February 20, 2026 : The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Chennai Bench, has set aside a service tax demand of ₹10.98 crore raised against M/s Chettinad Lignite Transports Pvt. Ltd., holding that in the absence of any “packing” activity, the company’s services could not be classified as “cargo handling service” under Section 65(23)(b) of the Finance Act, 1994.

Allowing Service Tax Appeal No. 40031 of 2016, the Bench comprising Ajayan T.V. (Judicial Member) and M. Ajit Kumar (Technical Member) quashed the demand, along with interest and penalties, and also held that the extended period of limitation had been wrongly invoked.

Background of the Dispute

Chettinad Lignite had entered into an agreement dated 16 April 2002 with ST-CMS Electric Company Pvt. Ltd. to design, finance, construct, own, operate and maintain a Lignite Transportation System (LTS). The system involved multi-modal transportation of lignite from Neyveli Lignite Corporation (NLC) to a power plant at Uttangal.

The scope of work included removal of lignite from stockpiles, loading onto trucks, road transport to railway sidings, unloading into hoppers, movement through conveyors and silos, loading into railway wagons, rail transport to the power plant siding, and final unloading and conveyance within the plant.

Following an audit, the Department took the view that these activities constituted “cargo handling services” under Section 65(105)(zr) read with Section 65(23) of the Finance Act, 1994. A show cause notice dated 21 April 2014 demanded ₹10,98,90,317 for the period October 2008 to June 2012, invoking the extended period on allegations of suppression.

Notably, a parallel show cause notice was issued by another Commissionerate proposing classification under “Business Auxiliary Service,” reflecting uncertainty within the Department itself regarding the appropriate taxable category.

Tribunal’s Analysis: Packing Is Essential Under Clause (b)

The adjudicating authority had confirmed the demand relying on clause (b) of Section 65(23), which covers “service of packing together with transportation of cargo or goods.”

The Tribunal examined the statutory language closely. It noted that clause (b) uses the expression “packing together with transportation,” and that the combined use of “with” and “together” clearly indicates a conjoint activity where packing is the primary element. Transportation, even if accompanied by loading and unloading, would not fall within clause (b) unless packing was first undertaken.

The Bench emphasized that “mere transportation of goods” is expressly excluded from the definition. It found that the adjudicating authority had not recorded any finding that the appellant undertook packing of lignite prior to transportation. There was also no evidence on record to establish such activity.

The Revenue’s argument at the appellate stage that securing bulk lignite in tipper lorries amounted to packing was rejected. The Tribunal observed that in the absence of any factual finding or supporting material, such a contention was misconceived.

Accordingly, it held that the essential requirement of “packing together with transportation” was not satisfied and that the services rendered by the appellant could not be classified as cargo handling service under Section 65(23)(b).

Revenue Barred From Shifting Its Stand

The Tribunal also declined to entertain the Department’s attempt to rely on the “means” portion of the definition (covering loading and unloading) at the appellate stage.

It noted that the adjudicating authority had confirmed the demand specifically under clause (b), and the Revenue had neither filed an appeal nor cross-objections challenging that finding. Placing reliance on the principle of “no reformatio in peius,” the Bench held that an assessee cannot be put in a worse position in its own appeal.

Extended Period of Limitation Not Invocable

On limitation, the Tribunal found that the Department had sought details regarding the appellant’s activities as early as 2003, and the appellant had responded to those communications. Therefore, the relevant facts were already within the knowledge of the Department.

The Bench reiterated that invocation of the extended period under the proviso to Section 73(1) requires a positive act of suppression with intent to evade tax. Mere non-registration or non-filing of returns, without establishing mala fide intent, is insufficient.

It also took note of the parallel show cause notice proposing classification under a different taxable category. This demonstrated departmental ambiguity and further weakened the allegation of suppression.

In these circumstances, the Tribunal held that the extended period was wrongly invoked and that the demand was barred by limitation in any event.

Final Outcome

Setting aside the impugned order in entirety, the Tribunal quashed the service tax demand of ₹10.98 crore, along with interest under Section 75 and penalties under Sections 76, 77 and 78 of the Finance Act, 1994. The appeal was allowed.

Case Title: M/s Chettinad Lignite Transports Pvt. Ltd. vs Commissioner of GST & Central Excise
Case No.: Service Tax Appeal No. 40031 of 2016
Decision Date: 19 February 2026
Coram: Ajayan T.V. (Judicial Member) and M. Ajit Kumar (Technical Member)
Counsel for Appellant: Abhijit Roy, Advocate
Counsel for Respondent: N. Satyanarayana, Authorised Representative