Custom, Excise & Service Tax Tribunal
Mormugao Port Trust vs Commissioner Of Customs, Central ... on 9 June, 2016
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT NO. II APPEAL NO. ST/86337, 86592/15 [Arising out of Order-in- Original No. GOA-EXCUS-000-COM-028-2014-15 dated 28-3-2015 passed by the Commissioner of Customs, Central Excise & Service Tax, Goa ] For approval and signature: Honble Mr Ramesh Nair, Member(Judicial) Honble Mr. C.J. Mathew, Member(Technical) =======================================================
1. Whether Press Reporters may be allowed to see : No
the Order for publication as per Rule 27 of the
CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the :
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3. Whether Their Lordships wish to see the fair copy : seen
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Mormugao Port Trust
:
Appellant
VS
Commissioner of Customs, Central Excise & Service Tax, Goa
:
Respondent
Commissioner of Customs, Central Excise & Service Tax, Goa
:
Appellant
VS
Mormugao Port Trust
:
Respondent
Appearance
Shri. V.K. Jain, Advocate with Ms. Isha Shah, Advocate for the Appellants
Shri. R. Kapoor, Commissioner (A.R.) with Shri. A.K. Goswamim Addl. Commissioner(A.R.) for the Respondent CORAM:
Honble Mr Ramesh Nair, Member(Judicial) Honble Mr. C.J. Mathew, Member(Technical) Date of hearing: 9/6/2016 Date of decision: 7/10 /2016 ORDER NO.
Per : Ramesh Nair These two appeals are directed against Order-in-Original No. GOA-EXCUS-000-COM-028-2014-15 dated 28.3.2015 passed by Commissioner of Central Excise, Goa Commissionerate, wherein the Ld. Commissioner has passed the following order.
i) I confirm the amount of Service tax of Rs.6,62,49,060/- , Education Cess of Rs.13,24,981/- and higher education cess of Rs.6,62,491/- totally amounting to Rs.6,82,36,532/- (Rs.SIx crores eighty two lakhs thirty six thousand five hundred thirty two only) demanded in the notice under proviso to Section 73(1) of the Finance Act, 1994.
ii) I demand interest at the appropriate rate under Section 75 of the Finance Act, 1994.
iii) I am not imposing any penalty under Section 76, 77 and 78, of the Finance Act, 1994 in terms of Section 80 of the Finance Act, 1984.
2. The facts of the case as recorded in the Show Cause Notice are that the Appellant, M/s. Mormugao Port Trust is rendering Port Services and is duly registered for this purpose with the service tax authorities. The Notice contends that, the Assessee had entered into an agreement with M/s South West Port Ltd, Mormugao, (SWPL) under which it had leased out/rented out pieces or parcels of land which were situated in the operational area of the harbour to SWPL on which the latter had constructed a jetty which was used for loading and unloading of cargo from ocean going vessels, in lieu of which it received license fee and royalty from SWPL. As per the Notice, while the Assessee had discharged service tax on the license fee, however no tax has been paid on the amount recovered towards royalty, on which according to the Notice, tax was leviable under the head of Renting of Immoveable Property services.
3. The Assessee replied to the Notice submitting that there was no liability to service tax inasmuch as there was no renting of immoveable property service rendered by it and that the royalty earned by it was infact its share of revenue from services which were jointly rendered by the Assessee and SWPL. It was submitted that the principal-client relationship which is the basic tenet for applicability of service tax was not existing between the Assessee and SWPL. Besides resisting the demand on merits, it was also submitted that the entire demand was barred by limitation as the revenue was in the knowledge of the agreement and that another show cause notice F.No.CX-ST/Mormugao Port/57/08-09 dated 4.9.2009 had been earlier issued with reference to the very same agreement which was the subject matter of the present proceedings.
4. The Notice was adjudicated by the Ld. Commissioner wherein all the charges levelled in the notice, except proposal for imposition of penalties, have been confirmed by Order dated 28.3.2015, therefore the Assesseeis before us.
5. Shri Vipin Jain, Ld. Counsel appearing for the Assessee made the following submissions:
a) The impugned order has been passed without appreciating the true nature of agreement existing between the Assessee and SWPL.
b) The assumption that the Assessee had leased the land and the water front was erroneous and contrary to facts. Infact the arrangement between the Assessee and SWPL was one where both parties were jointly rendering port services for earning profits. Both the parties were jointly controlling the operations of the two cargo handling berths. The relation between the Assessee and SWPL was not that of a service provider and service recipient but was that of a co-venturer in a joint venture.
c) According to the judgment of Apex Court in the case of Faqir Chand Gulati vs Uppal Agencies Pvt. Ltd reported in 2008 (10) SCC 345, a joint venture is a combination of two or more persons in a specific venture, where profit is jointly sought without any actual partnership or corporate designation. It clearly comes out from the judgment that to constitute a joint venture, a common enterprise for profits should be undertaken where joint control is exercised over strategic financial and operative decisions. This test is met with in the facts of the present case.
d) The relation between the co-venturer and joint venture is akin to that of a partner in a partnership firm and that any activity undertaken by the partner for the joint enterprise cannot be considered as a transaction between a service provider and the service recipient inasmuch as whatever the partner does in a partnership, is done by him for his own benefit and not as a service to anybody. Further the element of consideration i.e. quid pro quo, which is a necessary ingredient of any service is missing. The partner contributes into a common pool of resources required for running the joint enterprise and that if the venture is successful the returns that he gets from the same is his profits and not a consideration for any specific service rendered. Likewise a co-venturer does not render any service to the joint venture for a consideration, so as to attract any service tax liability. It was submitted for the same reason Explanation 3 to the definition of service in Section 65(B)(44) also could not be invoked.
e) That the CBEC in its Circular No.179/5/2014 dated 24.9.2014 has clarified in unequivocal terms that capital contribution made by the members of the joint venture to the joint venture are mere transaction in money and cannot be taxed, by the same logic the return of the capital or the return on the capital from the joint venture to the co-venturers can also not be taxed.
f) The entire consideration had suffered tax in the hands of SWPL under the head of cargo handling services and consequently the distribution thereof could not be taxed in the hands of Appellant.
g) The entire demand was barred by limitation.
6. Shri Rupam Kapoor, Ld. Commissioner AR and Shri A.K. Goswami, Ld. Additional Commissioner (AR) appearing for the Revenue reiterates the findings in the impugned order. In addition, he submits that:
i) the agreement between the Assessee and SWPL itself, in clause 15.3 records that the duties, obligations and liabilities of the parties under the agreement are several and not joint or collective and that nothing contained in the agreement is to be construed as an association, trust, partnership, agency or joint venture among the parties.
ii) the arrangement between the Assessee and SWPL could not be considered as a joint venture also for the reason that the Assesseewas not liable to bear any part of the loss of the joint venture.
iii) the mere fact that the consideration being earned by the Assessee was variable and linked to the revenue earned by the enterprise was not by itself sufficient to contend that the relationship between the two was that of a joint venture inasmuch as the Honble Delhi High Court has in the case of Airport Retail Pvt Ltd vs UOI reported in 2014 (35) STR 659 held that variable component of a licence fee could also be a part of the consideration received for renting of the premises. A decision of the Tribunal in the case of Airport Authority of India vs Commissioner of Service Tax reported in 2015 (39) STR 35 was cited to argue that royalties earned by a statutory authority from private parties for permitting them to operate the business within the Airport premises are taxable under the head Renting of Immoveable property.
iv) the mere fact that service tax on the entire of the consideration is paid by one of the contractor is not sufficient to absolve the sub-contractors of their liability to discharge service tax. Reliance in this regards was placed on the judgment in the case of Sunil Hi-tech Engineers vs CCE reported in 2014 (36) STR 408.
7. The Ld. Counsel in rejoinder submits that the decision of the Delhi bench of Tribunal in Airport Authority of India vs Commissioner of Service Tax reported in 2015 (39) STR 35 does not assist the Revenues case as in that case existence of any joint control by the Airport Authority of India over the businesses run by retail business establishments from the airport premises was not even a contention urged or pleaded by the Assesse. The facts as set out in that decision seem to suggest that the Airport Authority of India had only let out its premises to the shops and was charging a fixed amount as licence fees or royalties. The arrangement between the Airport Authority of India and the business establishment was clearly not one of joint venture. In any case no pleadings to this effect were made. The view taken by the Tribunal in that case was therefore was in the context of facts prevailing in that case which are materially different from the present case where two parties are jointly conducting a business under the PPP route. The judgment of the Delhi High Court in the case of Airport Retail Pvt Ltd vs UOI is also not relevant as that was the case of a challenge by way of a Writ Petition against proposed levy of service tax on rentals earned by Delhi International Authority Ltd (DIAL) from duty free shops. The Writ Petition in that case did not contend that there was a joint venture between DIAL and the duty free shops and the court therefore did not permit this argument to be taken up during oral pleadings particularly when facts needed to be gone into for examining the correctness of this contention, an exercise which could not be done in writ proceedings.
8. We have carefully considered the submissions made by both sides and perused the records. Since we are deciding this appeal by accepting the first contention of the Assessee on merit, do not consider it necessary to deal with point of limitation.
From the facts and circumstances of the case and the arguments put forth by the rivals, we find that the issue to be decided by us is whether the amount received by the Assessee from SWPL, under the nomenclature of royalty, was a consideration for the renting/leasing of the land and the waterfront and accordingly liable to tax under the head of Renting of Immoveable Property services. The Appellants contention that the Royalty in question was not a consideration received for any particular service rendered by the Assessee to SWPL but was its share in the revenue earned from a joint business activity carried out by the Assessee and SWPL, but was rejected by the Commissioner.
9. We find that the Assessee Port, which is run by a trust constituted under the Major Port Trust Act, 1963, is one of the oldest ports in India, and has been in existence since 1885. With a view to expand its cargo handling capacity at Mormugao, it floated a tender, inviting bids from private parties for the construction and operation of two new multi-purpose bulk cargo handling berths viz: 5A and 6A. It is apparent that the said bids were invited in line with the Governments policy of encouraging Private participation in the port sector through the Public Private Partnership route (PPP for short). The private sector participation was invited. The Tariff authority for Major Ports, which fixed the tariff for the port services rendered at the two new multipurpose bulk cargo handing berths 5A and 6A describes this project as one setup on a PPP model. This is so stated in relevant Notification No.G 27 dated 26.2.2008. The Appellants claim that there was no principal-client relationship between it and SWPL, and that the royalty earned by the Assesseefrom SWPL i.e. 18% of the revenue earned towards cargo handling charges was an earning from a revenue sharing arrangement has been rejected by the Commissioner mainly on the ground that since the Assessee Trust had done nothing more than leasing the land and the water front area to SWPL, it was only logical to conclude that all the amounts recovered by it from SWPL whether described as licence fees or as royalty were in fact a consideration for the activity of leasing the land and water area to SWPL.
10. After going through the licence agreement dated 11.4.1999 between the two parties, we find that the Commissioner was wrong in holding that the Assessee had merely leased out the land and water area to SWPL, and had done nothing else besides that. The agreement shows that besides leasing out the land and water area to SWPL for which a specific consideration by way of licence fees is charged by the Assessee (this licence fee is not subject matter of dispute in this appeal), the Assessee had also granted a permission to SWPL to conduct port operations at Mormugao. This permission was necessary for SWPL to obtain as the right to exploit the water front by operating a port at Mormugao was by law vesting only with the Appellant. Therefore, besides leasing out of the land and the water area to SWPL, the other facility/right given to SWPL is the right to conduct port operations at Mormugao water-front. As per the licence agreement, licence fees is the consideration agreed for the specific activity of leasing/renting of land and water area. Royalty on the other hand is the reward that the Assessee earns as his share of revenue from a joint port business enterprise run by the two parties in lieu of the various facilities, rights and resources contributed by the Assessee for the joint business. The main contribution of the Appellant, for which it is entitled for Royalty is the grant of permission/licence to carry on business on the water front at Mormugao. This exclusive right to exploit the water front which was available only to the Assessee as per law was relinquished by the Assessee in favour of the joint venture that the Assessee had with SWPL. In addition to the above contribution, the Assessee was also obliged to do many more things for the smooth running of the port operations. These obligations are such as, providing information about licence premises to SWPL (clause 3.2), approval of the provision and maintenance of all general port infrastructure, pilotage and towage on a non-discriminatory basis, overseeing dock-side safety, monitoring air pollution and water pollution at its own cost, compliance of environmental measures, supplying of power and water during construction, assistance for fire fighting, obtaining/assisting in obtaining other sanctions and donations (clause 5.10, 5.11), scheduling entry, berthing and sailing of vessels, maintenance, dredging, removal of racks, debris of liquid spillage (para 6.1), etc.
11. The various obligations of the Assessee as we have referred above show that the Commissioners finding that the contribution of the Assessee in the running of the port operations of SWPL was limited to handing over the land and water area is incorrect. There is also no basis shown in the order to support the Commissioners finding that the consideration for leasing, renting of land and water area was split-up by the parties into two of which royalty was the variable component. On the contrary, the various obligations of the Assesseeas set out above, show that Royalties earned by it was the reward for the several contributions made by the Assessee to the joint venture between them and SWPL. The contributions of the Assesseecomprised of the grant of a permission to conduct port business using the water front at Mormugao, a right which otherwise vested exclusively with the Trust, as also rendering of several services, which the Assessee was obliged to provide to SWPL and to the Port users as set out in clauses 5.10, 5.11 and 6.1 of the agreement. Supreme Court has held in the case of Mahindra and Mahindra reported in 1995 (76) ELT 481 that unless the revenue is able to demonstrate otherwise, in agreement between two parties must be assumed to be reflecting the true state of affairs.
12. The arrangement between the Assessee and SWPL is the public-private partnership. In our view this arrangement in the nature of the joint venture where two parties have got together to carry out a specific economic venture on a revenue sharing model. Such PPP arrangement are common nowadays not only in the port sector but also in various other sectors such as road construction, airport construction, oil and gas exploration where the Government has exclusive privilege of conducting businesses. In all such models, the public entity brings in the resource over which it has the exclusive right, whether land, water front or the right to exploit the said land and water front, and the private entities brings in the required resources either capital, or technical expertise necessary for commercial exploitation of the resource belonging to the Government. These PPP arrangements are described sometimes as collaboration, joint venture, consortium, joint undertaking, but regardless of their name or the legal form in which these are conducted. These are arrangements in the nature of partnership with each co-venturer contributing in some resource for the furtherance of the joint business activity.
13. Sometimes, the contracting parties, may conduct such joint venture in the name of a separate legal entity, while at times, such a joint venture is carried out under the individual names of the parties. Such informal arrangements are called by different names either as a consortium, collaboration, joint undertaking, etc. Regardless of the legal form or name that is given to such a Joint Venture, the same are arrangements in the nature of partnership but without the liabilities being joint and several. Such arrangements are recognized in Section 42(3A) of the Major Port Trust Act, 1963 which reads as under:
(3A) Without prejudice to the provisions of sub-section (3), a Board may, with the previous approval of the Central Government, enter into any agreement or other arrangement, whether by way of partnership, joint venture or in any other manner with, any body corporate or any other person to perform any of the services and functions assigned to the Board under this Act on such terms and conditions as may be agreed upon.
14. The meaning of the term joint venture was interpreted by the Supreme Court in the case of Faqir Chand Gulati vs Uppal Agencies Pvt Ltd 2008 (12) STR 401 SC wherein the Apex Court quoted with approval the following extract from the American jurisprudence Second Edition Volume 46 defines Joint Venture to mean:
17A joint venture is frequently defined as an association of two or more persons formed to carry out a single business enterprise for profit. More specifically, it is in association of persons with intent, by way of contract, express or implied, to engage in and carry out a single business venture for joint profit, for which purpose such persons combine their property, money, effects, skill, and knowledge, without creating a partnership, a corporation or other business entity, pursuant to an agreement that there shall be a community of interest among the parties as to the purpose of the undertaking, and that each joint venture must stand in the relation of principal, as well as agent, as to each of the other coventurers within the general scope of the enterprise.
Joint ventures are, in general, governed by the same rules as partnerships. The relations of the parties to a joint venture and the nature of their association are so similar and closely akin to a partnership that their rights, duties, and liabilities are generally tested by rules which are closely analogous to and substantially the same, if not exactly the same as those which govern partnerships. Since the legal consequences of a joint venture are equivalent to those of a partnership, the courts freely apply partnership law to joint ventures when appropriate. In fact, it has been said that the trend in the law has been to blur the distinctions between a partnership and a joint venture, very little law being found applicable to one that does not apply to the other. Thus, the liability for torts of parties to a joint venture agreement is governed by the law applicable to partnerships. A joint venture is to be distinguished from a relationship of independent contractor, the latter being one who, exercising an independent employment, contracts to do work according to his own methods and without being subject to the control of his employer except as to the result of the work, while a joint venture is a special combination of two or more persons where, in some specific venture, a profit is jointly sought without any actual partnership or corporate designation.
15. An analysis of this judgment shows that in order to constitute a joint venture, the arrangement amongst the parties should be a contractual one, the objective should be to undertake a common enterprise for profit. Joint control over strategic financial and operative decisions was held to be the key feature of a joint venture. The other obvious feature of a joint venture would be that the parties participate in such a venture not as independent contractors but as entrepreneurs desirous to earn profits, the extent whereof may be contingent upon the success of the venture, rather than any fixed fees or consideration for any specific services.
16. In the instant case the agreement entered into between the Assessee and SWPL envisages that the Assessee would make available the land and the water front, while the obligation of constructing, operating, maintaining, repairing the bulk cargo handling jetty on the same was that of SWPL. The agreement between the two also stipulates that SWPL will construct, modify, repair and maintain the facility only after the detailed plan, design and drawings have been approved by the Appellant. Further while SWPL was to operate and maintain the facility the Assessee was also responsible interalia to undertake the several activities for the smooth operation of the said two bulk cargo handling jetties, as set out in clauses 5.10, 5.11 and 6.2.1 which we have referred to earlier. It thus clearly comes out from the agreement between the Assessee and SWPL, that the two had come together with the common objective of earning revenue by jointly rendering port services at jetty No.5A and 6A. There is joint control over the operations as it is clear from the agreement that the strategic financial and operating decisions such as those relating to the basic design, capability functionality, etc of the bulk cargo handling jetty and its subsequent upgradation, upkeep, modifications, repair, maintenance, dredging, installations, etc. are to be unanimously agreed upon by the two co-venturers. We are therefore of the view that the agreement between the Assessee and SWPL is joint venture between the two, where the two co-venture are jointly controlling a common activity and sharing the revenue therefrom.
17. The question that arises for consideration is whether the activity undertaken by a co-venture (partner) for the furtherance of the joint venture (partnership) can be said to be a service rendered by such co-venturer (partner) to the Joint Venture (Partnership). In our view, the answer to this question has to be in the negative inasmuch as whatever the partner does for the furtherance of the business of the partnership, he does so only for advancing his own interest as he has a stake in the success of the venture. There is neither an intention to render a service to the other partners nor is there any consideration fixed as a quid pro quo for any particular service of a partner. All the resources and contribution of a partner enter into a common pool of resource required for running the joint enterprise and if such an enterprise is successful the partners become entitled to profits as a reward for the risks taken by them for investing their resources in the venture. A contractor-contractee or the principalclient relationship which is an essential element of any taxable service is absent in the relationship amongst the partners/co-venturers or between the co-venturers and joint venture. In such an arrangement of joint venture/partnership, the element of consideration i.e. the quid pro quo for services, which is a necessary ingredient of any taxable service is absent.
18. In our view, in order to render a transaction liable for service tax, the nexus between the consideration agreed and the service activity to be undertaken should be direct and clear. Unless it can be established that a specific amount has been agreed upon as a quid pro quo for undertaking any particular activity by a partner, it cannot be assumed that there was a consideration agreed upon for any specific activity so as to constitute a service. In Cricket Club of India vs Commissioner of Service Tax, reported in 2015 (40) STR 973 it was held that mere money flow from one person to another cannot be considered as a consideration for a service. The relevant observations of the Tribunal in this regard are extracted below :
11. Consideration is, undoubtedly, an essential ingredient of all economic transactions and it is certainly consideration that forms the basis for computation of service tax. However, existence of consideration cannot be presumed in every money flow. The factual matrix of the existence of a monetary flow combined with convergence of two entities for such flow cannot be moulded by tax authorities into a taxable event without identifying the specific activity that links the provider to the recipient.
12. Unless the existence of provision of a service can be established, the question of taxing an attendant monetary transaction will not arise. Contributions for the discharge of liabilities or for meeting common expenses of a group of persons aggregating for identified common objectives will not meet the criteria of taxation under Finance Act, 1994 in the absence of identifiable service that benefits an identified individual or individuals who make the contribution in return for the benefit so derived.
13. Neither can monetary contribution of the individuals that is not attributable to an identifiable activity be deemed to be a consideration that is liable to be taxed merely because a club or association is the recipient of that contribution.
14. To the extent that any of these collections are directly attributable to an identified activity, such fees or charges will conform to the charging section for taxability and, to the extent that they are not so attributable, provision of a taxable service cannot be imagined or presumed. Recovery of service tax should hang on that very nail. Each category of fee or charge, therefore, needs to be examined severally to determine whether the payments are indeed recompense for a service before ascertaining whether that identified service is taxable.
19. We are accordingly of the view that activities undertaken by a partner /co-venturer for the mutual benefit of the partnership/joint venture cannot be regarded as a service rendered by one person to another for consideration and therefore cannot be taxed.
20. We may mention here that there are situations where a co-venturer or a partner may render a taxable service to the joint venture or the firm. This may happen if, for instance, the partner in individual capacity enters into a separate contract with the joint venture/partnership for providing a specific service in lieu of a separate specific consideration. Such consideration for specific services provided under an independent contract between a co-venturer/partner and joint venture/partnership can be taxable, as such contracts are executed by the partners not in their capacity of the partners but as independent contractors and such a relationship is governed by a separate contract independent of the partnership/joint venture agreement. To illustrate, a partner in a partnership firm may enter into a separate lease agreement with the firm for renting out his private property to the Partnership firm for a monthly rent. In this situation, the partner will be liable to pay service tax on the renting service rendered by him to the firm. On the other hand, if the partner chooses to grant the firm a right to use his office premises and regards this as his contribution to the hotch-potch of the partnership firm, the reward by way of profits which such partner may earn upon the success of the partnership venture will not be taxable as the profit earned by the partner in such circumstances is not a consideration for the service of renting out the property to the partnership firm. By placing the office at the disposal of the firm to conduct its business the partner agrees to receive only a share of profit which is contingent upon the firm earning profits in the first place. If the venture fails and the firm does not earn any profit, the partner may not receive anything in return for the contribution made by him. On the other hand, if the firms venture is successful, the partner may earn profit which may be much more than the normal rent that he would have earned by simply leasing out the office to the firm for a fixed rent. The profits which the partner will earn in such circumstances is a reward due to an entrepreneur for the risk that he takes and cannot be regarded as a consideration for the renting of the office to the firm.
21. The Commissioner has tried to support his conclusion to levy tax on Royalty by citing the Appellants own action of paying service tax on Royalty after April 2012 when the negative list regime of taxation was introduced. Since there is no estoppels in law, we find this aspect to be totally irrelevant for deciding the Appellants liability for the past period. In any case, we find that under the negative list regime the most significant change having a bearing on the issue in hand is the insertion of explanation (iii) in the definition of service in Section 65B(44). The said explanation (iii) reads as u:
Explanation 3. For the purposes of this Chapter,
(a)?an unincorporated association or a body of persons, as the case may be, and a member thereof shall be treated as distinct persons;
(b)?an establishment of a person in the taxable territory and any of his other establishment in a non-taxable territory shall be treated as establishments of distinct persons.
In our view all that the explanation stipulates is that an unincorporated association or a body of persons and members thereof, shall be treated as distinct persons. This explanation in our view does not have the effect of rendering the activities undertaken by the partner/co-venturer, which are actually for his own benefit, as being a service rendered by it to the partnership (joint venture). What the partner/co-venturer does is for his own benefit cannot ipso facto be considered as a service rendered to the partnership (joint venture). The mere fact that the partnership (joint venture) may also benefit from the same is irrelevant as there is no contract of service agreed upon or performed by the partner (co-venturer) to the partnership (joint venture). Additionally, there is no consideration agreed upon or provided. In the absence of there being a quid pro quo the essential requirement of the definition of service is not met with.
22. The Ld. AR for the Revenue disputed the contention with regard to the enterprise being a joint venture and the assessee being a joint venture partner on the ground that the agreement between the two entities in clause 15.3 states that the duties, obligation and liabilities of the parties under the agreement are intended to be several and not joint or collective and that nothing contained in the agreement shall be construed to create an association, trust, partnership, agency or a joint venture amongst the parties. It has also been contended that there being no sharing of losses provided for, enterprise could not be called a joint enterprise. In our view none of the two reasons urged by the Ld. Counsel for the Revenue would lead us to a conclusion that the arrangement between the two was not that of a Joint venture. The true nature of parties relationship has to be decided keeping in view the totality of the agreement by reading the agreement as a whole and not by reading one clause in isolation. The Commissioner himself holds so in para 27 of the order, though in a different context by observing that all clauses in the agreement have to be read in conjunction and that no one clause can be read in isolation. The law in this regard is in any case settled by the Apex Court in its judgment in the case of BHS Industries vs Export Credit Guarantee Corp &Anr in Civil Appeal No.2729 of 2009 reported in (2015) 9 SCC 414 that a contract has to be read as a whole and it is impermissible to read one clause out of context and draw adverse inference from it. The relevant observations of the Apex Court in this regard are extracted herein below.
10. In Amalgamated Electricity Co. v. Ajmer Municipality, though in a different context, it has been held that:- In construing the true nature of the contract entered into between the parties, the contract has to be read as a whole and if so read it is clear that what the plaintiff undertook was to pump water from the wells in question and not to supply any electrical energy. Hence we are in agreement with the learned Judges of the High Court that the plaintiff's case in this regard should fail.
11. In Bay Berry Apartments (P) Ltd. and Another v. Shobha and others, the Court has observed that in construing a document, the Court cannot assign any other meaning; and a document as is well known must be construed in its entirety.
In any case, the said clause exists to sort out any interse dispute between the two parties. Third party including tax administrators are not bound by what the parties themselves choose to call themselves in the agreement. If the agreement is read as a whole, it clearly comes out that the Assesseeand SWPL were jointly undertaking a common enterprise, the revenue of which was shared between the two. Insofar as the other argument of the revenue that non-sharing of losses militates against the principle of partnership being canvassed by the Assessee is concerned, firstly the broad principle of partnership of law applies to a transaction between co-venturer and joint venture and not the entire Partnership act perse. Secondly, even under the Partnership Act there is no stipulation that the partners must necessarily share losses. Infact the Honble Bombay High Court in the case of Raghunandan Nanu Kothare vs Hormasji Bezonji Bamji (1927) 29 BOMLR 207 have categorically held that it is not essential to constitute a partnership that a partner should share the losses. In any case in a joint venture of the present type where jointly controlled operations are being undertaken and one of the venturer brings in the land and the water front and the right to exploit such water front as his contribution while the other venturer brings in money to create infrastructure on the same as his capital, each of the partners is responsible/liable for loss of his capital incase the venture is not successful. Had the Assessee chosen to give right in the land and the water front by way of auctioning the same, they could have gained substantial fixed amount, irrespective of revenue loss to the person who takes the right under auction. If the venture goes into loss the coventurer who invested money will loose his money, at the same time the Assessee will also not get anything being the consideration of the Assessee is a share in the earning of the joint venture, that way the Assessee is the looser of intrinsic auction value. Therefore as per the present arrangement of joint venture, though there is clause that the assessee will not share the revenue loss of the business of the joint venture but in fact, they are otherwise the looser of the deemed auction amount, in case of auction which the assessee could have opted instead of joint business venture. Therefore in the present set of arrangement also, it is not correct to say that the Assessee is not sharing the loss.
23. We are accordingly of the view that there is no service that has been rendered by the Appellant, much less the taxable service of renting of immoveable property. The money flow to the Assessee from SWPL, under the nomenclature of Royalty, is not a consideration for rendition of any services but infact represents the Appellants share of revenue arising out of the Joint Venture being carried on by the Assessee and SWPL.
24. Since we are allowing the partys appeal on merits the other contention to the aspect to time bar are not being gone into. The Revenues appeal challenging the non-imposition of penalty does not survive as the demand of service tax itself is not sustainable. Consequently, the partys appeal is allowed and the Revenues appeal is dismissed.
(Order pronounced in court on 7/10/16) C.J. Mathew Member (Technical) Ramesh Nair Member (Judicial) sk 25 ST/86337, 86592/15