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TMI Blog2018 (1) TMI 501X X X X Extracts X X X X X X X X Extracts X X X X ..... s to why the services rendered by them should not be classified under the heading "Cargo Handling Services" and be taxed accordingly. 4. The facts as averred in the memorandum of petition and as emerging from the record are that the first petitioner is a body whose members are, inter alia, goods transport operators and engaged in the business of transportation of goods supplied by the customers. It is the case of the petitioners that the show cause notices issued by the second respondent are in excess of his jurisdiction and that the other members of the Association are likely to receive such show cause notices in due course. By the impugned show cause notices, the respondents have proposed to demand service tax from the petitioners under the category of "Cargo Handling Services", while it is the case of the petitioners that the services which have been provided by them fall under the taxable category of "Goods Transport Agency". To bolster their case, the petitioners have placed reliance upon circulars dated 6.10.2008 and 5.10.2015 issued by the Central Board of Excise and Customs (hereinafter referred to as "the C.B.E.C."). 5. It is the case of the petitioners that the members ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Customers undertake responsibility of loading of containerized goods on Lorry at discharge port in South India; (xiv) Consignee unloads the containerized goods at the place of consignee." 6. It is the case of the petitioners that they provide services of transportation of goods by road; the activities of loading and unloading of goods at loading point and discharge point are undertaken by the consignor or the consignee and that the petitioners provide trucks along with its container at the factory of the customers. 7. Based upon intelligence gathered by the second respondent that the petitioners had shown gross income in their income tax returns filed under section 194 of the Income Tax Act for the year 2012-13, but filed "Nil" ST-3 returns, the second respondent visited the office premises of the second petitioner on 11.3.2015 and recorded the statements of its Managing Director Shri Amar D. Kothari from time to time. The second respondent also visited the Rajkot Regional Unit and the Ahmedabad Zonal Unit of the third petitioner on 11.06.2015 and recorded the statement of its representative Shri Rahul B. Modi from time to time. Subsequent thereto, the impugned show cause n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lie to the Supreme Court and not to the High court, which would be an additional ground why the court would not entertain the writ petition against the order of the adjudicating authority. It was further submitted that the petitioners have directly approached this court against a show cause notice and therefore also in the absence of any lack of jurisdiction on the part of the adjudicating authority or any other circumstances for invoking the writ jurisdiction of this court having been made out, the court may not entertain the petition and ask the petitioners to answer to the show cause notice and avail of the statutory remedy as available in law. It was, accordingly, urged that the petition deserves to be dismissed on this count alone. 9. On the other hand, Mr. Mihir Joshi, Senior Advocate, learned counsel with Mr. Hardik Modh, learned advocate for the petitioners, submitted that the circumstances necessary for invoking the writ jurisdiction of this court are clearly made out and hence this petition under Article 226 of the Constitution of India is maintainable even at the show cause notice stage. It was further submitted that it is not as if in all cases involving a classificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the show cause notice cannot be read hyper technically and it is well settled that it is to be read reasonably. But one thing is clear that while reading a show cause notice, the person who is subject to it must get an impression that he will get an effective opportunity to rebut the allegations contained in the show cause notice and prove his innocence. If on a reasonable reading of a show cause notice a person of ordinary prudence gets the feeling that his reply to the show cause notice will be an empty ceremony and he will merely knock his head against the impenetrable wall of prejudged opinion, such a show cause notice does not commence a fair procedure especially when it is issued in a quasi-judicial proceeding under a statutory regulation which promises to give the person proceeded against a reasonable opportunity of defence. 32. Therefore, while issuing a show cause notice, the authorities must take care to manifestly keep an open mind as they are to act fairly in adjudging the guilt or otherwise of the person proceeded against and specially when he has the power to take a punitive step against the person after giving him a show cause notice." 9.3 Adverting to the mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agency. It was pointed out that in the said circular, it has also been clarified that if the bill indicates the amount charged for cargo handling and transportation separately on actuals basis (verifiable by documentary evidence), then the tax would be leviable only on the cargo handling charges. Reference was made to a clarificatory circular being Circular No.104/7/2008-S.T. dated 6.8.2008 issued by the Central Board of Excise and Customs, wherein the Board has clarified that "goods transport agency" provides service to a person in relation to transportation of goods by road which is a single composite service. Goods transport agency also issues consignment note. The composite service may include various intermediate and ancillary services provided in relation to the principal service of the road transport of goods. Such intermediate and ancillary services may include services like loading/unloading, packing/unpacking, transshipment, temporary warehousing etc., which are provided in the course of transportation by road. It was submitted that in view of the above circular, if a common invoice in relation to the composite service is issued, the goods transport agency would be entit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entire scheme of service tax has changed and the definition of "cargo handling service" has been done away with and therefore, there is no definition of "cargo handling service", whereas the definition of "goods transport agency" continues. Under the circumstances, it cannot be said that the circular issued by the Board does not apply because it is a clarification in terms of the circular in the new regime. In conclusion, it was urged that the services provided by the petitioners clearly fall within the ambit of "goods transport agency" and that the impugned show cause notices being without jurisdiction as being contrary to the circulars issued by the Board from time to time as well as being contrary to the statutory provisions of law, deserve to be quashed and set aside. 10 On the other hand, Mr. Ankit Shah, learned senior standing counsel for the respondents, submitted that with effect from 1st July, 2012, the scheme of the service tax has changed and the negative list of regime has been brought into force. It was submitted that therefore, the circulars issued prior to the amendment in the Finance Act, would not be applicable subsequent to such amendment. It was submitted that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... means loading, unloading, packing or unpacking of cargo and includes cargo handling services 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. It was submitted that thus, under the said definition, cargo handling service did not include transportation. It was submitted that with effect from 16.5.2008, the definition of cargo handling service came to be amended by including the service of packing together with transportation of cargo or goods, with or without one or more other services like loading, unloading, packing, unpacking. Thus, transportation was included as an ingredient of cargo handling services. 10.3 It was submitted that once the members of the petitioners undertake the responsibility of delivery of goods from consignor to consignee and more particularly, when they are also providing cargo handling services, may be, with help from other service providers, the service provided by them would fall within the ambit of "cargo handling service" inasmuch as taking help from other service providers does not change the nature of service that is being provided by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anies to the petitioners. It was submitted that the petitioners have artificially bifurcated the charges into various components to nullify the liability of paying the service tax on the services provided from end to end. It was reiterated that if the petitioner companies had been registered under the "cargo handling service", no abatement would be admissible and the whole transaction from consignor to consignee would be covered under the service tax. It was, accordingly, urged that the petition being devoid of merits deserves to be dismissed. 12. Before adverting to the merits of the rival submissions, a brief reference may be made to the facts of the case. From the facts as emerging from the record, it appears that the activities undertaken by the members of the petitioner association are that upon receipt of an order from customers to transport goods from their place to persons who are mostly located in South India, the petitioners hire a truck along with an empty container for this purpose and send the same vehicle to the place/factory of the customer/consignor. The consignor undertakes the responsibility of loading the goods. The goods are then transported to the port at Kand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Finance Act, 2002. Reference to sub-clause or clause means clause or sub-clause of section 65 of the Finance Act, 1994 as amended by the Finance Act, 2002. 2. As per clause (21), the term "cargo handling service" means loading, unloading, packing or unpacking of cargo and includes cargo handling services provided for freight in special containers or for noncontainerised freight, services provided by a container freight terminal or any other freight terminal, for all modes of transport, and any other service incidental to freight, but does not include handling of export cargo or passenger baggage or mere transportation of cargo. The taxable service, as per sub-clause (zr) of clause (90), is any service provided, to any person, by a cargo handling agency in relation to cargo handling services. 3. The services which are liable to tax under this category are the services provided by cargo handling agencies who undertake the activity of packing, unpacking, loading and unloading of goods meant to be transported by any means of transportation namely truck, rail, ship or aircraft. Well known examples of cargo handling service are services provided in relation to cargo handling by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dling of export cargo or passenger baggage or mere transportation of goods." 16. Pursuant to various representations made by the All India Motor Transport Congress to the Government regarding difficulties being faced by goods transport agencies in respect of the service tax levied on goods transported by road service, the Central Board of Excise and Customs issued Circular: 104/7/2008-S.T. Dated 6th August 2008, the relevant portion whereof reads thus: "3. Issue: GTA provides service to a person in relation to transportation of goods by road in a goods carriage. The service provided is a single composite service which may include various intermediary and ancillary services such as loading/unloading, packing/unpacking, transshipment, temporary warehousing. For the service provided, GTA issues a consignment note and the invoice issued by the GTA for providing the said service includes the value of intermediary and ancillary services. In such a case, whether the intermediary or ancillary activities is to be treated as part of GTA service and the abatement should be extended to the charges for such intermediary or ancillary service? Clarification: GTA provides a service in relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd unpacking. Transportation is not the essential character of cargo handling service but only incidental to the cargo handling service. Where service is provided by a person who is registered as GTA service provider and issues consignment note for transportation of goods by road in a goods carriage and the amount charged for the service provided is inclusive of packing, then the service shall be treated as GTA service and not cargo handling service. 5. Issue 3: Whether time sensitive transportation of goods by road in a goods carriage by a GTA shall be classified under courier service and not GTA service? Clarification : On this issue, it is clarified that so long as, (a) the entire transportation of goods is by road; and (b) the person transporting the goods issues a consignment note, it would be classified as 'GTA Service'." 17. With effect from 1st July, 2012, a new system of taxation of service known as "Negative List of Services" came to be introduced which provided that all services except those specified in the negative list would be subject to tax. By the amendment, section 65 of the Finance Act came to be deleted and consequently the definition of "cargo handling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l be based on the principle of interpretation enumerated in section 66F of the Finance Act, 1994. Thus, if ancillary services are provided in the course of transportation of goods by road and the charges for such services are included in the invoice issued by the GTA, and not by any other person, such services would form part of GTA service and, therefore, the abatement of 70%, presently applicable to GTA service, would be available on it. 5. It is also clarified that transportation of goods by road by a GTA, in cases where GTA undertakes to reach/deliver the goods at destination within a stipulated time, should be considered as 'services of goods transport agency in relation to transportation of goods' for the purpose of Notification No. 26/2012-S.T., dated 20-6-2012, serial number 7, so long as (a) the entire transportation of goods is by road; and (b) the GTA issues a consignment note, by whatever name called." 20. The facts of the case are required to be examined, in the light of the Circulars issued by the Board and the statutory provisions as prevailing prior to and after 2012 when the negative list regime was brought into force. 21. The record of the case shows that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he transport of goods from the place of consignor to the port in Gujarat and from the port in South India to the place of the consignee, if the consignee does not take delivery of goods at the port itself. Insofar as the service rendered by the shipping line is concerned, the shipping line issues invoice in favour of the petitioners, who in turn issue a debit note to the customer without adding any charge in respect of such service. 24. The expression "cargo handling service" was defined prior to the 2012. As per the definition of "cargo handling service" as it stood prior to 16.5.2008, "cargo handling service" essentially meant loading, unloading, packing or unpacking of cargo for all modes of transport and cargo handling service incidental to freight. After 16.5.2008, the definition of "cargo handling service" came to be expanded by including "service of packing together with transportation of cargo or goods, with or without one or more of other services like loading, unloading, unpacking. Thus, prior to 16.5.2008, cargo handling service meant only loading, unloading, packing or unpacking of cargo for all modes of transport and cargo handling service incidental to freight wherea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , even if the petitioners had not split up the transaction into three parts, viz. transportation by road, then unloading and loading at port and transportation by sea, followed by unloading and loading at the port and transportation by road, the transaction would not fall within the ambit of "cargo handling service" as defined under the Finance Act, 1994 as it stood prior to and after 16.5.2008 inasmuch as the petitioners do not provide the service of packing together with transportation. Insofar as the period after the negative list regime came into force is concerned, the definition of "cargo handling service" stands deleted and is no longer on the statute book. The respondents, however, appear to be categorizing such service on the basis of the definition of such service as it stood prior to the introduction of the negative list regime. Therefore, even if "cargo handling service" is considered in terms of the earlier definitions, the service provided by the petitioners would not fall within its ambit. 27. Insofar as "goods transport agency" is concerned, as noticed earlier the definition continues to be the same even after the introduction of the negative list regime. In relati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovides service to the petitioners on behalf of the customer. Pertinently, neither the service provided by the petitioners nor by the shipping line includes any element of packing, which is a necessary ingredient for falling within the ambit of "cargo handling service" when transportation is one of the elements of such service. Therefore, even if it were to be held that it is the petitioners who are providing the services covered in entire transaction, no part of the transaction falls within the ambit of "cargo handling service" as envisaged under the provisions of the Finance Act, 1994 as amended from time to time. Therefore, the contention of the respondents that the service provided by the petitioners fall within the ambit of "cargo handling service" is misconceived. 28. Moreover, the circular dated 6th August, 2008 provides that a composite service, even if it consists of more than one service, should be treated as a single service based on the main or principal service and accordingly classified. While taking a view, both the form and substance of the transaction are to be taken into account. The guiding principle is to identify the essential features of the transaction. The m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices.-(1) Unless otherwise specified, reference to a service (herein referred to as main service) shall not include reference to a service which is used for providing main service. (2) Where a service is capable of differential treatment for any purpose based on its description, the most specific description shall be preferred over a more general description. (3) Subject to the provisions of sub-section (2), the taxability of a bundled service shall be determined in the following manner, namely- (a) if various elements of such service are naturally bundled in the ordinary course of business, it shall be treated as provision of the single service which gives such bundle its essential character; (b) if various elements of such service are not naturally bundled in the ordinary course of business, it shall be treated as provision of the single service which results in highest liability of service tax. Explanation.-For the purposes of sub-section (3), the expression "bundled service" means a bundle of provision of various services wherein an element of provision of one service is combined with an element or elements of provision of any other service or services. 30. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en preference over the general description of cargo handling service, which is not defined under the Finance Act after the introduction of the negative list regime. Insofar as the period prior to the introduction of the negative list regime is concerned, "cargo handling service" was defined under section 65(23) of the Finance Act. As discussed hereinabove, by no means can any part of the service rendered by the petitioners either directly or through other service providers falls within the ambit of such definition. Under the circumstances, the question of classifying such services as "cargo handling service" would not arise at all. 32. Insofar as the applicability of sub-section (3) of section 66F of the Finance Act is concerned, the same is applicable where taxability of bundled service is involved. The expression "bundled service" has been defined under the Explanation to sub-section (3) of section 66F to mean a bundle of provision of various services where an element of provision of one service is combined with an element or elements of provision of any other service of services. In the opinion of this court, the question of bundling services would arise where more than one kin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the services rendered by the shipping lines were to be considered as the services rendered by the petitioners, the essential character of the services rendered by the petitioners, viz., goods transport agency, would not be lost. If all the ancillary activities are attributed to the petitioners, then in view of the circulars dated 6th August, 2008 and 5th October, 2015, by including such services in the invoice the petitioners could have claimed abatement qua the entire transaction, which would result in payment of lesser taxes than those collected by the respondents on account of splitting up of the transaction into three parts. Therefore, the allegation that the exercise has been carried out to evade payment of service tax is without any substance. 35. Significantly, it is nobody's case that any part of the transaction has gone untaxed. Insofar as the "goods transport agency" component is concerned, the tax is paid by the customers on reverse charge basis and insofar as the component of shipping by sea is concerned, the shipping line pays the service tax thereon. What the respondents, however, want is to tax the entire transaction in the hands of the petitioners on the ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpugned show cause notices, in paragraph 9.2.7.2, it has been stated that necessity of law for taxation under the class "cargo handling service" is that the service provided should be relating to or in relation to cargo handling by a cargo handling agency. The service provided should be integrally or inseparably connected with handling of cargo or attributable thereto without being a mere activity of transportation of such cargo since transport service independent of cargo handling is an exception under the scheme of levy by section 65(23) of the Act and it may be said that loading, unloading, packing or unpacking of cargo and handling of cargo for freight in special containers or noncontainerized freight and service provided by container freight terminal or other freight terminal for all modes of transport are subject matter of taxation under the class "cargo handling service". That apart, any activity incidental to freight of cargo is also liable to be taxed under such class. Mode of transport is irrelevant for incidence of levy once the service provided meets the test of handling of cargo in the manner as envisaged by law. It also appears that it is not necessary that the cargo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvice, may be, with the help of other service providers, but taking help from other service providers does not change the nature of the service being provided by the aforesaid companies to its clients. Thus, even according to the respondents certain services are not provided by the petitioners directly, but are provided to the customers with the help of other service providers. If certain services are provided by other service providers, they would be discharging the service tax liability on such service. Therefore, once the service provider has paid service tax on the service provided by it, the question of taxing such service once again in the hands of the petitioners would not arise as the same would amount to taxing the same transaction twice. 42. In the light of the above discussion, it is evident that the impugned show cause notices are contrary to the binding circulars issued by the Central Board of Excise and Customs from time to time. Under the circumstances, the petitioners are entitled to invoke the writ jurisdiction of this court. The contention that this petition would not lie against a show cause notice, therefore, does not merit acceptance. Besides, the petition doe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w cause notice, even subsequent to the introduction of the negative list regime, the respondents continue to attribute the same meaning to the expression "cargo handling service", therefore, whether it be in relation to the period prior to or after the negative list regime, the services rendered by the petitioners would not fall within the ambit of "cargo handling service". Under the circumstances, no useful purpose would be served in relegating the petitioners to the adjudicating authority for adjudication of show cause notices which have no legal basis. The impugned show cause notices being contrary to the legal provisions as well as to the above referred circulars issued by the Board, therefore, cannot be sustained. 44. For the foregoing reasons, the petition succeeds and is, accordingly, allowed. The impugned show cause notices dated 8.10.2015 and 30.9.2015 (Annexure "M" and "N" respectively) are hereby quashed and set aside. Rule is made absolute accordingly, with no order as to costs. 45. For the reasons recorded hereinabove as regards the maintainability of the petition, Civil Application No.2952 of 2017 filed by the respondents raising a preliminary contention as regards ..... X X X X Extracts X X X X X X X X Extracts X X X X
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