Shifting Materials Within Factory Not Taxable As “Cargo Handling Service”: CESTAT Kolkata

The Kolkata Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) on 17 February, held that shifting and transportation of materials within factory premises does not fall under the category of "Cargo Handling Service" and therefore no service tax is payable on such activity.

A Bench comprising Judicial Member Ashok Jindal and Technical Member K. Anpazhakan was hearing an appeal filed by Eastern Transport Agency (taxpayer) against an order passed by the Commissioner of CGST & Central Excise, Jamshedpur confirming a service tax demand of Rs. 1.28 crore, along with interest and penalties, for the period October 2006 to March 2011.

The Tribunal opined:

"the shifting of materials from one place to another place within the factory premises, does not fall under the category of “Cargo Handling Service”. Accordingly, on the said activity, no service tax is payable by the appellant under the category of “Cargo Handling Service,”

The taxpayer was engaged in shifting materials such as iron ore, limestone, coal, coke and other raw materials within the factory premises of Tata Steel at Jamshedpur Steel Works.

The demand was raised on the allegation that the taxpayer had rendered a composite cargo handling service to Tata Steel, but had artificially split the activity into loading and unloading on one hand and transportation on the other to reduce tax liability.

The work orders separately covered loading and unloading of materials and transportation of materials within the plant. The taxpayer paid service tax on loading and unloading under the category of “Cargo Handling Service”, while service tax on transportation was discharged by Tata Steel under reverse charge by classifying it as “Goods Transport Agency Service”.

The taxpayer argued that there were two separate contracts, one for loading and unloading of materials, for which it had paid service tax under “Cargo Handling Service”, and another contract for transportation of goods, on which Tata Steel, had paid service tax under the reverse charge mechanism. In such circumstances, no demand was sustainable against the appellant.

The Tribunal relied on earlier decisions holding that movement, shifting, loading and unloading of goods within factory premises cannot be treated as cargo handling, as the term "cargo" refers to goods loaded or unloaded for transportation by truck, ship or aircraft, and not to internal movement within a plant.

The Bench held that the shifting of materials from one place to another within the factory premises does not constitute "Cargo Handling Service" under Section 65(23) of the Finance Act, 1994.

It stated that:

“...the service recipient has already paid the service tax under the category of “Goods Transport Agency Service” under reverse charge mechanism, therefore, no service tax is sustainable against the appellant.”

Accordingly, the order confirming the service tax demand, interest and penalties was set aside, and the appeal was allowed.

For Appellant: Advocate, P. Das

For Respondent: Advocate, Abhijit Biswas