Custom, Excise & Service Tax Tribunal
Visakhapatnam Port Trust vs Visakhapatnam-I on 14 March, 2019
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CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
REGIONAL BENCH AT HYDERABAD
Division Bench
Court - I
Appeal No. Appellant Respondent Impugned Order
OIA: 05/2008-ST dt.22.7.2008 ST/497/2008 passed by CCCE & ST, Visakhapatnam - I OIA: 56/2011-ST dt.29.11.2011 ST/419/2012 passed by CCCE & ST, Visakhapatnam - I CCCE & ST, OIO: VIZ-STX-001-COM-002-13 Visakhapatnam ST/20896/2014 dt.30.10.2013 passed by CCCE &
-I Visakhapatnam ST, Visakhapatnam - I Port Trust OIO: VIZ-STX-001-COM-009-15-
ST/22285/2015 16 dt.31.7.2015 passed by CCCE
& ST, Visakhapatnam - I
OIO: VSP-EXCUS-001-COM-010-
ST/31039/2016 16-17 dt.12.08.2016 passed by
CCCE & ST, Visakhapatnam - I
CCT, OIO: VSP-EXCUS-001-COM-022-
ST/30322/2017 Secunderabad 16-17 dt.05.12.2016 passed by
- GST CCCE & ST, Visakhapatnam - I
Appearance:
Shri D.V. Anjaneyulu, Chartered Accountant for the Appellant Shri C. Mallikarjun Reddy, Superintendent/AR for the Respondent. Coram:
HON'BLE Mr. M.V.Ravindran, MEMBER (JUDICIAL) HON'BLE Mr. P. Venkata Subba Rao, MEMBER (TECHNICAL) Date of Hearing: 31.01.2019 Date of Decision: 14.03.2019 FINAL ORDER No. A/30357-30362/2019 [Order per: P.V. Subba Rao.]
1. All these appeals have been filed by M/s Visakhapatnam Port Trust against the impugned orders as above. All of them involve the same issues and hence are being disposed of together. These issues are as follows:
a. Whether the appellant is liable to pay service tax on "terminal charges" received by them from Indian Railways.
b. Whether the appellant is liable to pay service tax on "demurrages" which they have collected from various clients.(2)
c. Whether the appellant is liable to pay service tax on "royalty" which they received from terminal operator with whom they entered into a contract on Build-Operate-Transfer basis (BOT).
Terminal Charges:
2. It is the case of the revenue that the appellant is liable to pay service tax on the terminal charges which they received from Indian Railways in terms of an agreement between them and the Indian Railways under port service. Sec.
65(82) defines 'Port Service' as any service rendered by a port or other port or any person authorized by such port or other port in any manner in relation to a vessel or goods. With effect from 01.07.2010 the words 'in relation to a vessel or goods' was omitted. The terminal charges were received by the appellant from Indian Railways for the services which they rendered to the Indian Railways in transporting goods within the port area and for providing facilities such as track and engine. Therefore according to the Revenue, the services were covered by the definition of port services having been rendered within the port area by the port in relation to goods. It is the case of the appellant that these services are excluded by virtue of Sec.99 of Finance Act, 1994 read with notification 43/2012-ST dated 027.07.2012 which reads as follows:
Notification No.43/2012-ST dated 2-7-2012 In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994) (hereinafter referred to as the said Act), the Central Government on being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable services of the description mentioned in the Table below, provided by the Indian Railways from the whole of Service Tax leviable thereon under section 66B of the said Act, with effect from the date of publication of this notification in the official Gazette, up to and including the 30th day of September, 2012.
TABLE
Sl. No. Description of taxable services
1. Service of transportation of passengers, with or without accompanied belongings, by railways in -
(A) First class; or (B) An air conditioned coach
2. Services by way of transportation of goods by railways
3. As per the agreement entered by the appellant with the Indian Railways they provide necessary infrastructure to the Indian Railways for transportation of goods within port area and other facilities for a consideration. The services so (3) rendered are clearly related to services provided by the Indian Railways and hence are excluded by Notification 43/2012-ST dated 02.07.2012. In the case of New Mangalore Port Trust [2008 (9) STR 235 (Tri-Bangalore)] it was held that the terminal charges paid to the port trust do not come in the purview of the service tax. Learned Chartered Accountant for the Appellant also referred to the decision of the Larger Bench in the case of Western Agencies Pvt Ltd [2011 (225) STR 305 (Tri-LB)] in which it was held that stevedoring in major or minor port is a port service within the meaning of 'Port service' under Sec.65(82) of Finance Act, 1994. He submits that this order of the Larger Bench was stayed by the Hon'ble High Court of Madras. It is therefore his contention that the services which they rendered for which they were paid by the Indian Railways are not covered by the definition of Port Service as per the Finance Act, 1994.
Demurrage Charges:
4. As far as the service tax liability on demurrage charges is concerned, it is the case of the revenue that the appellant is collecting demurrage charges from trade on general cargo beyond the free train allowance and wagon hire charges. Demurrage charges are collected under two different heads and only when the demurrage charges were collected by the appellant exceeded the wagon hire charges, they paid the differential/ excess amount to the Indian Railways and as such wagon hire charges are getting adjusted in the demurrage charges which they collected from the trade. It is the case of the appellant that demurrage charges are collected by them from the trade on behalf of the Indian Railways and entire amount is remitted back to the Railways and it is not their income at all. The revenue disputes this factual position. Learned adjudicating authority in the impugned orders held that the trade is not at all concerned with the amount which is paid to the Indian Railways which is a separate level of transaction and the appellant collects demurrage charges from the trade which is a separate level of transaction. The demurrage charges collected by the (4) appellant from trade do not form expenditure within the meaning of Rule 5(1) of Service Tax Valuation Rules and therefore should form part of the taxable value.
Royalty charges:
5. The appellant licensed M/s Visakha Container Terminal Pvt Ltd to construct a wharf and install equipment on the existing wharf to provide port services to end customers and the appellant was maintaining all necessary infrastructures such as dredging, piloting, hauling, rumoring of vessels etc. for smooth service by M/s Visakha Container Terminal Pvt Ltd within the port. M/s Visakha Container Terminal Pvt Ltd have used the name and brand of the appellant and have been paying royalty charges to the appellant. Therefore, according to Revenue, this amount is chargeable to service tax under the head of 'franchise services'. In the order of the Tribunal Chennai in the case of Tuticorin Port Trust [2016 (42) STR 512], on an identical case, it has been held that the royalty charges collected by the port from the terminal operator as per the BOT agreement is chargeable to service tax under port services. Learned Chartered Accountant for the appellant submits that in their specific case the agreement between them and M/s Visakha Container Terminal Pvt Ltd is in the nature of Public Private Partnership, according to which they provide land in waterfront while the terminal operator provides equipment and overseas management. This agreement should be considered as joint venture agreement in which both parties are jointly controlling an activity and sharing revenues there from. He would submit that in a similar case, the Tribunal Mumbai in the case of Mormugao Port Trust [2017 (48) STR 69] held that an agreement between port trust and a terminal operator under a BOT agreement is in the nature of a partnership and not in the nature of a service provider/ client relationship. Therefore, no service tax can be levied on the royalty charges received by the port trust as a part of such an arrangement. The department's (5) appeal against this order of the Tribunal was dismissed by the Hon'ble Apex Court on limitation as well as on merits in Civil Appeal D.No.33259/2018 dated 05.10.2018. Therefore, this issue has reached finality and they are squarely covered by this judgment. Therefore, their appeal on this count may be allowed. The appellant also contended that they were a Government undertaking and were audited several times and physical inspections were already carried out by the department and they had no intention to evade payment of service tax as they would not gain anything by doing so. Therefore, it cannot be alleged that they have suppressed facts or mis-declared or violated any Act or Rule with an intention to evade payment of service tax. Therefore, extended period of limitation cannot be invoked in their case. He relied on the judgment of Supreme Court in the case of CCE, Bangalore v Pragathi Agro Products Pvt Ltd [2015 (322) ELT 819 (SC)] and Uniworth Textiles Ltd [2013 (288) ELT 161 (SC)]. He also prayed that the penalties under Sec.73, 76 & 78 may be set aside as they had no intention to evade payment of service tax.
6. Learned departmental representative asserted that the demands are sustainable on merits as well as on limitation and penalties are correctly invoked. Therefore, the appeals may be rejected.
7. We have considered the arguments on both sides and perused the records and proceed to decide the issues involved on merits first.
Terminal Charges:
8. It is not in dispute that the terminal charges are the amounts received by the appellant from the Indian Railways for the services provided to the latter. We, therefore, find no force in the argument of the appellant that their service should be considered as service provided by the Indian Railways and hence should be treated as exempted under Sec.99 of the Finance Act and under Notification 43/2012-ST dated 2-7-12 both of which clearly excludes services provided by the Indian Railways. These exemptions cannot be extrapolated to (6) services received by Indian Railways also. At this stage, it would be proper to examine the scope of the term port services under Sec. 65(82) of the Finance Act, 1994. This section defines port service as any service rendered by a port or other port or any person authorized by such port or other port in any manner in relation to a vessel or goods. Port has been defined as a major port under Major Ports Act, 1963. Other port has been defined as a port under Indian Ports Act, 1908 other than major ports. The term "authorized" has not been defined in the Finance Act, 1994. In view of the conflicting decisions in this regard the following issues were referred to the Larger Bench.
i. Whether an interpretation of the term "port service" in provisions of either Major Ports Act, 1963 or the Indian Ports Act, 1908 other than what were referred to can be applied in the absence of any statutory intention.
ii. Whether stevedoring in a major or minor port is a port service within the meaning of this expression.
iii. Whether the services rendered by the port or by a person authorized by port have to be such as good in the normal course be of the type of services rendered by the port. Alternatively, can the services be any services rendered within the port with the authorisation of the port. iv. Whether the activities like intercarting (transportation of cargo after it's unloading from a vessel to a place of storage within port area, storage of cargo in plots, etc.) can be considered as port services. The order of the Larger Bench was as follows:
"12. In the light of the aforesaid discussions, the questions referred to Larger Bench may be answered as under:
(a) Provisions of other than clause (q) of Section (2) of the Major Port Trusts Act, 1963 or any provisions other than clause (4) of Section (3) of the Indian Ports Act, 1908 are not applicable to interpretation of "port service"
defined under Section 65(82) of the Finance Act, 1994 in absence of statutory intention thereof.
(b) Stevedoring in a major port is a "port service" within the meaning of this expression defined under Section 65(82) of the Finance Act, 1994 following judgment of Hon'ble High Court of Karnataka in Konkan Marine case - 2009 (13) STR 7 (Kar).
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(c) Activities/operations like intercarting (transportation of cargo after its unloading from a vessel, to a place of storage within the port area), storage of cargo in plots allotted by the Port, blending of different grades of coal in the port area and other kinds of cargo handling in the port area (other than export of cargo) can be held to be services ancillary to stevedoring and classifiable as "port services" under Section 65(82).
13. All the questions referred in the Referral Order are thus answered as above.
14. Registry is required to place the respective cases before appropriate Bench to decide the Appeals."
9. The appeal against this order of the Larger Bench has been admitted by the Hon'ble High Court of Madras but no stay has been granted. However, in the case of Chidambaram Ship Care Pvt Ltd (CESTAT-2015 (38) STR J123 (Mad), the Hon'ble High Court of Madras upheld the above judgment of the Larger Bench. We also find that the Hon'ble Apex Court in the case of Dilip Kumar & Co. and others (Civil Appeal No.3327/2007) held that "one has to look merely at the words clearly stated and that there is no room for any intendment nor presumption as to tax. It is only the letter of the law and not the spirit of the law to guide the interpreter to decide the liability to tax ignoring any amount of hardship and eschewing equity in taxation. Thus, we may emphatically reiterate that in the event of ambiguity in a taxation liability statute, the benefit should go to the subject/ assessee. But in a situation where a tax exemption has to be interpreted, the benefit of doubt should go in favour of the revenue." The court further observed that "in applying rule of plain meaning any hardship and inconvenience cannot be the basis to alter the meaning to the language employed by the legislation. This is especially so in fiscal statutes. Nevertheless, if the plain language results in absurdity the court is entitled to determine the meaning of the word in the context in which it is used keeping in view the legislative purpose." Thus, in the absence of a specific exemption, notification, the exemption for services provided by Railways cannot be extended to services received by Railways from the appellant.
10. In view of the above, we find that the services rendered by the appellant, who are undisputedly a major port, in the port area for Indian Railways and for which they are getting paid is squarely covered by the definition of port (8) services. The exemption available to Sec.99 of the Finance Act, 1994 and the notification 43/2012-ST dated 2-7-2012 are available to the services rendered by the Indian Railways the exemptions cannot be extended to services received by Indian Railways. We, therefore find that the appellant is liable to pay the service tax on the terminal charges which they received from the Indian Railways.
Demurrage Charges:
11. According to the appellant the demurrage charges are collected by them from their clients on behalf of Indian Railways and they are passed on to the Indian Railways. Therefore, no service is rendered by them and they are not liable to pay service tax. According to the department, what they paid to the Indian Railways are wagon hire charges and what they collected from their clients are demurrage charges which are two different heads. There is no one- to-one correlation between demurrage charges and the wagon hire charges. Wagon hire charges are paid by them to the Indian Railways. The demurrage charges collected by them from their clients are adjusted against the wagon hire charges and any excess amount is remitted to the Indian Railways. Appellant is paying service tax on wagon hire charges and hauling charges as recorded by the adjudicating authority in Para 21 of Order-in-Original No.5/2008-09 dated 22.07.2008. She further observes "demurrages are being treated on a different footing and no service tax is paid. In case of iron ore wagons, only wagon hire charges and not demurrages are paid by the assessee to the Railways. In case of other wagons, hire of wagon charges payable by the assessee or demurrage charges collected from trade is payable to the Railways. In the process, the wagon hire charges payable by the appellant is also covered up when demurrage charges are collected from trade. It is also observed that demurrage is nothing but penal hire charges for wagons to discourage detention and encourage quick turnaround of wagons. As such a sum is also liable to service tax on par with service tax on wagon hire and haulage charges already (9) being discharged by the notice." In view of the lack of clarity of the nature of demurrage charges as to whether these are the charges levied by the Indian Railways and only collected by the appellant and transferred to the Railways or only collected by the appellant from the client on their own, we find it is a fit case to be remitted back to the original authority for determining as to who is service provider, what is the nature of service and who is the client paying the service charge.
Royalty charges:
12. As far as the royalty charges are concerned, service tax is proposed to be levied on the amount paid by the container terminal operator to the appellant as a part of the BOT agreement in which the appellant performs some services and the container terminal operator performs some other services. The question is whether such an arrangement would amount to container terminal operator using the franchise of the appellant and consequently, whether the royalty charges being chargeable to service tax under franchise services at the hands of the appellant or otherwise. There were other cases on similar issues but the levy was proposed under different headings. In the case of Tuticorin Port Trust (supra) it was held that the royalty charges paid by the terminal operator are leviable to service tax at the hands of the port trust under the head port services. On a similar arrangement the Tribunal Mumbai in the case of Mormugao Port Trust (supra) held that in a BOT arrangement there is no principal-client relationship between the terminal operator and the port trust but is a joint venture and therefore no service tax is payable on the royalty paid by the terminal operator to the port trust. This decision has reached finality with the Hon'ble Apex Court dismissing the department's appeal against this order of Tribunal in the case of Mormugao Port Trust on merits as well as on limitation. In view of the above, we find that the appellant is not liable to pay any service tax on royalty charges received by them from their container (10) terminal operator because the service is in the nature of a joint venture and not in the nature of service provider and service recipient relationship.
13. On the question of limitation, we find that appellant is an organisation under the Government of India and it is extremely difficult to imagine that they have an intention to evade payment of service tax. It is true that their understanding of the law could be different from that of the department. It is not in dispute that the appellant filed their ST-3 returns and were audited and they had provided whatever information was sought by the department. In view of the above, we find that the extended period of limitation cannot be invoked. For the same reasons, we also find sufficient grounds to invoke Sec.80 and levy penalties under Sec.76, 77 & 78. In view of the above, we pass the following order:
(a) The demand of service tax on terminal operator received by the appellant from the Indian Railways under the head port services is confirmed along with interest within the normal period of limitation.
The demand of extended period of limitation is set aside.
(b) The demand of service tax on royalty charges under the head "Franchise service" is set aside.
(c) The demand of service tax on the demurrage charges needs further factual examination at the hands of the adjudicating authority and therefore the matter is remitted back to the original authority.
(d) All penalties are set aside.
14. The appeals are disposed of as herein above.
(Pronounced in the Open Court on 14.03.2019)
(P.VENKATA SUBBA RAO) (M.V. RAVINDRAN)
MEMBER (TECHNICAL) MEMBER (JUDICIAL)
Veda