‘Packing’ Is Mandatory for Classification Under Cargo Handling Service; CESTAT Quashes Service Tax Demand

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Chennai Bench, has set aside a service tax demand of over Rs. 10.98 crore raised against Chettinad Lignite Transports Pvt. Ltd. for the period October 2008 to June 2012, holding that the absence of “packing” activity is fatal to classification under Section 65(23)(b) of the Finance Act, 1994. The bench of Ajayan T.V. (Judicial Member) and M. Ajit Kumar (Technical Member) ruled that the extended period of limitation was wrongly invoked, noting that the Department had prior knowledge of the assessee’s activities and had even issued parallel show cause notices under different service categories. 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, unloading into hoppers, conveyor-based movement, loading into railway wagons, rail transportation, and final unloading at the power plant. During audit, the Department classified the activities as “cargo handling services” under Section 65(105)(zr) read with Section 65(23) of the Finance Act, 1994, and issued a show cause notice dated 21 April 2014 demanding ₹10.98 crore, invoking the extended limitation period on allegations of suppression. A parallel notice was also issued by the Puducherry Commissionerate classifying the same activity under “Business Auxiliary Service.” The Bench comprising examined clause (b) of Section 65(23), which covers, “Service of packing together with transportation of cargo or goods…” The Tribunal held that the use of the words “with” and “together” indicates a conjoint activity, where packing is the principal element. Transportation, even if accompanied by loading and unloading, does not fall under clause (b) unless packing is undertaken. The definition expressly excludes “mere transportation of goods.” Importantly, the adjudicating authority had not recorded any finding that the appellant undertook packing of lignite before transportation. Nor was there evidence of such activity. The Tribunal rejected the Department’s argument that securing bulk lignite in lorries could amount to packing, holding that in the absence of evidence or a specific finding, classification under Section 65(23)(b) was unsustainable. The department attempted to argue that the activity fell under the “means” portion of the definition (loading/unloading of cargo). However, the Tribunal noted that the adjudicating authority had confirmed the demand specifically under clause (b). The Department had not filed an appeal or cross-objections. Relying on the principle of no reformatio in peius, the Tribunal held that the assessee cannot be placed in a worse position in its own appeal by permitting the Revenue to shift grounds. On limitation, the Tribunal found that the Department had sought details about the appellant’s activities as early as 2003. The appellant had responded to departmental queries. The issue involved interpretation of statutory provisions. Parallel show cause notices under different service categories reflected departmental ambiguity. The Tribunal reiterated that extended limitation requires a positive act of suppression with intent to evade tax, which was not established in this case. In view of its findings the service tax demand of Rs. 10.98 crore was set aside. Interest under Section 75 was quashed. Penalties under Sections 76, 77 and 78 were also set aside. Case Details Case Title: M/s. Chettinad Lignite Transports Pvt. Ltd. Versus Commissioner of GST & Central Excise Citation: JURISHOUR-35-CESTAT-2026(Che) Case No.: Service Tax Appeal No. 40031 of 2016 Date: 19.02.2026 Counsel For Appellant: Abhijit Roy, Advocate Counsel For Respondent: N. Satyanarayana, Authorised Representative Click Here To Read Order Read More: GSTN Introduces Separate IMS Tab to Display Rejected Credit Notes, Eases GSTR-3B Compliance

‘Packing’ Is Mandatory for Classification Under Cargo Handling Service; CESTAT Quashes Service Tax Demand

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