Dolmar Ship Services (P) Ltd. Vs. Commissioner of Central Excise - Court Judgment

Excerpt:
1. heard both sides. the issue relates to levy of service tax on storage of empty containers. the appellants have taken the following grounds in their memorandum of appeal: 1) that the learned commissioner (appeals) has passed the impugned order in gross violation of natural justice without considering and appreciating the vital submissions made. 2) that the learned commissioner (appeals) has passed the impugned order in desultory and cavalier fashion without considering and appreciating the facts of the case in their proper perspective. 3) that the learned commissioner (appeals) ought to have appreciated that as per section 65 of the finance act, 2002 "storage and warehousing" includes liquids and gases but does not include any service provided for storage of agricultural produce or any service provided by a cold storage. in the instant case only empty containers, which are bereft of any goods, which are stored. the empty containers are merely enclosures for the goods and not goods, per se. this is also apparent from the definition: whereby it is manifest that for the purpose of inclusion in the scope and ambit of service tax it is essential that: o the storage and warehousing services must be provided for the goods o for the purpose of storage/ warehousing of goods the containers must have some content. o even if the containers contain agricultural produce or cold storage material no service tax can be levied on such containers as the activity of storage of agricultural produce or cold storage material is not covered within the scope and ambit of storage and warehousing services. 4) that the learned commissioner (appeals) ought to have appreciated that if the containers with agricultural produce or cold storage material cannot be charged to service tax because the contents of the container arc excluded from the purview of the said tax the empty containers which are devoid of any goods cannot be charged to tax as service of storage and warehousing. it is submitted that storage and warehousing in connection with service tax refers to storage/warehousing of goods and not the medium used for storing such goods. 5) that the commissioner (appeals) ought to have appreciated that the appellants were fully justified in the belief, whieh still persists, that no service tax was payable on the activity of storage /warehousing of empty containers. the service tax on storage and warehousing services was introduced with effect from 16-8-2002. in this connection circular issued under f. no. b11/1/2002-tru, dated 1-8-2002, inter-alia, clarified as follows cfss also sometimes undertake storing/washing/repairing and handling of empty containers for the shipping lines for which they charge the shipping lines. empty containers cannot be treated as cargo. therefore, the activities mentioned above do not come within the purview of cargo handling services. it is submitted that cargo means the goods being carried in a ship, airplane truck etc. the appellants crave to refer to longman advanced english dictionary in this connection. it is submitted that when the empty containers are not considered to be goods being carried in the ship, airplane, truck etc. in terms of the aforesaid circular the question of payment of tax on such empty containers as service of storage and warehousing services for goods does not arise. the appellants submit that they had every reason to believe that the aetivity of storage/warehousing of the empty containers was not covered within the scope and ambit of service lax as the service of storage and warehousing of goods in view of the above circular. thus the confirmation of tax and imposition of penalty on the appellants is unjustified and unsustainable. 6) that the learned commissioner (appeals) has failed to give any findings on the vital issue is to whether empty containers without any contents can be construed is "goods". the appellants further submit that the logie and reasoning behind the non-consideration of empty containers as cargo is very much applicable to the same empty containers for deducing that the empty contairers are not "goods". thus the appellants had valid reason for entertaining the belief that the activity carried out by them was not "sterage and warehouse service" as the said services were in respect of all kinds of goods. 7) that the learned commissioner (appeals) ought to have appreciated that while the subject tax of rs. 4.17.184/- pertained to the period 16-8-02 to 30-6-03 the clarification vide circular dated 10-7-2003 was issued after the said period. thus the finding of the appellants continuously trying to mis-lead the department is patently erroneous and grossly enjustified. consequently the case-laws cited by the appellants are squarely applicable and have been wrongly brushed aside as inapplicable. 8) that both the lower authorities ought to have appreciated that the appellants were under a bonafide belief that no service tax was payable on the activity of storage of empty containers and they had a valid reason to harbor such belief. thus even assuming (without admitting) that service tax was payable no penalty was imposable on the appellants. the hon'ble supreme court in the case of northern plastic ltd. v. collector of customs and central excise has held that no penalty is imposable when exemption was claimed without any dishonest intention of evading proper payment of duty. the appellants submit that the ratio of the above judgment is squarely applicable to the facts and circumstances of the case. thus no penalty is imposable on the appellants even if it is held that service tax is payable on the activity of storage/warehouing of the empty containers. 9) that both the lower authorities ought to have appreciated that the show cause notice dated 20-5-2004 demanding service tax for the period 21-8-2002 to 30-6-2003 has been issued to the appellants only in view of the circular no. 60/9/2003-s.t., dated 10-7-2003 issued under f.no. 130/2/2002-cx.4. this is manifest from the communication of the said circular vide letter dated 14-8-2003 by the superintendent, central excise and customs, uran range ii (copy enclosed and marked exb. vi ). the aforesaid circular reads as under: i am directed to say that a doult has been raised regarding levy of service tax on storage of empty containers. the matter has been examined. it is clarified that the handling/storage and warehousing of empty containers would be covered within the scope of storage and warehousing services, as it is covered under the heading goods under section 65(87) of the finance act, 1994. the service tax would be leviable on it. further, the clarification issued vide letter no. f.b. ii/i/2002/tru, dated 1-8-2002 regarding empty containers not to be considered as cargo for cargo handling services, has no relevance in the instant case. the appellants submit that the learned assistant commissioner, in his capacity as a quasi-judicial authority ought to have applied his own independent mind as the circular is net binding on a quasi-judicial authority. in the ease of kirloskar oil engines ltd. v. union of india the hon'ble apex court has held that legally there can be no two opinions that a trade notice issued by the collector of excise or even the central and exeise tariff board (in brief "board") has no binding authority and the assessing authority can draw its conclusions. the ratio of the said decision is squarely applicable in the instant case as apart from the above circular there was no other material with the department on which it could assume that the storage/warehousing of the empty containers, per se, was chargeable to tax under service tax. the basis for iritiation of proceedings was entirely on the basis of the circular issued in 2003 without any material and the impugned notice and the order passed consequently are thus illegal and patently unsustainable. 10) that both the lower authorities ought to have appreciated that even if the board's circular was to be followed it was applicable only prospectively and not retrospectively. the appellants rely on the judgment of the hon'ble tribunal in unique plastic industries v. commissioner of c. ex., calcutta-i connection. in the said judgment it has been held that such circulars imposing liability can be effective only for the future period and cannot be made the basis for demanding duty for the past five years period. 11) that both the lower authorities ought to have appreciated that the circular 60/9/2003-s.t., dated 10-7-2003 issued under f.no. 150/2/2002-cx.4 merely represented the government's understanding of the statutory provisions. they are not binding upon the courts if they are not according to law. there can be no estoppel against the statute. the judgment of the apex court in bengal iron corporation v. commercial tax officer is relied upon in this connection. 12) that both the lower authorities ought to have appreciated that even assuming that tax is payable on storage of empty containers there was a reasonable cause and also reason to believe that the said activity did not fall under the scope and ambit of taxable services. moreover section 80 provides as follows: notwithstanding anything contained in the provisions of section 76, section 77, section 78 or section 79, no penalty shall be imposable on the assessee for any failure referred to in the said provisions if the assessee proves that mere was reasonable cause for the said failure. as mentioned, supra, till the issue of the circular dated 10^th july 2003 there was no reason to believe that storage/ warehousing of empty containers was a taxable service. consequently no penalty was imposable either under section 76 or 77 for the period prior to the issue of the said circular. moreover, the appellants have voluntarily deposited the entire tax amount along with interest on the issue of the impugned notice. thus no penalty is imposable in view of the following judgments:mogaveera vyavasthapaka mandali v. commissioner of c. ex., mumbai iii. r.b. bahutule v. commissioner of central excise, mumbai iv. in re: oriental insurance co. ltd. 1998 (103) e.l.t. 459 (commr. appl.) 13) that no interest was payable as the tax is for the period prior to the issue of the circular no. 60/9/2003-s.t., dated 10-7-2003. moreover, tax is not payable as empty containers are not goods. furthermore there is no confirmation of interest in the impugned order.2. after perusal of the grounds taken in the memorandum of appeal by the appellants, i consider it necessary to remand the matter to the commissioner (appeals) for fresh adjudication for passing a speaking order after giving a reasonable opportunity of hearing to tne appellants. while considering the matter the commissioner (appeals) may take into account the following case laws: (1) in the case of l.h.sugar factories ltd. v. cce. meerut-ii- and (2) l.h.sugar factories ltd. 2005 (187) elt 5 (sc). the appeal is allowed by way of remand in the above terms.

Judgment:
1. Heard both sides. The issue relates to levy of service tax on storage of empty containers. The appellants have taken the following grounds in their Memorandum of Appeal: 1) That the learned Commissioner (Appeals) has passed the impugned order in gross violation of natural justice without considering and appreciating the vital submissions made.

2) That the learned Commissioner (Appeals) has passed the impugned order in desultory and cavalier fashion without considering and appreciating the facts of the case in their proper perspective.

3) That the learned Commissioner (Appeals) ought to have appreciated that as per Section 65 of the Finance Act, 2002 "Storage and warehousing" includes liquids and gases but does not include any service provided for storage of agricultural produce or any service provided by a cold storage. In the instant case only empty containers, which are bereft of any goods, which are stored. The empty containers are merely enclosures for the goods and not goods, per se. This is also apparent from the definition: whereby it is manifest that for the purpose of inclusion in the scope and ambit of service tax it is essential that: o The storage and warehousing services must be provided for the goods o For the purpose of storage/ warehousing of goods the containers must have some content.

o Even if the containers contain agricultural produce or cold storage material no service tax can be levied on such containers as the activity of storage of agricultural produce or cold storage material is not covered within the scope and ambit of storage and warehousing services.

4) THAT the learned Commissioner (Appeals) ought to have appreciated that if the containers with agricultural produce or cold storage material cannot be charged to service tax because the contents of the container arc excluded from the purview of the said tax the empty containers which are devoid of any goods cannot be charged to tax as service of storage and warehousing. It is submitted that storage and warehousing in connection with service tax refers to storage/warehousing of goods and not the medium used for storing such goods.

5) THAT the Commissioner (Appeals) ought to have appreciated that the Appellants were fully justified in the belief, whieh still persists, that no service tax was payable on the activity of storage /warehousing of empty containers. The service tax on storage and warehousing services was introduced with effect from 16-8-2002. In this connection circular issued under F. No. B11/1/2002-TRU, dated 1-8-2002, inter-alia, clarified as follows CFSs also sometimes undertake storing/washing/repairing and handling of empty containers for the shipping lines for which they charge the shipping lines. Empty containers cannot be treated as cargo.

Therefore, the activities mentioned above do not come within the purview of cargo handling services.

It is submitted that cargo means the goods being carried in a ship, airplane truck etc. The Appellants crave to refer to Longman Advanced English Dictionary in this connection. It is submitted that when the empty containers are not considered to be goods being carried in the ship, airplane, truck etc. in terms of the aforesaid circular the question of payment of tax on such empty containers as service of storage and warehousing services for goods does not arise. The Appellants submit that they had every reason to believe that the aetivity of storage/warehousing of the empty containers was not covered within the scope and ambit of service lax as the service of storage and warehousing of goods in view of the above circular.

Thus the confirmation of tax and imposition of penalty on the Appellants is unjustified and unsustainable.

6) THAT the learned Commissioner (Appeals) has failed to give any findings on the vital issue is to whether empty containers without any contents can be construed is "goods". The Appellants further submit that the logie and reasoning behind the non-consideration of empty containers as cargo is very much applicable to the same empty containers for deducing that the empty contairers are not "goods".

Thus the Appellants had valid reason for entertaining the belief that the activity carried out by them was not "sterage and warehouse service" as the said services were in respect of all kinds of goods.

7) THAT the learned Commissioner (Appeals) ought to have appreciated that while the subject tax of Rs. 4.17.184/- pertained to the period 16-8-02 to 30-6-03 the clarification vide circular dated 10-7-2003 was issued after the said period. Thus the finding of the Appellants continuously trying to mis-lead the Department is patently erroneous and grossly enjustified. Consequently the case-laws cited by the Appellants are squarely applicable and have been wrongly brushed aside as inapplicable.

8) THAT both the lower authorities ought to have appreciated that the Appellants were under a bonafide belief that no service tax was payable on the activity of storage of empty containers and they had a valid reason to harbor such belief. Thus even assuming (without admitting) that service tax was payable no penalty was imposable on the Appellants. The Hon'ble Supreme Court in the case of Northern Plastic Ltd. v. Collector of Customs and Central Excise has held that no penalty is imposable when exemption was claimed without any dishonest intention of evading proper payment of duty. The Appellants submit that the ratio of the above judgment is squarely applicable to the facts and circumstances of the case. Thus no penalty is imposable on the Appellants even if it is held that service tax is payable on the activity of storage/warehouing of the empty containers.

9) THAT both the lower authorities ought to have appreciated that the Show Cause Notice dated 20-5-2004 demanding service tax for the period 21-8-2002 to 30-6-2003 has been issued to the Appellants only in view of the Circular No. 60/9/2003-S.T., dated 10-7-2003 issued under F.No. 130/2/2002-CX.4. This is manifest from the communication of the said circular vide letter dated 14-8-2003 by the Superintendent, Central Excise and Customs, Uran Range II (Copy enclosed and marked EXB. VI ). The aforesaid circular reads as under: I am directed to say that a doult has been raised regarding levy of service tax on storage of empty containers. The matter has been examined. It is clarified that the handling/storage and warehousing of empty containers would be covered within the scope of storage and warehousing services, as it is covered under the heading goods under Section 65(87) of the Finance Act, 1994. The Service Tax would be leviable on it. Further, the clarification issued vide letter No. F.B. II/I/2002/TRU, dated 1-8-2002 regarding empty containers not to be considered as Cargo for Cargo Handling Services, has no relevance in the instant case.

The Appellants submit that the learned Assistant Commissioner, in his capacity as a quasi-judicial authority ought to have applied his own independent mind as the circular is net binding on a quasi-judicial authority. In the ease of Kirloskar Oil Engines Ltd. v. Union of India the Hon'ble Apex Court has held that legally there can be no two opinions that a trade notice issued by the Collector of Excise or even the Central and Exeise Tariff Board (in brief "Board") has no binding authority and the assessing authority can draw its conclusions. The ratio of the said decision is squarely applicable in the instant case as apart from the above circular there was no other material with the Department on which it could assume that the storage/warehousing of the empty containers, per se, was chargeable to tax under service tax. The basis for iritiation of proceedings was entirely on the basis of the circular issued in 2003 without any material and the impugned notice and the order passed consequently are thus illegal and patently unsustainable.

10) THAT both the lower authorities ought to have appreciated that even if the Board's circular was to be followed it was applicable only prospectively and not retrospectively. The Appellants rely on the judgment of the Hon'ble Tribunal in Unique Plastic Industries v. Commissioner of C. EX., Calcutta-I connection. In the said judgment it has been held that such circulars imposing liability can be effective only for the future period and cannot be made the basis for demanding duty for the past five years period.

11) THAT both the lower authorities ought to have appreciated that the Circular 60/9/2003-S.T., dated 10-7-2003 issued under F.No. 150/2/2002-CX.4 merely represented the Government's understanding of the statutory provisions. They are not binding upon the Courts if they are not according to law. There can be no estoppel against the statute. The judgment of the Apex Court in Bengal Iron Corporation v. Commercial Tax Officer is relied upon in this connection.

12) THAT both the lower authorities ought to have appreciated that even assuming that tax is payable on storage of empty containers there was a reasonable cause and also reason to believe that the said activity did not fall under the scope and ambit of taxable services. Moreover Section 80 provides as follows: Notwithstanding anything contained in the provisions of Section 76, Section 77, Section 78 or Section 79, no penalty shall be imposable on the assessee for any failure referred to in the said provisions if the assessee proves that mere was reasonable cause for the said failure.

As mentioned, supra, till the issue of the circular dated 10^th July 2003 there was no reason to believe that storage/ warehousing of empty containers was a taxable service. Consequently no penalty was imposable either under Section 76 or 77 for the period prior to the issue of the said circular. Moreover, the Appellants have voluntarily deposited the entire tax amount along with interest on the issue of the impugned notice. Thus no penalty is imposable in view of the following judgments:Mogaveera Vyavasthapaka Mandali v. Commissioner of C. Ex., Mumbai iii. R.B. Bahutule v. Commissioner of Central Excise, Mumbai iv. In Re: Oriental Insurance Co. Ltd. 1998 (103) E.L.T. 459 (Commr.

Appl.) 13) THAT no interest was payable as the tax is for the period prior to the issue of the circular No. 60/9/2003-S.T., dated 10-7-2003.

Moreover, tax is not payable as empty containers are not goods.

Furthermore there is no confirmation of interest in the impugned order.

2. After perusal of the grounds taken in the Memorandum of Appeal by the appellants, I consider it necessary to remand the matter to the Commissioner (Appeals) for fresh adjudication for passing a speaking order after giving a reasonable opportunity of hearing to tne appellants. While considering the matter the Commissioner (Appeals) may take into account the following case laws: (1) in the case of L.H.Sugar Factories Ltd. v. CCE. Meerut-II- and (2) L.H.Sugar Factories Ltd. 2005 (187) ELT 5 (SC). The appeal is allowed by way of remand in the above terms.