In a significant ruling, a two-judge bench of the Supreme Court held that ‘packaging activity’ at a stage before the removal of goods from the factory cannot be treated as “Cargo Handling Service”.
While allowing an appeal filed by M/s Signode India Ltd, the bench clarified that service tax cannot be levied on such activities for the period before the amendment in 2005 whereby “packaging services” were included in the Finance Act as a taxable service.
In the present case, the appellant claimed that they are engaged in the activity of packing goods within the factory unit of the principal manufacturer, i.e, Tata Refractories Limited, prior to the goods leaving the factory. According to them, the said service is taxable under the head “packaging activity” which has made exigible to tax w.e.f 16.06.2005. The Department, vide its order held that the activities carried out by the appellants can be categorized as “cargo handling service” and therefore, they are liable to pay service tax for the period prior to 16.06.2005.
A bench comprising Justice Ranjan Gogoi and Justice Navin Sinha noticed that the appellant has nothing to do with the transportation of goods which it packs within the factory unit of the principal manufacturer prior to the goods leaving the factory and the charges paid to the appellant for rendering the service forms a part of the assessable value of the manufactured goods of the principal manufacturer, namely, Tata Refractories Limited.
It was also noticed that sections 65(76b) and 65(105)(zzzf) were both inserted by the Finance Act, 2005 with effect from 16.06.2005. “The above amendment, to our mind, is sufficiently indicative of legislative intent that packaging activity is different from cargo handling activity. A view, which would make the appellant liable to tax for the pre-amended period (prior to 16.06.2005) on the basis that the activity undertaken by it involves rendering of cargo handling service would run counter to the expressed legislative intention in a situation where its liability, for the post amendment period, on the basis that the appellant is engaged in “packaging activity” has not been disputed by the Revenue.”
The bench observed that the services liable to tax under the category of “cargo handling services” has been clarified under CBEC Circular dated 01.08.2002. As per the said circular, services provided by Cargo handling agencies undertaking the activities of packing, unpacking, loading and unloading of goods meant to be transported by any means of transportation, namely truck, rail, ship or aircraft as services liable to tax as “cargo handling services”.
It was also observed that, clause 3.2 of the circular makes it clear that mere transportation of goods is not covered in the category of cargo handling. Clause 15 of the circular also makes it clear that an individual undertaking the activity of loading or unloading the cargo would not be liable to pay service tax on such activity as being an activity undertaken by a cargo handling agency.
‘It is nobody’s case before us that the appellant is a cargo handling agency. All activity undertaken by the appellant, though related to packing activity, is at a stage when the goods are yet to clear the factory gate as manufactured goods for onward transportation.”
“In the light of the discussions that have preceded, we are of the view that prior to the amendment made by the Finance Act of 2005 with effect from 16.06.2005, the appellant would not be liable to pay service tax on the service rendered by it in terms of Section 65(23) read with Section 105(zr) of the Act,” the bench added.
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