Custom, Excise & Service Tax Tribunal
M/S. Tuticorin Port Trust vs Cce, Tirunelveli on 4 December, 2015
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
SOUTH ZONAL BENCH, CHENNAI
ST/75/2007 and ST/199/2008
(Arising out of Order-in-Original No.8/COMMR/07 (ST) dated 25.1.2007 and Order-in-Original No. 3 & 4/COMMR/ST/2008 dated 29.5.2008 both passed by the Commissioner of Central Excise, Tirunelveli)
M/s. Tuticorin Port Trust Appellant
Vs.
CCE, Tirunelveli Respondent
Appearance ShriRaghavanRamabadran, Advocate for the Appellant Shri M. RammohanRao, DC (AR) for the Respondent CORAM Honble Shri R. Periasami, Technical Member Honble Shri P. K. Choudhary, Judicial Member Date of Hearing : 04.06.2015 Date of Pronouncement: 04.12.2015 Final Order No.41663-41664/2015_ Per R. Periasami The appellants filed appeals against the Commissioners orders dated 25.1.2007 and 29.5.2008. As the issue involved in both the appeals is common, both the appeals are taken up together for disposal.
2. The brief facts of the case are that the appellant is statutory body constituted under Port Trust Act which administers and operates Tuticorin Port which is one of the major ports in Tamil Nadu and registered with the service tax department for rendering port services and discharging service tax and filing returns. During audit verification it was noticed that the appellants have entered into agreement with M/s. PSA SICAL for development of their Berth No. VII as container terminal on BOT basis and as a consideration they have received monthly royalty charges. Show-cause notices were issued to them demanding service tax on the royalty charges for the period June 2003 to February 2006 and March 2006 to January 2007. The adjudicating authority in his order dt. 25.1.2007 confirmed the service tax of Rs.3,22,87,322/- under port services and imposed equal amount of penalty under sections 76 and 78 of Finance Act, 1994 and in his order dated 29.5.2008 confirmed the service tax of Rs.2,55,27,328/- and imposed penalty of Rs.15,05,811/- under section 76 & 78 of Finance Act, 1994. Hence the present appeals.
3. Heard both sides.
4. Learned counsel appearing for the appellant submits that the appellants are regularly discharging service tax on all the activities carried out under port services. The period involved in this case is from June 2003 and January 2007. As per policy of the Government they have decided to lease a portion of the port area i.e. Berth No.VII to a private operator M/s. PSA SICAL Terminals Ltd. to construct and operate the container terminal on BOT basis. He submits that as per the agreement only a vacant land was leased out to PSA SICAL. In consideration of the leasing out of the portion of the port area, they received royalty. He further submits that the consideration received as royalty charges is not towards discharging any port services to the PSA SICAL. He relied on the BOT Agreement dated 15.7.1998 between the appellant and PSA SICAL. He further submits that as per the show-cause notice the demand was raised only on the royalty charges as per clause 7.3.5.2 of the agreement which relates to monthly royalty payment in consideration of the above authorization whereas the Department has demanded service tax under port services on the amount received as a royalty from the licensee. During the relevant period the only services which are liable for service tax under port services are in relation to vessels and goods as to section 65(82) of the Finance Act, 1994. He submits that the definition of the port service is very clear. Any service rendered by a port or other port or any person authorized by such port in any manner, in relation to a vessel or goods. In their case, the royalty amount is not in relation to any service rendered in relation to vessel or goods but purely on the leasing of Berth No. VII.
5. He further submits that PSA SICAL is also registered under service tax and discharging service tax on all the activities carried out by them under port services. He further submits that only with effect from 1.6.2007 service tax was introduced on renting of immovable property. Therefore, prior to this period there was no service tax leviable on renting of immovable property. He also submits that from 1.8.2007 they are regularly paying service tax under renting of immovable property on the same royalty charges. He relied on para 13.3(a) of the order-in-original wherein the adjudicating authority has clearly recorded the submissions of the appellants that they are paying service tax on all port services.
6. They discharged service tax on other services which are listed in clause 6.2.1 of the agreement relating to water supply to ships, repair and maintenance work, security to Berth No. VII and fire service. They have not rendered any service which does not attract service tax. He relied on copies of invoices dated 25.6.2004 and 5.1.2007 as an evidence that they have paid service tax on dredging and piloting service. He submits that the Department in the show-cause notice demanded service tax only on the royalty amount received as per the agreement whereas the adjudicating authority has said that the appellants are also providing port services and submits that since whatever the port services are provided by the appellant service tax has been discharged, therefore, the royalty amount is not in relation to any port services and the dispute is in relation to royalty amount which is nothing for consideration of leasing out of Berth No. VII. He drew our attention to the extracts of the agreement at page 5, 8, the Articles 2.1, 2.2 explains the scope of agreement between the licensor and licensee and Article 3.1 which clearly stipulates that after the execution of the agreement the licensor will hand over licensed premises.
7. He relied on clause 6.1.8 and submits that these charges are levied on actual as per Article 6.2.1. He reiterated Article 7.3.1 which has got three parts,the first part stipulates that certain charges collected from the owners or agents from vessels and they shall be payable to licensee, second part payable by the appellant and third part speaks on the discount.
8. He further submits that Article 7.3.5.2 is only provides method of computation of payment and related charges with reference to Appendix 12 of the agreement. The royalty charges are collected calculated on the basis of actual TEOs handled by the licensee. The method of computation of royalty charges is not being taken into consideration as providing port services. He also submits that they have received the lump sum amount of Rs.45 million as an initial amount on which there is no demand. The methodology calculated for royalty payment as per Appendix 12 relates to only minimum guaranteed traffic. He also submits that the Appendix 3 of the agreement clearly shows the total area of licensed premises as 10 hectares leased out to the licensee. The entire monthly royalty amount received is only in relation to leasing of Berth No. VII and not related to any port services rendered by the appellant.
9. He relied on the decision of the Tribunal in the case of Cochin Port Trust Vs. CCE, Cochin- 2011 (21) STR 25 (Tr. Bang.) wherein the Tribunal on an identical issue has allowed the appeal of the appellant. He also submits that when service tax was introduced only from 1.6.2007 on these services, service tax cannot be demanded for earlier period under different category. He relied on the following case laws:-
(a) Gujarat Chem Port Terminal Co. Ltd. Vs. CCE, Vadodara II 2008 (9) STR 386 (Tri. Ahmd.)
(b) Cochin Port Trust Vs. CCE, Cochin 2011 (21) STR 400 (Tri. Bang.)
10. Without prejudice he also submits that the extended period cannot be invoked as there is no suppression of facts. He also submits that the Department has advised PSA SICAL during internal audit to pay the service tax.
11. Learned AR reiterated the findings of the adjudicating authority and submits that as per section 65(82) what is relevant is the definition of port service and the definition is very wide and includes any activity, any service rendered to any person and in any manner in relation to a vessel or goods and submits that the appellant received this royalty amount which is in relation to vessel handling on vessel and handling of goods. He also submits that as per the agreement there is nexus with the royalty amount received towards the activity of port services in relation to vacant land. He relied on the copy of the agreement which clearly says development of VII Berth as a container terminal and its operation and maintenance which directly relates to port services. As per the agreement, operating a jetty includes leasing in addition to other services. Regarding appellant's claim that service tax has been discharged by them on certain services which described in the agreement under obligation 6.2.1 he submits that it is a question of fact which has to be verified whether service tax has actually been paid on the activities or not. He further submits that the entire BOT agreement is not mere a renting of vacant land as claimed by the appellant to let out empty land but it is a licensed premises which has got certain facilities and also got certain facilities extended to both the appellant and the licensee PSA SICAL. He submits that the under the clause obligations, it clearly stipulates the list of host of services. He relied on Article 7.3.5.2 which clearly sets out how the royalty to be computed as per Appendix 12 of the agreement. Appendix 12 of the agreement clearly says royalty are computed for each instalment as per the TEOs handled in the berth which clearly confirms that the charges have direct nexus with the handling of the berth. He further submits that port services was so wide enough which consists of bundle of services and it covers all the activities of port including leasing of land. He relied on following case laws:-
(a) Airport Authority of India Vs. Commissioner of Service Tax, Delhi - 2015-TIOL-148-CESTAT-DEL
(b) Western Agencies Pvt. Ltd. Vs. CCE, Chennai 2011 (22) STR 305 (Tri. LB)
(c) KandlaShipchandlersAnd Ship Repairers Asso. Vs. Union of India 2013 (29) STR 233 (Guj.)
12. Countering the argument, learned counsel for the appellant submits that the case laws relied by learned AR in the case of Airport Authority of India relates to airport services falling under section 65(105)(zzm) where service is clearly defined and does not include the word aircraft or goods. The entry in port services 65(82) was amended only with effect from 1.7.2010 and vessels and goods have been removed and this decision will not apply and if it all applies it will apply only post 2010. Regarding the Tribunals Larger Bench decision in Western Agencies (supra) the Larger Bench dealt only goods and not dealt leasing of land. Similarly the decision of Kandla Port (supra) relates to vessel.
13. We have carefully considered the submissions of both sides and examined the relevant agreements and other records. The issue to be decided in the present appeal is whether the monthly Royalty charges collected by the appellant towards Development of VIIth Berth as Container Terminal and its operation and maintenance on BOT basis is taxable under port services or otherwise. The period of dispute is from June 2003 to January 2007.
14. The appellant being major port trust regularly paying service tax on their activities carried out at Tuticorin Port under Port Services. As per Govt of India Policy, the TPT decided to develop one of their Berth i.e. VIIth Berth as a container terminal and for this purpose, they have floated/invited Global Tenders for Development of VII Berth as Container Terminal on BOT basis. M/s.PSA SICAL Terminal Ltd. was chosen as successful bidder. Accordingly, the appellant (TPT) entered Licence Agreement with M/s.PSA SICAL Chennai on 15.7.1998. It is pertinent to see that the title of the said agreement "read as", "Build, operate and Transfer Licence Agreement" between TPT and PSA SICAL for "Development of Seventh Birth as Container Terminal and its operation and maintenance on BOT basis for 30 years at Tuticorin Port-India". As a consideration for the said project TPT received both initial lump sum payments and monthly royalty charges from PSA SICAL. The bone of contention between the Revenue and the TPT is that adjudicating authority held the monthly royalty charges received by the appellant (TPT) is taxable under Port Service as the said development falls under "Port Services". Whereas the appellant's main and sole contention that the said charges are not taxable under Port Services as it is only leasing of portion of the port and the leasing is not covered under the definition of port services. Both sides, vehemently put forth their contentions and relied various clauses/provisions of BOT Agreements. It is relevant to see the definition of Port Services" [under Section 65 (82) of Finance Act] as it stood during the relevant period which is as under :
"Port Service means "any services rendered by a port or other port or any person authorized by such port or other port, in any manner in relation to vessel or goods".
15. Further the definition of "Taxable Service" is defined under Section 65 (105) (zn) of Finance Act which is reproduced as under :-
"Taxable Service" means any service provided or to be provided (2n) to any person , by a port or any person authorised by the port, in relation to Port Services , in any manner The above definition of port services and the definition of Taxable service shows that the scope of service is very wide and covers any activity rendered by port authority to any person in any manner in relation to vessel or goods. Both sides advanced their points and relied the various clauses of the BOT licence agreement dated 15.7.1998 between TPT and PSA to support their view. Therefore it is relevant to see the provisions of the said agreement so as to understand the whole issue. BOT Licence agreement is 166 pages and the terms & conditions contents are spelt out in 16 Articles with sub clause broadly grouped into VI Chapters. Only few import provisions of the Licence Agreement are reproduced as under :-
PREAMBLE This LICENSE AGREEMENT is made and entered into this Day of 15th July, 1998 BETWEEN:
TUTICORIN PORT TRUST having its office at Administrative Building, Tuticorin Port Trust, Tuticorin-628 004, INDIA hereinafter referred to as the Licensor .... as party of the first part, AND M/s.PSA SICAL TERMINALS LIMITED ..... having its registered office at CHENNAI hereinafter referred to as the Licensee as party of the second part:
Each of the Licensor and the Licensee shall be referred to herein as a "Party" and collectively as "Parties".
WHEREAS, the Licensor is desirous of developing THE SEVENTH BERTH AS A CONTAINER TERMINAL ON BOT BASIS in line with Government of India's guidelines for privatization of various services and facilities in major ports;
WHEREAS, in or about MARCH 1997, THE Licensor issued a GLOBAL notice having bids from interested parties for "DEVELOPMENT OF SEVENTH BERTH AS A CONTAINER TERMINAL AND ITS OPERATION AND MAINTENANCE FOR 30 YEARS ON BOT BASIS".
WHEREAS in response to the invitation to tender from the Licensor, M/s.P.S.A CORPORATION LTD., SINGAPORE formed a Joint Venture with M/s.SOUTH INDIA CORPORATION (AGENCIES) LTD., CHENNAI AND M/s.NUR INVESTMENT AND TRADING PRIVATE LIMITED, SINGAPORE as the leader of the Joint Venture as per a Memorandum of Understanding attached as Appendix 1, with explicit understanding that in the event of award of License, they will be incorporating a company in India in the name and style of M/s.PSA SICAL TERMINALS LIMITED.
WHEREAS on 24.10.1997 the Joint Venture submitted a bid;
WHEREAS, the Licensor, after evaluating all the bids received by it, has selected the Licensee's proposal as acceptable and decided to award the License vide Letter of Intent for award of Licence, enclosed as Appendix 2;
WHEREAS, the Licensee has agreed to design, engineer, finance, erect, operate, replae OCNTAINER HANDLING EQUIPMENT, maintain and repair the CONTAINER Terminal and the Licensor has agreed to grant License to the Lienssee to do so on the terms and conditions set forth below :-
Article 1 Definition of Terms 1.1 Defined Terms
(i) Seventh Berth - "Seventh Berth" or the "Terminal" means the Container Terminal situated on the Licensed Premises together with allied back up facilities and equipments.
(ii) Design & Drawings - "Design and Drawings" shall mean the conceptual and the detailed drawings and backup technical information of a like nature required for the Project and all calculations, samples, patterns, models, and other technical information of a like nature submitted by the Licensee from time to time and approved by the Licensor from time to time in accordance with the provisions of this Agreement.
(iii) Licence - "Licence" means an authorization under this Agreement.
(iii) Licensed premises - "Licensed premises" means the premises in which the Licensee is authorized to build and operate the Container Terminal as shown in the Appendix 3.
... ... ...
Article 2.1 Grant of License In consideration of the Licensee agreeing to pay an initial payment, royalty and other payments under this Agreement as set out in Article 7 and subject to the provisions of this Agreement, the Licensor grants to the Licensee at the cost, charges and expenses of the Licensee, an exclusive License for designing, engineering, financing, constructing, equipping, operating, maintaining, replacing of container handling equipments, and repairing of Container Terminal and any ancillary functions related thereto as approved by the Licensor from time to time during the License Period as specified in Article 2.3.
Article 4.3 Review & Application of designs & drawings The Licenssee shall submit the Design and Drawings for the approval of the Licensor before commencing civil works in the Container Terminal.
The Licensor shall, at its costs, charges and expenses appoint consultants for the purpose of verifying the soundness of the Design and Drawings submitted by the Licensee from time to time.
The Licensee shall, along with the Design and Drawings, submit specifications and design calculations to the Licensor.
... ... ...
The Licensor shall review the Design and Drawings and specifications and calculations submitted by the Licensee and confirm whether it is acceptable within twenty one days from the date of the receipt of such Design and Drawings.
In the event the Licensor find the Design and Drawings and specifications and calculations or any part thereof not in accordance with the provisions of Article 4.1 it shall promptly seek clarification or notify the Licensee its objections to the Design and Drawings or suggest changes or modifications or corrections thereto.
The Licensee shall thereafter provide necessary clarification to the Licensor. The Licensor shall, after considering the clarification, grant its approval or reject any design and drawing or part thereof. In case the changes and/or modifications and/or corrections suggested by the Licensor are acceptable to the Licensee, the Licensee shall resubmit fresh Design and Drawings incorporating such changes and/or modifications and/or corrections....
... ... ...
The Licensee shall not change any detailed Design and Drawings, specifications and calculations approved by the Licensor, without the prior written consent of the Licensor.
Article 5.3 Principal Obligations of Licensor (TPT) The Licensor undertakes to comply with its obligations to enable the Licensee to satisfy the overall scope of facilities to be provided by the Licensee as set out in Appendix. 8.
5.5 Equipment and Materials The Licensor shall provide or cause to be provided at its own cost, charges and expenses all equipments, raw materials and other items that may be required for construction of either temporary or permanent nature.
5.6 Power & Water The Licensor shall supply power for construction purposes, as made available to the Licensor by the Tamil Nadu Electricity Board, subject to terms and conditions including payment by the Licensee, at rates prescribed by the Licensor from time to time as per provisions of Article 6.1.8 Article 6.1 Obligations of the Licensee 6.1.1 Principal Obligation of Licensee The Licensee agrees and undertakes to manage, operate, maintain and repair the Container Terminal during the License Period, entirely at its cost, charges, expenses and risk. ......
Article 6.2 Obligations of the Licensor 6.2.1 Services to be provided The Licensor agrees and undertakes to provide the following services.
(i) scheduling entry, berthing and sailing of the vessels on a non-discriminatory basis;
(ii) pilotage and towage on a non-discriminatory basis;
(iii) maintenance of the entrance channel draft 8.24 m now and 10.7 m after completion of capital dredging as per Article 6.4;
(iv) provision and maintenance of all general port infrastructures other than those covered under the License for management operation and maintenance of the Container Terminal.
(v) maintenance of the dredged draft alongside the berths at the Container Terminal as per Article 6.4;
(vi) waterside safety and safety of navigation which remain vested with the Deputy Conservator of the Licensor;
Note: For services enlisted in sub clauses (i) to (vi) above, the cost, charges and expenses shall be borne by the Licensor.
(vii) coordinating and overseeing the dock side safety and implementation by and at the cost of the Licensee of all orders and directions of the regulatory authorities viz., the Dock Safety Inspector, Government Authority etc.;
(viii) supply power to the extent of about 1800 KVA as made available to the Licensor by TNEB subject to payment of charges by the Licensee at rates to be prescribed by the Licensor from time to time as per Article 6.1.8. Take off point for electricity shall be from the sub station at additional berth (near 6th berth);
(ix) supply water to the Container Terminal and ships as made available to the Licensor by TWAD Board on payment of charges by the Licensee at rates to be prescribed by the Licensor from time to time as per Article 6.1.8. Take all point for water to be supplied at berths shall be the nearest available water line:
(x) monitoring pollution in the air and water and ensure compliance of environmental protection measures in the Licensed Premises at the cost of the Licensee.
(xi) obtaining customs notification for the Licensed Premises to be utilised as a Container Terminal.
Note: With respect to (i) and (ii) above, normally vessels will be given service on 'First Come Fist Served" basis. However, berthing norms in Appendix 14 shall apply, but sailing shall be scheduled by the Deputy Conservator of the Licensor as per ship's characteristics and tidal conditions on non-discriminatory basis.
Article 6.4 Dredging The Licensor has represented to the Licensee that the container vessels drawing laden draught upto 8.24 m can be handled at the terminal. The Licensor proposes at its cost, charge, expenses and risk to carry out dredging required to maintain a draught of 10.7 m for approach channel and dock basin. The Licensor will endeavour to keep the channel operational with certain restrictions during dredging Operations. The proposed dredging is likely to be completed around December 1999.
Article 6.7 Reporting requirements The Licensee shall periodically at its cost, charges and expenses submit to the Licensor such statistical reports and information on container and cargo traffic, gross output rates per ship per hour at berth, daily output rates per vessel at berth, effective working time to berth time and any other information which the Licensor may reasonably require for monitoring performance and Licensee's obligations under this Agreement.
Article 6.8 Security Arrangements The security of Tuticorin Port Trust is vested with Central Industrial Security Force (CISF). The Licensee shall abide by the security regulations/procedures as stipulated by the Licensor.
Article 6.9.1 Corporate Staffing The key personnel of the Licensee, to be deployed for the operations and ""maintenance management functions of the Container Terminal, such as the Chief Executive Officer/General Manager, the Terminal Manager and the Engineering Manager shall be changed with prior intimation to the Licensor. ......
It is agreed between the Parties that although the Container terminals of the Licensor and the Licensee are envisaged to operate independently of each other, in order to optimise the facilities and create synergies, sharing of various resources (including human resources) may be considered at appropriate time on mutually agreed terms and conditions between the Licensor and the Licensee.
Article 7.3 Tariff 7.3.1. Setting Prices The Licensee shall be entitled to recover from the owners/consignees or vessel owners/agents rates and/or charges due and payable by them for use of the Container Terminal Services including terminal charges, wharfage on cargo containerised, container box and cargo related charges in respect of cargo and other services provided by the Licensee provided however that the rates and/or charges to be collected by the Licensee shall not exceed the rates fixed by Licensor in respect of similar services and duly notified by the GoI in official gazette or to be fixed by the Tariff Authority for Major Ports constituted under Article 47A of the Major Port Trusts Act, 1963 as applicable from time to time.
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Charges on account of Berth Hire, Port Dues and Pilotage shall be raised and recovered directly by the Licensor from the users.
Article 7.3.5 Payment and payment terms 7.3.5.1 Initial payment In consideration of the grant of this License, the Licensee shall pay to the Licensor an initial amount of Rs.45 million (Rupees Forty Five Millions only) simultaneously on the Date of Award of License.
Article 7.3.5.2 Monthly Royalty Payment The Licensee shall pay to the Licensor, royalty calculated on the basis of Minimum guaranteed traffic royalty rates, as set out in Appendix. 12 irrespective of discounts in tariffs, if any, that may be granted by the Licensee. Royalty shall be paid every Month on the basis of annual minimum guaranteed traffic as set out in Appendix 12. Monthly royalty shall be initially calculated proportionately to the yearly royalty based on the annual minimum guaranteed traffic as per the Appendix 12 and shall be paid latest by the 7th Day of the subsequent Month. At the end of each 3 Month period the total royalty payable shall be computed and the difference, if any, between the amount of royalty actually payable, calculated on the basis of actual TEUs handled and the corresponding amount as set out in the Appendix 12, and the amount of royalty already remitted shall be paid by the Licensee to the Licensor within fifteen Days of expiry of the relevant 3 Months period.
In case the actual traffic falls below the annual minimum guaranteed traffic as guaranteed by the Licensee as set out in the Appendix 12, then the Licensee shall pay the amount of royalty as per its annual minimum guaranteed traffic.
It is to be noted that the minimum guaranteed traffic royalty rate as set out in Appendix 12 will be adjusted upwards or downwards as a one time measure on fixation of tariff for containers by the TAMP for the first time. This adjustment will be carried out by the Port based on a single percentage (plus or minus) to be applied to all the figures quoted as royalty vide Appendix 12. This single percentage shall be decided on the basis of sum of weighted average of variations to the rates in respect of tariff for containers.
Article 11. Common obligations and right to both parties 11.2 Rights to Documents 11.2.1. Licensor Documents
Documents and computer programs or copies thereof, if any, provided by the Licensor to the Licensee, shall always remain the property of the Licensor. Such documents, computer programs and / or copies shall not be used by the Licensee for the purposes other than for the Project. ....
Appendix - 12 Minimum Guaranteed Traffic Royalty Rates and Amount payable
Sr.No.
Particulars
Reference to Tender Clause
Amount
01.
Initial Payment
5.6 (a)
Rs.45,000,000
02.
Royalty Fees
5.6 (b&c) 4.9.2
Rs.1,346,534,608
16. A combined reading of entire agreement reveals that the said agreement is a licence agreement (and not lease or rent agreement) under which licence is granted to develop the appellants VII Berth into a Container Handling Terminal operation and maintenance on BOT basis. The agreement also casts certain principal obligations and operational obligation on the appellant. The said container terminal is for movement of vessel and goods. In consideration, the TPT received one time lump sum payment of Rs.45 million and also monthly royalty charges as set out at article 7.3.1 of agreement. On careful examination of the obligations of the licensor (ie. TPT appellant) set out at Article 5.3 and 6.2.1 of the above agreement we find it clearly reveals the role of the appellant and the number of activities/services rendered by the appellant, these are direct and explicit activities carried out by the appellant in the development of C.H.T. by the licencee ie. PSA. The clause (i) to (xi) above articles are specific that the appellant shall provide entry berthing, sailing, piolatage, towage, maintenance of entrance channel draft at 8.24 MT and 10.4 MT dredging of the water way leading to the container terminal and maintenance of dredged draft, water ride safety and safety of navigation etc., In addition, the appellant also provide supply of electricity and water subject to payment by the licencee.
17. The above activities form part of the obligation of the appellant as built in BOT agreement for the development of container terminal. Therefore, the agreement itself makes it clear that the appellant has to provide certain services which are essential for movement of vessels and goods. Therefore, it is established beyond doubt that all the activities provided in the development of VII Berth on container terminal are rightly covered under port services. The consideration received by the appellant in the form of royalty charges is taxable under Port Services.
18. Further, it is pertinent to state that as per Article 7.3.5 of the agreement in consideration of the said agreement there is a initial lump sum payment of Rs. 45 Million for the licence. In addition there is a monthly royalty payment as stipulated in Article 7.3.5.2. and the present demand is only on the monthly royalty charges collected for the licencee and not on the lumpsum payment. From the above it is proved beyond doubt that the royalty charges received by the appellants is for overall consideration towards the development of VIIth Berth as container terminal under the above BOT agreement and rightly falls under port services and the amount of royalty charges are rightly chargeable to service tax under port services. Therefore, the appellants contention that they have not provided any service except leasing/ renting of the berth and the amount is only towards lease/rent of vacant land is not at all justified and not supported by law.
19. Further, it is seen from the Article 4.2 and 4.3 of the agreement that the licencee shall submit the designs and drawings of the proposed development of terminal for the prior approval of the appellant and the appellants have right to raise their objection or seek any modification and the licencee shall have to re-submit the drawings and designs incorporating the changes proposed by the appellant. The licencee cannot change the design and drawing once approved by the appellant without prior consent of the TPT. This clearly shows the indirect activities/services rendered by the appellant on the development of the above project which clearly falls under Port Services. The appellant contended that the said Royalty Charges are received only towards Renting/leasing of the vacant land and not for any services rendered whereas on perusal of the entire Licence Agreement, we failed to see the word "Renting or Leasing of the Property" is used in any of the articles of the agreement. Further, we find that the Licence agreement dt. 15.7.98 entered by appellant for development of Container Terminal is a self-contained document envisaging every details of the project. It is not only lists out terms and conditions of operation and maintenance but brings out minute details, specification of the logistics, staffing, reporting. Therefore, BOT agreement cannot be compared or equated to any normal agreement of leasing of property. Generally in any lease agreement the term used are Lessor & Lessee whereas here the agreement is between Licensor & Licensee Similarly, in the case of lease under normal circumstances, there would not be any obligation vests with Lessor and the consideration is purely a rent or lease amount. The term Licence used in the present BOT agreement is to include the Licensor, Licensed Premises and Licence period and they are used with full meaning and these cannot be by any stretch of imagination can be called or termed as Lessor or Leased Premises or Lease Period. Therefore, the appellant's claim that they have only leased out portion of the port area and received lease amount as Royalty charges has no basis and the monthly Royalty charges are worked out as per Appendix 12, based on Tonnage handling is in totality of all the services rendered either direct or indirect as stipulated in the various Articles of the Agreement and it is only for the port services i.e. Development of Container Terminal for handling of vessels and goods.
20. The appellants relied Tribunal decisions in the case of Gujarat Chem Port Terminal Co. Ltd. Vs CCE (supra) and Cochin Port Trust Vs CCE (supra) and Hon'ble Supreme Court decision in the case of CCE Vs Gujarat Maritime Board 2015-VIL-66-SC-ST. The Hon'ble Supreme Court in the above case held that wharfage charges collected by the GMP is not taxable under Pot Services as GMP has not rendered any services to UCL under the agreement. At para 9 of the said judgement, it is seen that as per agreement (para 18) it is UCL to provide all services at or around the jetty including dredging, navigation and water supply etc. At para14, it is held that GMB has not authorized UCL to collect any charges from other persons. Therefore the Hon'ble Supreme Court held that no service is rendered by GMB. Whereas in the present case as explained in the above paragraph as per Article 6.2.1, it is the appellant who renders Dredging, navigation, water supply, electricity and host of other services. Further, as per Article 7.3.1, TPT has authorized the Licensee PSA to collect all charges including wharfage etc. from the users. Therefore, the agreement of GMB in the above case is entirely different from the present case. Further, in the above case law, the consideration is only collection of wharfage charges for setting up of private jetty. There is no obligation of GMB brought out in the said order. Further, GMB has granted rebate of 80% wharfage to be adjusted against the cost of construction of jetty by UCL. Whereas in the present case there is a clear obligation of Licensor i.e. TPT is set out in the agreement and there is no rebate granted by TPT to PSA towards construction cost. TPT received Lump sum payment in addition to Royalty charges. The agreement of GMB in the above case is entirely different from the Licence agreement of TPT in the present case. Therefore, we find that the ratio of the Hon'ble Supreme Court case law of GMB case relied by appellant is clearly distinguishable on the facts and the same is not applicable to the present case. Similarly, the Tribunal decisions relied by the appellant in the case of Cochin Port Trust and Gujarat Chem Port Terminal also clearly distinguishable from the facts of the present case.
21. The appellant's another contention that renting of property as new services was introduced w.e.f. 1.6.2007 and therefore service tax cannot be demanded for the earlier period under Port Services. In this regard, we find the definition of 'Port Services' include any service to any person and in any manner in relation to vessel and goods. The Hon'ble Gujarat High Court in the case of Kandla Shipchandlers and Ship Repairers Association Vs UOI (supra) held that the definition under Section 65 (105) (zn) is expressive and include any services rendered in any manner. The relevant paragraphs of the High Court decision are reproduced as under :-
8. With this factual background in mind, if we refer to the statutory provisions, it emerges that Section 65(105)(zn) makes taxable any service provided to any person by a port or any person authorized by the port, in relation to port services, in any manner. The term port service is defined under section 65(82) as under :
(82) port service means 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. The term port has been defined in Section 65(81) as having the same meaning assigned to it in clause (q) of Section 2 of the Major Port Trusts Act, 1963.
9. It can thus be seen that for a person to be included in the Service Tax-net under Section 65(105)(zn) must be one providing port service. The definition of port service thus assumes significance. The term port service has been defined to mean 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. Thus, the term port service has been defined in an expansive manner. It includes within its sweep any service rendered in any manner in relation to a vessel or goods. The expressions in any manner and in relation to both tend to expand the scope of such service.
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12. We may notice that CESTAT in the case of Homa Engineering Works v. Commissioner of C.Ex., Mumbai, 2007 (7) S.T.R. 546 (Tri.-Mumbai) did hold that activity of ship repair at dry docks would not amount to port service. In the said decision, the Tribunal referred to the provisions contained in the Major Port Trusts Act, 1963 and formed an opinion that repair of the vessel not being done by the port, it cannot be stated to have been authorized by the port. It was held as under :
As such, we find that the powers of the Board to execute?11. the work and provide compliance in terms of section 35(1) are not to the effect so as to carry out the repairing activity themselves. Understandably, the vessel which come on the port after sailing for a considerable period, would require minor/major repairing activities on account of the damages or mechanical faults incurred on account of vagaries of sea and for the subject purposes dry docks and workshops are established in the port for the purposes of rectifying the defect and to make the vessel seaworthy. However, extension of above facility does not mean that it is the duty of the Board to undertake the repairing activity themselves. In fact, under the said section, the port is required to provide facility for repair and not to undertake the repair itself. Ship breaking activities and ship manufacturing activities may also be done in the port area, for which purposes facility may be provided by the port, but that will not make the same as port services. The Tribunal was of the opinion that the term any other services in respect of vessels has to be extended to the services which are connected to the movement of the vessel. The Tribunal applied the principle of ejusdem generis. The view expressed by the Tribunal does not command to us. Firstly, the authorization of the port has undoubtedly been granted in the present case. We do not find that such authorization must relate to those activities which the port is either obliged or exclusively required to perform under the Major Port Trusts Act, 1963. Further, in our opinion, the term in relation to a vessel must be seen as to expanding the scope of coverage of the port service and cannot be confined to those services which are in relation to movement of vessels so as to exclude from its ambit the work of repair of vessels.
The ratio of the High Court's above decision squarely applies to the present case. Further, the Tribunal LB decision in the case of Western Agencies Pvt. Ltd. Vs S CC (supra) clearly held that the definition of "Port Services" is exhaustive. The relevant paragraph is reproduced as under :-
"11.?Answer to question (c) So far as the third question is concerned that question deals with cluster of services provided by a port or other port. The services provided in any manner directly or indirectly by a port or other port bring such services to the fold of port services for taxation under the category of port services. By whatever name such services are called is not material to the charging provision of the 1994 Act. When the service is not provided in any manner is in relation to vessels or goods that serve purpose of the port and taxable. Legislature under the provisions of the 1994 Act, thoughtfully by necessary implication, to avoid exercise of classification of cluster services provided by a port or other port under various nomenclatures intended to bring entire cluster of services under one class of port services except to the extent of different classifications recognised by the 1994 Act. Accordingly, any service provided by a Port or other port fall under one class of service called the port services. Nomenclature of service not being decisive, charging provision of the 1994 Act prevails. It is not possible for legislature to provide an exhaustive list of service to be classified as port service. Therefore, legislature defined the term port service using the terms any service rendered by a port in any manner in relation to vessel or goods to bring to the net of taxation. Innovative means to name a service does not take away a taxable service from the scope of taxation. When a service is attributable or inevitable or indispensable for the functioning of the port or other port and advances the object of setting up of the ports, such service is said to have been provided by a port or other port. Thus, the very nature of services under the category of any services encompassed by the term port service does not exclude any service provided by a port or other port to serve the purpose of the port. It is quite common that ports are far away from locality. As a result, varied nature of facilities or infrastructure is provided in port territory so that service recipient does not go out of such port territory to find source of service desired. Facilities and infrastructure inside a port or other port serve the purpose of a port or other port. Therefore, the plea of the assessees that the different cluster of services listed in question (c) of the referral order is beyond the scope of taxation under the port services, is unacceptable. Accordingly question (c) can also be answered in favour of the Revenue and against assessee."
22. Further, the Tribunal's Principal Bench in the recent decision in the case of Airport Authority of India Vs CC reported in 2015-TIOL-148-CESTAT-DEL held that the definition of 'Airport Services' under Section 65 (105) (zzm) includes any service and held that service tax is chargeable on the revenue collected from Renting and Leasing out of space inside airport. Though the above decision relates to definition of "Airport Services" the ratio of the above decision squarely applicable to the present case.
23. In view of foregoing discussions and by respectfully following the Hon'ble High Court decision and Tribunal (LB) decision we hold that the Royalty charges received by the appellant from Licensee as per Licence Agreement for Development of VII Berth as Container Terminal, operation and maintenance on BOT basis is chargeable to service tax under Port Service.
24. Further, we find that the service tax demand was confirmed on the gross monthly royalty charges received during the disputed period without allowing cum tax benefit. It is settled law that appellants are eligible for the cum tax benefit on the total amount received as monthly royalty charges. Accordingly, we hold that appellants are eligible for cum tax benefit on the gross amount received and after allowing the cum tax value benefit the revised demand is liable to be upheld.
25. As regards appellant's contention that the demand is hit by limitation, we find that there is no evidence on record to prove that the appellants had informed the Department and it is the Department detected this transaction only during audit. But for this, it would not have come to notice. Therefore, there is enough justification in favour of Revenue and the appellant's claim on limitation is not tenable and the demand is rightly confirmed by invoking longer period.
26. As regards imposition of penalty on the appellant, both under Section 76 and 78 of Finance Act, we find that the appellants, a PSU are duly registered with Department and paying service tax regularly on the Port Services rendered from the beginning. The appellants are under bonafide belief that the said charges are not taxable during the relevant period. We also find that the appellants regularly paying service tax on the Royalty charges w.e.f. 1.6.2007. Therefore, we are of the view that there was a reasonable and bonafide cause for appellant's failure to pay service tax. Therefore, by invoking Section 80 of Finance Act, we set aside the penalty imposed under Section 76 and 78.
27. In view of the foregoing discussions and findings we hold that the monthly Royalty Charges received by the appellants from their Licensee during the period under dispute for the development of Seventh Operation and Maintenance on BOT basis as per the Licence Agreement dt. 15.7.1998 are chargeable to service tax under "Port Services". The demand is upheld but for the cum tax benefit. The penalty imposed under Section 76 and 78 are waived.
Accordingly both the appeals are partly allowed in the above terms.
(Pronounced in open court on 4.12.2015)
(P.K. CHOUDHARY) (R. PERIASAMI)
Judicial Member Tehnical Member
Rex/gs
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