Custom, Excise & Service Tax Tribunal
Commissioner Of Central Tax & Central ... vs Cochin Port Trust on 3 March, 2022
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
BANGALORE
REGIONAL BENCH
SERVICE TAX APPEAL NO: 20157 OF 2019
[Arising out of Order-in-Original No: COC-EXCUS-000-COM-24-2018-19 dated 05th October
2018 passed by the Commissioner of Central Tax & Central Excise, Kochi]
Principal Commissioner of Central Tax & Central Excise
Central Revenue Building, IS Press Road
Kochi - 682018 ... Appellant
versus
Cochin Port Trust
Willingdon Island
Kochi, KERALA ...Respondent
APPEARANCE:
Smt CV Savitha, Superintendent (AR) for the appellant Shri VV Sekhar, CA JRS& Co for the respondent CORAM:
HON'BLE MR ASHOK JINDAL, MEMBER (JUDICIAL) HON'BLE MR C J MATHEW, MEMBER (TECHNICAL) FINAL ORDER NO: A / 20177 /2022 DATE OF HEARING: 03/03/2022 DATE OF DECISION: 03/03/2022 PER: C J MATHEW This dispute arises from the cavil of Committee of Chief Commissioners, empowered under section 86(2) of Finance Act, 1994, that Commissioner of Central Tax, Kochi has discharged the respondent herein, Cochin Port Trust ST /20157/2019 2 (CPT), from liability to tax on the 'royalty' and 'fees' received from M/s India Gateway Terminal Pvt Ltd (IGTPL) during 2014-15 even though contracted to be paid from revenues generated by terminal operations as consideration for facilitating the 'terminal operator' while refraining from engaging in like activity on their own account which conformed to the definition of 'service' that was taxable under section 66B of Finance Act, 1994.
2. The review of order-in-original no. COC-EXCUS-000-COM-24-2018-19 dated 5th October 2018 of Commissioner of Central Tax, Kochi concluded that the payments were quid pro quo for operation and management, including necessary development and augmentation, of facilities at Rajiv Gandhi Container Terminal (RGCT) on Willingdon Island as well as for the development, construction, operation and management of the International Container Transshipment Terminal (ICTT) at Vallarpadom which, not being 'service' consumed within a Special Economic Zone (SEZ) for operations authorized by the Approval Committee but facilitation by the respondent herein enabling operation of the container terminal, was not eligible for exemption under notification no. 12/2013-ST dated 1st July 2013.
3. Learned Authorized Representative submitted that Cochin Port Trust, functioning under Major Port Trusts Act, 1963 as an undertaking of Government of India in the Ministry of Shipping, had been responsible for handling of vessels and cargo till the operations of container terminal on Willingdon Island was handed over to M/s India Gateway Terminal Pvt Ltd in return for 'royalty' and ST /20157/2019 3 'fees', equal to 33.3% of gross annual revenues of the Rajiv Gandhi Container Terminal (RGCT) initially and the International Container Transhipment Terminal (ICTT) thereafter and that proceedings had been initiated for recovery of tax dues thereon under Finance Act, 1994 as consideration for providing 'port services' till June 2012 and for provision of 'service' in the 'negative list' regime. She intimates that, for the period of present dispute from 1st April 2014 to 31st March 2015, recovery of ₹ 7,18,90,299 on gross taxable value of ₹ 58,16,36,725 was sought under section 73 of Finance Act, 1994, along with applicable interest under section 75 of Finance Act, 1994, for the period besides proposing penalties under section 76, section 77 and section 78 of Finance Act, 1994 in show cause notice dated 15th April 2016. It was argued that the impugned order, after negating the applicability of the decisions of the Tribunal in the very same dispute for the earlier periods as the law had changed since 1st July 2012, went on to drop this demand too. It was also pointed out that the adjudication order did hold the activity to be 'service' within the meaning of section 65B(44) of Finance Act, 1994 and discarded the proposition of the noticee for immunity from tax with the discharge of liability by the 'terminal operator' on the entirety of the receipts before remitting the share of Cochin Port Trust but appeared to have been convinced by their argument of eligibility for exemption under notification no. 12/2013-ST dated 1st July 2013 extended to 'units' and 'developers' in Special Economic Zones utilizing 'services' for authorized operations. This, according to her, was misapplication of the notification sufficing to enforce recovery of tax evaded as permission of the Approval ST /20157/2019 4 Committee, prescribed therein, had not been obtained.
4. Learned Chartered Accountant, appearing for the respondent, disclaimed this argument with the submission that compliance with procedure laid down in notification no. 12/2013-ST dated 1st July 2013 is evident from Form A-2, inclusive of 'royalty' and 'licence fee', issued by Deputy Commissioner of Central Excise, Ernakulam and taken note of by the adjudicating authority. It was contended that the 'service' has been rendered exclusively in the Special Economic Zone (SEZ) entitling them to outright exemption instead of recourse to the refund route.
5. It is seen from the show cause notice which culminated in the impugned order that the respondent had been issued with notices periodically from March 2006 onwards with the present demand, under the authority of section 73(1A) of Finance Act, 1994 merely reiterating continuation thereof owing to the liability devolving on the same stream of income as justified in first of the demands. We also deduce from the findings in the impugned order that notices pertaining to the period prior to 30th June 2012 had been confirmed by the adjudicating authority but had been set aside by the Tribunal in final order no. 1250/2010 & 1251/2010 dated 12th May 2010 and in final order no. 64/2011 dated 17 th January 2011 implying, thereby, that the conclusion of notices of 23rd May 2014 and of 17th April 2015 had not made their appearance before the Tribunal and may even have not been adjudicated. It also appears that the pendency of the appeal of Revenue before the Hon'ble High Court of Kerala against decision of the Tribunal in ST /20157/2019 5 favour of Cochin Port Trust was sufficient for service tax authorities to consider themselves relieved of adherence to judicial discipline. The 'bland' notice which had been dropped in the impugned order did not even consider it necessary to take note of the ruling of the Tribunal and the Committee of Chief Commissioners, while demonstrating their eagerness to challenge 'loss of revenue', overlooked the possible impropriety in the notice relating to the 'negative list' era continuing to echo the justification offered for proposing recovery in the pre-'negative list' period even as it was contended that the alteration of law predicated discarding of the decision of the Tribunal disapproving of the recovery. We are, as yet, unaware of the fate of the proceedings in demands for the period immediately after the introduction of 'negative list' which, presumably, have not been adjudicated thus far. That 'missing link' does not constrain us from proceeding to dispose off this appeal listed in consequence of plea of Revenue for 'out of turn' disposal.
6. It is common ground that the impugned 'gross value of taxable services' is the share of Cochin Port Trust (CPT) from out of the gross earnings of M/s India Gateway Terminals Pvt Ltd (IGTPL) which is an offshoot of contractual engagement of the former with the latter for the building and operation of the Vallarpadom International Container Transhipment Terminal (ICTT) within the eponymous Special Economic Zone (SEZ) notified under Special Economic Zones Act, 2005. Though the narrative in the appeal memorandum spans a longer period encompassing the takeover of Rajiv Gandhi Container Terminal (RGCT) as a prelude to setting up of the 'greenfield' facility in the Special Economic ST /20157/2019 6 Zone which was yet to come into notified existence then, that is of no relevance to the impugned activity pertaining to the 'negative list' regime and in the notified special economic zone The sole issue to be decided here is the scope of notification no. 12/2013-ST dated 1st July 2013 in entitling the receipts of the respondent herein to exemption from tax otherwise purportedly leviable under Finance Act, 1994. A detailed exposition of the law is unavoidable and we turn to that.
7. The law relating to the status, establishment, entitlement, privileges and liability of activities undertaken in special economic zones was enacted in 2005 and, with the notification of Special Economic Zones Rules, 2006, Special Economic Zones Act, 2005 was operationalised on 10th February 2006. Conceived as a comprehensive, self-contained statute, it acknowledged 'developers', who would undertake the 'estate activities' akin to that of the Central Government and some state governments in the existing 'zones', and 'entrepreneurs' to be allotted space in such zones with obligations, incorporated in the statute, attending upon privileges such as tax exemptions provided for, again, in the statute. Parallel exemptions devolved on 'developers' who, though, were not fastened with any obligations other than allotment of space - vacant or built up - to 'units', promoted by 'entrepreneurs', in possession of valid 'letter of approval (LoA)' issued by the Development Commissioner of the Special Economic Zone. 'Developers' were issued with 'letters of approval (LoA)' by the Central Government for setting up new 'special economic zones' upon clearance by the Board of Approvals (BoA).
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8. Such zones had existed, and being primarily in the ownership of the Central Government, without any need for tax privileges now conferred upon 'developers' even before the enactment of 2005 came into force and these 'manufacturing enclaves' were notified under the authority of The Income Tax Act, 1961 and Central Excise Act, 1944 with exemptions from duties of customs and duties of central excise attending upon 'units' therein, through notification under Customs Act, 1962 and Central Excise Act, 1944. Thereafter, policy overhaul transformed these zones as 'deemed foreign territory', acknowledged by incorporation as chapter XA of Customs Act, 1962 on 15 th August 2003, with 'zero rating' of duties. That, however, proved to a transitional arrangement till the Special Economic Zones Act, 2005 was legislated. The zones were under dual control till then.
9. The new law placed 'special economic zones' under the exclusive authority of Development Commissioner and constituted inter-departmental and inter- governmental 'Approval Committee' under the chairmanship of the Development Commissioner to approve applications of 'entrepreneurs' to set up units and, inter alia, to grant approval of 'goods' and 'services' required by 'developers' for authorized operations. The procurement - domestic and foreign - of 'goods' and 'services' by 'developers' or 'units' for 'authorized operations' in 'special economic zones' were exempted under section 26 of Special Economic Zones Act, 2005. The procedures, hitherto in vogue, for 'goods' was, by and large, adopted for, and incorporated in, the Special Economic Zones Rules, 2006 to give effect to the statutory exemption without any impediment for ST /20157/2019 8 implementation; exemption for 'services' was not only novel but also handicapping, by invisibility, the smooth supply by 'domestic tariff area (DTA)' providers who were to face difficulties in asserting the claim for exemption. A procedure acceptable to service tax authorities was, thus, necessary if the exemption under section 26 of Special Economic Zones Act, 2005 in the hands of domestic 'providers' of 'service' was not to be rendered stillborn. Nonetheless, the source, and intendment, of exemption is unarguable and any procedure, devised for facilitation, remains precisely that without being the instrument of exemption.
10. The principle governing 'special economic zones' is enshrined thus '53 A Special Economic Zone shall, on and from the appointed day, be deemed to be a territory outside the customs territory of India for the purposes of undertaking the authorized operations.
xxxx' and its exclusive status is articulated thus '51. The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act.' in Special Economic Zones Act, 2005. The present appeal controverting the finding that 'royalty' and 'fees' are 'consideration' in the course of 'providing of service' for undertaking 'authorized operations', though, is founded on the primacy of notification no. 12/2013-ST dated 1st July 2013. Though issued under ST /20157/2019 9 the authority of section 93 of Finance Act, 1994, which is the enabling provision for exemption from service tax, essentially, it only affords procedural facilitation of exemption through refund route as default with upfront exemption when the service is, undoubtedly, used exclusively in the 'special economic zone' and accepted to be by tax authorities. Within the overriding scheme of the enactment for 'special economic zones', the notification relied upon by Revenue is a secondary instrument, subordinate to the exemption conferred under section 26 of Special Economic Zone Act, 2005, and is enforceable only to the extent of not being in disharmony with the primary exemption in Special Economic Zones Act, 2005. This legislatively sanctioned subordination does not appear to have weighed with the Committee of Chief Commissioners in the review undertaken by them.
11. That this facilitative supplement was necessary so that entities in the 'domestic tariff area (DTA)', who, under Finance Act, 1994, are 'persons liable to pay tax' and assessees under the monitorial oversight of service tax authorities, were not hindered by tax enthusiasm from this exclusive market. Hence, the procedure may, at best, govern service tax assessees as 'convenience intrusion' to prevent nullifying of privileges already conferred by the overriding statute and cannot impose conditions that are not consistent with that. That the present dispute is one arising from payment received by a 'developer' from an 'entrepreneur' for activity within the 'Special Economic Zone (SEZ)', which is outside the 'customs territory of India' and, therefore, entirely beyond the compass of the notification, does not appear to have impressed itself on the ST /20157/2019 10 Committee of Chief Commissioners.
12. Insofar as the emphasis on 'authorized operations' is concerned, it would appear that the Committee of Chief Commissioners has placed a premium on the absence of clearance by the 'Approval Committee' of Vallarpadom Special Economic Zone in which Cochin Port Trust (CPT), as 'developer', had allotted vacant space to M/s India Gateway Terminals Pvt Ltd (IGTPL), as 'entrepreneur' for establishing a 'unit' for the building and operation of international container transhipment terminal. The provisions of Special Economic Zones Act, 2005 does not impose itself on the contractual arrangements and conformity of that with section 65B (44) of Finance Act, 1944 does not have to be ascertained. It is not in dispute that 'royalty' and 'licence', computed as share of 'gross revenue' earned by the 'unit', is a consequence of such allotment and, if that be consideration thereof, it is relevant under Finance Act, 1994 only if unconnected with 'authorized operations' in the special economic zone.
13. The Approval Committee, as is evident from section 14(1)(b) of Special Economic Zones Act, 2005, is concerned only with procurement of 'services' from 'domestic tariff area (DTA)' or from 'outside India' and not of service rendered to 'unit' by 'developer' of special economic zone. The 'authorized operations' of a 'unit' are, under section 15(9) of Special Economic Zones Act, 2005, within the remit of the Development Commissioner and not of the Approval Committee as contended on behalf of Revenue. Therefore, the foundation of the appeal is, of itself, flawed.
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14. The authority for permitting 'authorized operations' of 'developers', in accordance with section 4(2) of Special Economic Zones Act, 2005, is the Board of Approval (BoA) and, even so, the Board of Approvals (BoA) is called upon to enumerate such activities that the statute itself has not specified. The primary role of 'developer' in a 'special economic zone (SEZ)' is abundantly clear from ' xxxx (13) Subject to the provisions of this section and letter of approval granted to a Developer, the Developer may allocate space or built up area or provide infrastructure services to the approved units in accordance with the agreement entered into by him with the entrepreneurs of such Units.' in section 3 of Special Economic Zones Act, 2005 and, as a statutory devolution, manifests as 'authorized operation' of 'developer' without any need for specific permission of Board of Approval (BoA) or any other authority.
15. From the above exposition, it would appear that the appeal of Revenue has made a wrong call in requiring an activity entirely provided and received in the special economic zone, even if it be 'service' within the meaning of section 65B(44) of Finance Act, 1994, to comply with the procedure laid down in notification governing service providers under the monitorial jurisdiction of service tax authorities, by according primacy to such instrument of law that is in circumstantial conflict with section 26 of Special Economic Zones Act, 2004 which has overriding effect and in ignorance of the statutory conferment of authorization, nay even obligation espoused by section 3 of Special Economic ST /20157/2019 12 Zones Act, 2005, to allot space. There is no redeeming feature to be found in the appeal.
16. Accordingly, the appeal of Revenue is bereft of any merit and is dismissed.
(Operative Part of the Order pronounced in the open court on 3rd March 2022) (ASHOK JINDAL) (C J MATHEW) Member (Judicial) Member (Technical) */as