Internal Material Handling by HSCL Not Cargo Handling and Extended Period Not Invocable: CESTAT Sets Aside Service Tax Demand [Read Order]

The Hyderabad Bench of the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) allowed the appeals holding that the activities of internal shifting and handling of steel materials within the Visakhapatnam Steel Plant did not fall under Cargo Handling Service (CHS), and that the extended period could not be invoked against the sub-contractor.

The dispute arose after the department alleged that HSCL, a Public Sector Undertaking engaged in various construction-related activities, had been awarded a contract by Rashtriya Ispat Nigam Ltd. (RINL) for handling operations inside the steel plant, and had further sub-contracted the same work to Visakha Constructions.

The department concluded that the services provided by HSCL and Visakha were taxable under Cargo Handling Service, and in HSCL’s case, also under Management, Maintenance or Repair Service (MMRS), Commercial or Industrial Construction Service (CICS), and Manpower Recruitment or Supply Agency Service (MRSAS).

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The adjudicating authority confirmed substantial service tax demands on the ground that the activities performed such as unloading, lifting, transportation, stacking, cutting, bending, de-coiling, and bundling of steel materials amounted to cargo handling, and that HSCL had failed to disclose full details with intent to evade tax.

The appellants submitted that their work consisted only of handling steel materials and goods within the plant premises and did not involve handling of cargo as defined in the statute. They argued that “cargo” refers to goods moved on boats, vessels, aircraft, or similar modes, whereas their operations were limited to internal movement of materials inside the factory.

The appellant emphasized that multiple statements clearly showed that the dominant activity was internal material handling, which was not included in the definition of CHS prior to 16.05.2008.

The appellant relied on Tribunal decisions in Modi Construction Company Vs CCE, Ranchi (2008) and Gaytri Construction Co. Vs CCE, Jaipur (2012), consistently holding that shifting of goods within factory premises does not constitute cargo handling.

With respect to MMRS and CICS, HSCL contended that part of the demand related to periods before the service categories came into force, and that certain contracts were in the nature of works contract or repair work. For MRSAS, they argued that manpower supply was provided before 16.06.2005, when the levy was introduced.

The department maintained that the activities were squarely covered under CHS and relied on decisions such as Coal Carriers Vs CCCE & ST, Bhubhaneswar (2011) and Calcutta Industrial Corporation Vs CST, Kolkata (2019) to support its stand.

The department also argued that HSCL, despite being a PSU, was aware of its tax liability and had deliberately not discharged service tax.

The Bench comprising A.K. Jyotishi (Technical Member) and Angad Prasad (Judicial Member) examined the scope of work in detail and noted that the activities performed inside the steel plant constituted shifting of goods within the factory premises, supported by contract clauses and the Commissioner’s own observations.

The Tribunal held that transportation of goods within the plant and associated incidental activities could not be treated as cargo handling prior to the 2008 amendment which first included “goods” within the definition.

The Tribunal further held that while demands under MMRS and CICS against HSCL were sustainable on merits, the demand under MRSAS could not be sustained since the services were provided before 16.06.2005.

In Visakha’s case, the Tribunal found that the same activity had been treated as non-taxable for HSCL, and therefore the demand on the sub-contractor also failed. On limitation, the Tribunal held that Visakha had a bona fide belief stemming from the contractual clause that any service tax liability would be borne by the principal contractor, and that ambiguity existed prior to the Board’s 2007 clarification. Therefore, extended period invocation was not sustainable.

Accordingly, the Tribunal set aside the service tax demands under CHS for both appellants, sustained certain portions under MMRS and CICS for HSCL, and completely allowed the appeal of Visakha Constructions.

The appellants were represented by Nirmal Choudhary and A. Vamsi Rajesh, while A. Rangadham appeared for the Revenue.

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