By TIOL News Service

MUMBAI, SEPT 15, 2014: MIPL is operating a Container Freight Station (CFS) and have entered into a contract with MLOG for providing various services in the premises of their CFS viz. rental space for keeping, storing, stuffing or consolidation of export cargo into containers. M/s MLOG have accordingly paid a fixed monthly amount to MIPL as "Space Reservation Charges".

The services provided by the Applicant at the CFS are in respect of both export as well as import cargo. While the Applicant is currently levying and paying Service Tax on services provided in respect of import cargo, they are not levying and paying Service Tax on services provided in respect of export cargo citing the specific exclusion from the definition of "Cargo Handling services”.

Based on the CBEC Circular No. B11/1/2001 - TRU dated 09.07.2001 which clarified that the fact that demurrage charges recovered by the port authority as a rental for storage of goods if the goods overstayed a prescribed free period does not detract from their being in the nature of a charge for providing service in relation to goods and, therefore, would form part of the taxable value, the department came out with the following corollary - that MIPL had failed to pay service tax on the value of taxable services received on account of Storage and Warehousing of export cargo inasmuch as providing space for storage of export goods comes under the heading of "Storage and Warehousing Services "under Section 65 (102) of the Finance Act, 1994 and it was for that reason it was excluded from the entry for "Cargo Handling Service" under Section 65 (23) of Finance Act, 1944.

The SCN was adjudicated by the CCE, Raigad passed the following order -

++ Service tax demand of Rs.53,66,874/- confirmed along with interest thereon for the period 1-2-2005 to 31-3-2006 apart from imposing an equivalent amount of penalty.

++ ST demand for the period 16-8-2002 to 31-1-2005 dropped.

In the Stay proceedings, the CESTAT relied upon the P&H High Court decision in Dr.Lal Path Lab (P) Ltd. - 2007-TIOL-533-HC-P&H-ST and while observing that prima facie the storage and warehousing services provided by the applicants within the CFS should be regarded as "in relation to the cargo handling services", waived the pre-deposit of the adjudged dues & stayed the recovery.

We reported this order as 2008-TIOL-265-CESTAT-MUM.

Six years down the line, the prima facie view seems to look the other way!

The appeal filed by the assessee was heard recently along with that filed by the Revenue against the portion of the demand that was dropped on the ground of time bar.

After considering the marathon submissions made by both sides, the Bench observed as under-

++ Appellants were rendering two types of services. In respect of all the customers, they were rendering cargo handling services such as loading, unloading, arranging for and supervision of examination of cargo, stuffing and de-stuffing of cargo, carting and back to town, movement of empty containers and so on. For these services, they collected charges for each type of service rendered either on a tonnage basis or per container basis. However, in respect of MLOG and 10 other special customers, in addition to the above, they also rendered services relating to storage and warehousing of export cargo. The question for consideration is whether such storage and warehousing services can be considered as incidental to cargo handling or not and whether service tax can be levied separately on such services.

++ From the Tariff of CFS operations of MIPL, it is seen for specific customers such as MLOG and its clients, the contract entered into provide for earmarking of separate space in specific godowns/warehouses and the storage charges are recovered by way of monthly rentals. In respect of such warehoused goods, the appellant undertakes loading/unloading, provision of labour, security, and so on. Therefore, these activities undertaken in addition to the normal activity of cargo handling, by way of specific clauses in the agreement and for a specific consideration cannot be said to be incidental to cargo handling services.

++ From the wording of the contract entered it is evident that the activity of storage is not accidental or without intention. It is also not minor or less important compared to cargo handling. If it were so, it would not have been specifically mentioned in the contracts and separate charges fixed on a monthly basis. Only the normal storage for 5 days extendable on a weekly basis could come within the category ‘incidental to cargo handling'. It is a settled position in law that the substance of an agreement has to be considered and not the wording used in the agreement. Therefore, we reject the contention of the appellant that the storage and warehousing services rendered by the appellant to specific customers on specific terms and conditions are activities incidental to cargo handling in respect of export cargo and hence not liable to service tax.

++ It is relevant to note here that storage of cargo is not specifically mentioned anywhere in the definition [section 65(23) of FA, 1994]. If storage was an incidental activity to cargo handling, the same would have been specifically mentioned along with loading, unloading, unpacking, mere transportation. Thus from the statutory definition, it is amply clear that storage and warehousing of goods is a separate activity in itself and does not form part of cargo handling services.

++ It is not in dispute that the activity of the appellant does not fall in the exclusion clause specified in the definition for storage and warehousing services. [s.65(102)]

++ From the scope of the levy, as clarified by the Board [Circular dated 01.08.2002], which is the apex agency of the Government implementing service tax levy, it is clear that such service rendered by a Container Freight Station is also covered within the scope of the levy [Storage & Warehousing service]. In the present case, from the contract, entered into by the appellant, it is seen that the appellant has been undertaking all these activities and therefore squarely come within the definition of storage and warehousing services. Though the clarification issued by the Board is not binding on this Tribunal, it has a persuasive value and should be given due weight. In view of the above factual and legal position, we reject the contention of the appellant that the services rendered by him in respect of storage and warehousing of export cargo comes under the category of cargo handling services and not under storage and warehousing services.

++ The reliance placed by the appellant on various case laws is of no help as the facts of those cases are different and distinguishable and hence cannot be applied to the facts of the case before us. Thus on merits, we do not find any reason to uphold the contention of the appellant for classification under “cargo handling services”.

Limitation:

++ From the evidence on record, it is clear that in the letter dated 13-3-2003, the appellant did inform that they are collecting space reservation charges by way of fixed monthly charges from certain customers and they are not paying service tax as the said activity is part of cargo handling in respect of export cargo. The department could have very well asked for the copies of the contracts entered into by the appellant in respect of such customers. However, the department failed to take necessary action in this regard. Therefore, for the laxity on the part of the department, suppression cannot be alleged on the part of the appellant and therefore, we do not find any infirmity in the order of the adjudicating authority in dropping the demand of service tax for the period prior to 1-2-2005.

++ Even though the services rendered by the appellant remained identical both prior to and after 1-2-2005, certain clever manipulations were resorted to by the appellant and the clauses relating to payment of monthly rental was removed even though storage and warehousing services were rendered in warehouses 2, 3 and 4. This manipulation is very evident. Therefore, the ld. Adjudicating authority rightly observed that the appellant suppressed collection of service charges by manipulation for the period 1-2-2005 onwards and confirmed the service tax demand.

++ Once the demand for service tax is upheld, confirmation of demand towards interest is automatic and consequential.

Penalty:

In the light of the decisions [ Krishna Poduval - [2006-TIOL-77-HC-KERALA-ST] , SEBI Vs Shriram Mutual Fund and another - [2006-TIOL-72-SC-SEBI], M/s Gujarat Travancore Agency, Cochin vs. C.I.T., 1989 (3) SCC 52]] the penalty imposed under section 76 of the Finance At, 1994 is fully justified in the facts of the present case. However, with respect to the penalty imposed under section 78, in our considered view, the same is not warranted as the issue related to a classification dispute and it is well settled that in classification matters, imposition of penalty is not required. We set aside the penalty imposed under section 78.

Conclusion:

++ Classification of the service rendered by appellant is upheld under the category of “Storage and warehousing services” as defined in section 65 (102) of the Finance Act, 1994 and the consequential confirmation of service tax demand of Rs.53,66,874/- along with interest thereon against the appellant.

++ Imposition of penalty of equivalent amount u/s 76 of the FA, 1994 is upheld.

++ Penalty of equivalent amount imposed u/s 78 of the FA, 1994 is set aside.

The appeal of the appellant is partly allowed and that filed by the Revenue is dismissed.

(See 2014-TIOL-1751-CESTAT-MUM)