Union of India and others vs Coastal Container Transporters Association and others

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 2276 OF 2019 [Arising out of S.L.P.(C)No.25699 of 2018]

Union of India & Ors. ... Appellants

Versus

Coastal Container Transporters Association & Ors. ... Respondents

J U D G M E N T

R. Subhash Reddy, J.

1. Leave granted.

2. This civil appeal is filed by Union of India and

others, respondents in Special Civil Application No.6679

of 2016 filed before the High Court of Gujarat at

Ahmedabad, aggrieved by the judgment and order dated

18.12.2017. By the aforesaid order, the High Court has

quashed the show cause notices dated 08.10.2015 and

30.09.2015 issued by the appellants, in exercise of power

under Section 73(1) of the Finance Act, 1994 (for short,

‘the Act’).

Signature Not Verified 3. Digitally signed by MADHU BALA

The first respondent is Coastal Container Date: 2019.02.26 17:47:01 IST Reason:

Transporters Association and the second and third

1 C.A.@ SLP(C)No.25699/18

respondents are, Yamuna Shipping Logistics Pvt. Ltd. and

Pushpak Logistics Pvt. Ltd. who are engaged in the

transport business. They have filed the aforesaid writ

petition under Article 226 of the Constitution of India

before the High Court. Though show cause notices dated

08.10.2015 and 30.09.2015 were issued to respondent nos.2

and 3, in anticipation of similar notices to its members,

the first respondent-association also joined respondent

nos.2 and 3 in the writ petition. In the aforesaid writ

petition, the appellants herein have filed Civil

Application No.2952 of 2017 raising preliminary objection

with regard to maintainability of the writ petition

itself. While allowing the Special Civil Application,

the said civil application is also rejected by the High

Court, by impugned order.

4. Necessary facts, in brief, are as under :

First respondent is an association, whose members

are transport operators engaged in the business of

transportation of goods entrusted by the customers. By

way of impugned show cause notices, the appellants have

proposed to demand service tax from the respondents under

the category of “cargo handling service”, while it is the

case of the respondents that the service which is being

2 C.A.@ SLP(C)No.25699/18

provided by them, falls under the taxable category of

“goods transport agency”. The respondents, to bolster

their case, have placed reliance upon circulars dated

06.08.2008 and 05.10.2015 issued by the Central Board of

Excise and Customs (CBEC).

Based upon the intelligence gathered by the

officers of Rajkot Regional Unit, which revealed that

several business entities including respondent nos.2 and

3 who are engaged in doing the business of cargo handling

in west coastal region but had got themselves registered

under “good transport agency”, by taking approval from

the competent authorities, searches were conducted in the

premises of respondent nos.2 and 3. It is alleged that

during such searches several incriminating documents,

including the quotations submitted by the respondent-

companies to their customers were seized and statements

of the Directors were recorded as per the provisions of

Central Excise Act, 1944 read with the provisions under

Finance Act, 1994. Subsequently, the show cause notices

dated 08.10.2015 and 30.09.2015, were issued to

respondent nos.2 and 3, which are impugned in the writ

petition filed before the High Court.

3 C.A.@ SLP(C)No.25699/18

5. It is the case of the appellants that the

respondents, with a view to evade payment of service tax,

have split the whole transactions into three parts, i.e.,

from the place of consignor to Kandla/Mundra Port by

road, from Kandla/Mundra Port in Gujarat to

Kochi/Tuticorin Ports in South India by sea route and

from Kochi/Tuticorin Ports in South India to the place of

the consignee by road. It is the further case of the

appellants that if the respondents are registered under

the category of “cargo handling service”, no abatement

would have been admissible and whole of the transaction

from the consignor to consignee would be covered under

the taxable services which attract higher rate of service

tax.

6. On the other hand, it is the case of the respondent

– original petitioners in the writ petition that the show

cause notices, impugned in the writ petition, have been

issued contrary to the provisions of Finance Act, 1994

and also contrary to the circulars issued by the CBEC

itself from time to time. It is the further case of the

respondents that when they receive orders from customers

there is a clear understanding between the customers and

them, that they merely provide service of transportation

4 C.A.@ SLP(C)No.25699/18

of goods by road, whereas services at port area and

transportation of goods through waterways would be

provided by shipping lines. The respondents would raise

a bill for transportation of goods by road and debit note

for recovery of expenses which they incur for shipping

lines for providing services at port area and

transportation of goods through waterways. It is also

their case that they would not add any margin while

recovering money from their customers towards port and

shipping line charges.

7. In the writ petition filed before the High Court, a

preliminary objection was raised on behalf of appellant

nos.2 and 3 with regard to maintainability of the

petition. Firstly, it was pleaded that as the writ

petition itself was directed against the show cause

notices, such petition was not maintainable. Secondly,

on the ground that as the controversy relates to

classification of services and even if the show cause

notices were to culminate into final order, appeal would

lie before the Supreme Court, as such, High Court, in

exercise of writ jurisdiction, should refrain from

entertaining the petition which involves a classification

dispute. It was pleaded that it was not either a case of

5 C.A.@ SLP(C)No.25699/18

lack of jurisdiction or a case where the principles of

natural justice are violated, so as to entertain the

petition in which only show cause notices were

challenged.

8. On the other hand, it was the case of the

respondent-original writ petitioners that there is no

absolute prohibition for not maintaining the petition

under Article 226 of the Constitution of India, even at

the stage of show cause notice. It was their case that

even taking the contents, as mentioned in the show cause

notices, the contract does not amount to providing “cargo

handling service” as defined under Entry 23 of Section 65

of the Act. By placing reliance on Circular

No.B11/1/2002-TRU dated 01.08.2002 issued by the CBEC, it

was the case of the respondents that “cargo handling

service” means loading, unloading, packing or unpacking

of cargo and includes cargo handling services, services

provided for freight in special containers or in non-

containerised freight, services provided by container

freight terminal or any other freight terminal, for all

modes of transport or any other service incidental to

freight. It was their case that the respondents were not

6 C.A.@ SLP(C)No.25699/18

packing or unpacking, as such, it cannot be classified

under “cargo handling service”.

9. Before the High Court, it was the case of appellant

nos.2 and 3 that w.e.f. 01.07.2012, the scheme of service

tax has changed and the negative list regime has been

brought into force. It was their case that the circulars

issued prior to the amendment in the parent Act would not

be applicable subsequent to such amendment. It was their

case that with a view to evade payment of service tax,

the respondents have split the whole transaction into

three parts. If the respondents were registered under

the category of “cargo handling service”, no abatement

would have been admissible, as the whole of the

transaction from consignor to consignee would be covered

under taxable service. Reference was made to Section 66F

of the Act which provides the principles of

interpretation of specified descriptions of services or

bundled services, more particularly, to sub-section (3)

thereof which provides for the manner of determination of

the taxability of bundled service. Clause (b) thereof

provides that if various elements of such service are not

naturally bundled in the ordinary course of business, it

shall be treated as provision of the single service

7 C.A.@ SLP(C)No.25699/18

which results in highest liability of service tax. By

referring to the definition of “cargo handling service”,

as stood prior to its substitution by Finance Act, 2008,

it was submitted that the earlier definition of “cargo

handling service” did not include transportation and

w.e.f. 16.05.2008, the definition of “cargo handling

service” came to be amended by including the service of

packing together with transportation of cargo or goods,

with or without one or more other services like loading,

unloading, packing, unpacking.

10. Precisely, it was the case of the appellants that

once members of the respondent-association undertake the

responsibility to deliver goods from consignor to

consignee and more particularly, when they are also

providing cargo handling service, with the help of other

service providers, the service provided by them would

fall within the ambit of cargo handling service, inasmuch

as the help from other service providers does not change

the nature of service that is being provided by them. It

was also stated that shipping lines raise bills in the

name of respondents and if any service tax has been

charged, the respondents would be within their rights to

take cenvat credit of the same in accordance with the

8 C.A.@ SLP(C)No.25699/18

rules and regulations. However, that would not change

the nature of services rendered by them.

11. While considering the contentions advanced on both

sides, the High Court has over-ruled the objection of

maintainability of the petition and has recorded a

finding that the services rendered by the members of the

respondent-association are classifiable under “goods

transport agency” but not under “cargo handling service”.

High Court has referred to the definition of “cargo

handling service” under Section 65(23) of the Act,

Circular No.B11/1/2002-TRU dated 01.08.2002 and by

referring to the instructions dated 06.08.2008 issued in

circular no.104/7/2008-S.T. and circular bearing

no.186/5/2015-S.T. dated 05.10.2015, has held that even

after introduction of new regime w.e.f. 01 st July 2012,

the activity of the respondents falls within the

classified category of “goods transport agency” but not

“cargo handling service”. High Court has further held

that so far as the service of loading and unloading at

the port and shipping of goods from one port to other is

concerned, the respondents are the recipients of such

service from the shipping lines and/or cargo handling

service on behalf of the customers. The High Court has

9 C.A.@ SLP(C)No.25699/18

held that so far as the service rendered by shipping line

is concerned, the shipping line issues invoice in favour

of the respondents, who, in turn, issue debit note to the

customer without adding any charge in respect of such

service. Further, it is held that, if transportation is

to be included in “cargo handling service”, packing is an

essential ingredient of the same. In conclusion, it is

held by the High Court that in view of the binding

circulars issued by the CBEC, the service rendered by the

respondents has to be considered on the basis of main

service provided by them, viz., good transport agency and

it is not permissible for the appellants to take a stand

contrary to such circulars. The High Court has held that

the notices impugned in the writ petition, are contrary

to the binding circulars issued by the CBEC, in such

circumstances, respondents are entitled to invoke the

writ jurisdiction of the court. Further, it is held that

as there are no factual disputes and only legal issue is

required to be decided and by placing reliance on the

judgment of this Court in the case of Deputy

Commissioner, Central Excise & Anr. v. Sushil and

Company1, has over-ruled the objection of maintainability

1 (2016) 13 SCC 223

10 C.A.@ SLP(C)No.25699/18

of the writ petition raised by the appellants. With the

aforesaid findings, the High Court has taken the view

that no useful purpose would be served in relegating the

respondents - original writ petitioners to the adjucating

authority for adjudication pursuant to show cause notices

which were issued without any legal basis, while allowing

the writ petition filed by the respondents, quashed the

notices dated 08.10.2015 and 30.09.2015 and further

rejected Civil Application No.6679 of 2016 filed by the

appellants raising the preliminary objection with regard

to maintainability of the writ petition.

12. We have heard Sri K. Radhakrishnan, learned senior

counsel for the appellants and Dr. A.M. Singhvi, learned

senior counsel for the respondents.

13. Learned senior counsel, Sri Radhakrishnan,

appearing for the appellants has submitted that the High

Court has committed a serious error in entertaining the

petition which itself is directed against the show cause

notices. It is submitted that as the issue relates to

classifiability for the purpose of taxation, more so,

against the final order, appeal is provided to the

Supreme Court, High Court ought not to have entertained

the writ petition at all. It is further submitted that

11 C.A.@ SLP(C)No.25699/18

once the respondents undertook the responsibility of

delivery of goods from consignor to consignee and more

particularly when they are also providing cargo handling

service, may be with the help from other service

providers, the service provided by them would fall within

the ambit of “cargo handling service”. It is submitted

that shipping lines raise bill in the name of respondents

and if any service tax is charged, the respondents are

well within their rights to take cenvat credit of the

same in accordance with the rules. However, that would

not change the nature of service rendered by the

respondents from “cargo handling service” to “goods

transport agency”. It is contended that circulars which

are relied on by the High Court are applicable only in

cases where transportation is undertaken by road. It is

submitted that circulars are not correctly interpreted by

the High Court, so as to extend the benefit of such

circulars to the respondents. Learned senior counsel has

made reference to Rule 5 sub-rule (2)(ii) of Service Tax

(Determination of Value) Rules, 2006 which are framed in

exercise of powers under Section 94 of the Finance Act,

1994. While referring to the judgment of this Court in

the case of Deputy Commissioner, Central Excise & Anr. v.

12 C.A.@ SLP(C)No.25699/18

Sushil and Company (supra), which is relied on by the

High Court, it is submitted that in the aforesaid case,

the assessee was only supplying labour and such labour

was not doing any work of loading and unloading of any

cargo. In such event and as the very contract was only

for supply of labour, this Court has held that such

service cannot be said to be cargo handling service to

impose service tax. It is submitted that the said

judgment will not support the case of the respondents at

all. Further, it is contended that it is not a case of

either lack of jurisdiction or notices are issued in

violation of principles of natural justice, so as to

entertain the writ petition at the stage of show cause

notice. It is further submitted that as the issue

relates to classification of taxable service, the High

Court should not have entertained the writ petition at

all. In support of his contention, learned counsel has

placed reliance on the judgment of this Court in the case

of Union of India & Anr. v. Guwahati Carbon Limited2 and

also in the case of Union of India v. Hindustan Dev.

Corpn. Ltd.3. It is submitted that in the aforesaid

judgment in the case of Hindustan Dev. Corpn. Ltd.

2 (2012) 11 SCC 651 3 1998 (100) ELT 14 (S.C.)

13 C.A.@ SLP(C)No.25699/18

(supra) it is clearly held by this Court, that writ

petition is not to be entertained at show cause notice

stage when the dispute relates to classification.

14. On the other hand, it is contended by Dr. Singhvi,

learned senior counsel appearing for the respondents that

there are absolutely no grounds to interfere with the

well considered judgment of the High Court. It is

submitted that the respondents are engaged in providing

service of delivery of cargo from factories situated in

Gujarat via Kandla/Mundra ports in Gujarat to Kochi,

Mangalore and Tuticorin ports in Kerala through road and

sea route. In order to provide service to the customers,

respondent-companies take services of various

intermediaries like lorry owners, shipping agencies etc.

However, all the intermediaries raise the invoices in the

name of aforesaid respondent companies only. It is

submitted that the shipping agencies provide service to

the respondent companies by raising invoice in their name

and they issue a debit note of the same amount in the

name of the customers. The respondent companies undertake

the composite responsibility. It is submitted that the

main activity of the respondents falls in the category of

“goods transport agency” as defined under Section 65(50b) 14 C.A.@ SLP(C)No.25699/18

of the Act. It is further submitted that the respondents

do not carry out any activity of packing or unpacking and

if at all any activity of loading or unloading is

undertaken, same is merely incidental to the main

activity of “goods transport agency”. It is submitted

that circulars dated 06.08.2008 and 05.10.2015 also

support the case of the respondents. Further, it is

submitted by learned senior counsel that the issue of

classifiability is also squarely covered by the judgment

of this Court in the case of Deputy Commissioner, Central

Excise & Anr. v. Sushil and Company (supra). It is

contended by learned senior counsel that circulars issued

by CBEC are binding on the departmental authorities and

they cannot take a contrary stand. Learned senior

counsel has also placed reliance on a judgment of this

Court in the case of Paper Products Ltd. v. Commissioner

of Central Excise4.

15. Having heard learned senior counsels on both sides,

we have perused the entire material placed on record.

16. The controversy in the present case relates to the

classification of services rendered by the respondents.

It is also not in dispute that if the show cause notices

4 1999 (112) ELT 765 (S.C.)

15 C.A.@ SLP(C)No.25699/18

culminate into an order, the appeal would lie to this

Court. When the show cause notices are issued to

respondent nos.2 and 3-members, the writ petition is

filed by the first respondent-association and the

recipients of show cause notices who are respondent nos.2

and 3.

17. It is the case of the appellants that if service as

a whole, is taken into consideration, it falls within the

classifiable category of “cargo handling service” but not

“goods transport agency”. On the other hand, it is the

case of the respondents that they only undertake road

transportation, and so far as cargo handled by shipping

agencies is concerned, they prepare bills in the name of

the respondent companies and in turn respondents issue

debit note to their customers to the extent of charges

payable to the shipping agencies, as such their service

falls in the category of “goods transport agency” but not

“cargo handling service”. While it is the case of the

respondents that, show cause notices issued run contrary

to circulars dated 06.08.2008 and 05.10.2015 issued by

the CBEC, it is the case of the appellants that such

circulars are not applicable to the respondents, and the

circulars are applicable only when transportation is only

16 C.A.@ SLP(C)No.25699/18

by road. In the writ petition filed before the High

Court, appellants have filed civil application by raising

preliminary objection with regard to the maintainability

of the petition under Article 226 of Constitution of

India at the stage of show cause notices. Such objection

is also rejected by the High Court by recording a finding

that there are no factual disputes and also in view of

the judgment of this Court in the case of Deputy

Commissioner, Central Excise & Anr. v. Sushil and Company

(supra).

18. As we are not in agreement with the view taken by

the High Court, in entertaining the writ petition against

show cause notices, we refrain from recording any finding

on contentious issues which arise for consideration. If

any finding is recorded by this Court at this stage, same

will prejudice either of the parties. Having regard to

the contentions raised, it cannot be said that there are

no factual disputes. Applicability of the circulars

dated 06.08.2008 and 05.10.2015 is also in serious

dispute. Further the classifiability of service rendered

by a particular assessee is to be considered with

reference to facts of each case depending upon nature of

service rendered and the contract entered into. There

17 C.A.@ SLP(C)No.25699/18

cannot be any general declaration, as prayed for. The

judgment of this Court in the case of Deputy

Commissioner, Central Excise & Anr. v. Sushil and Company

(supra) also cannot be applied to the facts of the case

on hand to come to the conclusion that the services

rendered by the respondents will fall in the category of

“goods transport agency” but not “cargo handling

service”. In the aforesaid judgment, the contract was

only for supply of labour and it was the specific case of

the assessee that such labour was not doing any work of

packing, unpacking, loading, unloading of any cargo. In

view of such written contract for limited services

referred above, this Court has held that such service

cannot be held to be “cargo handling service”. The said

judgment is distinguishable on facts and same cannot be

applied to the case on hand, so as to accept the case of

the respondents that their service is to be classified in

the category of “goods transport agency” but not “cargo

handling service”. Further, learned senior counsel

appearing for the respondents, Dr. Singhvi, also placed

reliance on a judgment of this Court in the case of Paper

Products Ltd. (supra) in support of his argument that

circulars issued by the CBEC are binding on departmental

18 C.A.@ SLP(C)No.25699/18

authorities and they cannot take a contrary stand. It is

true that circulars issued by the CBEC are binding on the

authorities, but at the same time, such circulars are

applicable or not, is a matter which is to be considered

with reference to facts of each case. When it is the

case of the appellants that such circulars referred above

would apply only in case of road transportation but not

otherwise, then it is a case for consideration by

competent authority on receipt of the explanation but

same is no ground to quash the show cause notices. In

that view of the matter, we are of the view that the

judgment of this Court relied on by learned senior

counsel in the case of Paper Products Ltd. (supra) also

would not render any support.

19. On the other hand, we find force in the contention

of the learned senior counsel, Sri Radhakrishnan,

appearing for the appellants that the High Court has

committed error in entertaining the writ petition under

Article 226 of Constitution of India at the stage of show

cause notices. Though there is no bar as such for

entertaining the writ petitions at the stage of show

cause notice, but it is settled by number of decisions of

this Court, where writ petitions can be entertained at

19 C.A.@ SLP(C)No.25699/18

the show cause notice stage. Neither it is a case of

lack of jurisdiction nor any violation of principles of

natural justice is alleged so as to entertain the writ

petition at the stage of notice. High Court ought not to

have entertained the writ petition, more so, when against

the final orders appeal lies to this Court. The judgment

of this Court in the case of Union of India & Anr. v.

Guwahati Carbon Ltd. (supra) relied on by the learned

senior counsel for the appellants also supports their

case. In the aforesaid judgment, arising out of Central

Excise Act, 1944, this Court has held that excise law is

a complete code in order to seek redress in excise

matters and held that entertaining writ petition is not

proper where alternative remedy under statute is

available. When there is a serious dispute with regard

to classification of service, the respondents ought to

have responded to the show cause notices by placing

material in support of their stand but at the same time,

there is no reason to approach the High Court questioning

the very show cause notices. Further, as held by the

High Court, it cannot be said that even from the contents

of show cause notices there are no factual disputes. Further, the judgment of this Court in the case of

20 C.A.@ SLP(C)No.25699/18 Malladi Drugs & Pharma Ltd. v. Union of India 5, relied on

by the learned senior counsel for the appellants also

supports their case where this Court has upheld the

judgment of the High Court which refused to interfere at

show cause notice stage.

20. For the aforesaid reasons, we allow this appeal and

set aside the judgment and order dated 18.12.2017 passed

by the High Court of Gujarat in Special Civil Application

No.6679 of 2016.

21. We, however, grant four weeks’ time, to file

responses/further responses to the show cause notices

dated 08.10.2015 and 30.09.2015, to the respondent nos.2

and 3. On receipt of such responses from the respondents

or after expiry of the aforesaid time, it is open for the

appellants to consider the same on their own merits and

pass appropriate orders, uninfluenced by any of the

observations made by this Court in this judgment.

..................J. [Uday Umesh Lalit]

..................J. [R. Subhash Reddy] New Delhi.

February 26, 2019.

5 2004 (166) ELT 153 (S.C.)

21