CESTAT Bangalore: Fly Ash Disposal Not ‘Cargo Handling Service’, ₹82 Lakh Service Tax Demand Quashed

March 24, 2026 : The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Bangalore Bench has ruled that activities involving transportation and disposal of fly ash and industrial waste do not fall within the ambit of “cargo handling service” under the Finance Act, 1994, thereby setting aside service tax demands exceeding ₹82 lakh against M/s Threyambaka Enterprises.

The ruling came in a batch of appeals arising from Orders-in-Appeal passed by the Commissioner (Appeals), which had upheld service tax demands along with interest and penalties for the period from 01.02.2007 to 31.12.2012.

Factual Background

M/s Threyambaka Enterprises, a proprietorship concern, was engaged in removing fly ash, sludge, and other waste materials from the premises of M/s West Coast Paper Mills Ltd., Dandeli, and transporting them to dumping sites using trucks and tippers. The Department alleged that since the contracts involved loading, unloading, and handling of fly ash, the activity qualified as “cargo handling service” under Section 65(23) of the Finance Act, 1994, and accordingly raised a service tax demand of ₹82,36,739 along with interest and penalties.

The adjudicating authority confirmed the demand, which was subsequently upheld by the Commissioner (Appeals), prompting the assessee to approach the Tribunal.

Assessee’s Contentions

The appellant argued that the primary nature of the activity was transportation and disposal of non-marketable waste, undertaken to ensure environmental compliance and uninterrupted manufacturing operations. It was emphasized that fly ash and sludge are waste by-products not intended for sale and therefore cannot be treated as “cargo.”

It was further submitted that loading and unloading were largely mechanised, with tippers placed directly below boilers to collect fly ash, involving no independent cargo handling activity or manual labour.

Tribunal’s Findings

The Bench comprising Dr. D.M. Misra (Judicial Member) and R. Bhagya Devi (Technical Member) framed the core issue as whether removal of fly ash and its transportation to dumping yards could be classified as “cargo handling service.”

Upon examining the statutory definition under Section 65(23), the Tribunal observed that the term covers loading, unloading, packing, or unpacking of “cargo” and services incidental to freight. However, it held that fly ash and similar waste materials cannot be regarded as “cargo” in the commercial sense, as they are not marketable goods nor meant for commercial transportation.

The Tribunal noted that the dominant nature of the contract was removal and transportation of waste to facilitate continuous manufacturing, and not cargo handling. Incidental activities like loading and unloading, especially when mechanised and minimal, do not alter the essential character of the service.

Relying on precedents including Tripathi Transport Co., the Bench reiterated that where transportation is the primary activity and loading/unloading is merely incidental, the service cannot be classified as cargo handling.

It also found that the Department’s classification was based solely on contractual terms mentioning loading and unloading, without appreciating the actual nature and purpose of the activity.

Conclusion

Holding that the impugned classification was legally unsustainable, the Tribunal set aside the service tax demand along with interest and penalties and allowed all appeals with consequential relief.

Case Details

• Case Title: M/s Threyambaka Enterprises v. Commissioner of Central Excise, Customs & Service Tax
• Case Nos.: Service Tax Appeal Nos. 3308-3310 of 2012, 20213 of 2014 & 20694 of 2017
• Coram: Dr. D.M. Misra (Judicial Member), R. Bhagya Devi (Technical Member)
• Final Order Nos.: 20399 to 20403 / 2026
• Date of Decision: 24.03.2026