UNION OF INDIA & ORS. versus COASTAL CONTAINER TRANSPORTERS ASSOCIATION & ORS.

[2019] 4 S.C.R. 915

UNION OF INDIA & ORS.

COASTAL CONTAINER TRANSPORTERS

ASSOCIATION & ORS.

(Civil Appeal No. 2276 of 2019)

FEBRUARY 26, 2019

[UDAY UMESH LALIT AND R. SUBHASH REDDY, JJ.]

Constitution of India: Art.226 – Show cause notice issuedunder s.73 of Finance Act by appellant-authority proposing todemand service tax from respondents under the category of “cargohandling service” – Respondent’s case was that the serviceprovided by them fell under the taxable category of “goodstransport agency” – Writ petition filed by respondents before theHigh Court challenging the show cause notice – High Courtquashed the show cause notice – On appeal, held: High Courtcommitted error in entertaining the writ petition under Art.226 atthe stage of show cause notices – Neither it was case of lack ofjurisdiction nor any violation of principles of natural justice wasalleged 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 the Supreme Court –When there is serious dispute with regard to classification ofservice, the respondents ought to have responded to the show causenotices by placing material in support of their stand but at the sametime, there was no reason to approach the High Court questioningthe very show cause notices – Moreover, even the contents of showcause notices did not sow that there were no factual disputes –Finance Act, 1994 – s.73.

Allowing the appeal, the Court

HELD: 1. The controversy in the instant case related tothe classification of services rendered by the respondents. It isnot in dispute that if the show cause notices culminate into anorder, the appeal would lie to this Court. If any finding is recordedby this Court at this stage, same will prejudice either of the parties.In view of the contentions raised, it cannot be said that there are

Ano factual disputes. Applicability of the circulars dated 06.08.2008and 05.10.2015 was also in serious dispute. Further theclassifiability of service rendered by particular assessee is tobe considered with reference to facts of each case dependingupon nature of service rendered and the contract entered into.There cannot be any general declaration, as prayed for. It is trueBthat circulars issued by the CBEC are binding on the authorities,but at the same time, such circulars are applicable or not, is amatter which is to be considered with reference to facts of eachcase. When it is the case of the appellants that such circularsreferred would apply only in case of road transportation but notCotherwise, then it is case for consideration by competentauthority on receipt of the explanation but same is no ground toquash the show cause notices. [Paras 16, 18] [924-C; 925-B-H;926-A]

2. When there is serious dispute with regard toDclassification of service, the respondents ought to have respondedto the show cause notices by placing material in support of theirstand but at the same time, there is no reason to approach theHigh Court questioning the very show cause notices.[Para 19] [926-E-F]

EDeputy Commissioner, Central Excise & Anr. v. Sushiland Company(2016) 13 SCC 223;Union of India &Anr. v. Guwahati Carbon Limited(2012) 11 SCC 651;Union of India v. Hindustan Dev. Corpn. Ltd.1998(100) ELT 14 (SC);Malladi Drugs & Pharma Ltd. v.Union of India2004 (166) ELT 153 (SC) – relied on.FPaper Products Ltd. v. Commissioner of Central Excise1999 (112) ELT 765 (SC) – held inapplicable.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2276of 2019.

From the Judgment and Order dated 18.12.2017 of the HighCourt of Gujarat at Ahmedabad in Special Civil Application No. 6679 of2016.

K. Radha Krishnan, Sr. Adv., Ms. Sunita Rani Singh, Ms. NishaBagchi, Ms. Nera Malik, B. Krishna Prasad, Advs. for the Appellants.

Dr. A. M. Singhvi, S. K. Bagaria, Sr. Advs., Arijit Prasad, HardikModh, Ms. Devanshi Singh, Ms. Aastha Mehta, Ms. DeepanwitaPriyanka, Advs. for the Respondents.

The Judgment of the Court was delivered by

R. SUBHASH REDDY, J. 1. Leave granted.

2. This civil appeal is filed by Union of India and others, respondentsin Special Civil Application No.6679 of 2016 filed before the High Courtof Gujarat at Ahmedabad, aggrieved by the judgment and order dated18.12.2017. By the aforesaid order, the High Court has quashed theshow cause notices dated 08.10.2015 and 30.09.2015 issued by theappellants, in exercise of power under Section 73(1) of the Finance Act,1994 (for short, ‘the Act’).

3. The first respondent is Coastal Container TransportersAssociation and the second and third respondents are, Yamuna ShippingLogistics Pvt. Ltd. and Pushpak Logistics Pvt. Ltd. who are engaged inthe transport business. They have filed the aforesaid writ petition underArticle 226 of the Constitution of India before the High Court. Thoughshow cause notices dated 08.10.2015 and 30.09.2015 were issued torespondent nos.2 and 3, in anticipation of similar notices to its members,the first respondent-association also joined respondent nos.2 and 3 in thewrit petition. In the aforesaid writ petition, the appellants herein havefiled Civil Application No.2952 of 2017 raising preliminary objection withregard to maintainability of the writ petition itself. While allowing theSpecial Civil Application, the said civil application is also rejected by theHigh Court, by impugned order.

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

First respondent is an association, whose members are transportoperators engaged in the business of transportation of goods entrusted

Aby the customers. By way of impugned show cause notices, theappellants have proposed to demand service tax from the respondentsunder the category of “cargo handling service”, while it is the case ofthe respondents that the service which is being provided by them, fallsunder the taxable category of “goods transport agency”. Therespondents, to bolster their case, have placed reliance upon circularsBdated 06.08.2008 and 05.10.2015 issued by the Central Board of Exciseand Customs (CBEC).

Based upon the intelligence gathered by the officers of RajkotRegional Unit, which revealed that several business entities includingrespondent nos.2 and 3 who are engaged in doing the business of cargoChandling in west coastal region but had got themselves registered under“good transport agency”, by taking approval from the competentauthorities, searches were conducted in the premises of respondent nos.2and 3. It is alleged that during such searches several incriminatingdocuments, including the quotations submitted by the respondent-Dcompanies to their customers were seized and statements of the Directorswere recorded as per the provisions of Central Excise Act, 1944 readwith the provisions under Finance Act, 1994. Subsequently, the showcause notices dated 08.10.2015 and 30.09.2015, were issued to respondentnos.2 and 3, which are impugned in the writ petition filed before theHigh Court.E5. It is the case of the appellants that the respondents, with viewto evade payment of service tax, have split the whole transactions intothree parts, i.e., from the place of consignor to Kandla/Mundra Port byroad, from Kandla/Mundra Port in Gujarat to Kochi/Tuticorin Ports inSouth India by sea route and from Kochi/Tuticorin Ports in South IndiaFto the place of the consignee by road. It is the further case of theappellants that if the respondents are registered under the category of“cargo handling service”, no abatement would have been admissibleand whole of the transaction from the consignor to consignee would becovered under the taxable services which attract higher rate of serviceGtax.

6. On the other hand, it is the case of the respondent – originalpetitioners in the writ petition that the show cause notices, impugned inthe writ petition, have been issued contrary to the provisions of FinanceAct, 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 whenthey receive orders from customers there is clear understandingbetween the customers and them, that they merely provide service oftransportation of goods by road, whereas services at port area andtransportation of goods through waterways would be provided by shippinglines. The respondents would raise bill for transportation of goods byroad and debit note for recovery of expenses which they incur for shippinglines for providing services at port area and transportation of goods throughwaterways. It is also their case that they would not add any marginwhile recovering money from their customers towards port and shippingline charges.

7. In the writ petition filed before the High Court, preliminaryobjection was raised on behalf of appellant nos.2 and 3 with regard tomaintainability of the petition. Firstly, it was pleaded that as the writpetition itself was directed against the show cause notices, such petitionwas not maintainable. Secondly, on the ground that as the controversyrelates to classification of services and even if the show cause noticeswere to culminate into final order, appeal would lie before the SupremeCourt, as such, High Court, in exercise of writ jurisdiction, should refrainfrom entertaining the petition which involves classification dispute. Itwas pleaded that it was not either case of lack of jurisdiction or casewhere the principles of natural justice are violated, so as to entertain thepetition in which only show cause notices were challenged.

8. On the other hand, it was the case of the respondent-originalwrit petitioners that there is no absolute prohibition for not maintainingthe petition under Article 226 of the Constitution of India, even at thestage of show cause notice. It was their case that even taking thecontents, as mentioned in the show cause notices, the contract does notamount to providing “cargo handling service” as defined under Entry 23of 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 therespondents 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-containerisedfreight, services provided by container freight terminal or any other freightterminal, for all modes of transport or any other service incidental tofreight. It was their case that the respondents were not packing orunpacking, as such, it cannot be classified under “cargo handling service”.

A9. Before the High Court, it was the case of appellant nos.2 and 3that w.e.f. 01.07.2012, the scheme of service tax has changed and thenegative list regime has been brought into force. It was their case thatthe circulars issued prior to the amendment in the parent Act would notbe applicable subsequent to such amendment. It was their case thatwith view to evade payment of service tax, the respondents have splitBthe whole transaction into three parts. If the respondents were registeredunder the category of “cargo handling service”, no abatement wouldhave been admissible, as the whole of the transaction from consignor toconsignee would be covered under taxable service. Reference wasmade to Section 66F of the Act which provides the principles ofCinterpretation of specified descriptions of services or bundled services,more particularly, to sub-section (3) thereof which provides for the mannerof determination of the taxability of bundled service. Clause (b) thereofprovides that if various elements of such service are not naturally bundledin the ordinary course of business, it shall be treated as provision of thesingle service which results in highest liability of service tax. By referringDto the definition of “cargo handling service”, as stood prior to itssubstitution by Finance Act, 2008, it was submitted that the earlierdefinition of “cargo handling service” did not include transportation andw.e.f. 16.05.2008, the definition of “cargo handling service” came to beamended by including the service of packing together with transportationEof 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 membersof the respondent-association undertake the responsibility to deliver goodsfrom consignor to consignee and more particularly, when they are alsoFproviding cargo handling service, with the help of other service providers,the service provided by them would fall within the ambit of cargo handlingservice, inasmuch as the help from other service providers does notchange the nature of service that is being provided by them. It was alsostated that shipping lines raise bills in the name of respondents and if anyservice tax has been charged, the respondents would be within theirGrights to take cenvat credit of the same in accordance with the rules andregulations. However, that would not change the nature of servicesrendered by them.11. While considering the contentions advanced on both sides, theHigh Court has over-ruled the objection of maintainability of the petitionand has recorded finding that the services rendered by the membersof the respondent-association are classifiable under “goods transportagency” but not under “cargo handling service”. High Court has referredto the definition of “cargo handling service” under Section 65(23) of theAct, Circular No.B11/1/2002-TRU dated 01.08.2002 and by referringto 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 heldthat even after introduction of new regime w.e.f. 01[st] July 2012, theactivity of the respondents falls within the classified category of “goodstransport agency” but not “cargo handling service”. High Court hasfurther held that so far as the service of loading and unloading at the portand shipping of goods from one port to other is concerned, the respondentsare the recipients of such service from the shipping lines and/or cargohandling service on behalf of the customers. The High Court has heldthat so far as the service rendered by shipping line is concerned, theshipping line issues invoice in favour of the respondents, who, in turn,issue debit note to the customer without adding any charge in respect ofsuch 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 bindingcirculars issued by the CBEC, the service rendered by the respondentshas 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 takea stand contrary to such circulars. The High Court has held that thenotices impugned in the writ petition, are contrary to the binding circularsissued by the CBEC, in such circumstances, respondents are entitled toinvoke the writ jurisdiction of the court. Further, it is held that as thereare no factual disputes and only legal issue is required to be decided andby placing reliance on the judgment of this Court in the case of DeputyCommissioner, Central Excise & Anr. v. Sushil and Company[1],has over-ruled the objection of maintainability of the writ petition raisedby the appellants. With the aforesaid findings, the High Court has takenthe view that no useful purpose would be served in relegating therespondents - original writ petitioners to the adjucating authority foradjudication pursuant to show cause notices which were issued without

CDEFG

Aany legal basis, while allowing the writ petition filed by the respondents,quashed the notices dated 08.10.2015 and 30.09.2015 and furtherrejected Civil Application No.6679 of 2016 filed by the appellants raisingthe preliminary objection with regard to maintainability of the writ petition.

12. We have heard Sri K. Radhakrishnan, learned senior counselBfor the appellants and Dr. A.M. Singhvi, learned senior counsel for therespondents.

13. Learned senior counsel, Sri Radhakrishnan, appearing for theappellants has submitted that the High Court has committed seriouserror in entertaining the petition which itself is directed against the showCcause notices. It is submitted that as the issue relates to classifiabilityfor the purpose of taxation, more so, against the final order, appeal isprovided to the Supreme Court, High Court ought not to have entertainedthe writ petition at all. It is further submitted that once the respondentsundertook the responsibility of delivery of goods from consignor toconsignee and more particularly when they are also providing cargoDhandling service, may be with the help from other service providers, theservice provided by them would fall within the ambit of “cargo handlingservice”. It is submitted that shipping lines raise bill in the name ofrespondents and if any service tax is charged, the respondents are wellwithin their rights to take cenvat credit of the same in accordance withEthe rules. However, that would not change the nature of service renderedby the respondents from “cargo handling service” to “goods transportagency”. It is contended that circulars which are relied on by the HighCourt are applicable only in cases where transportation is undertaken byroad. It is submitted that circulars are not correctly interpreted by theHigh Court, so as to extend the benefit of such circulars to theFrespondents. Learned senior counsel has made reference to Rule 5sub-rule (2)(ii) of Service Tax (Determination of Value) Rules, 2006which are framed in exercise of powers under Section 94 of the FinanceAct, 1994. While referring to the judgment of this Court in the case ofDeputy Commissioner, Central Excise & Anr. v. Sushil andGCompany (supra), which is relied on by the High Court, it is submittedthat in the aforesaid case, the assessee was only supplying labour andsuch labour was not doing any work of loading and unloading of anycargo. In such event and as the very contract was only for supply oflabour, this Court has held that such service cannot be said to be cargo

handling service to impose service tax. It is submitted that the saidjudgment will not support the case of the respondents at all. Further, it iscontended that it is not case of either lack of jurisdiction or notices areissued in violation of principles of natural justice, so as to entertain thewrit petition at the stage of show cause notice. It is further submittedthat as the issue relates to classification of taxable service, the HighCourt should not have entertained the writ petition at all. In support ofhis contention, learned counsel has placed reliance on the judgment ofthis Court in the case of Union of India & Anr. v. Guwahati CarbonLimited[2] 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 caseof Hindustan Dev. Corpn. Ltd. (supra) it is clearly held by this Court,that writ petition is not to be entertained at show cause notice stagewhen the dispute relates to classification.14. On the other hand, it is contended by Dr. Singhvi, learnedsenior counsel appearing for the respondents that there are absolutelyno grounds to interfere with the well considered judgment of the HighCourt. It is submitted that the respondents are engaged in providingservice of delivery of cargo from factories situated in Gujarat via Kandla/Mundra ports in Gujarat to Kochi, Mangalore and Tuticorin ports in Keralathrough road and sea route. In order to provide service to the customers,respondent-companies take services of various intermediaries like lorryowners, shipping agencies etc. However, all the intermediaries raise theinvoices in the name of aforesaid respondent companies only. It issubmitted that the shipping agencies provide service to the respondentcompanies by raising invoice in their name and they issue debit note ofthe same amount in the name of the customers. The respondentcompanies undertake the composite responsibility. It is submitted thatthe main activity of the respondents falls in the category of “goodstransport agency” as defined under Section 65(50b) of the Act. It isfurther submitted that the respondents do not carry out any activity ofpacking or unpacking and if at all any activity of loading or unloading isundertaken, same is merely incidental to the main activity of “goodstransport agency”. It is submitted that circulars dated 06.08.2008 and05.10.2015 also support the case of the respondents. Further, it issubmitted by learned senior counsel that the issue of classifiability is also

2 (2012) 11 SCC 651

3 1998 (100) ELT 14 (S.C.)

DEF

Asquarely covered by the judgment of this Court in the case of DeputyCommissioner, Central Excise & Anr. v. Sushil and Company(supra). It is contended by learned senior counsel that circulars issuedby CBEC are binding on the departmental authorities and they cannottake contrary stand. Learned senior counsel has also placed relianceon judgment of this Court in the case of Paper Products Ltd. v.BCommissioner of Central Excise[4].

15. Having heard learned senior counsels on both sides, we haveperused the entire material placed on record.

16. The controversy in the present case relates to the classificationCof services rendered by the respondents. It is also not in dispute that ifthe show cause notices culminate into an order, the appeal would lie tothis Court. When the show cause notices are issued to respondent nos.2and 3-members, the writ petition is filed by the first respondent-associationand the recipients of show cause notices who are respondent nos.2Dand 3.

17. It is the case of the appellants that if service as whole, istaken into consideration, it falls within the classifiable category of “cargohandling service” but not “goods transport agency”. On the other hand,it is the case of the respondents that they only undertake roadEtransportation, and so far as cargo handled by shipping agencies isconcerned, they prepare bills in the name of the respondent companiesand in turn respondents issue debit note to their customers to the extentof charges payable to the shipping agencies, as such their service falls inthe category of “goods transport agency” but not “cargo handlingFservice”. While it is the case of the respondents that, show cause noticesissued run contrary to circulars dated 06.08.2008 and 05.10.2015 issuedby the CBEC, it is the case of the appellants that such circulars are notapplicable to the respondents, and the circulars are applicable only whentransportation is only by road. In the writ petition filed before the HighCourt, appellants have filed civil application by raising preliminaryGobjection with regard to the maintainability of the petition under Article226 of Constitution of India at the stage of show cause notices. Suchobjection is also rejected by the High Court by recording finding that

there are no factual disputes and also in view of the judgment of thisCourt 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 HighCourt, in entertaining the writ petition against show cause notices, werefrain from recording any finding on contentious issues which arise forconsideration. If any finding is recorded by this Court at this stage,same will prejudice either of the parties. Having regard to the contentionsraised, it cannot be said that there are no factual disputes. Applicabilityof the circulars dated 06.08.2008 and 05.10.2015 is also in serious dispute.Further the classifiability of service rendered by particular assessee isto be considered with reference to facts of each case depending uponnature of service rendered and the contract entered into. There cannotbe any general declaration, as prayed for. The judgment of this Court inthe case of Deputy Commissioner, Central Excise & Anr. v. Sushiland Company (supra) also cannot be applied to the facts of the case onhand to come to the conclusion that the services rendered by therespondents will fall in the category of “goods transport agency” but not“cargo handling service”. In the aforesaid judgment, the contract wasonly for supply of labour and it was the specific case of the assesseethat such labour was not doing any work of packing, unpacking, loading,unloading of any cargo. In view of such written contract for limitedservices referred above, this Court has held that such service cannot beheld to be “cargo handling service”. The said judgment is distinguishableon facts and same cannot be applied to the case on hand, so as to acceptthe case of the respondents that their service is to be classified in thecategory of “goods transport agency” but not “cargo handling service”.Further, learned senior counsel appearing for the respondents, Dr. Singhvi,also placed reliance on judgment of this Court in the case of PaperProducts Ltd. (supra) in support of his argument that circulars issuedby the CBEC are binding on departmental authorities and they cannottake contrary stand. It is true that circulars issued by the CBEC arebinding on the authorities, but at the same time, such circulars areapplicable or not, is matter which is to be considered with reference tofacts of each case. When it is the case of the appellants that suchcirculars referred above would apply only in case of road transportation

DEF

Abut not otherwise, then it is case for consideration by competent authorityon receipt of the explanation but same is no ground to quash the showcause notices. In that view of the matter, we are of the view that thejudgment of this Court relied on by learned senior counsel in the case ofPaper Products Ltd. (supra) also would not render any support.

B19. On the other hand, we find force in the contention of thelearned senior counsel, Sri Radhakrishnan, appearing for the appellantsthat the High Court has committed error in entertaining the writ petitionunder Article 226 of Constitution of India at the stage of show causenotices. Though there is no bar as such for entertaining the writ petitionsat the stage of show cause notice, but it is settled by number of decisionsCof this Court, where writ petitions can be entertained at the show causenotice stage. Neither it is case of lack of jurisdiction nor any violationof principles of natural justice is alleged so as to entertain the writ petitionat the stage of notice. High Court ought not to have entertained the writpetition, more so, when against the final orders appeal lies to this Court.DThe judgment of this Court in the case of Union of India & Anr. v.Guwahati Carbon Ltd. (supra) relied on by the learned senior counselfor the appellants also supports their case. In the aforesaid judgment,arising out of Central Excise Act, 1944, this Court has held that exciselaw is complete code in order to seek redress in excise matters andheld that entertaining writ petition is not proper where alternative remedyEunder statute is available. When there is serious dispute with regard toclassification of service, the respondents ought to have responded to theshow cause notices by placing material in support of their stand but atthe same time, there is no reason to approach the High Court questioningthe very show cause notices. Further, as held by the High Court, itFcannot be said that even from the contents of show cause notices thereare no factual disputes. Further, the judgment of this Court in the caseof Malladi Drugs & Pharma Ltd. v. Union of India[5], relied on by thelearned senior counsel for the appellants also supports their case wherethis Court has upheld the judgment of the High Court which refused tointerfere at show cause notice stage.G

20. For the aforesaid reasons, we allow this appeal and set asidethe judgment and order dated 18.12.2017 passed by the High Court ofGujarat in Special Civil Application No.6679 of 2016.

52004 (166) ELT 153 (S.C.)H

21. We, however, grant four weeks’ time, to file responses/furtherresponses 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 therespondents or after expiry of the aforesaid time, it is open for theappellants to consider the same on their own merits and pass appropriateorders, uninfluenced by any of the observations made by this Court inthis judgment.

Devika Gujral

Appeal allowed.