Export Cargo Handling Not a Taxable Service, Cenvat Credit Reversal u/r 6 Not Applicable: CESTAT [Read Order]

The Ahmedabad Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that no Cenvat credit reversal is required on export cargo handling services, as such services fall outside the scope of service tax and cannot be treated as “exempted services” under Rule 6 of the Cenvat Credit Rules, 2004.

Transworld Terminals Private Limited, the respondent, is engaged in providing cargo handling and warehousing services for import and export consignments. For the period from 2011–12 to 2015–16, the department, based on CERA audit observations, issued a show cause notice alleging short reversal of Cenvat credit of Rs. 1,71,80,619 under Rule 6 of the Cenvat Credit Rules.

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The notice proposed recovery of the credit with interest and also sought penalties under Sections 76, 77, and 78 of the Finance Act, 1994, and Rule 15 of the Cenvat Credit Rules, 2004. The adjudicating authority confirmed the entire demand along with penalties and interest by an order dated May 30, 2018. The respondent challenged the order before the Commissioner (Appeals), who, on March 31, 2019, set aside the demand.

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The Commissioner observed that the department had inconsistently treated the same activity, export cargo handling, as both taxable and exempt in different proceedings. The Commissioner held that export cargo handling was excluded from the service tax net altogether and thus could not be treated as an “exempted service.” As such, Rule 6(3) requiring reversal of credit was inapplicable.

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The department’s counsel appealed the order, arguing that the definition of “exempted service” under Rule 2(e) includes services on which no service tax is leviable and that since export cargo handling does not attract service tax, it qualifies as an exempted service, necessitating credit reversal. The department also relied on an earlier interim order in St. John CFS Park Pvt. Ltd. v. CCE, Tirunelveli.

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The two-member bench comprising Mr. Somesh Arora (Judicial Member) and Mr. Satendra Vikram Singh (Technical Member)observed that regular audits conducted by the department had not raised any objection regarding Cenvat credit reversals. It held that the invocation of the extended limitation period was unjustified. The tribunal further relied on the 2023 CESTAT Chennai decision in St. John CFS Park Pvt. Ltd., which clarified that services explicitly excluded from the definition of taxable service could not be artificially treated as exempted services just to invoke Rule 6 of the CCR.

The tribunal ruled that export cargo handling, being outside the service tax scope, did not qualify as an exempted service and thus did not attract reversal of credit under Rule 6(3). The tribunal dismissed the department’s appeal and upheld the order passed by the Commissioner (Appeals), holding that no Cenvat credit reversal was required and the demand was unsustainable.

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