Custom, Excise & Service Tax Tribunal
B Ghose & Co Pvt Ltd vs Delhi 11 on 28 January, 2025
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI
PRINCIPAL BENCH- COURT NO. I
Service Tax Appeal No. 50920 of 2018
(Arising out of Order-in-Original No. DLI SVTAX 002 COM 0291617 dated
02.12.2016 passed by the Commissioner of Service Tax, Delhi-II.)
M/s. B. Ghose & Co. Pvt. Ltd. ...Appellant
19/1, Camac Street, Calcutta-700017
versus
The Commissioner of Service Tax, ...Respondent
Delhi-II,
5th Floor, 14-15, Farm Bhawan,
Nehru Place, New Delhi-110019
APPEARANCE:
Shri Gurdeep Singh and Shri Anil Kumar, Advocates for the Appellant
Shri Manoj Kumar, Authorised Representative of the Department
CORAM:
HON'BLE MR. JUSTICE DILIP GUPTA, PRESIDENT
HON'BLE MS. HEMAMBIKA R. PRIYA, MEMBER (TECHNICAL)
Date of Hearing/Decision: 28.01.2025
FINAL ORDER NO. 50259/2025
JUSTICE DILIP GUPTA
The order dated 28.11.2016 passed by the Commissioner of
Service Tax, Delhi-II1, adjudicating two show cause notices dated
18.4.2012 and 17.10.2012 has been assailed in this appeal that has
been filed by M/s B. Ghose & Company Pvt. Ltd2. In respect of the
first show cause notice issued to the appellant for the period 2006-
2011, the Commissioner has confirmed the service tax demand of Rs.
2,82,98,156/- with interest and penalty after invoking the extended
period of limitation under the proviso to section 73 (1) of the Finance
1. the Commissioner
2. the appellant
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Act, 19943. In respect of second show cause notice dated 17.10.2012
issued to the appellant for the period 2011-12, the Commissioner has
confirmed the demand of service tax amounting to Rs. 82,51,187/-
with interest and penalty based on best judgment assessment under
section 72 of the Finance Act.
2. The issue involved in this appeal hinges around the two
agreements entered into between the appellant and Container
Corporation of India Ltd4. The first agreement is for performing the
work of terminal handling of containers at Inland Container Depot,
Tughlakabad, New Delhi. The case of the department is that the
appellant rendered "cargo handling" service, while the case of the
appellant is that it rendered "supply of tangible goods" service. The
second agreement is for cargo handling operation in relation to export
and import cargo. The case of the appellant is that for handling
export cargo, service tax is not leviable, while the case of the
department is that no evidence was led by the appellant to
substantiate that it had rendered "cargo handling" service for export
cargo.
FIRST AGREEMENT
3. The appellant entered into an agreement dated 03.08.2007
with CONCOR for performing the work of terminal handling of
containers at Inland Container Depot, Tughlakabad, New Delhi at the
rates and conditions specified in the Schedule to the agreement. The
Schedule of rates for container handling operation, as contained in
Annexure-II to the agreement, are reproduced below:
3. the Finance Act
4. CONCOR
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Schedule Of Rates For Container Handling Operation AT ICD,
Tughlakabad
(RATE REACHSTACKER/MONTH)
S. No. Item of Work In Figures In Words
1. Hiring of Two Loaded Rs. 8,00,000/- Rs. Eight Lakhs
Reachstacker for round the (Per Reachstacker) Only
Clock operation subject to
condition of availability as
laid in Chapter-5
2. Hiring of One Empty Rs. 4,50,000/- Rs. Four Lakhs
Reachstacker for round the (Per Reachstacker) Fifty Thousand
Clock Operation, as laid Only
down in Chapter-V
Notes: Rates quoted above are exclusive of Service Tax & applicable cess
thereupon, if any.
4. The terms and conditions are contained in Chapter V to the
agreement. The relevant portions of the agreement are reproduced
below:
"1. Preamble
1.1 xxx xxx xxx. The contractor to be
appointed shall be the Terminal Operator
contractor responsible for handling of containers
at ICD, Tughlakabad as per the details given in
Chapter IV on "Scope of Work".
DUTIES AND RESPONSIBILITIES OF
CONTRACTOR
9.1 The Terminal Operator must own or have at
his disposal the requisite trained personnel for his
contractual work and the requisite number of
equipment like Reachstackers etc as described
below:
9.2 The contractor shall provide adequate
number of trained supervisors (at least 3
supervisors and 1 overall in-charge per 8 hour shift),
handling equipment operators, drivers, helpers
and other workers at all the desired operational
points at ICD, Tughlakabad to ensure proper
handling and timely movement of containers,
including performance of incidental and general
services, expeditiously and to the satisfaction of
CONCOR officials. The Terminal-in-charge shall have
the final say in the matter. All staff to be deployed will
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have to have police verification since the ICD is a
bonded area.
9.3 The Terminal Operator shall provide, at his
own cost, all workers and other employees with
necessary tools, safety helmets, shoes, jackets,
instruments, equipment, etc. for effective and
efficient discharge of the work contemplated in
the contract. Necessary inventory for consumables
and certain critical components of handling equipment
should also be provided by him at ICD, TKD so that the
work is not hampered at the terminal.
9.4 The TO will be required to keep its
workshop area in the premises neat and clean in
all respects.
9.5 The contractor shall give his employees
neat and clean uniforms for summer and winter
seasons at no extra cost to CONCOR and ensure
that all his employees wear laminated Photo-
Identity Cards issued by him/CONCOR at
contractor's cost. He shall also provide office
equipment, communication equipment, etc., as
prescribed by CONCOR from time to time for efficient
execution of the work.
9.6 The official-in-charge of the ICD, shall be at
liberty to object to and require the TO to remove
forthwith from the premises any person employed by
him if, in opinion of ICD incharge, such person
misconducts himself, is incompetent or negligent in
proper performance of his duties or whose employment
is otherwise considered undesirable. The decision of
incharge shall be unquestionable and final and the TO
shall be under obligation, to replace such a person.
9.7 All workers and/or personnel employed by
the TO shall be engaged by him as his own
employees / workmen in all respects implied or
expressed. It will be compulsory on the part of the TO
to insure all his employees, permanent or temporary,
against liabilities of accident, partial or full disability,
death, etc. The TO shall indemnify CONCOR against
liabilities arising out of the TO‟s obligations on this
account.
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11. SPECIFIC RESPONSIBILITIES FOR
CONTAINER HANDLING
11.1 The TO shall exercise due care and take all
precautions while handling containers to avoid
any damage or loss to the container or cargo at
any stage. TO shall be responsible for the safety of
containers and cargo while they are in his custody.
CONCOR shall be at liberty to take action under
Paragraph 21 below i.e. Unsatisfactory Performance
and forfeit the security deposit in terms of Para 5
above, if he fails in his responsibilities in looking after
the containers and cargo in his custody.
11.2 T.O. shall also ensure proper closure of
doors of the containers at the time of
stacking/loading/shifting. He will also ensure to
keep all the handling equipment at the nominated place
after completion of work. In case of any failure to do so
will attract penalty under clause 21 of unsatisfactory
performance.
11.3 The contractor shall provide necessary
modern equipment for communication of voice
and data, as prescribed by CONCOR from time to time,
to his supervisors and employees for ensuring efficiency
of operations.
11.4 The TO will also maintain various records in
computerised atmosphere and will provide reports to
CONCOR in both soft and hard copy format as and
when required.
11.5 The TO shall abide by all the rules, procedures,
directions and instructions given by CONCOR officials,
which are not inconsistent with the terms and
conditions of the contract, for the efficient working of
the terminal.
11.6 The TO shall not carry out any direct business
dealing with any customer of CONCOR without prior
approval of CONCOR. TO shall not receive, handle, any
container/cargo within the terminal for any customer of
CONCOR directly.
11.7 The actual requirement of equipment
described in para 14 will depend upon the pattern
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and volume of traffic and may vary from time to
time. The TO will be required to position additional
handling equipment, whenever necessary due to
exigencies of traffic upon being notified to do so by
CONCOR, within 2 months of the receipt of such notice.
11.8 CONCOR shall not pay any additional amount for
any expenses which the TO may be required/ compelled
to incur while crossing any gate, manned by
Customs/CISF/Security agencies of any type.
11.9 CONCOR transports 'exim' containers in bonded
state. It is responsible to the Customs for the safety of
'exim' cargo during transit and has to furnish a
'continuity bond' of an appropriate amount to the
Customs. The contractor will be liable for the element
of Customs duty also for any loss or damage to the
cargo while the loaded container is in his custody.
11.10 ICD TKD has a local area network (LAN) for
transfer and updation of data for maintaining and
monitoring of container status on a real time basis. The
contractor should be able to deploy suitable staff for
data entry operation for the work carried out by the
contractor, if desired by CONCOR.
11.11 The contractor shall be liable for all acts of
commission or omission of his employees. He shall
forthwith discharge any of his employee who is
reported by CONCOR to be undisciplined or of poor
moral character or incompetent or negligent."
12. PROVISION OF HANDLING EQUIPMENT:
12.1 The Contractor shall ensure that he deploys
the specified/required serviceable machinery and
plant including handling equipment and
equipment of good working condition and
manufacturing year as detailed in para 14 below
at the Container Terminal for execution of the
proposed work and the handling equipments as
required in para 14 should be owned/hired by
him as noted thereby. The Contractor should also
make necessary arrangements for stand by
equipment against mechanical & other failures to
ensure that the work does not suffer. The
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arrangements for servicing the equipment for dealing
with breakdowns etc., should also be made by him.
12.2 In the event of a breakdown of the equipment
required as per the contract, CONCOR will be free to
hire equipment and at rates available in the market and
deduct charges from the handling bill of the Contractor,
if the Contractor is unable to arrange for repair of
broken down equipment by a provision of a stand by in
a reasonable time, which will be the sole discretion of
the official in charge of the terminal. The official in
charge of the terminal shall have the right to impose
penalty as it may find suitable if the breakdown
equipment is not restored in suitable time frame.
12.3 All equipment shall be in good fettle and
capable of handling ISO containers in accordance
with relevant ISO standards stipulated for
container handling.
12.4 Contractor shall obtain the required licence
for operation of the equipments from the
authorities concerned and ensure that these are
operated by experienced and qualified operators,
as per requirement of the local transport and
other authorities and law.
12.5 The Contractor shall make arrangements for
positioning of adequate equipment and trained
personnel before the commencement of operations as
per the contract.
12.6 The Contractor shall pay (& bear) all levies,
fees, taxes and charges etc. to the appropriate
authorities and other bodies as required by them, under
their rules for cranes/equipment etc., employees or
workers engaged by him. No claim in this behalf shall
be entertained by CONCOR.
12.7 No compensation will be paid for non use or
detention of equipments.
12.8 Equipment deployed are not to be used for
any other purpose without the written permission
of the Terminal Incharge. Any violation on this
account will attract a penalty of Rs.1000/- on each
occasion.
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12.9 The Contractor will be required to base
equipments at TUGHLAKABAD and to start the work.
The job orders for start of the work will be given by the
Terminal Incharge.
13. DEPLOYMENT OF EQUIPMENTS:
13.1 The contractor shall ensure that he deploys
2 (two) Loaded Reach Stackers +01 (One) Empty
Reach Stacker not older than 2002 model (year of
manufacture) in good working condition. The
bidder should provide evidence of having required
equipments at his disposal either through ownership or
hiring/leasing as mentioned in the para no.14. He must
indicate the place of its current deployment as on the
date of bid to enable CONCOR to ascertain the same.
The contractor should also indicate arrangements for
hiring/leasing of equipments, which are not owned by
him. The contractor should also make necessary
arrangements for standby equipments against
mechanical and other failures to ensure that the
work does not suffer. The arrangements for servicing
the equipment dealing with breakdowns etc., should
also be made by him. Contractor should also indicate in
the tender documents as to how, where and within
what time frame, the required Reach stackers will be
positioned for operations at ICD.
13.2 Delivery Schedule: The delivery schedule
will be as follows:
Two (2) Loaded Reach Stackers & One (01) Empty
Reach Stacker should be made available fully
operational simultaneously within 15 days from the
date of execution of contract or the date stipulated by
the Chief General Manager/Northern Region, whichever
is later. During the first 120 days of the issue of LOI, all
equipments may be hired. However, the tenderer must
deploy his own reachstackers in fulfillment of the
conditions of ownership stipulated in para 14.1 within
120 days of the issue of LOI. In case, the equipment is
not fully operational within the days stipulated above,
penalty in the form of Rs.15,000/-per day per reach
stacker. CONCOR also reserves the right to cancel the
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contract altogether in case the equipments to be
supplied have not been made available on time.
"15.3 Moves Per Hour:
The Reach stacker is expected to do a minimum of
12 (Twelve) moves per working hour. If the
number of moves is less than the number of
moves per hour mentioned above (calculated on a
per shift basis after deduction of the cooling
down time and time for any preventive
maintenance/ exigency breakdown granted),
then the availability of the Reach Stackers will be
reduced proportionately for which penalty as laid
down in para 15.2 above will be deductible from
the bills, unless sufficient work has not been assigned
in that shift, towards which the operations in charge of
the shift will endorse the situation in his records, to be
produced for verification by concerned accounts official
for passing the bills. „In case one machine has been
able to perform at less than the stipulated moves per
hour in a shift but this has been compensated by more
than stipulated moves per hour by another machine in
the same shift or even by same machine in a
subsequent shift, the extra moves done can be
adjusted against the shortfall in a particular machine as
long as the overall average performance remains above
stipulated moves per working hour per day.'
All arrangements for operations and maintenance
inclusive of fuel and lubricants, operators, other
requisite personnel, maintenance and repairs etc. shall
be made by Contractor at his own cost."
(emphasis supplied)
SECOND AGREEMENT
5. The appellant also entered into an agreement dated 10.11.2003
with CONCOR for undertaking cargo handling operations at ICD,
Tughlakabad. This agreement relates to performing work of
loading/unloading of export/import cargo and its stuffing/de-stuffing
from freight containers at the rates and under the conditions specified
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in the Schedule to the agreement. The Schedule provides different
rates for handling export cargo and import cargo.
FACTS
6. The appellant claims that while performing work of terminal handling of containers at ICD, Tughlakabad, it provided "supply of tangible goods"5 service, which was made taxable under section 65(105)(zzzzj) of the Finance Act with effect from 16.05.2008 and it discharged service tax liable under this service head from 16.05.2008. According to the department, the appellant rendered "cargo handling" services, as defined under section 65(23) of the Finance Act and made taxable under section 65(105)(zr) of the Finance Act with effect from 16.05.2008 . The appellant contends that it did not discharge service tax on the handling of export cargo as this service is not taxable, but it discharged service tax on the handling of import cargo as it is taxable.
7. The first show cause notice dated 18.04.2012 was issued to the appellant for the period 2006 to 2011 alleging short payment of service tax. It mentions that during the course of audit, copy of the agreement dated 03.08.2007 was provided by the appellant when it was noticed that the appellant had not paid any service tax from 2006-07 to 16.05.2008 on the amount received by the appellant under the first agreement claiming it to be non-taxable upto 16.05.2008. It also mentions that with effect from 16.05.2008, the appellant paid service tax under "supply of tangible goods" services but it appeared from the agreement that the services provided by the appellant would be classifiable under "cargo handling" services, which
5. STG 11 ST/50920/2018 service was taxable since 16.08.2002 but the appellant had not paid due service tax under this head. In respect of the second agreement, the show cause notice mentions that during the course of audit it was observed that the appellant claimed that it had not paid service tax for handling export cargo during the period 2006-07 to 2010-11 for the reason that it was not leviable to service tax, but no evidence was led by the appellant to substantiate this claim that the appellant handled export cargo and so it should be taken that service tax was leviable on the amount so received by the appellant. It, therefore, called upon the appellant to show cause why this amount should not be subjected to levy of service tax.
8. A second show cause notice dated 17.10.2012 was also issued to the appellant for the period 2011-12 calling upon the appellant to show cause why demand of service tax relating to the first agreement and the second agreement should not be confirmed for the reason mentioned in the first show cause notice. The show cause notice further alleges that the appellant did not comply with the letters and summons and as the only information available was regarding the amount billed by the appellant during the period 2006-07 to 2010-11, the value of taxable service provided by the appellant would be determined by "best judgment assessment" under section 72 of the Finance Act.
9. The appellant filed replies to the show cause notices and denied the allegations. The appellant pointed out that reach stackers were used by the appellant for lifting and placing containers and the amount that was received by the appellant was for hiring of reach stackers and not for handling cargo. The appellant, therefore, 12 ST/50920/2018 provided supply of "tangible goods" service, which service became taxable from 16.05.2008, and the appellant discharged service tax liability for this service with effect from 16.05.2008. The appellant also pointed out that service tax was not payable on unloading and loading of export cargo and, therefore, the appellant did not pay any service tax as "export cargo" did not fall within the definition of "cargo handling" service. The appellant also pointed out that the extended period of limitation could not have been invoked in the facts and circumstances of the case.
10. The Commissioner did not accept the version of the appellant and confirmed the demand of service tax with penalty and interest.
11. In regard to the first agreement, the Commissioner observed as follows:
"12.4 On carefully sifting through the terms of reference given in the said contract dated 03.08.2007, I find that the CONCOR, inter-alia, manages and operates Inland Container Depot (ICD), Tughlakabad (TKD), and the contractor to be appointed shall be the Terminal Operator contractor responsible for handling of containers at ICD, TKD. The Noticee being a terminal operator contractor is required to undertake handling operation of loading and unloading of containers at the location adjoining export/import/bonded warehouse/rail side/ import stacks/export stacks and new HMS yard. For carrying out the contractual work the Noticee is under obligation to have required number of equipment like reach stackers etc, and adequate trained number of personnel like supervisors, handling equipment operators, drivers, helpers and other workers at the operational points. In addition, a responsibility has been cast upon them to make alternate arrangement of the requisite equipment against sudden mechanical failure to ensure that the contractual work does not suffer, and if they are unable to make such 13 ST/50920/2018 arrangement, CONCOR is free to arrange the same at its own. Thus, services provided or to be provided by the Noticee under the said contract are in nature of cargo handling service rather than mere supply of tangible goods service. Moreover, for classifying any service under "Supply of Tangible Goods Service', the ingredients to be satisfied are that the goods including machinery, equipment etc are supplied by the service provider to the service recipients for his use without giving him the legal right of possession and effective control of such items. In this case, the Noticee not only using the reach stackers with trained driver for providing the services of handling of the containers but also they have to deploy other trained personnel like supervisors, handling equipment operators, helpers and other workers to effectuate the handling operations of the containers at operational points. Thus, it is not the case of merely supplying the tangible goods i.e. reach stackers, along with driver to the CONCOR by the Noticee. Rather the Noticee is engaged in contractual work of handling of the containers at ICDs with wherewithal and logistics they have in their possession. Therefore, I have no hesitation in holding that the contractual work for handling of the containers under the said contract appropriately falls under 'Cargo Handling Service' as they specifically deal with loading, unloading, stuffing and de-stuffing of cargo and lifting and placing containers etc. and not within the domain of 'Supply of Tangible Goods Service' as claimed by the Noticee.
Accordingly, I hold that the Noticee is liable to pay service tax under the Cargo Handling Service for the period covered by SCN-I & II."
(emphasis supplied)
12. In respect of the second agreement, the Commissioner recorded the following findings:
"13.1 The next issue for determination is that whether the income received from activity claiming to be from handling of export cargo without any supporting documents is exigible to tax. The SCN-I 14 ST/50920/2018 alleges that though the definition of Cargo Handling Service excludes activity relating to export cargo but the Noticee could not provide evidence thereof. Therefore, service tax demand of Rs.1,39,86,381/-for the period 2006-07 to 2010-11 has been raised against the Noticee. For subsequent period 2011-12, service tax demand of Rs.35,25,460/- has also been issued vide SCN-II dated 18.10.2012.
13.2 In this context, I find that the definition of Cargo Handling Service defined under erstwhile Section 65(23) of the Finance Act, 1994 excludes the activities of handling of export cargo. Factually the Noticee did not provide any evidence in course of audit for the amount received during the period 2006-07 to 2010-11 from the CONCOR evidencing that it was on account of services relating to handling of export cargo. The submissions made by the Noticee in this regard are noteworthy which are re- produced below:
"We hired Reach stackers to CONCOR. Besides that, we stuffed and de-stuffed export and import cargo that landed in CONCOR's premises. CONCOR refused to pay service tax on some stuffing and destuffing of cargo on the ground that these were export cargo whose handling was not leviable to service tax. So, we did not pay service tax on them. We paid service tax on the remaining amount which we received for stuffing and destuffing of cargo and which CONCOR paid us presumably on the ground that these were import cargo whose handling was leviable to service tax. That CONCOR did not pay service tax to us in many cases would be evident from the bills. From the bills it would also be evident that these cases related to the handling of export cargo because there cannot be any other explanation for payment of service tax in some cases and non-payment of service tax in others. Copies of some bills and payment schedules are attached.15
ST/50920/2018 During EA-2000 Audit, the Auditors asked us to produce a certificate from CONCOR to show that the amounts on which we did not pay service tax were received for handling export cargo. Unfortunately, CONCOR has not issued the desired certificate, despite repeated requests. We are still trying to procure the certificate from CONCOR, and we will produce the same to you as soon as we get it".
13.3 It is needless to state that any taxable service provided or to be provided is real time and intangible in nature. Therefore, the nature of provision of service can be ascertained based on the documentary evidences of the service providers like invoices, ledger and the the books of accounts maintained and audited by their statutory auditor. The above submissions insinuate that the Noticee was not at all aware as to what cargo (whether import cargo or export cargo), they had been handling to at the time of provision of service during the period in question let alone issuing the service wise invoices for such cargo handling services. That was probably the reason for not producing the relevant documents including the invoices at the time of audit and still the Noticee is beholden to CONCOR for such documents. Therefore, few of the invoices now produced to buttess their case being not free from suspicion considering the peculiarity of the circumstances cannot be taken at its face due. The Supreme Court in the case of M/s Mysore Metal Industries Vs. CC, Bombay - 1988(36)ELT 369 (SC) has held that burden to prove eligibility to exemption is on the claimant. Therefore, I am of the considered view that the Noticee has miserably failed in establishing that the said amount received by them from CONCOR are related to handling of export cargo. Accordingly, I hold that the Noticee is liable to pay service tax as demanded."
(emphasis supplied)
13. This appeal has been filed to assail this order dated 28.11.2016 passed by the Commissioner.
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14. Shri Gurdeep Singh, learned counsel for the appellant assisted by Shri Anil Kumar made the following submissions:
(i) It is clear from the first agreement dated 03.08.2007 that the appellant provided "supply of tangible goods" service, which service became taxable under section 65(105)(zzzzj) of the Finance Act with effect from 16.05.2008 and the appellant discharged service tax liability under this service head;
(ii) The Commissioner committed an error in holding that the appellant provided "cargo handling" service as defined under section 65(23) of the Finance Act and made taxable under section 65(105) (zr) of the Finance Act;
(iii) In respect of the second agreement relating to cargo handling operations at ICD, Tughlakabad, no service tax is leviable on handling of export cargo. The appellant provided services relating to handling of both export cargo and import cargo and the appellant duly discharged service tax on the services relating to handling of import cargo. As no service tax was leviable on handling of export cargo, the appellant was justified in not discharging service tax liability on this service;
(iv) The Commissioner committed an error in holding that the appellant had not provided evidence to support its stand that it had provided services relating to handling of export cargo, for which it had not discharged service tax; and 17 ST/50920/2018
(v) The extended period of limitation could not have been invoked in the facts and circumstance of the case.
15. Shri Manoj Kumar, learned authorized representative appearing for the department, supported the impugned order and made the following submissions:
(i) The Commissioner was justified in holding that in respect of the first agreement relating to performing work of terminal handling of containers, the appellant had provided "cargo handling" service and the submission of the appellant that "supply of tangible goods" service was provided is not correct;
(ii) The appellant failed to produce any evidence to substantiate that in respect of the second agreement that it provided services relating to handling of export cargo and, therefore, the Commissioner was justified in treating the service as taxable; and
(iii) The extended period of limitation was correctly invoked.
16. The submissions advanced by learned counsel for the appellant and the learned authorized representative appearing for the department have been considered.
First Agreement dated 03.08.2007-Terminal Handling
17. The issue that arises for consideration is as to whether the appellant had provided "supply of tangible goods" services or "cargo handing" services to CONCOR.
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18. Section 65(105)(zzzzj) of the Finance Act provides that any service provided or to be provided to any person, by any other person in relation to supply of tangible goods including machinery, equipment and appliances for use, without transferring right of possession and effective control of such machinery, equipments and appliances would be taxable.
19. For the purpose of clarification, the Department of Revenue issued a Circular dated 29 February, 2008. The said Circular clarified the applicability of section 65(105)(zzzzj) vis-a-vis article 366(29A)(d) of the Constitution. The relevant portions of the Circular are as follows:
"4.4 SUPPLY OF TANGIBLE GOODS FOR USE:
4.4.1 Transfer of the right to use any goods is leviable to sales tax/VAT as deemed sale of goods [Article 366(29A)(d) of the Constitution of India], Transfer of right to use involves transfer of both possession and control of the goods to the user of the goods.
4.4.2 Excavators, wheel loaders, dump
trucks, crawler carriers, compaction
equipment, cranes, etc., offshore
construction vessels & barges, geo-
technical vessels, tug and barge flotillas, rigs and high value machineries are supplied for use, with no legal right of possession and effective control.
Transaction of allowing another person to use the goods, without giving legal right of possession and effective control, not being treated as sale of goods, is treated as service.
4.4.3 Proposal is to levy service tax on such services provided in relation to supply of tangible goods, including machinery, equipment and appliances, for use, with no 19 ST/50920/2018 legal right of possession or effective control. Supply of tangible goods for use and leviable to VAT/sales tax as deemed sale of goods, is not covered under the scope of the proposed service. Whether a transaction involves transfer of possession and control is a question of facts and is to be decided based on the terms of the contract and other material facts. This could be ascertainable from the fact whether or not VAT is payable or paid."
(emphasis supplied)
20. It is not the case of the appellant or the department that the reach stackers were transferred by the appellant to CONCOR with a right of possession and effective control for in that case it would be a deemed sale. What the appellant contends is that it rendered "supply of tangible goods" services, while the department contends that the appellant rendered "cargo handling" services.
21. It would be appropriate to refer to the judgment of the Supreme Court in Commissioner of Service Tax, Ahmedabad vs. Adani Gas Ltd.6 dealing with "supply of tangible goods" service. The Supreme Court interpreted the provisions of section 65(105)(zzzzj) of the Finance Act and observed:
"12. The question that arises for our consideration is whether Section 65(105)(zzzzj) of the Finance Act, 1994 is applicable in the present case, that is, whether the supply of pipes and measurement equipment (SKID equipment), charged under the head of "gas connection charges" by the respondent to its industrial, commercial and domestic consumers, amounts to supply of tangible goods for their use. While assessing the merits of the rival submissions, it is
6. 2020 (40) G.S.T.L. 145 20 ST/50920/2018 necessary to interpret the provisions of Section 65(105)(zzzzj).
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18. The introduction of Section 65(105)(zzzzj) in the Finance Act, 1994, was with the intention of taxing such activities that enable the customer's use of the service provider's goods without transfer of the right of possession and effective control. This provision creates an element of taxation over a service, as opposed to a „deemed sale‟ under Article 366(29A)(d).
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20. The taxable service is defined as a service which is provided or which is to be provided by any person to another "in relation to supply of tangible goods". The provision indicates that the goods may include machinery, equipment or appliances. The crucial ingredient of the definition is that the supply of tangible goods is for the use of another, without transferring the right of possession and effective control "of such machinery, equipment and appliances". Hence, in order to attract the definition of a taxable service under sub-clause (zzzzj), the ingredients that have to be fulfilled are:
(i) The provision of a service;
(ii) The service is provided by a person to
another person;
(iii) The service is provided in relation to the supply of tangible goods, including machinery, equipment and appliances;
(iv) There is no transfer of the right of possession;
(v) Effective control over the goods continues to be with the service provider; and
(vi) The goods are supplied for use by the recipient of the service.
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26. Under Section 65(105)(zzzzj), the taxable service is provided or to be provided in relation to the supply of tangible goods for the use of 21 ST/50920/2018 another, without transferring the right of possession and effective control.
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27. The expression "use" does not have a fixed meaning. The content of the expression must be based on the context in which the expression is adopted. The use of an article may or may not result in a visible change in its form or substance. Moreover, the nature of use is conditioned by the kind of article which is put to use. Section 65(105) of the Finance Act, 1994 envisages myriad interpretations of the expression "use", in a variety of services such as telecommunication [Section 65(105)(zzzzb), Finance Act, 1994], renting of immovable property [Section 65(105)(zzz-z), Finance Act, 1994], and services related to art, entertainment, and marriage [Section 65(105)(zzzzr), Finance Act, 1994]. In the case of some articles, use may be signified by a physical operation of the article by the person who uses it. In such a case, actual physical use is what is meant by the supply of the goods for the use of another. In the case of others, the nature of the goods supplied impacts the character of the use to which the goods can be put. As an illustration, Section 65(105)(zzzze) of the Finance Act, 1994, seeks to tax services related to information technology and interprets the "right to use" to include the "right to reproduce, distribute, sell, etc. [Circular D.O.F. No. 334/1/2008-TRU, dated 29 February, 2008]". This understanding of "use" differs from the supply of tangible goods under Section 65(105)(zzzzj) at hand, where effective control or possession is not ceded. Thus, physical operation is not the only or invariable feature of use. As a corollary to the same, technical expertise over the goods in question is not a sine qua non for determining the ability of the consumer to use the goods. Therefore, the expression "use" also signifies the application of the goods for the purpose for which they have been supplied under the terms of a contract.
28. The terms of the GSA indicate that the supply, installation, maintenance and repair of the measurement equipment is exclusively 22 ST/50920/2018 entrusted to the respondent as the seller. xxxxxxxxxx. Section 65(105)(zzzzj) applies precisely in a situation where the use of the goods by a person is not accompanied by control and possession. „Use‟ in the context of SKID equipment postulates the utilization of the equipment for the purpose of fulfilling the purpose of the contract. Section 65(105)(zzzzj) does not require exclusivity of use. The SKID equipment is an intrinsic element of the service which is provided by the respondent, acting pursuant to the GSA, as a supplier of natural gas to its buyers.
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30. Thus, we are of the view that the supply of the pipelines and the measurement equipment (SKID equipment) by the respondent, was of use to the customers and is taxable under Section 65(105)(zzzzj) of the Finance Act, 1994."
(emphasis supplied)
22. The judgment of the Bombay High Court in Indian National Shipowners' Association and Anr. vs. Union of India and Others7 also examined the provisions of section 65(105)(zzzzj) of the Finance Act and this judgment was referred to by the Supreme Court in Adani Gas. The observations of the Bombay High Court are as follows:
"38. Entry (zzzzj) is entirely a new entry. Whereas Entry (zzzy) covers services provided to any person in relation to mining of mineral, oil or gas, services covered by Entry (zzzzj) can be identified by the presence of two characteristics namely (a) supply of tangible goods including machinery, equipment and appliances for use, (b) there is no transfer of right of possession and effective control of such machinery, equipment and appliances. According to the members of the 1st petitioner, they supply offshore support vessels to carry out jobs like anchor handling, towing of vessels, supply to rig
7. 2009 (14) S.T.R. 289 (Bom.) 23 ST/50920/2018 or platform, diving support, fire fighting etc. Their marine construction barges support offshore construction, provide accommodation, crane support and stoppage area on main deck or equipment. Their harbour tugs are deployed for piloting big vessels in and out of the harbour and for husbanding main fleet. They give vessels on time charter basis to oil and gas producers to carry out offshore exploration and production activities. The right of possession and effective control of such machinery, equipment and appliances is not parted with. [...]"
(emphasis supplied)
23. The first agreement, when considered in the light of the aforesaid judgment of the Supreme Court in Adani Gas, the judgment of the Bombay High Court in Indian National Shipowners' Association and the Circular dated 29.02.2008 of the Department of Revenue would leave no manner of doubt that the appellant rendered "supply of tangible goods" service and not "cargo handing" service.
24. The agreement, it is seen, is for performing the work of handling of containers at ICD, Tughlakabad at the rates and conditions specified in the Schedule annexed to the agreement. The rate Schedule clearly shows that an amount of Rs. 8 lakhs is to be paid to the appellant towards hiring of each of the two loaded reach stackers for round the clock operation, and Rs. 4.50 lakhs for hiring of one empty reach stacker for round the clock operation. It is, therefore, clear that CONCOR hired two loaded reach stackers and one empty reach stacker, for which the appellant was to receive consideration in terms of money. The rate schedule does not refer to handling of cargo at all and indeed could not have, as the agreement 24 ST/50920/2018 is for providing reach stackers to CONCOR. The duties and responsibilities of the appellant contained in the agreement also leave no manner of doubt that the appellant was providing "tangible supply of goods" service to CONCOR. They provide that the appellant must have his own requisite trained personnel and requisite number of reach stackers for performance of the contract; have the necessary inventory for consumables and critical components required for handling the reach stacker; exercise due care and take all precautions while handling containers to avoid any damage or loss to the container; to ensure proper closure of doors of the containers at the time of stacking/loading/shifting; ensure deployment of specified serviceable machinery and plant for execution of the proposed work; ensure that two loaded reach stackers and one empty reach stacker are deployed in good working condition; and that the reach stackers should be able to carry out minimum of twelve moves per working hour taking which a penalty could be imposed upon the appellant. The aforesaid terms of the agreement clearly show that the appellant rendered "supply of tangible goods" service to CONCOR.
Second Agreement dated 10.11.2003 - Cargo Handling
25. The issue that arises for consideration in regard to the second agreement is as to whether the appellant was justified in not paying service tax for handling operations in respect of export cargo.
26. It is not in dispute that the Schedule to the agreement provides for different rates for handling import cargo and export cargo. The appellant contents that it paid service tax for handling of import cargo but did not pay service tax for handling of export cargo for the reason that this does not fall in the definition of cargo handling. The 25 ST/50920/2018 Commissioner has not accepted the contention of the appellant for the reason that the appellant did not provide any evidence and, therefore, could not establish that the amount received by the appellant from CONCOR related to handling of export cargo. According to the appellant, CONCOR did not pay service tax to the appellant on handling of export cargo and the appellant also did not pay service tax, though it paid service tax for handing of import cargo.
27. Learned counsel for the appellant pointed out that the second agreement was executed on 10.11.2003 and was terminated on 18.08.2011. Learned counsel also placed reliance upon a certificate issued by a Chartered Accountant for each Financial Year bifurcating the amount received for handling import cargo and export cargo. Learned counsel also submitted that the extended period of limitation for confirming the demand in respect of the second agreement could not have been invoked as the appellant had not suppressed any material facts from the department, much less with an intention to evade payment of service tax.
28. Learned authorized representative appearing for the department, however, submitted that the Commissioner was justified in confirming the demand of service tax for the reason that the appellant failed to substantiate that the amount was received by the appellant was towards handling of export cargo. Learned authorized representative also submitted that the extended period of limitation was correctly invoked.
26
ST/50920/2018
29. The submissions advanced by the learned counsel for the appellant and the learned authorized representative appearing for the department have been considered.
30. The Certificate of the Chartered Accountant placed by the learned counsel for the appellant is dated 06.10.2023 and, therefore, was not submitted by the appellant before the Commissioner. The said Certificate is reproduced below:
M/s. B. Ghose & Co. Pvt. Ltd. ["Company"] was registered with the Service Tax Department [vide Registration No. AABCB1936CST001] under 'Cargo Handling Service' falling under Section 65(105)(zr) of the Finance Act, 1994.
That we have been specifically requested by the Company to verify the service tax payable/paid on handling of import and export of cargo during the period 2006-07 to 2011-12.
In this regard, we have verified the Books of Accounts, Service Tax Returns, Invoices, agreement executed with Container Corporation of India Limited ["CONCOR"] [i.e., Agreement for Acting as Contractor for Cargo Handling Operations at Inland Container Depot, Tughlakabad for Container Corporation of India Limited] ["Agreement"] dated 10.11.2003 and other relevant records, accounts and documents.
That on a perusal of these documents and the relevant provisions applicable during the concerned period, we hereby certify the following:
(i) That the Company had duly paid service tax on handling of import cargo in view of the definition of "Cargo Handling Service" as provided under Section 65(23) of the Finance Act, 1994.; and
(ii) That the Company has not paid any service tax on handling export cargo as it is not liable to pay the same during 27 ST/50920/2018 the period 2006-07 to 2011-12, in view of the specific definition of 'Cargo Handling Service' as provided under Section 65(23) of the Finance Act, 1994.
(iii) That the Amount shown in Exports is the amount received towards Handling of Export cargo and not amount billed.
(iv) That due to inadvertent mistake export amount was missed in the returns of year 2011-12 and the company via letter dated 10.10.2012, Ref-C.No. DL-II/ST/R-
XI/SCN/B. Ghose & Co./98/2012/1136 has shown the export amount to the Department.
We have also given the tabular presentation of the details of cargo handling services (both import and export), which is enclosed with this certificate and marked as Annexure - A. This certificate has been issued at the specific request of the Company for the submitting before the Hon'ble CESTAT, New Delhi and is not meant for general circulation.
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Chartered Accountant
(emphasis supplied)
Anexure-A
Year Particular for Amount Tax
cargo Received paid/payable
handling
services
2006-07 Import 6,10,01,143.00 73,09,385.00
Export 3,83,69,910.00 NIL
2007-08 Import 5,36,27,883.00 66,16,858.00
Export 3,17,51,441.00 NIL
2008-09 Import 4,53,14,867.00 56,00,950.00
Export 2,33,51,497.00 NIL
2009-10 Import 4,86,72,367.00 50,68,047.00
Export 1,15,85,890.00 NIL
2010-11 Import 4,32,10,695.00 44,83,496.00
Export 77,34,458.00 NIL
2011-12 Import 1,35,38,984.00 13,94,519.00
Export 31,52,390.00 NIL
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ST/50920/2018
31. The aforesaid chart clearly bifurcates the amount received by the appellant for handling of import cargo as also export cargo. This apart, as can be seen from the second agreement also the charges to be paid to the appellant for handling of import cargo and export cargo are different.
32. It is, therefore, a fit case where the matter needs to be remanded to the adjudicating authority to examine the levy of service tax on handling of export cargo afresh after providing an opportunity to the appellant to substantiate what was contended by the appellant in reply to the show cause notice, namely that it had handled export cargo also. The appellant may provides such evidence to the adjudicating authority within a period of six weeks from today. The adjudicating authority shall examine the evidence, if submitted. The appellant may also substantiate its submission that the extended period of limitation could not have been invoked in so far as this service is concerned.
Conclusion
33. Thus, for the reasons stated above, the confirmation of demand of service tax on "cargo handling" service in respect to the first agreement is set aside. However, with respect to the service tax demand confirmed for handling of export cargo, the matter is remitted to the adjudicating authority to pass a fresh order in the light of the observations made above.
Order
34. The appeal is, accordingly, allowed in part. The order dated 28.11.2016 passed by the Commissioner confirming the demand of service tax on "cargo handling" service in respect of the first 29 ST/50920/2018 agreement is set aside. The appellant is at liberty to substantiate its claim in regard to the second agreement by submitting evidence within six weeks. The demand proposed in the show cause notice for handling of export cargo shall be examined afresh by the Commissioner after submission of evidence, if any in the light of the observations made above.
(Order dictated in the Open Court) (JUSTICE DILIP GUPTA) PRESIDENT (HEMAMBIKA R. PRIYA) MEMBER (TECHNICAL) Shenaj, Jyoti