Custom, Excise & Service Tax Tribunal
4. Whether Order Is To Be Circulated To ... vs M/S Gujarat Maritime Board on 12 March, 2013
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT AHMEDABAD
COURT - I
Appeal No.ST/389, 403/2011
Arising out of: OIO No.43/BVR/Commissioner/2009, dt.16.07.2009
Passed by: Commissioner of Central Excise & Customs, Bhavnagar
For approval and signature:
Mr.M.V. Ravindran, Honble Member (Judicial)
Mr. H.K. Thakur, Honble Member (Technical)
1. Whether Press Reporters may be allowed to see the No
Order for publication as per Rule 27 of the CESTAT
(Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the No
CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether their Lordships wish to see the fair copy of Seen
the order?
4. Whether order is to be circulated to the Departmental Yes
authorities?
Appellant:
M/s Gujarat Maritime Board
Respondent:
CCE Bhavnagar Represented by:
For Assessee: Shri V. Sridharan, Sr.Advocate, Shri Jigar Shah, Adv.
Shri V.H. Singh, Chartered Accountant, Shri Anand Nainawati, Adv.
For Revenue: Shri S.K. Mall, Addl.Commissioner (A.R.) CORAM:
MR.M.V. RAVINDRAN, HONBLE MEMBER (JUDICIAL) MR. H.K. THAKUR, HONBLE MEMBER (TECHNICAL) Date of Hearing:12.03.13 Date of Decision:
ORDER No. /WZB/AHD/2013, dt._____________ Per: M.V. Ravindran
These two appeals are directed against Order-in-Original No.43/BVR/ Commissioner/2009, dt.16.07.2009.
2. Since both the appeals are against the same impugned order, these are being disposed by a common order.
3. The relevant facts that arise for consideration are that M/s Gujarat Maritime Board (hereinafter referred to as appellant), is a statutory body constituted under Gujarat Maritime Board Act, 1981.The appellant being a statutory authority under the Act, administers and operates minor ports, in the State of Gujarat. By the said authority granted to the appellant, the appellant collects shipping and landing fees for cargo handled at water front/port/captive jetty in the State of Gujarat. The appellants have prescribed the rate of shipping and landing fees and other charges in the schedule of port charges, which has been notified. As per the policy drafted by the Government of Gujarat for development of minor port, the appellant entered into an agreement with M/s Ultratech Cement Ltd. (hereinafter referred to as M/s UCL), wherein a licence was given to M/s UCL to construct and use captive jetty near to their factory premises. As per terms and conditions of ownership of structures/construction vested with the appellant and the licencee i.e. M/s UCL; did not have any title, interest or other proprietary rights in respect of such construction. To put it other way, M/s UCL got the rights to use the structures built up by them, but not the ownership of the said structures, the appellant herein did not provide any services in respect of the said captive jetty as the operation and maintenance of said captive jetty written submissions the responsibility of licencee M/s UCL, as per clauses in agreement (Clause 22), licencee M/s UCL has to pay shipping and landing fees (popularly known as wharfage charges) @ 20% of the actual landing and shipping fees, specified in the schedule of port charges prescribed for captive jetty by the appellant. This concession was called as rebate in the said agreement and it was agreed that it will be set off against capital investment made by M/s UCL for constructing a jetty. It is also indicated that said agreement that once capital investment is negatived, M/s UCL shall have to pay the landing and shipping fees at normal rate as prescribed in the schedule of port charges in force from time to time for captive jetty. The appellant herein collected 20% of the actual landing and shipping fees from M/s UCL, as was notified/prescribed from time to time for captive jetty. The appellant has paid Service Tax on such land and shipping fees collected by them from the licencee M/s UCL under the taxable category of port services. The Revenue authorities initiated investigations against the appellant for under-valuation and short payment of Service Tax liability. After recording various statements of individuals, the Revenue authorities came to conclusion that during the period from 01.07.2003 to 31.03.2008, the appellants had not included the amount which was to be granted as rebate to M/s UCL for discharge of Service Tax liability and also has not included the amount received by them as lease rent for water front charges and lee way facility given to M/s UCL. Coming to such conclusion, show cause notice dt.03.02.2009 was issued to the appellant by invoking extended period of limitation. The show cause notice also proposed to charge interest and penalty under Section 76, 77 and 78 of Finance Act, 1994. The appellants herein contested the issue on merit as well as on limitation. The adjudicating authority, after following the due process of law, confirmed the demand raised, interest thereof and imposed penalties under Section 77 & 78 but dropped the imposition of penalty under Section 76 of Finance Act, 1994. The appellant, aggrieved by such an order, has filed an appeal. The Revenue is also aggrieved by such an order for dropping of such penalty under Section 76 of Finance Act, 1994 and has filed an appeal against very same order.
4. Ld.Sr.Counsel Shri V. Sridharan, on behalf of the appellant, submitted as under:
4.1 Service Tax is a contract based levy. The amount of rebate which is not received by the appellants cannot be brought to tax.
4.1.1 As per the port policy of State Government of Gujarat, the appellants have given licence/right to construct and operate captive jetty to M/s Ultratech Cement Ltd. The appellants prescribe the rates for various services provided by them at various places which include charges to be levied for captive jetties. The appellants have collected only 20% of such notified charges for captive jetties from the licensee. M/s Ultratech Cement Ltd has paid that amount only to the appellants. The appellants have raised the invoices showing that amount only as the charges for services and paid Service Tax on that. The appellants have also filed an affidavit of the Finance Controller of the appellants that they have shown as income only that amount which is charged to the recipient of services i.e. M/s Ultratech Cement Ltd. The case of the Department is that the appellants should have paid Service Tax on 100% of notified rate for captive jetties. The undisputed fact in this case is that the appellants have, in fact, collected only 20% of the notified rate for captive jetties from the licencee M/s Ultratech Cement Ltd. In other words, the Department has demanded Service Tax on that amount which is never received by the appellants.
4.1.2 The appellants further submit that the schedule of port charges published by them is having a specific clause that where the operator of a captive or private jetty has entered into an agreement with the appellants, the terms and conditions of such agreement would prevail over the Schedule of Port Charges to the extent there is an inconsistency/difference between the two. In other words, the charges actually levied/collected by the appellants alone will form the consideration for the services. The rebate amount granted by the appellants, which is never received/collected by the appellants cannot be added for service tax valuation purposes.
4.1.3 The appellants submit that the Service Tax is a contract based levy. It is solely governed by the terms and conditions of the contract entered into by the parties. The appellants rely on the decision of Honble Supreme Court in the case of Moriroku UT India (P) Ltd. Vs State of UP 2008 (224) ELT 365 (SC), wherein the Honble Court has observed as under:-
13.?Valuation is a matter of principle. Under Section 4 of the 1944 Act, the basis of valuation is the transaction value for each removal. Section 4 lays down the method for arriving at the assessable value for levying excise duty. It refers to taxing the value. Therefore, Section 3 of the 1944 Act is the charging section which creates the liability to pay excise duty whereas Section 4 deals with assessment or quantification of liability ad valorem. Under Section 4, duty of excise is chargeable with reference to the value of excisable goods and Value is defined by Section 4. The price charged by the manufacturer on sale by him represents the measure of that value, therefore, in the judgment of this Court in the case of Union of India and Ors. v. Bombay Tyre International Ltd. reported in [AIR 1984 SC 420] it has been held that under the excise law, prices and sale are related concepts. In that judgment, it has been further observed that price under the excise law has a definite connotation. That, the value of an excisable article has to be computed with reference to the price charged by the manufacturer, the computation being made in terms of Section 4. Therefore, Section 4 of the 1944 Act requires the Department to find out the real value of the excisable article. As stated above, excise law is a tax on value. This is the most important distinction between the excise law and the sales tax law.
4.1.4 In case of Service Tax also, there is no concept like intrinsic value of services. Service Tax is levied on the amount charged/received/ collected from the customers. The above view taken by Honble Supreme Court is fully applicable to Service Tax provisions also. Therefore, for this reason, the demand is liable to be set aside.
4.1.5 Hon'ble Bombay High Court in the case of Inox Air Products Ltd Vs UoI in Central Excise Appeal No.19 of 2012 observed as under:
10. Perusal of the? aforesaid provision would show that where the consideration for the services rendered is in terms of money, then the gross amount charged by the service provider would be the value of taxable service. But, where the consideration for rendering the service is charged partly in terms of money and partly in kind, then, the value of taxable service would be the money actually received plus the money equivalent to the consideration received in kind. In the present case, it is the case of the Revenue that since the electricity is supplied free of cost for maintaining and operating the equipments, the cost of electricity supplied shall form part of the consideration received in kind and, hence, the cost of electricity supplied free of cost is liable to be included in the taxable service.
11.?Prima facie, we find it difficult to accept the argument of the Revenue that the electricity supplied free of cost is a consideration in kind received by the assessee from its customers. Admittedly, the electricity supplied free of cost is meant to be consumed in the manufacture of oxygen and admittedly the oxygen so manufactured is used by the customers in the manufacture of their final product. It is the customers of the assessee who clear the final product on payment of duty and no benefit accrues to the assessee on such clearances. Thus, the electricity supplied free of cost by the customers to the assessee does not in any way amount to additional consideration received by the assessee in kind.
12. The fact that? the cost of electricity used in the manufacture of oxygen has to be considered in determining the excise duty payable on oxygen does not mean that the cost of electricity used in the manufacture of oxygen has also to be considered in determining the value of taxable services because the excise duty is on manufacture, where as, service tax is on the value of consideration received in cash or kind for the services rendered. Therefore, unless the cost of electricity supplied free of cost constitutes the consideration received by the assessee, the cost of electricity would not be includible in the value of taxable service.
13. Instead of? supplying the electricity free of cost for the manufacture of oxygen, if the customers were to permit the assessee to purchase electricity from third parties and the customers were to reimburse the cost of electricity, it could not be said that the cost of electricity reimbursed constituted consideration received by the assessee for rendering the services. Similarly, if electricity is supplied free of cost for the manufacture of oxygen and the said oxygen belongs to the customer, then, it cannot be said that the cost of electricity constitutes the consideration in kind received by the assessee. 4.1.6 Recently, Hon'ble Delhi High Court in the case of Intercontinental Consultants and Technocrats Pvt. Ltd2012-TIOL-966-HC-DEL-ST = 2013 (29) STR 9 (Del.), has held that reimbursement of expenses cannot be brought charge under Section 66 of Finance Act, 1994. The relevant extract of the said decision is given below.
10.?The contention of the petitioner that Rule 5(1) of the Rules, in as much as it provides that all expenditure or costs incurred by the service provider in the course of providing the taxable service shall be treated as consideration for the taxable service and shall be included in the value for the purpose of charging service tax goes beyond the mandate of Section 67 merits acceptance. Section 67 as it stood both before 1-5-2006 and after has been set out hereinabove. This section quantifies the charge of service tax provided in Section 66, which is the charging section. Section 67, both before and after 1-5-2006 authorises the determination of the value of the taxable service for the purpose of charging service tax under Section 66 as the gross amount charged by the service provider for such service provided or to be provided by him, in a case where the consideration for the service is money. The underlined words i.e. for such service are important in the setting of Sections 66 and 67. The charge of service tax under Section 66 is on the value of taxable services. The taxable services are listed in Section 65(105). The service provided by the petitioner falls under clause (g). It is only the value of such service that is to say, the value of the service rendered by the petitioner to NHAI, which is that of a consulting engineer, that can be brought to charge and nothing more. The quantification of the value of the service can therefore never exceed the gross amount charged by the service provider for the service provided by him. Even if the rule has been made under Section 94 of the Act which provides for delegated legislation and authorises the Central Government to make rules by notification in the official gazette, such rules can only be made for carrying out the provisions of this Chapter i.e. Chapter V of the Act which provides for the levy, quantification and collection of the service tax. The power to make rules can never exceed or go beyond the section which provides for the charge or collection of the service tax.
18.?Section 66 levies service tax at a particular rate on the value of taxable services. Section 67(1) makes the provisions of the section subject to the provisions of Chapter V, which includes Section 66. This is a clear mandate that the value of taxable services for charging service tax has to be in consonance with Section 66 which levies a tax only on the taxable service and nothing else. There is thus inbuilt mechanism to ensure that only the taxable service shall be evaluated under the provisions of 67. Clause (i) of sub-section (1) of Section 67 provides that the value of the taxable service shall be the gross amount charged by the service provider for such service. Reading Section 66 and Section 67(1)(i) together and harmoniously, it seems clear to us that in the valuation of the taxable service, nothing more and nothing less than the consideration paid as quid pro quo for the service can be brought to charge. Sub-section (4) of Section 67 which enables the determination of the value of the taxable service in such manner as may be prescribed is expressly made subject to the provisions of sub-section (1). The thread which runs through Sections 66, 67 and Section 94, which empowers the Central Government to make rules for carrying out the provisions of Chapter V of the Act is manifest, in the sense that only the service actually provided by the service provider can be valued and assessed to service tax. We are, therefore, undoubtedly of the opinion that Rule 5(1) of the Rules runs counter and is repugnant to Sections 66 and 67 of the Act and to that extent it is ultra vires. It purports to tax not what is due from the service provider under the charging Section, but it seeks to extract something more from him by including in the valuation of the taxable service the other expenditure and costs which are incurred by the service provider in the course of providing taxable service. What is brought to charge under the relevant Sections is only the consideration for the taxable service. By including the expenditure and costs, Rule 5(1) goes far beyond the charging provisions and cannot be upheld. It is no answer to say that under sub-section (4) of Section 94 of the Act, every rule framed by the Central Government shall be laid before each House of Parliament and that the House has the power to modify the rule. As pointed out by the Supreme Court in Hukam Chand v. Union of India, AIR 1972 SC 2427 :-
The fact that the rules framed under the Act have to be laid before each House of Parliament would not confer validity on a rule if it is made not in conformity with Section 40 of the Act. 4.1.7 The above interpretation of Section 67 of Finance Act, 1994 by the Courts clearly shows that the amount which is not received by the appellants cannot be considered as consideration for the services rendered or gross amount charged for the services rendered. Therefore, the entire demand is liable to be set aside.
4.2 Internationally, it is well accepted principle that when a service recipient provides something to the service provider as free of costs, then, the value of supply provided free of costs cannot be added to the value of the services of service provider. The case of the Department in the present dispute appears to be that as it may be the licensee i.e. M/s Ultratech Cement Ltd has constructed the captive jetty which is an asset of the appellants and therefore the jetty rebate given by the appellants to the licensee, may be treated as consideration for the free supply of construction services to the appellants. The licensee i.e. M/s Ultratech Cement Ltd has created a right in their favour only not supplied anything to the appellants. It is true that the ownership of the jetty/infrastructure vests with the appellants but the right to exploit the assets created is always with M/s Ultratech Cement Ltd. M/s Ultratech Cement Ltd has got right to use those assets. That right itself is an asset for M/s Ultratech Cement Ltd.
4.2.1 In the present case, the licensee i.e. M/s Ultratech Cement Ltd has created/constructed the captive jetty for their own business purposes and created right to use the same for a specified period. That cannot be treated as consideration for the services to the appellants. For this reason also, the entire demand is liable to be set aside.
4.3 The issue is squarely covered by the recent decision of Honble CESTAT Bangalore in the case of Cochin Port Trust, which holds that no tax at all is payable.
4.3.1 The Cochin Port Trust entered into an agreement with M/s India Gateway Terminal Pvt.Ltd. for operation and maintenance at port. The Cochin Port Trust also entered into an agreement with M/s IGTL to develop and operate a terminal called Rajiv Gandhi Container Terminal (RGCT) in the port area. The agreement was for the period of 30 years and as per the agreement, IGTL shall pay to the Cochin Port Trust a royalty @ 33.33% of the gross revenue earned from such operations. The case of the Department in that case was that the said royalty received by Cochin Port Trust is liable to tax under the taxable category of Port Services.
4.3.2 The Tribunal held as under:
5.?We have carefully perused the case records and considered the rival submissions. We have also heard the learned SDR for the revenue. We find as follows:
5.1?The impugned demands are under port services rendered by CPT. The relevant entry in clause 82 of Section 65 of the Act read as under during the period of dispute :
Port service means any service rendered by a port or other port, or by such port or other port, in any manner in relation to a vessel or goods. The royalty amounts were paid by IGTPL @33.33% of its gross revenue under its agreement with CPT. This amount was paid by IGTPL to CPT for allowing it to develop and operate Rajiv Gandhi Container Terminal at the port premises. We do not find any logic in treating CPT allowing IGTPL, to develop and operate the container terminal as an activity falling under port services. The royalty received by the appellant is not a consideration for any port services rendered by CPT. If at all IGTPL pays service tax as demanded, the same will be available to it as cenvat credit, and can be used to meet its liability on services rendered by it. We find the impugned demand not liable to be sustained. 4.3.3 In the present case, the appellants have given license to construct and operate captive jetty to M/s Ultratech Cement Ltd. The appellants have received the amount as wharfage charges which are nothing but royalty to give license to construct and operate captive jetty. The ratio laid down by Honble Tribunal in the case of Cochin Port Trust (supra) is squarely applicable to the facts of the present case. The amount received by the appellants as wharfage charges are nothing but royalty for allowing M/s Ultratech Cement Ltd to construct and operate the captive jetty. The said consideration cannot be covered under the definition of Port Services. In view of this, the entire demand is liable to be set aside.
4.3.4 The above position is accepted by the Board in Circular F.No.B-II/I/2000-TRU, dt.09.07.2001. In Para 2.2.of the said circular, it is clarified as under:
2.2 All these charges form part of taxable value of port service. Demurrage charges are recovered by port authority for storage of goods. The fact that these charges apply only if the goods overstay a prescribed free period, does not detract from their being in the nature of a charge for providing a service in relation to goods. Accordingly they would form part of taxable value. The Dock Labour Board is liable to pay Service Tax on the labour charges recovered by them. However, estate rentals of the port which is charged for renting of accommodation provided to outsiders and port users, lease rental for land, etc will not be liable to Service Tax as these are not services rendered in relation to goods or vessels. For any other charge not mentioned above, the Commissioner may decide the inclusion/exclusion in the value of taxable service on merits. 4.3.5 It is clear from the facts mentioned above that the appellants have not provided any services in relation to vessel or goods and therefore, as per the Board Circular also it cannot be covered under the definition of Port Services. The entire demand is liable to be set aside.
4.4 The appellants have discharged their sovereign function by giving right to construct and operate captive jetty. No Service Tax can be demanded on amount received for discharging sovereign function.
4.4.1 Article 246 of the Constitution of India prescribes subject matter of laws made by Parliament and by the legislatures of states. Article 246(2) states as under:
(2) Notwithstanding anything in clause (3), Parliament and, subject to clause (1), the Legislature of any State also, have power to make laws with respect to any of the matters enumerated in List III in the Seventh Schedule (in this constitution referred to as Concurrent List). 4.4.2 Accordingly, vide Entry No.31 of List III of the Seventh Schedule the State Government is empowered to make laws for ports other than those declared by or under law made by Parliament or existing law to major ports.
4.4.3 The State Government of Gujarat has enacted Gujarat Maritime Board Act, 1981 in view of the power given to it by Entry No.31 of List III of the Seventh Schedule to the Constitution of India. The appellants are a body constituted under the provisions of Gujarat Maritime Board Act, 1981 to administer minor ports within the state. The shipping and landing fees are collected by the appellants under the provisions of Gujarat Maritime Board Act, 1981.
4.4.4 Honble Supreme Court in the case of appellants itself, reported at 2007 (14) SCC 704, the Honble Supreme Court observed as under:
7. As can be seen from the preamble of the 1981 Act, it is clear that the Board has been constituted, inter alia, for purposes of development and maintenance of minor ports. Under the said Act, the maritime Board also renders services like stevedoring, transport of goods, storage, shipping etc. It is also in charge of upkeepment of jetties, wharfs, roads, lights etc. However, the main object of the said Act is development of minor ports in the State of Gujarat. The income, accruing to the Maritime Board, including reserves and surplus are also required to be deployed and credited to a separate fund to be utilized for development of minor ports within the State. In this connection, we quote Sections 73, 74 and 75 of the 1981 Act herein below which read as under . 4.4.5 In view of the above, the appellants submit that there cannot be levy of Service Tax on shipping and landing fees collected by them as the charges are collected for discharging sovereign function assigned to them under the scheme of Constitution.
4.4.6 The above principle is accepted by CBEC vide Circular No.89/7/2006-ST dt.18.12.2006. The relevant extracts are as under:
2. The issue has been examined. The Board is of the view that the activities performed by the sovereign/public authorities under the provision of law are in the nature of statutory obligations which are to be fulfilled in accordance with law. The fee collected by them for performing such activities is in the nature of compulsory levy as per the provisions of the relevant statute, and it is deposited into the Government treasury. Such activity is purely in public interest and it is undertaken as mandatory and statutory function. These are not in the nature of service to any particular individual for any consideration. Therefore, such an activity performed by a sovereign/public authority under the provisions of law does not constitute provision of taxable service to a person and, therefore, no service tax is leviable on such activities. 4.4.7 The same view is reiterated in Master Circular dt.23.08.2007, which is as under:-
999.01/ 23/8/07 Sovereign/public authorities perform functions assigned to them under the law in force, known as statutory functions.
For example, 7 Regional Reference Standards Laboratories (RRSL) undertake verification, approval and calibration of weighing and measuring instruments;
7 Regional Transport Officers (RTO) issue fitness certificate to motor vehicles;
7 Directorate of Boilers inspects and issues certificates for boilers; or 7 Explosive Department inspects and issues certificate for petroleum storage tank, LPG/CNG tank in terms of provisions of the relevant laws.
Authorities providing such functions, required to be performed as per law, may collect specific amount or fee and the amount so collected is deposited into government account.
Whether such activities of a sovereign / public authority, performed under a statute, can be considered as provision of service for the purpose of levy of service tax and the amount or fee collected, if any, for such purposes can be treated as consideration for the services provided?
Activities assigned to and performed by the sovereign / public authorities under the provisions of any law are statutory duties. The fee or amount collected as per the provisions of the relevant statute for performing such functions is in the nature of a compulsory levy and are deposited into the Government account.
Such activities are purely in public interest and are undertaken as mandatory and statutory functions. These are not to be treated as services provided for a consideration. Therefore, such activities assigned to and performed by a sovereign / public authority under the provisions of any law, do not constitute taxable services. Any amount / fee collected in such cases are not to be treated as consideration for the purpose of levy of service tax.
However, if a sovereign/ public authority provides a service, which is not in the nature of statutory activity and the same is undertaken for a consideration (not a statutory fee), then in such cases, service tax would be leviable as long as the activity undertaken falls within the scope of a taxable service as defined 4.4.8 The same views were reiterated in FAQ 2008 dt.04.12.2008 issued by DGST which is as under:
8.6 Is there any exemption from payment of Service Tax if the receiver/provider of the service is the Central/State Government organization and Public Sector Undertakings?
8.6.1 No. There is no such exemption. All service providers, including the Central/State Government Organizations and the Public sector undertakings rendering the specified taxable service, are liable to pay Service Tax.
8.6.2 If a Government Department (sovereign)/public authorities performs any mandatory or statutory function under the provisions of any law and collect any fees, such activity shall be treated as activity purely in public interest and will not be taxable.
8.6.3 If such authority performs a service, which is not in the nature of statutory activity, for a consideration, the same shall be taxable.
8.6.4 However, the taxable services provided by a Banking company or a financial institution including a non banking financial company, or any other body corporate or any other person, to the Government of India or the Government of a State, in relation to collection of any duties or taxes levied by the Government of India or the Government of a State, are exempted from payment of Service Tax. (Notifn.No.13/2004-S.T., dt.10.09.2004 as amended). 4.4.9 The same views were reiterated in FAQ 2010 dt.01.9.2010 issued by DGST which are as under:
8.6 Is there any exemption from payment of Service Tax if the receiver/provider of the service is the Central/State Government organization and Public Sector Undertakings?
8.6.1 No. There is no such exemption. All service providers, including the Central/State Government Organisations and the Public sector undertakings rendering the specified taxable service, are liable to pay Service Tax.
8.6.2 If a Government Department (sovereign)/public authorities performs any mandatory or statutory function under the provisions of any law and collect any fees, such activity shall be treated as activity purely in public interest and will not be taxable. (Refer Boards Circular No.96/7/2007-S.T., dt.23.08.2007) 8.6.3 If such authority performs a service, which is not in the nature of statutory activity, for a consideration, the same shall be taxable.
8.6.4 However, the taxable services provided by a banking company or a financial institution including a non banking financial company, or any other body corporate or any other person, to the Government of India or the Government of a State, in relation to collection of any duties or taxes levied by the Government of India or the Government of a State, are exempted from payment of Service Tax. (Notifn.No.13/2004-S.T., dt.10.09.2004 as amended). 4.4.10. The appellants also place reliance on Tribunal decision in the case of CCE Vs CMC Limited 2007 (7) STR 702 (Tri-Bang). In that case, the demand was raised on the assessee on the ground that the assessee has provided photography services to Election Commission of India for photo identity cards to be issued by Election Commission of India. The Tribunal observed as under:
8.?We have carefully considered the submissions and we note from the Stay Order given in these matters that the activity carried out by the parties are sovereign activity performed by the State functionaries. The Office of the Chief Election Commission is constituted under the Constitution of India. They are not carrying out the activity of photographic service by issuing Electors Photo Identity Cards. The issue of Electors Photo Identity Cards cannot be considered as Photo Identity falling within the definition of Photographic Service as per Section 65(78) as well as Section 65(79). The Circular referred to by the Counsels clearly apply to the facts of the case. Furthermore, the Tribunal, in the case of CCE v. Ankit Consultancy Ltd. (cited supra), has clearly held that any activity performed by a State organ to discharge the sovereign activity of the State cannot be brought under the tax limit. This finding is also supported by the Circulars noted supra. Further, it is seen that the Boards Circular No. 141/52/95-CX and 195/20/CX views this activity to bring them under the definition of goods for exigibility. There is no merit in the Revenue appeals and the same are rejected and the appeal of M/s. Bajarang Infotech Systems Pvt. Ltd. is allowed with consequential relief, if any. 4.4.11 The appellants also place reliance on Electrical Inspectorate, Government of Karnataka Vs CST Banglore 2008 (9) STR 494 (Tri-Bang), wherein it was held as under:
6.?On a careful consideration, we notice that the appellant is a State Government Department. It is carrying on sovereign activity of inspection and certification of electrical installations in terms of special legislations. Revenue has proceeded on the ground that these activities come under the heading of Technical Inspection and Certification Services. This is contested by the appellant on the ground that the activity has to be performed in terms of Electricity Act and the Government Department has to carry on this activity as a sovereign function and the activities of Government performed as a statutory sovereign function cannot be subject matter for levy of Service Tax. This plea has been rejected by the lower authorities including the Circular issued by the department clarifying that statutory functions performed by State Government cannot be subject matter for levy of Service Tax. The plea made by a similar assessee has been accepted in the case of CPRI (supra) and demand of duty has been set aside. A similar view was expressed in the case of CCE v. CMC Ltd. (supra). In this citation, the Board Circular have also been relied which upheld the contention that performance of sovereign duty under the Constitution of India is required to be treated as an activity of the State, which cannot be considered as services for levy of Service Tax. The ratio of this judgment was on the basis of the earlier judgment rendered in the case of CCE v. Ankit Consultancy Ltd.(supra). In view of these judgments which have a direct bearing on this case, the plea raised by the appellant that the State Government Department is not liable for levy of Service Tax is upheld, as sovereign function cannot be subject matter of Service Tax. The Board circular referred to by the appellant is on beneficial Circular and it will have retrospective effect as held in the case of Suchitra Components Ltd. v. CCE (supra). Furthermore, the assessee held a bonafide view that their statutory and legislative functions was beyond the ambit of Service Tax. Therefore, such bonafide held by them has to be accepted for the purpose of granting the benefit of time bar in terms of Supreme Court ruling cited by the learned counsel noted supra. Appellants succeed in this case for the reasons noted supra and in the light of the judgments cited supra and hence, the appeal is allowed. 4.4.12 Similar views were taken in another case of CCE Vs Software Enterprise Ltd. 2008 (10) STR 367 (Tri-Bang), wherein it was held as under:
4.?We have considered the submissions. We find that the issue in this case has already been decided in terms of Final Order rendered in the case of CCE, Hyderabad v. M/s. Bajarang Infotech Systems Pvt. Ltd. & M/s. CMC Limited & Others by Final Order No. 779 to 782/2007 dated 23-7-2007 [2007 (7) S.T.R. 702 (T)]. The order also covers the cases of M/s. CMC Ltd. and M/s. Kerala State Electronics Development Corporation Ltd. This Tribunal after due consideration and also applying the ratio of CCE, Indore v. Ankit Consultancy Ltd. - 2007 (6) S.T.R. 101 (Tri. - Del) has held that the activity of preparing elector photo identity cards cannot be considered to fall within the ambit of photographic services as per Section 65(78) as well as Section 65(79) of the Finance Act. We find that the issue is fully decided in assessees favour. The impugned order passed by the Commissioner (A) is legal and proper. There is no merit in this appeal and the same is rejected. 4.4.13 It is clear from the above facts and observation of Honble Supreme Court that the appellants are a statutory body and discharging the functions under Gujarat Maritime Board Act, 1981. The functions carried on by the appellants are sovereign functions and no Service Tax can be levied on same.
4.5 The entire demand is time barred as there is no malafide on the part of the appellants. For the same reason, penalty under Section 78 also cannot be imposed.
4.5.1 The appellants are wholly owned undertaking of the State Government. The appellants cannot have any malafide to evade the payment of tax. Therefore, extended period of limitation cannot be invoked in the present case.
4.5.2 Even if it is assumed that the appellants are liable for payment of tax on normally prescribed wharfage charges, then also M/s Ultratech and M/s Ambuja Cement would have availed the same as CENVAT Credit. As the entire amount of tax was otherwise eligible as CENVAT Credit, there cannot be any malafide on the part of the assessee. Even otherwise, it is clear that the matter is one of interpretation of statutes. In case of matter involving interpretation of statutes, there cannot be any mala fide on the part of the assessee and extended period of limitation cannot be invoked.
4.5.3 The ingredient for invoking extended period and imposing penalty under Section 78 are same. Once the appellants have proved that there is no mala fide, willful mis-statement or suppression on their part, penalty under Section 78 also cannot be imposed. The appellants rely on recent decision of Honble Tribunal in the case of Royal Travels Vs CCE 2011 (21) STR 31 (Tri-Ahmd).
4.6 Section 80 is invocable in the present case:
4.6.1 Without prejudice to the submissions made above, as the matter is one of interpretation of legal issues, there is reasonable cause on the part of the appellants not to pay Service Tax.
4.6.2 Since there is reasonable cause and the issue involved is interpretation of the complex legal provisions, the appellants pray that Section 80 of Finance Act, 1994 may be invoked in the present case and no penalty be imposed on the appellants.
5. Ld.Additional Commissioner (A.R.), would contest the submissions made by ld.Sr.Counsel and also defended the order of the adjudicating authority on the following grounds:-
5.1 Wharfage:
The very first submission of GMB on this issue was that this activity cannot be subjected to levy of Service Tax as what they are doing is only in discharge of their sovereign function. This argument has no merit on account of the following grounds.
a) This ground was never raised by GMB, either before the adjudicating authority or in their appeal memo before the CESTAT. They have never filed any application before the Bench seeking its permission to raise this ground. Hence, in keeping with Rule 10 of CEGAT (Procedure) Rules, 1982, they should not be allowed to raise this issue at this juncture. Reliance is placed on the decision of CESTAT in the case of Vohra Dyeing Vs CCE 2010 (259) ELT 605 (Tri-Del).
b) The port services performed at the major ports were brought under the Service Tax net in 2001. The port services at minor ports were brought under tax net from 01.07.2003.
Since in the present case, GMB is providing the port service to an individual (M/s L&T) and charging a consideration in lieu of the same by raising an invoice, this activity is covered under the ambit of service tax, as per aforesaid circular of CBEC.
A proposition supported by the order of Tribunal, in the case of Karnataka State Warehousing Corporation Vs CST Bangalore 1010 (19) STR 32 (Tri-Bang.), dealing with a similar contention of the appellant therein, has relied upon the aforesaid circular of CBEC.
In the instant case, the very fact that GMB has the authority to delegate its function of providing services at the port to others, clearly indicate that the function it is performing at L&T jetty is not a sovereign function. In fact, in Gujarat, under the jurisdiction of GMB itself, there are ports which are in the private sector (GAPL, Mundra) and joint sector (Gujarat Pipavav Port) where these services are not performed by GMB but by third parties.
c) Air India, Indian Railways and Department of Telecom, which are created by statute only, has/had absolute monopoly over certain services being provided by them. These entities are still covered under Service Tax net because what they are providing is service/amenity which cannot be presented as the sovereign function of the Government. Similar is the case with GMB also.
5.1.2 The second argument raised by the appellants was that they are not providing any taxable service to M/s UCL as they dont provide any personnel or equipments to M/s UCL at the jetty and everything is arranged by M/s L&T themselves. This argument has no merit about it for the following reasons:-
a) In the present case, as far as wharfage is concerned, there was never any dispute regarding taxability of the wharfage services. M/s GMB has all along been collecting wharfage charges from M/s L&T and paying Service Tax as per their calculation. The case of the Department was simply that GMB has not been paying Service Tax on gross wharfage charges collected. The jetty, even though initially constructed at the expense of M/s L&T, was always a property of GMB, as per the agreement between the two of them. Hence, it was always understood between the two of them that GMB was the service provider and L&T was the service recipient. That is why L&T have been paying due Service Tax on 20% of the wharfage to GMB and GMB, in turn, has been paying the Service Tax to the Government and also filing returns. The dispute on this issue was only one of valuation.
b) As per Ministrys letter F.No.B.11/1/2001-TRU, dt.09.07.2011, issued when port services were first brought under tax net, it was clarified that, inter alia, wharfage for general cargo and berthing and mooring charges, are part of port services. Honble Supreme Court in the case of Commissioner of Trade Tax, U.P. Vs Kajaria Ceramics 2005 (191) ELT 7 (SC) has, in Para 28 of its judgment, held that Departmental circulars are contemporaneous official expositions which can be used as an aid to interpret the intention of notifications and recent statute. Hence, the Departments aforesaid circular, laying down that wharfage is a part of port service, has to be relied upon to interpret the true ambit of Port Service.
c) Section 37 of the Gujarat Maritime Board Act, 1981 lists Services in respect of which GMB may frame a schedule of rate. Landing and shipping of goods from or to vessels and wharfage, inter alia, are some of the services listed therein. Hence, the GMB Act itself envisages landing/shipping/wharfage as services. Hence, the same will be definitely covered under the ambit of Port services definition of which states that any service provided in any manner rendered by the port or person authorized by it in relation to vessel or goods, is a port service.
d) In a similar case of a minor port where service was being provided by GMB to its clients, while dealing with the issue as to whether storage service can be taxed under storage and warehousing service, the Honble Tribunal, in the case of Gujarat Chemical Port Terminal Vs CCE Vadodara-II 2008 (9) STR 386 (Tri-Ahmd), after enumerating the different services to be provided at the ports as per Section 42 of the Major Port Trusts Act, 1963 (which is akin to Section 37 of GMB Act, 1981).
That, mere storage of the goods has been held to be a port service, relying upon the services listed in Section 42 of the Major Port Trust Act. Hence, the services of landing/shipping of goods/wharfage, which are all listed in the said Section as well as Section 37 of GMB Act, 1981, will all fall under the ambit of Port Services.
e) The preamble of the agreement dt.28.02.2000 between M/s GMB and M/s L&T clearly details the purpose of the agreement and the details of the services involved, in the following words Whereas the Licensee approached the Board (GMB) for permission for construction and use of a captive Jetty at Pipavav in the State of Gujarat on a license basis for the purpose of handling, storage and transportation of raw materials for manufacturing and finished products that are manufactured by the Licensee. In view of the above stated purpose of the agreement, the argument that no service is being provided at the jetty is a fallacious argument.
f) Schedule D of the scale of rates, as fixed by GMB, according to which only they are calculating the wharfage to be charged from M/s L&T and the rebate to be granted, clearly mentions that "all cargo that is actually landed and shipped at berths, jetties, wharfs, quays or piers at Gujarat Maritime Board ports, shall be liable to pay wharfage charges as per the following table".
This clearly indicates that the charges being collected by GMB from M/s L&T are in respect of landing and shipping only and that the port is a GMB Port only.
5.1.3 Another argument of M/S GMB is that, at the captive Jetty, M/s L&T are providing services to themselves and hence the same cannot be levied to service tax. This argument is not tenable on the following grounds:-
a) As mentioned at Para (A)(2)(i) above, the jetty even though initially constructed at the expense of M/s L&T, was always a property of GMB, as per the agreement between the two of them. Hence, it was always understood between the two of them that GMB was the service provider and L&T was the service recipient. That is why L&T has been paying due Service Tax on 20% of the wharfage to GMB and GMB, in turn, has been paying the service tax to the Government and also filing returns.
b) Since the jetty, initially funded by L&T, is always a property of the GMB (clauses 12 and 18 of the agreement between GMB and L&T refer), it is only the GMB which can, as the owner of the jetty, provide the services of landing/shipping etc.
c) Clause 17 of the said agreement lays down that "In consideration of the Board permitting the Licensee to construct the captive jetty at its own cost initially, the Board hereby agree that the Jetty to be so constructed by the Licensee shall be mainly and initially as per the terms of this agreement, allowed to be used for the vessels belonging to the Licensee or chartered by the Licensee, on preferential basis without any ousting priority.."
The use of the expression "allowed to be used" clearly means that, as the owner of the jetty, it is GMB which has allowed the landing/shipping of the goods of L&T and, hence, it can never be argued that M/s L&T are providing port services unto themselves. This is further clear from Para 18 of the said agreement which stipulates that "... it is further agreed that the Jetty shall, when it is not in use by the Licensee, be open to use by the Board for itself or for traffic being regulated by the Board for the purpose of loading and discharging cargo."
This makes it clear that the jetty is a property of GMB and only they can allow the use of the jetty for landing/shipping of cargo belonging to L&T or to someone else. Hence, it is the GMB which is providing the service and not the L&T, who is merely a recipient of service.
d) Clause 21 of the agreement further clarifies that, apart from the concessions listed in clauses 22 and 24 of the said agreement, M/s L&T shall be liable to pay all the port charges and all other dues payable by the licensee to the Board. This clearly means that, as per the agreement itself, GMB is the service provider and L&T is the service recipient.
e) The appellant's arguments that the agreement between GMB and L&T is a BOOT (Build, Own, Operate, Transfer) contract and hence, L&T is the owner of the jetty, is a misleading argument. The preamble of the agreement (Para 3 on page 2 of the Agreement) clearly says that the Agreement is on Build, Transfer, Operate and Maintain basis. This is further amplified in clauses 12 and 18 of the agreement which make it absolutely clear that the ownership of the Jetty shall always vest with GMB. The major difference between a BOOT contract and the present one is that in a BOOT contract, the ownership of movable and immovable assets initially vests with the contractor investing money and the ownership is transferred at the end of the contract period (page 113 of Vol. II of Appellants' submission refers) while in the present case the ownership of the Jetty has always vested with GMB. Hence, all the submissions and the citations on the premise that the present agreement is a BOOT contract are misplaced and irrelevant.
f) The Appellants' other submission that because the depreciation of the cost of jetty is claimed by M/s L&T, the same will automatically mean that L&T are the owners of the Jetty, is also a fallacious one. As per Clause 14 of the Agreement, GMB has given a specific NO OBJECTION to M/s L&T in this regard, even while underlining, in a host of other clauses, that the ownership of the Jetty belongs to GMB. When the relationship between GMB and L&T is governed by a specific contract, the ownership of the jetty cannot be decided by inference, when clause after clause of the agreement lays down in unequivocal terms that the ownership of the Jetty will always vest with GMB.
In the case of Cochin Port Trust Vs Commissioner of C.Ex, Cochin -2011(21)STR 25 (Tri-Bang), which is heavily relied upon by the Appellants (GMB) and the Commissioner(Appeals) (in case of Departmental Appeal No.ST/403/2011), the ownership of the movable and immovable assets was with M/s IGTPL, who were providing port services to third parties and paying service tax on the same.
On account of this crucial difference in facts, the ratio of the decision in Cochin Port Trust case (supra), cannot be applied to the present cases. Honble Supreme Court, in the case of CCE, Calcutta vs Alnoori Tobacco Products - 2004(170) ELT 135(SC), has ruled that a decision should not be followed as precedent unless the facts of the cases are identical.
Hence, all attempts at trying to wriggle out of the tax net by M/s GMB, by claiming that the contract between GMB and L&T is a BOOT contract and by relying on the Tribunal's decision in case of Cochin Port Trust( supra) are unfounded and without any legal or factual basis.
5.1.4 Another argument of GMB is that they have correctly discharged service tax on the full taxable value as the 20% wharfage charged after adjusting 80% of Jetty rebate is the actual rate of wharfage charged by them and they have the power under the GMB Act, 1981 to prescribe a lower rate in special cases. They have also argued that as per condition No.5 in Schedule 1 of Notification dt.09.07.2003, prescribing the scale of rates, the terms and condition of agreement between GMB and M/s L&T would prevail over the Schedule of Port Charges to the extent there is any inconsistency/difference between the two. This argument is not tenable on the following grounds:-
a) The very Preamble of the agreement between GMB and L&T (Para 3 on page 2) states that "in consideration of the Licensee constructing a captive jetty at its cost initially to be adjusted against the Rebate..." which clearly suggests that the initial cost of the jetty, to be incurred by L&T has to be refunded back to L&T by the mechanism of jetty rebate.
Similarly, clause 13 of the agreement prescribes that whatever rebate and concession is granted by the Board against the cost of construction, the equivalent amount at the relevant time shall be utilised by the Licensee in repayment of loan so that at the end of the period of this agreement when the Licensee may not have right of rebate under this agreement, then the construction is free of any liability in respect of such loan."
Clause 24 of the agreement details the elements of the cost of construction which will be taken into account to work out the quantum of rebate.
Similarly clause 22 of the agreement prescribes that the rebate, which will be a. set off against the capital investment, will not be available once the capital investment has been recovered through the rebate and landing and shipping fees have to be paid at the normal rate thereafter.
All the above clauses in the agreement clearly show that rebate is only a mechanism of book adjustment between M/s L&T and GMB as L&T, on account of having invested in the jetty, which is a property of GMB from the word go, are entitled to recover from GMB the cost of construction. The amount of rebate can be called as recovery in lieu of capital investment by L&T only when the same is otherwise payable to GMB. It is also clear from the fact that, apart from granting rebate from wharfage, GMB is not paying any other sum to L&T in lieu of the capital investment by L&T.
b) It is agreed that, as per sections 40 and 41 of the GMB Act, 1981, GMB has the power to fix lower rates in special cases. However, Section 40 of the said Act grants this power only in respect of "coastal goods" and "other goods in special cases." Apart from the fact that, in the instant case, the jetty rebate is to a particular client and not to a class of goods. It is also important to note that the powers under Section 40 have not been exercised in this case as neither the Notification dated 9-7-2003 nor the agreement between the two parties invokes Section 40 of the GMB Act.
c) As per Conditions (1) & (2) given under Schedule D of notification of GMB dt.09.07.2003, prescribing the scale of charges for landing and shipping, full wharfage charges are to be paid before the landed goods are cleared from the jetty or the goods to be shipped are loaded on the vessel. However, since, in the instant case, M/s L&T are paying only 20% of the prescribed wharfage charges at the material time, on account of stipulations in the agreement between GMB and L&T, the same is allowed as per condition No.5 of Schedule-I of notification dated 9-7-2003. The said condition has no other import and can never be cited to advance the argument that 20% wharfage is the reduced rate charged from L&T.
d) The above point is further clarified by the explanation which is given at the end of Schedule D, which reads as under:-
It is clarified that in respect of captive jetties entitled for capital cost setoff against wharfage charges, the amount of set off and NET wharfage payable shall be computed with reference to the wharfage rate as prescribed in Column 4 as reduced by the coastal rebater. (Ref. Clause no.l0)"
This explanation makes it clear that there is no difference between the agreement and the Schedule D prescribing wharfage rates, and there is no need to rope in condition No 5 (supra) in the instant case. The said explanation also makes it clear that what L&T is paying is only the NET wharfage and not the actual wharfage.
e) The period involved in the appeal is from October 2003 to March 2006. The present issue, as far as wharfage charges are concerned, relates only to the correct value on which service tax has to be discharged.
Thus, as per Section 67 of the Finance Act, 1994 "the value of any taxable service shall be the gross amount charged by the service provider for such service rendered by him". The appellants have contended that the provisions of Section 67 which were made applicable in the show cause notice have been inserted w.e.f 18.04.2006 and that their case was covered by the provisions of the un-amended Section 67.
Thus, in view of the decision of the Tribunal in the case of Agrawal Colour, there is no major change in the essence of Section 67 except that the provisions after 18.04.2006 have been made more elaborate. Thus, the so called "rebate" which was actually no rebate from the prescribed rate of payment of port charges, but the same was only an adjustment from the standard rate in order to fully reimburse the cost of construction out of the receipts towards the port charges, cannot be allowed to be deducted from the value of taxable service for calculating the Service Tax liability.
f) The definition of taxable value under Section 67, as it stood during the material time of dispute in this case, was explained by means of certain explanations. Explanation (b) to section 67 reads as under:-
"Explanation.- For the removal of doubts, it is hereby declared that the value of a taxable service, as the case may be, includes,-
(a) ......
(b) the adjustments made by the telegraph authority from any deposits made by the subscriber at the time of application for telephone connection or pager or facsimile or telegraph or telex or for le