Work Involving Unloading and Marking for SAIL Treated as Cargo Handling: CESTAT Limits Demand to Normal Period, Sets Aside Penalties [Read Order]

A.S. Transport,appellant-assessee,had carried out unloading, hand shunting, painting, and marking work for SAIL). The department treated this as cargo handling service and issued a show-cause notice for non-payment of service tax. The demand was confirmed with penalties, citing suppression. The assessee challenged this order in appeal.

The assessee counsel stated that the assessee had only handled iron and steel materials for SAIL under a material handling contract and believed service tax was not applicable. An amount of Rs 4,00,000 was deposited on 08 June 2009, and the remaining Rs 2,17,873 was paid on 21 February 2012.

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It was argued that since the full tax was paid and the issue was interpretational, suppression could not be alleged. The counsel also pointed out that the penalty of Rs 12,35,000 under Section 78, which was twice the tax amount, was excessive.

It was further submitted that most of the demand was beyond the limitation period as the show cause notice was issued on 26 August 2004 for the period 16 August 2002 to 31 January 2004.

The departmental representative supported the findings of the Commissioner Appeals.

The two member bench comprising P.A. Augustian (Judicial Member) and R.Bhagya Devi ( Technical Member) heard both sides and noted that the issue in the appeal was whether the appellant’s activities unloading, hand shunting, painting, and marking for identification for SAIL fell under the category of cargo handling service as defined under Section 65(23) of the Finance Act, 1994. Since these activities matched the scope of the definition, the tribunal held that service tax was payable.

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However, it also observed that the appellant had carried out the work for SAIL under a bona fide belief that the services were not taxable. There was no evidence on record to show any intention to evade tax, and therefore, the charge of suppression was not sustainable.

In view of this, the CESTAT limited the demand to the normal period and set aside the penalties imposed under Sections 76 and 78. The matter was remanded to the original authority to redetermine the service tax along with applicable interest for the normal period.

Accordingly the appeal was allowed.

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