Activity of Handling goods being part of composite agreement entered by third parties cannot be bifurcated under different heads for service tax Demand: Calcutta HC [Read Order]

The Calcutta High Court, in its recent order, held that the activity of handling goods being part of the composite agreement entered into by third parties, cannot be bifurcated under different heads for service tax demand.

The revenue filed petition  under Section 35G of the Central Excise Act, 1944 (the Act), challenging the order passed by the Customs, Central Excise and Service Tax Appellate Tribunal, East Zonal Bench, Kolkata, (Tribunal) in Service Tax Appeal No.277/2012 dated 30.11.2023.

The issues decided in favour of the assessee, Emta Coal Limited which were challenged by the revenue before the Court in which was dismissed by judgment dated 14.5.2025. So far as issue no.2which related to cargo handling service, the adjudicating authority has held against the assessee and the asssessee preferred appeal before the Tribunal, namely, Service Tax Appeal No.277/2012 which has been allowed and, therefore, the revenue has filed this appeal, namely, CEXA/8/2025.

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The tribunal, by the impugned order, has remanded the matter to the adjudicating authority to enable the assessee to give invoice-wise details of the deductions made by the client to prove that those amounts were not received by the assessee to get an exemption from service tax payment. They were also required to show the details of the client’s ledger towards the value of the invoice amount debited in their ledger, the amount received from the client and credit note passed for the balance amount to tally the invoice value in the ledger.

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All these details were required by the assessee to produce in respect of the invoices raised during the period 2007-2010, along with reconciled statement, which was required to be verified by the adjudicating authority in a detailed manner. The assessee has not challenged that portion of the impugned order passed by the Tribunal remanding the above two issues.

Similarly, issue no.7 also is not the subject-matter of challenge presumably because of the low value of the demand. Thus, what is required to be decided in this appeal is only the issue, namely, serial no.2 which pertains to cargo handling services and issue no.4 which is the demand for Rs.26,01,36,069/- for the period from 1.4.2008 to 31.3.2010 against mining services.

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The Tribunal had affirmed the order passed by the adjudicating authority dropping the demand in respect of site formation services on the ground that the contract entered by the assessee with third parties was a composite contract and payments were made based upon the quantity of coal which has been raised. It is not in dispute that as per original contract dated 14.3.1997, the assessee was to provide all the services upto loading of coal at railway siding but subsequently by another agreement dated 2.3.2010 it was agreed between the assessee and BECML that all the work of loading and transportation of coal from the colliery pithead stage would be arranged by BECML and the assessee’s work in respect of coal extracted from the mines would be restricted upto stacking of coal at pithead only.

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As per the original agreement dated 22.1.2002, the assessee was to do all the work upto loading at the railway siding and by virtue of the modification agreement, work was truncated whereby right from loading at colliery to pithead everything was to be done by the third party, namely, PANEM, except loading at Pakur Railway siding which was to be done by the assessee.

If these were the terms and conditions of the agreement then the circular issued by the Central Board in C.B.E. & C. Letter F. No.233/2/2006-CX.4, dated 12.11.2007 came to the aid of the assessee. The said Circular also came to be issued since certain disputes relating to chargeability of service tax on some of the services provided to mining sector were reported and, accordingly, clarification was issued.

From the above it is clear that handling and transportation of coal/mineral from pithead to a specified location within the mine/factory or for transportation outside the mine was included. Therefore, it is clear that the activity of handling of goods, including of unloading and loading thereof being part of the mining services to be rendered under the agreements entered into by the assessee cannot be bifurcated under different heads for the purpose of demanding service tax.

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It was held that the activity of loading, unloading, packing, unpacking, stacking, re- stacking and shifting of sugar bags from mill floor to godown or from one godown to another godown within the factory is not covered in cargo handling service as there being no activity of loading or unloading for movement outside the factory on public road or ship or aeroplane or trucks for any destination.

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The Court noted that in common parlance ‘cargo’ means load, which is to be carried by ship, aeroplane, rail or truck and handling of transportation of goods, by itself unless it is an organized activity, which is connected with carrying cargo is involved would not fall within the definition of cargo handling service.

The court comprising the Chief Justice T.S Sivagnanam and Justice Chaitali Chatterjee (Das) held that the activity of handling of goods including loading and unloading thereof being part of the composite agreement entered into by the assessee with the third parties cannot be bifurcated under different heads for the purpose of demanding service tax.

Therefore, with this reason, the finding of Tribunal is affirmed.

In the result, the appeal is partly allowed and the substantial questions of law nos.1 and 2 are answered in favour of the revenue and the substantial question of law no.3 is answered against the revenue.

To Read the full text of the Order CLICK HERE

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