CESTAT Sets Aside ₹10.98 Crore Service Tax Demand on Chettinad Lignite Transports; ‘Packing’ Essential for Cargo Handling Classification
Pranav B Prem
The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Chennai Bench, has set aside a service tax demand of ₹10.98 crore raised against Chettinad Lignite Transports Pvt. Ltd., holding that in the absence of any “packing” activity, the services rendered by the assessee could not be classified under “cargo handling service” as defined under Section 65(23)(b) of the Finance Act, 1994. The Bench comprising Ajayan T.V. (Judicial Member) and M. Ajit Kumar (Technical Member) allowed the appeal and quashed the demand, interest and penalties, further holding that the extended period of limitation had been wrongly invoked.
The appellant had entered into an agreement dated 16 April 2002 with ST-CMS Electric Company Pvt. Ltd. for designing, financing, constructing, owning, operating and maintaining a Lignite Transportation System (LTS). The system involved multi-modal transportation of lignite from Neyveli Lignite Corporation (NLC) to a power plant at Uttangal. The scope of work included removal of lignite from stockpiles, loading, road transport to railway sidings, unloading into hoppers, conveyor-based movement, loading into railway wagons, rail transport, and final unloading at the power plant.
During audit, the Department formed a view that these activities constituted “cargo handling services” under Section 65(105)(zr) read with Section 65(23) of the Finance Act, 1994. A show cause notice dated 21 April 2014 demanded ₹10,98,90,317 for the period October 2008 to June 2012, invoking the extended period of limitation on allegations of suppression. Parallel proceedings were also initiated by another Commissionerate proposing classification under “Business Auxiliary Service,” reflecting departmental uncertainty regarding the appropriate taxable category.
The adjudicating authority confirmed the demand primarily on the basis of clause (b) of Section 65(23), which covers “service of packing together with transportation of cargo or goods.” It held that after the 16 May 2008 amendment expanding the definition, the assessee’s activities fell within the ambit of cargo handling service.
Before the Tribunal, the appellant contended that it was not engaged in any “packing” activity and that packing was a sine qua non for classification under clause (b). It was argued that mere transportation, even if accompanied by loading and unloading, would not attract the definition unless packing was undertaken together with transportation.
The Tribunal undertook a detailed examination of Section 65(23)(b). It observed that the use of the words “with” and “together” clearly indicated a conjoint activity in which packing constituted the principal element. Transportation, even if accompanied by loading and unloading, would not fall within clause (b) unless packing was first undertaken. The provision also expressly excluded “mere transportation of goods.”
Importantly, the Bench noted that the adjudicating authority had not recorded any finding that the appellant undertook packing of lignite before transportation. Nor was there any evidence on record to establish such activity. The Revenue’s argument that securing bulk lignite in lorries could amount to packing was rejected as misconceived, particularly in the absence of any factual finding in that regard.
The Tribunal further held that the Revenue could not attempt to shift its stand at the appellate stage by arguing that the activity fell under the “means” portion of the definition (loading/unloading of cargo). The adjudicating authority had confirmed the demand specifically under clause (b), and the Department had neither filed an appeal nor cross-objections challenging that finding. Relying on the principle of no reformatio in peius, the Bench held that the assessee could not be placed in a worse position in its own appeal.
On the question of limitation, the Tribunal found that the Department had sought details regarding the appellant’s activities as early as 2003 and that the appellant had responded to such queries. The issue involved interpretation of statutory provisions, and the existence of parallel show cause notices under different service categories demonstrated departmental ambiguity. In these circumstances, there was no suppression with intent to evade tax.
The Bench reiterated that invocation of the extended period requires a positive act of suppression with intent to evade, which was absent in the present case. Mere non-registration or non-filing of returns, without establishing mala fide intent, was held insufficient to justify extended limitation.In view of its findings on merits and limitation, the Tribunal set aside the entire service tax demand of ₹10.98 crore. Interest under Section 75 and penalties under Sections 76, 77 and 78 were also quashed. The appeal was accordingly allowed with consequential relief.
Appearance
Counsel For Appellant: Abhijit Roy, Advocate
Counsel For Respondent: N. Satyanarayana, Authorised Representative
Cause Title: M/s. Chettinad Lignite Transports Pvt. Ltd. Versus Commissioner of GST & Central Excise
Case No.: Service Tax Appeal No. 40031 of 2016
Coram: Ajayan T.V. (Judicial Member) and M. Ajit Kumar (Technical Member)
