Loading, Unloading Contract Not Taxable Under Reverse Charge as Manpower Supply Service: CESTAT

The Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has allowed the appeal filed by Himadri Speciality Chemical Limited and set aside a service tax demand raised under the reverse charge mechanism (RCM). The Bench of Dr. Ajaya Krishna Vishvesha (Judicial Member) and Satendra Vikram Singh (Technical Member) held that a contract for loading, unloading, batch charging of materials, and handling of import-export cargo was a work contract executed under the supervision and control of the contractor and could not be classified as "manpower supply service" for the purpose of levy of service tax. The Bench further ruled that the show cause notice itself was without jurisdiction because the assessee was centrally registered with the Kolkata Service Tax Commissionerate. The dispute arose after departmental auditors scrutinized the records and balance sheet of Himadri Speciality Chemical Limited's Vapi unit and noticed payments made under miscellaneous expenses towards loading and unloading activities undertaken by a contractor. The department alleged that the contractor was supplying manpower to the company and, therefore, under Notification No. 30/2012-ST dated June 20, 2012, the company was liable to pay service tax on 75% of the taxable value under the reverse charge mechanism. A show cause notice dated November 27, 2015 was issued demanding service tax of ₹1.67 lakh for the period 2012-13 to 2014-15, along with interest and penalties. The department invoked the extended limitation period alleging suppression of facts and non-payment of service tax. The adjudicating authority confirmed the demand along with equal penalty, and the Commissioner (Appeals) subsequently upheld the order. Aggrieved by these findings, the company approached the Tribunal. The company contended that it held a centralized service tax registration with the Kolkata Service Tax Commissionerate and that any demand relating to service tax liabilities could only be initiated by the authorities having jurisdiction over the centralized registration. It argued that issuance of the show cause notice by Vadodara Audit-III Commissionerate and adjudication by Valsad authorities were without legal authority. On merits, the company submitted that the contract with the contractor was not for supply of manpower but for execution of specified loading, unloading and material-handling work. Payment was made on a per metric tonne basis rather than on the basis of manpower deployed. The contractor exercised supervision and control over the workers and was responsible for proper execution of the assigned tasks, indicating a service contract rather than manpower supply. The appellant also relied on CBIC Circular No. 190/9/2015-ST dated December 15, 2015, which clarifies the distinction between manpower supply service and execution of contractual work. Further, it argued that there was no intention to evade tax and that the case was revenue neutral since any tax paid under reverse charge would have been available as Cenvat credit. The department maintained that the arrangement essentially involved provision of labour for loading and unloading operations and therefore qualified as manpower supply service. According to Revenue, the taxable event occurred at the Vapi unit and the Valsad Commissionerate was competent to issue and adjudicate the demand. It also defended invocation of the extended period on the ground that the transactions had not been disclosed in service tax returns and were detected only during audit. The Bench identified two key questions for determination: whether the authorities at Vadodara and Valsad possessed jurisdiction to issue and adjudicate the demand despite the assessee's centralized registration at Kolkata, and whether the activities undertaken by the contractor constituted manpower supply service. On the first issue, the Tribunal relied on earlier decisions, including MIRC Electronic Ltd. v. CCE, Noida and Commissioner of Customs, Central Excise and Service Tax, Hyderabad-II v. Larsen & Toubro Ltd., and observed that centralized registration carries with it centralized jurisdiction for service tax administration. Noting that the department did not dispute the existence of centralized registration at Kolkata, the Tribunal held that the action of Vadodara Audit-III Commissionerate in issuing the show cause notice and the subsequent confirmation of demand by Valsad authorities were beyond jurisdiction. The Bench categorically held that the demand was unsustainable on this ground alone. The Tribunal nevertheless proceeded to examine the matter on merits. After analysing the work order, the Bench noted that the contractor had been assigned specific responsibilities including loading and unloading of materials, batch charging for production processes, and handling of import and export cargo. Payment was linked to quantities handled and was made on a per metric tonne basis. The work order expressly provided that the contractor would supervise and control the workers and would be responsible for any loss or damage arising from improper handling of materials. These contractual terms, according to the Tribunal, clearly indicated that the agreement was for completion of specified work rather than supply of labour. The Bench observed that the essence of the arrangement lay in execution of assigned tasks and not in deployment of manpower at the disposal of the recipient. The Tribunal referred to several earlier decisions including Gokul Ram Gurjar v. CCE, Jaipur, Shailu Traders v. CCE, Indore, and Ramadhar Singh v. CCE, Raipur. These rulings had consistently held that where a contractor undertakes a specified job under its own supervision and receives consideration based on output or quantity of work, the activity cannot be classified as manpower recruitment or supply agency service merely because labour is used in carrying out the work. Applying the same principles, the Bench concluded that the present arrangement was a work contract involving material handling and operational activities and not a manpower supply service. Consequently, no service tax liability could be imposed on the company under the reverse charge mechanism. Allowing the appeal, CESTAT set aside the Order-in-Appeal dated May 16, 2018 and quashed the entire service tax demand, interest and penalties. The Tribunal held that the proceedings suffered from lack of jurisdiction and that, in any event, the contract in question was not a manpower supply service liable to service tax under reverse charge provisions. The ruling is expected to provide important guidance in disputes involving classification of labour-intensive contracts and reinforces the principle that the substance of a contract, including supervision, control and payment structure, determines whether an activity constitutes manpower supply service or execution of a specific job contract. Case Details Case Title: Himadri Speciality Chemical Limited Versus Commissioner Of CGST & Central Excise - Surat Citation: JURISHOUR-1516-CES-2026(AHM) Case No.: Service Tax Appeal No. 12307 of 2018- DB Date: 02.06.2026 Counsel For Appellant: Rajeev Agarwal, Advocate Counsel For Respondent: M P Solanki, Assistant Commissioner (AR) Click Here To Read Order Read More: No Bail In Commercial Quantity NDPS Cases Without Satisfying S. 37: Supreme Court

Loading, Unloading Contract Not Taxable Under Reverse Charge as Manpower Supply Service: CESTAT

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