendment.

The Bench, comprising Technical Member A.K. Jyotishi and Judicial Member Angad Prasad, was hearing an appeal filed by Agarwal Global Steels Ltd. against an Order-in-Appeal dated 19 November 2012 passed by the Commissioner (Appeals), Hyderabad-IV, which had confirmed a Service Tax demand of Rs. 6,02,741/-. The Bench observed:

"The goods which were loaded on to the truck were clearly in the nature of cargo as they were intended for transportation to the destination of the buyer and therefore this plea is not tenable and said activity has been rightly classified under cargo handling service, even for the period prior to 2008."

The dispute arose because the appellant, engaged in road transportation and registered under Service Tax, had collected separate charges for loading services but did not discharge Service Tax. The Department classified the activity as CHS under Section 65(23) of the Finance Act, 1994, and raised a demand with interest and penalties.

The appellant contended that mere loading could not be classified as CHS, particularly for the pre-2008 period when the definition covered only “cargo” and not “goods.” It argued that at the time of loading, the items were still in the nature of goods and therefore outside the scope of CHS.

The Tribunal rejected the contention, holding that once goods are loaded onto trucks for transportation to customers, they assume the character of “cargo” and the activity falls squarely within CHS even before the 2008 amendment.

On merits, the Tribunal held that the appellant was liable to pay Service Tax on loading charges both before and after the amendment of CHS definition.

On the issue of penalties, the Tribunal accepted the appellant's plea of bona fide belief, noting the ambiguity in the law and prevailing practices. It stated:

"In the given factual matrix they had sufficient cause for failing to pay Service Tax under bona fide belief that the said activity is not chargeable to Service Tax. Hence the penalty under Sections 77 and 78 are not imposable in terms of Section 80."

Accordingly, the Tribunal partly allowed the appeal: it upheld the Service Tax demand but waived the penalties.

For Appellant: P. Sai Makrandh, Advocate

For Respondent: V. Srikanth Rao, Authorized Representative