CARGO HANDLING IN COAL INDUSTRY

[Dr. Sanjiv Agarwal]

Cargo handling services are liable to service tax which implies that handling of cargo shall be liable to service tax. What is important is that the activity must be one of handling and that such handling must be of cargo.

The Finance Act, 1994 defines what is cargo-handling service but fails to define what cargo is. Prior to 10.5.2008, as per Section 65(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-containerized freight, services provided by a container freight terminal or any other freight terminal, for all modes of transport and cargo handling services incidental to freight, but does not include handling of export cargo or passenger baggage or mere transportation of goods.

'Cargo' in commercial parlance has a definite connotation which is carried as freight in a ship, plane, rail or truck.

According to amendments made by Finance Act, 2008 w.e.f. 10.5.2008,  cargo handling service has been redefined under section 65(23) to mean loading, unloading, packing or unpacking of cargo and shall include -

•      cargo handling service provided for freight in special containers or for non-commercialised freight, service provided by a container freight terminal or any other freight terminal, for all mode of transport, and cargo handling service incidental to freight; and

•      services of packing together with transportation of cargo or goods with or without one or more of other services like loading, unloading, unpacking, but shall not include, handling of export cargo or passenger baggage of mere transportation of goods.

The two related services on which service tax is levied are cargo handling service and goods transportation service. Prior to 10.5.2008,  the service of packing, unpacking and transportation of goods was not covered under cargo handling service as it was not a cargo meant for transportation on payment of freight. While transportation of goods by road in a carriage is a taxable service, related services are not taxable under goods transport agency service.

Coal Handling Services

Service tax has been levied on handling of coal as cargo. While it may or may not be disputed that coal  is covered under cargo but what remains to be seen is whether the activities envisaged in handling of cargo are rendered in relation to cargo or not.

There are various judicial pronouncements, which throw light on taxability of handling of coal.

In S. B. Construction Company v. Union of India [2007 -TMI - 809 - HIGH COURT OF JUDICATURE FOR RAJASTHAN (JODHPUR)],the High Court ruled that the court had powers to entertain a petition under Article 226 of Constitution of India where action of executive authority was without jurisdiction or was likely to subject a person to harassment and long proceedings. The Court while allowing the petition of the petitioner held that the services rendered by the petitioner were not liable to be taxed to service tax under section 65 (23) of the Finance Act, 2006, i.e., cargo handling services as no cargo was being handled/moved in -

(a) Coal handling/movement from railway wagon to site of thermal power station.

(b) Such movement of coal was done without engaging any motor vehicle or any other mode of transportation involved in such handling, and

(c) With the aid of wagon tippling system which was fed in boiler bunkers through a conveyer mechanism.

In the instant case, scope of work undertaken by the petitioner included -

(a) Unloading of coal from railway wagons through wagon tippling system and feeding to boiler bunkers of all the units through conveyor system, as required,

(b) Transportation of picked up coal/stones, manual unloading and stacking thereof.

This included unloading of coal from railway wagons through tippling system/manual unloading system, feeding of coal into the bunkers of all the units either from wagon tipplers or from coal staked at the stockpile area, feeding of coal to stockpile area from wagon tipplers through stacker/reclaimer, collecting spilled coal from various conveyors, galleries, buildings, bunker floors, rail track area and putting on the nearby conveyors for feeding to bunkers or stacking in stockpile area, collecting spilled coal from various buildings/below the conveyor galleries/bunker floor etc. and transporting and stacking the same to stockpile area at the location to be decided by the engineer incharge, segregating coal from the refuse dump house and transporting and stacking to the stockpile area at the location to be decided by the engineer incharge, and transportation and stacking of stones from refuse dump house/ground floor of bunkers/bunker floor/conveyors/TP's/buildings or any other location to the specified area in the thermal plant. It was evident that handling of coal was done through wagon tippling system or conveyor system which are only mechanical device and not a motor vehicle. The CBEC Circular also supports that the service tax has been levied under the cargo handling on such services which undertakes the activities of packing, unpacking, loading, unloading of goods to be transported by any means of transportation namely truck, rail, ship or aircraft. The services in the instant case appear to be of transporting coal from wagon to thermal power station by conveyor belt (not by a motor vehicle). It was thus held that the aforementioned services under a contract did not fall under the ambit of cargo handling services and as such were not liable to levy of service tax. However, Finance Act, 2008 has substituted the erstwhile definition in section 65(23) so as to nullify the decision in S.B. Construction Company's case [2007 -TMI - 809 - HIGH COURT OF JUDICATURE FOR RAJASTHAN (JODHPUR)].

In Sainik Mining & Allied Services Ltd. v. CCE & C & ST, BBSR [2008 -TMI - 3500 - CESTAT, KOLKATA], it was held that mechanical transfer of coal from coal face to tippers and subsequent transportation within mining area is not covered within cargo handling service. Movement of coal within mine area is a dominant activity and loading and unloading are merely incidental and as such, service tax liability does not arise.

In Sainik case [2008 -TMI - 3500 - CESTAT, KOLKATA], Tribunal also held that coal mined can not be treated as cargo in its conventional service and that the transportation within the mine area can not be treated as amounting to cargo handling and that handling of cargo, if any, is only incidental to transportation. Sainik case ruling has been followed in many cases [Also see Dilip Construction & Others v CCE, Raipur [2009 -TMI - 33051 - CESTAT, NEW DELHI].

In CCE & C, Bhubaneshwar II v. B.K. Thakkar [2008 -TMI - 3503 - CESTAT, KOLKATA], it was held that activities of excavation, transportation and feeding of non ores to crusher plant for processing are primarily in the nature of mining and not covered under cargo handling services. Moreover, iron ore can not be commercially called cargo and that incidental activities of loading and unloading does not give entire contracted activities the character of cargo handling service.

In Wardha Coal Transport Pvt. Ltd. v Union of India & Others [2009 -TMI - 32445 - BOMBAY HIGH COURT], high court allowed the petition against levy of service tax on coal handling. It relied upon the apex court judgment in Indo Nissan OXO Chemicals Industries Ltd v. Union of India (2008) 22 ELT 7 (Supreme Court), which held that 'it is true that on merely establishing a prima facie case, interim order of protection should not be passed. But if on a cursory glance it appears that the demand raised has no leg to stand, it would be undesirable to require the assessee to pay full or substantive part of the demand'.

The impugned order was set aside by court holding type of cargo handling activities undertaken by assesee as not being covered by definition of cargo handling services.

However, in Gajanand Agarwal and Others v CCE & C, Bhubneshwar [2009 -TMI - 32162 - CESTAT KOLKATA], the pay loader was let out for coal loading in railway wagons and the job also included prompt loading of wagons as soon as they were placed and incurring expenses toward labour  etc. The tribunal held that activates of -

-                      Loading

-                      Unloading

-                      Packing or

-                      Unpacking of cargo, and

-                      Handling of cargo for freight in special container or

-                      Non containerized freight and

-                      Service provided by containers freight terminal or other terminal for all modes of transport

are subject matter of taxation under cargo handling service. The department's view was that whatever be the activities, the basic objective of the contract was loading of cargo with time as essence. The assessee pleaded that there was no cargo handling involved but tangible goods (pay loaders) were given on hire. The tribunal held that section 65(23) has a wide amplitude and has brought all like nature activities to its fold expressly and by inclusion of such like nature activities  under cargo handling services. The nature of activity that was carried was to load the cargo, i.e., coal in railway wagons. Such an activity squarely falls under the definition of cargo handling service and brings the assessee to the fold of law for such service  provided (Also see Gangadharan Bulk Movers Pvt. Ltd. v CCE, Nagpur (2009) 16 STJ 233 (Cestat)].

In view of the divergent rulings coming from Tribunals, it is imperative that the issue of levy of service tax on coal handling be analyzed thread bare and all cases pending in various benches be referred to larger bench for finality on taxability of coal handling services.