By TIOL News Service

NEW DELHI, MAR 21, 2017: THE liability of the appellant to service tax on the basis that the service rendered by the appellant amounts to "cargo handling service" within the meaning of Section 2(23) of the Finance Act, 1994 is the core issue that arises for determination in these cases.

The law at the relevant time stood as:

Section 65-In this Chapter, unless the context otherwise requires:-

(23) "cargo handling service" means loading, unloading, packing or unpacking of cargo and includes cargo handling services provided for freight in special containers or for non-containerised freight, services provided by a container freight terminal or any other freight terminal, for all modes of transport and cargo handling service incidental to freight, but does not include handling of export cargo or passenger baggage or mere transportation of goods;

(76b) "packaging activity" means packaging of goods including pouch filling, bottling, labelling or imprinting of the package, but does not include any packaging activity that amounts to "manufacture" within the meaning of clause (f) of Section 2 of the Central Excise Act, 1944.

Section 105 - "taxable service" means any service provided or to be provided:-

(zr) to any person, by a cargo handling agency in relation to cargo handling services;

(zzzf) to any person, by any other person, in relation to packaging activity.

Sections 65(76b) and 65(105)(zzzf) were both inserted by the Finance Act, 2005 with effect from 16.06.2005.

The Supreme Court found the above amendment, sufficiently indicative of legislative intent that packaging activity is different from cargo handling activity. A view, which would make the appellant liable to tax for the pre-amended period (prior to 16.06.2005) on the basis that the activity undertaken by it involves rendering of cargo handling service would run counter to the expressed legislative intention in a situation where its liability, for the post amendment period, on the basis that the appellant is engaged in "packaging activity" has not been disputed by the Revenue.

The Supreme Court also noticed the fact that the liability sought to be fastened on the appellant is on account of the activity undertaken by the appellant in the manufacturing unit of the principal manufacturer, namely, Tata Refractories Limited. It is also not in dispute that such activity is prior to the goods leaving the factory gate and the charges paid to the appellant for rendering the service forms a part of the assessable value of the manufactured goods of the principal manufacturer, namely, Tata Refractories Limited.

Distinction between the two expressions "Cargo Handling Service" and "Packaging Activity"

The Supreme Court observed,

A careful reading of Section 65(23) of the Act, which defines Cargo Handling Service would go to show that though the word packing is included therein, the same is referable to the word "Cargo" whereas in Section 65(76b) "Packing Activity" is defined to mean "Packaging of Goods".

The distinction between the two expressions, namely, "cargo" and "goods" in the two different provisions of the Act becomes evident if cargo is understood to denote goods which are ready for transportation whereas packaging of goods is a stage prior i.e. before they became cargo and in fact on completion of such packaging the goods become cargo. The position becomes more clear if the dictionary meaning of the word "cargo" is taken into account, as set out below:

As per Black' Law Dictionary, the word "cargo" means "Goods transported by a vessel, airplane, or vehicle; According to Oxford Dictionary of English, "cargo" means goods carried on a ship, aircraft, or motorvehicle and as per Webster's Comprehensive Dictionary, "cargo" is Goods and merchandise taken on board a vessel.

Admittedly, the appellant has nothing to do with the transportation of goods which it packs within the factory unit of the principal manufacturer prior to the goods leaving the factory.

The Supreme Court also referred to Circular F.No.B.11 /1/2002- TRU dated 01.08.2002 issued by the Central Board of Excise and Customs, in which services liable to tax under the category of "cargo handling services", has been clarified to mean services provided by cargo handling agencies which is, in effect what Section 105(zr) provides for.

Clause 3.2 of the circular makes it clear that mere transportation of goods is not covered in the category of cargo handling. Clause 15 of the circular also makes it clear that an individual undertaking the activity of loading or unloading the cargo would not be liable to pay service tax on such activity as being an activity undertaken by a cargo handling agency.

It is nobody's case before us that the appellant is a cargo handling agency. All activity undertaken by the appellant, though related to packing activity, is at a stage when the goods are yet to clear the factory gate as manufactured goods for onward transportation.

The Supreme Court took the view that prior to the amendment made by the Finance Act of 2005 with effect from 16.06.2005, the appellant would not be liable to pay service tax on the service rendered by it in terms of Section 65(23) read with Section 105(zr) of the Act.

The demand raised on the appellant may be understood in the aforesaid light and all reliefs as may be due in terms of the above be granted forthwith.

The appeals, consequently, are allowed and the order of the Tribunal is set aside.

(See 2017-TIOL-126-SC-ST)