The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Ahmedabad Bench, has held that the department cannot artificially split a composite cargo handling contract into separate cargo handling and Goods Transport Agency (GTA) services merely to fasten reverse charge service tax liability on the service recipient.
The bench of Somesh Arora (Judicial Member) and Satendra Vikram Singh (Technical Member) has set aside service tax demands aggregating over ₹51 lakh, along with interest and penalties, holding that the handling and transportation (H&T) contracts were composite cargo handling services and could not be vivisected for taxation purposes.
The dispute arose after departmental audits of Durga Crane Company and Kandla Cargo Handlers, contractors engaged by Central Warehousing Corporation, revealed that their invoices split the consideration into two components: Cargo Handling Services, on which service tax was discharged by the contractors; and Goods Transport Agency (GTA) Services, where the invoices stated that service tax would be payable by CWC under the reverse charge mechanism (RCM).
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Based on these invoices, the Department issued two show cause notices demanding: ₹47,71,487 for the period from 11 February 2005 to March 2009, and ₹3,47,001 for the period from 1 April 2009 to 31 March 2010, besides interest and penalties under the Finance Act, 1994. The adjudicating authority confirmed both demands, which were subsequently upheld by the Commissioner (Appeals), prompting CWC to approach the Tribunal.
Before the Tribunal, the appellant argued that the contracts executed with the contractors were comprehensive Handling and Transportation (H&T) contracts, covering transportation, loading, unloading, stacking, de-stuffing, labour deployment and other incidental operations.
According to CWC, the contractors had artificially bifurcated the invoices into cargo handling and transportation portions even though the contract itself contemplated a single composite service. CWC maintained that it had already classified its outward supplies as Cargo Handling Service and paid service tax on the entire contract value, thereby eliminating any possibility of tax evasion.
The corporation further submitted that it was neither the consignor nor the consignee; no consignment notes had ever been issued by the contractors; in the absence of consignment notes, the services could not qualify as GTA services under Section 65(50b) of the Finance Act, 1994; and even otherwise, the issue was revenue neutral because any service tax paid under reverse charge would have been available as CENVAT credit.
The Bench closely examined the tender documents governing the H&T contracts.
The Tribunal noted that the contractors were responsible for a wide range of activities, including transportation of containers between ports, Inland Container Depots (ICDs) and factories; loading and unloading operations; stacking of cargo; de-stuffing and stuffing of containers; providing labour and handling equipment; inventory management; weighment, sealing and housekeeping operations.
These activities demonstrated that transportation was merely one of several integral components of a larger cargo handling arrangement rather than an independent transport service.
The Tribunal emphasised that issuance of a consignment note is an essential statutory requirement for a service provider to qualify as a Goods Transport Agency under Section 65(50b) of the Finance Act, 1994.
During inspection of the departmental records pursuant to Tribunal directions, it was found that no consignment notes had been issued. Instead, the contractors merely raised consolidated monthly invoices showing separate values for cargo handling and transportation.
Since the statutory requirement of issuance of a consignment note was absent, the Tribunal held that the services could not legally be classified as GTA services.
The Bench relied heavily upon an earlier decision of the CESTAT Delhi Bench rendered in CWC’s own case in 2019.
That decision had categorically held that the Revenue cannot split composite cargo handling contracts into separate transportation and cargo handling services merely to levy service tax under the reverse charge mechanism.
The Ahmedabad Bench observed that the facts before it were substantially identical and that the earlier precedent squarely governed the present controversy.
The Tribunal also took note of a Chartered Accountant’s certificate establishing that CWC had already included the entire value—including transportation charges recovered from contractors—while raising invoices to its customers under the category of Cargo Handling Service, and had discharged service tax on the full amount.
This reinforced the finding that there was no suppression of value or escape from tax liability.
Allowing both appeals, the Tribunal concluded that the handling and transportation contracts constituted composite cargo handling services; the department was not justified in vivisecting the contracts into separate transportation and cargo handling components; absence of consignment notes meant the contractors were not providing GTA services in terms of the statutory definition; and CWC could not be saddled with reverse charge liability merely because the contractors chose to split their invoices.
Consequently, the Tribunal held that the service tax demands, interest and penalties confirmed through the appellate orders dated 25 February 2015 and 20 May 2015 were unsustainable and liable to be set aside.
The CESTAT, Ahmedabad allowed both appeals, quashed the service tax demands exceeding ₹51 lakh, and granted consequential relief to the Central Warehousing Corporation.
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