Customs, Excise and Gold Tribunal - Bangalore
Shri K.K. Appachan vs The Commissioner Of Central Excise on 22 January, 2007
Equivalent citations: [2007]9STJ189(CESTAT-BANGALORE), 2007[7]S.T.R.230, [2007]9STT564, (2008)12VST25(CESTAT-BLORE)
ORDER T.K. Jayaraman, Member (T)
1. This appeal is filed against the Order-in-Appeal No. 92/2006 ST dated 8.5.2006 passed by the Commissioner of Customs and Central Excise (Appeals), Cochin.
2. The appellants entered into contract with M/s Malabar Cements Ltd (hereinafter referred to MCL) for rendering certain services. As per the contract, the scope of work consisted as packing of cement, loading of cement, unloading of raw material, etc. For the above purpose, the appellants supplied labourers to M/s MCL. The Revenue initiated action against the appellants for payment of service tax under the category of cargo handling service. A demand of Rs. 4,84,307/- for the period from 19.08.2002 to 31.3.2004 was confirmed. The appellants approached the Commissioner (Appeals) for relief. The appellant relied on the decision of the CESTAT Northern Bench, New Delhi in the case of J & J Enterprises v. CCE, Raipur wherein in similar circumstances the Tribunal held that the services rendered would not amount to Cargo Handling Services. However, the Commissioner (Appeals) distinguished the decision and held that in the present case the contract is not for supplying manpower but only for rendering cargo handling services. Therefore, the Commissioner (Appeals) upheld the order of the lower authority. Aggrieved over the order of the impugned order the appellant has come before the Tribunal for relief.
3. Shri Anil Kumar, learned Advocate appeared for the appellants and Shri K. Sambi Reddi appeared for the Revenue.
4. The learned JDR informed the Bench that the issue relates to the classification of services and therefore only two member's Bench should deal with the same.
5. The learned Advocate pointed out that the issue involved in M/s. J & J Enterprises case is identical and the same has been decided by the Single Member Bench.
6. On a careful perusal of the records, I notice that the issue relates to the taxability of the service rendered and not deciding between two contending categories of service tax. In this circumstances, it is felt that the issue can be decided by a Single Member Bench.
7. The learned Advocate urged the following points:
The appellant is a labour contractor licensed by the Licensing Officer and the Assistant Labour Commissioner. He supplies labourers to M/s MCL which has got units at Palakkad and Chertala. Both the units are mechanized and have a complete loading system. The manufacturing activity is detailed herein below:
The cement is extracted from the silo and is packed automatically into bags containing 50 kg. by the packer man of the Company. The packer man fixes it into the packing machine nozzle and the cement is filed automatically. The open slit of the bags is stitched by the machine and discharged to the conveyor once 50 kg of cement is filled in it. The conveyor's carry these filled bags to the loading point. The conveyor hence, near the railway wagon drops the cement bags and these cement bags are stacked in the wagon.
As the entire system is mechanized, the labourers supplied by the appellants played only an ancillary role on packing, loading and unloading of the cement. The labourers supplied by the appellants were to assist the packer man of the company to bring the empty bags for filling the cement. The filing of the cement was done automatically by machine. Some of the labourers are deputed on certain points beside the conveyor to align the bags linearly with the conveyor, so that any possible jamming of the bags could be avoided. The labourers removed the bags which are not properly filled or properly stitched by the packing machine. A few of the labourers are deputed in the wagon to stack the filled cement bags as it is discharged from the loading machine. The learned Advocate showed the photographs to illustrate the activity of the labourers supplied by the appellants. These photographs are annexed to the order. The contention of the learned Advocate is that the entire activity of manufacturing cement is mechanized. Once the cement is manufactured it is filled in HDPE bags automatically by a machine. The cement bags are then stacked by another machine and the same is dropped by the machine on the mechanized conveyor. The labourers stand at different places by the side of the conveyor system to guide the bags in case of a jam in the conveyor system. The bags in the conveyor system are moved to the exit point and fall directly into the wagon / truck. At this point the labourers only give a push to the bags whenever necessary so that it falls in place and the bags are stacked properly. Thus the labourers provided by the appellant play only a secondary role.
(ii) Further the appellant neither own machineries used for packing or loading nor hire any machineries. The machineries, conveyor system and the packing materials are all owned by M/s MCL The labourers provided by the appellant do not undertake any activities as envisaged in the definition of cargo handling service.
(iii) the issue is an identical case as already settled by the Tribunal in the case of J & J Enterprises v. CCE, Raipur wherein it is held that when a person supplies labour who supplements mechanized loading or movement of the cement bags, he would not satisfy the definition of cargo handling service and is not liable to service tax.
(iv) The Commissioner (Appeals) was wrong in holding that the above decision is not applicable as the activity undertaken by the appellants is identical to the case decided by the Hon'ble Tribunal. In fact all the cement factories follow the same method. The labourers of the appellants only supplement the mechanized conveyor system and do not get physically involved in the loading and unloading activities as held by the Commissioner (Appeals).
(v) The dominant objective of the contract is to supply labour.
(vi) The show cause notice has invoked the longer period.
Since there was no suppression or intend to evade payment of duty, the longer period cannot be invoked;
(vii) The Department itself has issued registration certificate both under the category of cargo handling services and recruitment agency for the same activity. This itself proves that the department themselves were unsure under which category the activity of the appellant would fall. In any case, it is a matter of legal interpretation as to whether the activity undertaken by the appellants can be considered as cargo handling service or not.
(viii) The Assistant Commissioner has levied interest in terms of Section 75 of the Finance Act, 1994. In view of the submissions made above the appellant is not liable to pay service tax and consequently no interest is leviable.
(ix) The penalty imposed under Section 75A is not imposable as the appellants are not liable to pay service tax under the category of cargo handling service. Similarly they are not liable to penalty under Sections 76, 77 & 78 of the Finance Act, 1994.
8. The learned JDR Shri Sambi Reddy said that on going through the agreement, it is very clear that the appellants are to undertake the activity of packing, loading and unloading. These activities definitely fall within the scope of cargo handling service. Further he said that the Commissioner (Appeals) has clearly distinguished the case of M/s. J & J Enterprises v. CCE, Raipur (supra) from the present case as in the present case the contract is for supply of labourers.
9. I have gone through the records of the case carefully. The main contention of the appellants is that the entire system of packing of cement, loading and unloading of the same is mechanized. The appellants supplied labourers who play an ancillary role in the entire set of activities. Further it has been stated that this issue has already been settled in the decision of the Tribunal relied on the appellants. The Commissioner (Appeals) has not accepted the contention of the appellants on the ground that as per the contract, amounts are paid to the appellants on the basis of the number of cement bags loaded and not on the basis of the man power supply. After going through the decision cited by the learned Advocate, I find that the situation in the present appeal is identical to the one decided by Northern Bench of the Tribunal and relied on by the appellants. The Revenue has not disputed the fact that the appellants supplies labourers to M/s MCL. The appellant is in possession of licence from the Labour Department. In the course of hearing, the learned advocate for the appellant stated that the appellant has already paid the service tax under the category of manpower recruitment agency. Once the department accepts the fact that the appellant's case falls under the category of "manpower recruitment agency" and collects service tax under that category, they cannot say that during an earlier period they would be coming under cargo handling service. From the photographs supplied by the appellants, we find that the labourers supplied by the appellants only rendered certain assistance in the entire activity of packing, loading and unloading of the cement bags. Their role is only ancillary. The ratio of the Tribunal's decision is clearly applicable to the present case. The Tribunal has held the following:
...The facts and circumstances make it clear that the appellant is not rendering cargo handling service. In the given factual situation, cargo handling cannot take place in the absence of packing machine and conveyer. The appellant ha not control on them. The appellant is right in his contention that it is only supplying manpower and supplying manpower cannot be equated with providing the service in question. If such a view is taken, who ever supplies the manpower for an activity would become the provider of the activity itself. If manpower is supplied for construction, the manpower supplied would become the builder. This view is against the specific definitions of various services in the statute.
Thus in the above decision, the Tribunal has held that the supplying labourers cannot be equated with the service of cargo handling even though they played some roles in the handling of the cargo. Since the facts in both the cases were identical, ratio of the above decision is clearly applicable to the present case. I also take into account the fact that the department has already brought the appellants within the ambit of service tax under the category of "manpower recruitment agency". In the result, the impugned order has no merit. The appellant is not liable to pay service tax under the category of cargo handling service. Moreover as the issue involves interpretation of law, the longer period cannot be invoked. The appellant is not liable for payment of interest and various penalties under the Finance Act, 1994. In the result I allow the appeal with consequential relief.
(Operative portion of the order has been pronounced in the court on completion of hearing)