2025 (6) TMI 1725 - AT - Service Tax

Classification of service - Goods Transportation Agency Service or Cargo Handling Services? - appellant were procuring Corrugated Boxes (which were in the nature of Packing material) from the premises of Kunal Enterprises and delivering to M/s. Aquagel Chemicals P. Ltd. - failure to make critical examination - HELD THAT - Cargo Handling Services and Goods Transportation Agency Services by road are sperate services and rather support the case of the appellants. It is to be remembered that even the Board s TRU Circular No. 334/1/2008 dated 29.02.2008 indicates that a composite service which includes packing unpacking loading and unloading etc. apart from transportation is in the nature of Cargo Handling Services and with the prominent nature of the services being goods transport then the same gets excluded from the scope of the Cargo Handling Services . It is found that even the adjudicating authority has only given finding with activities carried out by the appellant as not the mere transportation of goods but involving series of activities of loading and unloading apart from transportation of the goods. Even the Board circular emphasizes on the point that there should be of packing goods involved inter alia with other services to make it a composite service of cargo handling. Even such conclusion is bereft of the finding on whether there was a packing of goods done by the appellant or not to bring it under Cargo Handling Services . This aspect needs critical examination and definitive finding that they were doing packing of goods on behalf of the clients also as is the requirement for cargo handling service given by the Board Circular. Such finding not being clear it is inclined to remit the matter back to the adjudicating authority to verify these aspects whether any packing on behalf of the clients was being done as will normally be done by cargo handlers like movers and packers. Conclusion - Matter remanded for fresh adjudication thereby setting aside the impugned order to the extent it classified the appellant s services as Cargo Handling Service without proper examination of the packing activity and its tax implications. Appeal allowed by way of remand.

Summary

The core legal questions considered by the Tribunal revolve around the classification of the appellant's service activity-whether it constitutes 'Cargo Handling Service' or 'Goods Transportation Agency Service' under the relevant service tax law during the impugned period. The Tribunal also examined the implications of this classification on the tax liability, including whether exclusion of 'Cargo Handling Services' would reduce the appellant's taxable turnover below the threshold limit, thereby negating duty liability. Additionally, the Tribunal considered the adequacy of the findings by the adjudicating authorities, particularly concerning the presence or absence of packing activities, which are pivotal to the classification under 'Cargo Handling Services'.

Regarding the classification issue, the Tribunal analyzed the legal framework as provided under section 65(23) of the Finance Act, which defines 'Cargo Handling Services' as including loading, unloading, packing, or unpacking of cargo, and explicitly excludes mere transportation of goods. The Tribunal noted the absence of any discussion in the impugned order explaining why the appellant's activities were classified as 'Cargo Handling Services' rather than 'Goods Transportation Agency Service', which is separately defined and classified. The Tribunal highlighted that the legislature's use of distinct terms 'cargo' and 'goods' signals different legal treatments and that this distinction was not addressed by the lower authorities.

The Tribunal placed significant reliance on the Circular issued by the Tax Research Unit (TRU) dated 29.02.2008, which clarifies that 'Cargo Handling Service' does not cover mere transportation of goods. The Circular further explains that composite services involving packing, loading, unloading, and transportation are classifiable either under 'Cargo Handling Services' or 'Goods Transport Agency Services' depending on the essential or predominant character of the service. Notably, the Circular states that with the amendment to section 65(23), packing combined with transportation falls under 'Cargo Handling Services'. The Tribunal interpreted this to mean that packing is a critical element for classification as 'Cargo Handling Service', and mere transportation with incidental loading or unloading does not suffice.

The Tribunal found that the adjudicating authority's conclusion-that the appellant's activities involved loading and unloading apart from transportation-was not supported by any clear finding on whether packing was performed. This omission was crucial because the presence of packing activities is determinative in classifying the service as 'Cargo Handling Service'. The Tribunal emphasized that the Board's Circular requires packing to be part of the composite service for it to qualify as cargo handling.

On the issue of tax liability threshold, the appellant contended that if the 'Cargo Handling Service' classification were excluded, their taxable turnover would fall below the threshold limit, eliminating duty liability. The Tribunal acknowledged this contention but noted that the adjudicating authority had not examined or made any findings on this aspect. Consequently, the Tribunal found it necessary to remit the matter for fresh consideration to determine the correct classification and the consequent tax liability, including threshold applicability.

In addressing the competing arguments, the Tribunal gave weight to the appellant's submission and the Board's Circular clarifications, which support the distinction between 'Cargo Handling Services' and 'Goods Transportation Agency Services'. The Tribunal criticized the lower authorities for failing to provide a reasoned analysis distinguishing the two services and for not examining the essential elements-particularly packing-that would justify the classification as 'Cargo Handling Service'. The Tribunal's approach reflects a strict adherence to the statutory definitions and administrative clarifications, ensuring that classification is not made arbitrarily but based on the predominant nature of the service rendered.

Accordingly, the Tribunal remanded the matter to the original adjudicating authority with directions to critically examine and determine whether packing of goods was performed by the appellant as part of their service, which is necessary to bring the service within the ambit of 'Cargo Handling Services'. The adjudicating authority was also directed to reassess the tax liability considering the correct classification and the threshold limits.

The Tribunal's significant holding includes the following verbatim reasoning: "Cargo handling service does not cover mere transportation of goods. Mere transportation of goods by road is covered under 'Goods transport agency service'. Service providers, commonly known as packers and movers provide services of packing together with transportation, with or without other services like unpacking, loading, unloading etc. Such composite services, at present, are classifiable under cargo handling service or goods transport agency service depending upon their essential or predominant character of the services provided."

Further, the Tribunal stated: "It is to be remembered that even the Board's Circular indicates that a composite service which includes packing, unpacking, loading and unloading, etc. apart from transportation is in the nature of 'Cargo Handling Services' and with the prominent nature of the services being 'goods transport' then the same gets excluded from the scope of the 'Cargo Handling Services'."

The core principles established are that the classification of services under the tax law must be guided by the statutory definitions and administrative clarifications, with particular emphasis on the essential characteristics of the service. Mere transportation of goods, even if accompanied by loading or unloading, does not constitute 'Cargo Handling Service' unless packing is also involved. The Tribunal underscored the necessity of reasoned findings on these factual aspects before confirming tax demands.

In conclusion, the Tribunal allowed the appeal by remanding the matter for fresh adjudication, thereby setting aside the impugned order to the extent it classified the appellant's services as 'Cargo Handling Service' without proper examination of the packing activity and its tax implications. This decision preserves the appellant's right to have their service correctly classified and their tax liability fairly determined in accordance with law and relevant circulars.