Transportation And Disposal Of Fly Ash Not Cargo, No Service Tax Leviable: CESTAT Bangalore

On 24 March, the Regional Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) at Bangalore, held that transportation and disposal of fly ash cannot be classified as 'Cargo Handling Service' under the Finance Act, 1994.

A Bench comprising Judicial Member Dr. D.M. Misra and Technical Member R. Bhagya Devi, set aside substantial service tax demands raised by the Department against Threyambaka Enterprises. The Tribunal stated:

“...the Revenue is of the opinion that since loading and unloading along with handling of fly ash is mentioned in the contract, the service charges paid for transportation of fly ash would be taxable under 'Cargo Handling Service'. Therefore, following the aforesaid precedent, the impugned order demanding service tax under the category of 'Cargo Handling Service' during the disputed period 01.02.2007 to 31.12.2012 cannot be sustained.”

Threyambaka Enterprises was engaged in removing fly ash and other waste materials such as sludge from the factory premises of a paper manufacturer and transporting the same to dumping sites using trucks and tippers.

The dispute arose from multiple appeals filed by Threyambaka Enterprises against orders passed by the Commissioner (Appeals) which had confirmed service tax, along with interest and penalties amounting to over Rs. 82 lakhs for the period between February 2007 and December 2012.

The Department alleged that since the contracts included elements such as loading, unloading, and handling, the services fell within the ambit of 'Cargo Handling Service'.

However, Threyambaka Enterprises contended that the primary activity was transportation and disposal of non-marketable waste, carried out largely through mechanical means without manual labour. Such waste could not be treated as 'cargo' in the commercial sense.

The CESTAT observed that the essence of the contract was the continuous removal of waste to facilitate uninterrupted manufacturing operations, and not cargo handling. It also noted that fly ash and similar waste materials, which are not marketable or intended for commercial transportation, do not qualify as 'cargo'.

Referring to Section 65(23) of the Finance Act, the Bench stated that “loading, unloading, packing or unpacking of cargo and cargo handling services for all modes of transport and cargo handling services incidental to freight would fall under the scope of the said taxable service.”

Further, the Tribunal observed that in the present case, the appellant was primarily engaged in the removal of fly ash generated during the manufacturing process, and such removal was carried out through a mechanised system, wherein tippers and trucks were positioned directly below the boilers to collect the ash without any manual labour. The subsequent transportation and dumping of such waste material outside the factory premises was held to be the core activity.

Relying on precedents, the Tribunal held that incidental activities like loading or unloading, especially when mechanised and minimal in value, would not alter the dominant nature of the service.

Accordingly, the Tribunal held the demand of service tax under the category of 'Cargo Handling Service' as unsustainable.

For Appellant: Rukmani Menon with Nagaraja, Advocates

For Respondent: M. Sreekanth, Asst. Comm. (AR)