Custom, Excise & Service Tax Tribunal
Afcons Infrastructure Ltd vs Commissioner Of Service Tax, Mumbai Ii on 4 April, 2014
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT NO. I Appeal No. ST/86366/2013 and ST/CO/91080/13 (Arising out of Order-in-Original No. 42/ST-II/RS/2012 dated 28.12.2012 passed by Commissioner of Service tax, Mumbai II.) For approval and signature: Honble Mr.S.S. Kang, Vice President Honble Mr. P.K. Jain, 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 :Yes CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy : Seen of the Order?
4. Whether Order is to be circulated to the Departmental : Yes authorities?
====================================================== Afcons Infrastructure Ltd Appellant (Represented by: Mr. V. Sridharan, Senior Advocate with Mr. L. Badrinarayanan, Advocate) Vs Commissioner of Service Tax, Mumbai II Respondent (Represented by: Mr. V.K. Agarwal, Additional Commissioner (AR)) CORAM:
Honble Mr.S.S. Kang, Vice President Honble Mr. P.K. Jain, Member (Technical) Date of Hearing : 10.03.2014 Date of Decision: 04.04.2014 ORDER NO..
Per: P.K. Jain
1. Heard both sides.
2. With the consent of both sides after waiving the pre-deposit the main appeal is being taken up.
3. The main issue to be decided in this appeal is whether the Onshore Terminal developed by M/s Reliance Industries Ltd at Pedda Gadimoga Village, near Kakinada, Andhra Pradesh could be considered to be as Transport Terminal for the purpose of exclusion from levy of service tax under the category of Commercial and Industrial Construction Service.
4. Section 65(25b) of the Finance Act, 1994, as amended, defines the term Commercial or Industrial Construction service as under:
Commercial or industrial construction service means
(a) construction of a new building or a civil structure or a part thereof; or
(b) construction of pipeline or conduit; or
(c) completion and finishing services such as glazing, plastering, painting, floor and wall tiling, wall covering and wall papering, wood and metal joinery and carpentry, fencing and railing, construction of swimming pools, acoustic applications or fittings and other similar services, in relation to building or civil structure; or
(d) repair, alteration, renovation or restoration of, or similar services in relation to, building or civil structure, pipeline or conduit, which is
(i) used, or to be used, primarily for; or
(ii) occupied, or to be occupied, primarily with; or
(iii) engaged, or to be engaged, primarily in, commerce or industry, or work intended for commerce or industry, but does not include such services provided in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams; (emphasis supplied) Section 65(105)(zzq) defines the taxable service means any service prescribed or to be provided, -
to any person, by a commercial concern, in relation to commercial or industrial construction service
5. Above definition of Commercial or Industrial Construction Service does not include such services provided in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams. The scope of the term Transport Terminal is not defined under the Finance Act, 1994 or the Rules made thereunder. In the absence of any definition in law or similar authoritative source, we have to go by commonly understood meaning.
6. before trying to understand the scope of Transport Terminal we may understand the functions and facilities at the Onshore Terminal (OT) at Pedda Gadimoga. M/s Reliance Industries Ltd have been awarded the Deep-water Block KG D6 (KG-DWN-98/3) on the East Coast of India for exploration of gas found in commercial quantity. The natural gas extracted from various wells is transported through pipe and is loaded to the onshore terminals. The OT will remove the impurities from the gas to meet the sales gas specifications. The following facilities are envisaged at the OT: pig receivers, slug catchers, inlet separators, gas dehydration system using TEG, TEG regeneration system MEG storage and continuous injection system through dedicated dual 6 pipelines, MEG generation system, gas turbines for power generation, emergency power generation system, utilities, effluent treatment plant, DCS, ESD system and other facilities. The KG-D6 field operations will be controlled and monitored from the CCR located in the OT. The OT will be sized for an initial throughput of 80 MMSCMD. The OT shall be capable of being expanded to handle 120 MMSCMD and more. Provisions for future development will be limited primarily to provision of suitable connections and space in the plot plan for the OT.
7. In fact the appellants in their appeal has also given the brief pictorial diagram about the processing of the input received at the site onshore terminals and the output as under:
8. The function of the onshore terminal could be summarized as under:
(i) Separate and collect liquid slugs from sub sea pipelines generated during normal operating and transient operating scenarios such as pigging, ramp-up, turn down etc.
(ii) separates the rich MEG (condensed and produced water plus the lean MEG injected at the sub sea facilities) from the gas;
(iii) dehydrate and condition the gas using TEG dehydrator to meet the sales gas specifications;
(iv) fiscal metering of the sales gas;
(v) regeneration of MEG to the required MEG purity;
(vi) injection of regenerated MEG in to the sub sea facilities for hydrate inhibition.
(vii) removal and disposal of dissolved salts from regenerated MEG in accordance with applicable law;
(viii) treatment and disposal of produced water and other effluents in accordance with applicable law;
(ix) control and monitor the OT, CRP and sub sea operations and safeguard all facilities from centralised control room at the OT; and
(x) provision of all utilities to support the above functional requirements of the OT.
9. The facilities which were envisaged at the said onshore terminal are listed as under:
(i) pig launcher/receiver station, inlet manifolds, block valves;
(ii) slug catcher and inlet gas heating system;
(iii) gas separation and dehydration system (including TEG regeneration system);
(iv) liquid separation system;
(v) fiscal gas metering system;
(vi) fuel gas treatment system;
(vii) effluent treatment system;hot oil heater and circulation system;
(viii) MEG regeneration, storage and injection system;
(ix) instrument air compressor and distribution system;
(x) nitrogen generation system;
(xi) chemical storage and injection system;
(xii) HP and LP flare system;
(xiii) power generation, distribution and management system;
(xiv) emergency and UPS power generation and distribution system;
(xv) CP system for u/g piping and equipment;
(xvi) public address and general alarm system;
(xvii) closed drain system;
(xviii) open drain system;
(xix) seweage treatment system (xx) incinerator for domestic and operational sold wastes (xxi) fire fighting system and firewater distribution system;
(xxii) potable water system and water maker (using sea/river water as feedstock); (xxiii) fire and gas system;
(xxiv) plant control, monitoring and safeguarding system including ESD and DCS; (xxv) CCTV and security access control system;telecommunication systems including line of sight with CRP; (xxvi) all field and control room instrumentation and associated hardware and software; (xxvii) laboratory facilities for product quality control;
(xxviii) workshops (mechanical, electrical, instrumentation);
(xxix) safety / PPE items;
(xxx) environmental monitoring facilities;
(xxxi) closed circuit cooling water system including treatment / filtration packages (subject to feasibility study in the MEG regeneration package); (xxxii) produced water treatment (ETO);
(xxxiii) rain water harvesting;
(xxxiv) material handling system;
(xxxv) HVAC system;
(xxxvi) helipad and refuelling system;
(xxxvii) buildings (offices, control rooms, fire cum Security control room, lab, workshops, warehouses accommodation, etc.) (xxxviii) internal and external access roads; Internal drainage system;
(xxxix) civil structural work including foundations, piles, sub-structures, superstructures, protective coatings and all applicable civil works;
(xl) raising of peripheral bund from +4.5 m to +5.7 m above MSL with dredged fill material;
(xli) providing protection/revetment works to peripheral bund and access roads and construction of boundary walls & fencings;
(xlii) survey and setting out work;
(xliii) carryout additional geo technical investigation and pile load tests (xliv) Development of Green belts (xlv) pipe racks and cable trays as required; and (xlvi) pipeline integrity management system (PIMS).
10. From the above details provided by the appellant, few things which are important to note are as under:
(i) the well fluid received is processed and after process dry gas is obtained which is sent in various pipelines for sale.
(ii) The process is highly technical and includes MEG regeneration and MEG injection into the pipes/well in the subsea facilities & TEG regeneration system.
(iii) At the onshore terminal there are number of facilities which not only controls and monitors various operations in the onshore terminal but also in the CRP and sub-sea operations and takes necessary steps to safeguard facilities from Centralized Control Room at the Onshore Terminal. Thus the onshore terminal not only process the fluid received from the Godavari basin and deep-sea to extract the dry gas but also controls and monitors various CRP and sub-sea operations and take necessary steps to safeguard facilities from Centralized Control Room located at OT.
11. The main contention of the learned Senior Advocate for the appellant is that the facility on the onshore terminal only receives gas from deep-sea and thereafter distribute through pipelines to various destination throughout the country. Since at the onshore terminal the gas is received and thereafter sent to various places the facility is nothing but transport terminal. The main contention was that the term Transport Terminal cannot be restricted to bus terminal or truck terminal. Gases and liquid also gets transported through pipelines and therefore any terminal where the gases/liquid are received and thereafter distributed through pipelines is to be considered as transport terminal. The learned Advocates another contention was that the transport terminal should be owned by the public authority is not envisaged in the definition and there is no law envisaging such a proposition. Learned advocate argued that at present even the airports and ports are privately owned. Bus terminal and truck terminals can also be privately owned and there is no logic reason that the gas transport terminal should be owned by public authority. The learned counsel also contended that transport of gas through pipelines is one of the transport services which is chargeable to service tax. This itself shows that the transportation of gas, petroleum products through pipelines is an accepted mode of transport and therefore the said terminal has to be considered as transport terminal. In view of the fact that the definition of Commercial and Industrial Construction Service exclude transport terminal, no duty is leviable on the said service used for construction of transport terminal.
12. The term transport terminal is not defined in the Finance Act, 1994 or any other authority source. In an Article The Geography of Transport Systems by Dr. Jean Paul Rodrigue and Dr Brian Slack (copy of the said Article was submitted by the learned advocate for the appellant) has to say the following about the transport terminal:
1. The Nature of Transport Terminals A terminal may be defined as any facility where passengers and freight are assembled or dispersed. Both cannot travel individually, but in batches. Passengers have to go to bus terminals and airports first, where they are "assembled" in busloads or planeloads to reach their final destinations where they are dispersed. Freight has to be consolidated at a port or a rail yard before onward shipment. Terminals may also be points of interchange involving the same mode of transport. Thus, a passenger wishing to travel by train from Paris to Rotterdam may have to change trains in Brussels, or an air passenger wishing to fly between Montreal and Los Angeles may have to change planes in Toronto. Terminals may also be points of interchange between different modes of transportation, so that goods being shipped from the American Mid-West to the Ruhr in Germany may travel by rail from Cincinnati to the port of New York, put on a ship to Rotterdam, and then placed on a barge for delivery to Duisburg. Transport terminals, therefore, are central and intermediate locations in the movements of passengers and freight.
Terminal. Any location where freight and passengers either originates, terminates, or is handled in the transportation process. Terminals are central and intermediate locations in the movements of passengers and freight. They often require specific facilities and equipment to accommodate the traffic they handle.
Terminals may be points of interchange within the same modal system and which insure a continuity of the flows. This is particularly the case for modern air and port operations with hubs connecting parts of the network. Terminals, however, are also very important points of transfer between modes. Buses and cars deliver people to airports, trucks haul freight to rail terminals, and rail brings freight to docks for loading on ships. One of the main attributes of transport terminals, international and regional alike, is their convergence function. They are indeed obligatory points of passage having invested on their geographical location which is generally intermediate to commercial flows. Thus, transport terminals are either created by the centrality or the intermediacy of their respective locations. In some cases, large transport terminals, particularly ports, confer the status of gateway or hub to their location since they become obligatory points of transit between different segments of the transport system.
13. From the above Article as also the generally understood meaning of the transport terminal would be a facility where passengers or fright are assembled or dispersed. In fact Airport, railway stations and port are different type of transport terminal. At the airport passenger and freight get assembled and thereafter as per their destination passengers and freight are distributed. Similar is the position in respect of port which are mainly used for the transport of freight. Similarly in every city one would find transport terminals where the people assemble to go to different places by buses and also arrive from different places. Similarly there are truck terminals in cities where freight is assembled from different places within the city from different organizations, thereafter freight is distributed as per different destination and dispersal to different destinations. In the present case there is no arrival from different destination and dispersal to different destination. Movement of gas is unidirectional and is fixed. Here there is just one item. There is no arrival of freight. Extracted fluid is received. Processed dry gas is sent to distribution pipeline Recovered MEG is processed and again pumped to sub-sea facility. TEG is used in the OT for processing. We find that the said Article speaks about various transport terminals but does not talk of transport terminal for gases. Thus, in our view, the concept of transport terminal is relevant for transportation by air, sea, road and not for transporting gases through pipelines.
14. A somewhat similar situation exist in case of water treatment plant set up by municipal corporation to receive the water, treat the water by process such as filtration, chlorination etc and water so treated is pumped into pipelines to various destination/direction. Such a water treatment facility cannot be called as Transport Terminal for water. In the present case, it is not only processing of extracted fluid but injecting MEG in sub-sea facilities, monitoring and controlling operation of various facilities in the high-seas in Exclusive Economic Zone. Workshop facilities required for operation in these facilities and other infrastructure facilities.
15. We have earlier briefly summarized various functions of the facilities created at the Onshore Terminal. It is very important to note that the said terminal controls various operations being carried out in the high seas in the exclusive economic zone. The happening in the wells and various network of pipes within the sea is also monitored and controlled from the facilities available in the Onshore Terminal. It is also observed that the terminal also has the facilities like workshop, lounge, guest house to accommodate the staff working offshore, helipad etc. We have also gone through the facilities as well as the functional capabilities listed in paras 8 and 9 earlier which make it very clear that the facilities at Gadimoga is a processing facility so that the received fluid can be converted into dry gas which can be sold. In addition, OT controls various facilities in the sea/well etc. Such a facility cannot be considered as a transport terminal. In any processing facility, material has to be received and dispatched but that would not make the processing facility as Transport Terminal. In our view, transportation is only incidental to the processing facility. After all the fluid received is for extraction of dry gas and thereafter the dry gas is required to be sold to its customers and therefore there has to be facility to receive and transport the same.
16. We also observe that even the owner of the facility calls the facility as Onshore Terminal and does not call it Transport Terminal. This itself indicates that even the owner does not recognize the facility as Transport Terminal. We have no hesitation in holding that the facilities available at the onshore terminal at Gadimoga cannot be termed as Transport Terminal.
17. In the impugned order, a view has been taken that the transport terminal should be owned by public authority and this has been disputed by the appellant. As far as this aspect is concerned, in our view, there is no requirement that the transport terminal should be owned by a public authority alone. However, since we have held that the onshore terminal at Gadimoga cannot be considered as transport terminal, this argument though in favour of the appellant does not help in the present situation. In the impugned order the Commissioner has taken a view that the exclusion in the definition of Commercial or Industrial Construction Service is in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams and all these things when read together would indicate that there are infrastructure facilities and all the items have to be read together as per the principle of Ejusdem Generis as well as Noscitur of sociis. Learned counsel for the appellant has emphasized that the said principles are not applicable in the present situation. We are not impressed with the said argument. The term transport terminal is preceded by airports, railways etc and therefore transport terminals would imply similar thing, which in the present situation would be relating to bus and truck terminals. Other words bridges, tunnels, dams are all belongs to infrastructure facilities. We therefore do not find any force in this contention of the appellant.
18. There are certain other contentions raised by both sides. We do not consider it necessary to go into those details, as we have already held that the facilities available at the onshore terminals are relating to processing of fluid received for extraction of dry gas, MEG etc using TEG and monitoring and controlling various operations relating to gas extraction in the high-sea/sub-sea. Transport of gas after processing is only incidental.
19. We have also gone through the Order-in-Appeal passed by the Commissioner (Appeals) where he has taken a view that the said facilities as transport terminals. We understand that the said order of the Commissioner (Appeals) has been challenged by Revenue and is pending decision before the Bangalore Bench of the Tribunal. It may not be appropriate for this Bench to comment in detail on the same. We have gone through the said order and we find that the Commissioner (Appeals) is perhaps not aware of all the facilities available at the onshore terminals and hass therefore drawn such a conclusion. In any case, such a decision of the Commissioner (Appeals) is not binding on this Tribunal. Some other judgments are quoted by both sides, we find all these judgments are relating to stay stage and we do not consider it appropriate to go into these judgments.
20. We also note that the proviso to Section 73 has been invoked and penalty also has been imposed under Section 78 of the Finance Act. We find from the impugned order that the appellant was of the view that immediately on receipt of mobilization advance that the service tax is required to be paid and there have been exchange of letters between the appellant and their client about the same. However, later on instead of collecting the service tax from the customers, started requesting a comfort letter from their client which was also not received by them. Under the circumstances, it is a clear cut case where the appellant knew their service tax liability but still chose not to collect and pay, but started asking comfort letter. This is clear cut suppression of facts, contravention of provision of service tax law with wilful intention and therefore the extended period is rightly invoked. Penalty under Section 76, Section 77 and Section 78 of the Finance Act, 1994 has also been correctly imposed.
21. In the result appeal is dismissed. Stay Petition is dismissed. Cross Objection filed by Revenue is also disposed of in above terms.
(Pronounced in Court on 04.04.2014.) (S.S. Kang) Vice President (P.K. Jain) Member (Technical) rk 16