Custom, Excise & Service Tax Tribunal
I) Cairn Energy (I) Pvt. Ltd. Chennaiii) ... vs The Commissioner Of Customs & Central ... on 29 April, 2008
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH AT BANGALORE Appeal No: ST/108 & 223//2006 (Arising out of Order-in-Appeal Nos: 02/2005 dated 30.11.2005 & 1 &2/2006 dated 30.01.2006 passed by the Commissioner of Customs & Central Excise Visakhapatnam II Commissionerate, Visakhapatnam 1. Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? Yes 2. Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether their Lordship wish to see the fair copy of the Order? 4. Whether Order is to be circulated to the Departmental authorities? i) Cairn Energy (I) Pvt. Ltd. Chennaiii) Oil & Natural Gas Corporation Ltd. Rajahmundry Appellants Vs. The Commissioner of Customs & Central ExciseVisakhapatnam II CommissionerateVisakhapatnam Respondent
Appearance Shri G. Venkatesh & Shri. G. Shivadass, learned Advocates, appeared for the appellant Shri R.P. Raheja, learned JCDR, for the Revenue CORAM DR. S.L. PEERAN, HONBLE MEMBER (JUDICIAL) SHRI T. K. JAYARAMAN, HONBLE MEMBER (TECHNICAL) Date of Hearing: 29.04.2008 Date of decision:
FINAL ORDER No._______________________2008 Per Shri T.K. Jayaraman These appeals have been filed against Order - in - Appeal Nos. 02/2005 dated 30.11.2005 and 1&2/2006 dated 30.01.2006 passed by the Commissioner of Customs & Central Excise, Visakhapatnam - II Commissionerate, Visakhapatnam.
2. The details of the both the appeals are given in the tabular column.
Particulars Appeal No. ST/108/2006 Appeal No. ST/ST/223/2006 Duty demand Rs 34,40,560/- Rs 63,53,085/-
Interest and penalties Interest under Section 75Penalty:Rs 500 u/s 75ARs 100/day u/s 76Rs 5000/- u/s 77 and Rs 34,40,560/- u/s 78 of the Act Interest under Section 75 Penalty:Rs 500/- u/s 75ARs 100/day u/s 76Rs 1000/- u/s 77 and Rs 63, 53,085/- u/s 78 of the Act Show Cause Notice 25.09.2001 26.02.2004 Order-in-Original No. & Date 02/2004 dated 11.01.2004 27/2004 dated 31.05.2004 Impugned Order-in-Appeal date 02/2005 dated 30.11.2005 1&2/06 dated 30.01.2006 Period of Dispute 01.09.1999 31.07.2001 01.08.2001 - 31.01.2004 Period within limitation April 2000 July 2001 October 2002 - Jan 2004
3. Shri. G. Shivadass and G. Venkatesh learned Advocates, appeared on behalf of the appellants and Shri R.P. Raheja, learned JCDR, for the Revenue.
4. We heard both sides.
5. The learned Advocates for the appellants stated that the appellant M/s. Cairn Energy is one of the Participants of a Joint Venture engaged in the exploration and development of Petroleum resources particularly for Ravva field. There is a Production Sharing Contract entered between the Joint Venture and also the President of India and the Participants. The Participants have chosen the appellant to operate the facilities in the Ravva field on behalf of the other Participants under Joint Operating Agreement (JOA) dated 28.10.1994. The Petroleum Sharing Contract provides that the facilities constructed to implement the PSC like huge storage tanks can be made available to Participants or to third party, which wishes to use the said facilities. M/s. ONGC on its own has constructed facilities for receiving and storing of crude at Surasaniyanam and used to transfer its crude to HPCL through Road Tankers. M/s. ONGC desire to use the facilities at Ravva filed for transportation of its crude oil. For this purpose the appellants entered into contract with M/s. ONGC for oil transfer services (OTS). This contract recognizes the transaction between the parties on principal-to-principal basis. The oil from different installations of ONGC would reach Surasaniyanam through Road Tankers. They will be unloaded from Road Tankers and will be loaded into to a separate tank, exclusively meant for M/s. ONGC. At the end of the day, after allowing oil to settle for sufficient time, measurement of quantity, sampling for physical parameters is done by a third party Surveyor in the presence of M/s. ONGC and the appellants. The oil will be transferred to the main tank, situated in the said facilities, which receives the crude produced by the Joint Venture and the two oil mills of M/s. ONGC and of Joint Venture get mixed. As and when required Commingled Crude will be transferred through pipeline to Ocean Tankers. A Bill of Lading is issued by the Master of the Vessel accordingly showing ONGC as a consigner and customer of ONGC as Consignee. For using such facilities, M/s. ONGC is paying the appellants fixed charges 20000 US $, per month and Tolling Charges at 38 Cents per barrel of oil transported and Port Charges at Rs 15 /- per Tonne of oil transported and this payment is in terms of Clause 11 of the Contract for Oil Transfer Services. With effect from 01.05.2006 the appellants are registered with the service tax department under the category of transportation of goods through pipeline service and have been paying service tax thereon. The Revenue proceeded against the appellants by way of issue of Show Cause Notice proposing to demand Service Tax on the ground that the appellants have been rendering clearing and forwarding agents service. Penal action was also proposed. The lower authority confirmed the proposals in the Show Cause Notice and the Appellate Authority upheld the order of the lower authority. The appellants are highly aggrieved over the impugned order and therefore they have come before this Tribunal for relief.
6. The learned Advocate Shri G. Shivadass reiterated that the appellants are simply providing storage service and then the oil stored is transported by pipeline to the oil tankers that the oil tankers carry the oil to the refinery, which is actually the consignee of M/s. ONGC. They say the function of the appellant is only to store the crude oil received and then transport it through the pipeline. They cannot be considered as clearing and forwarding agents. He invited our attention to the definition of Taxable Service in the Finance Act, 1994 and also the following Trade Notices.
a. Trade Notice 59/1999 dated 04.10.1999 issued by Mumbai Commissionerate b. Boardss Clarification dated 24.04.2002 issued vide File No. 137/04/2002 CX.4 and also Board s following circular:
c. Circular No. 39/2/2002, dated 20.02.2002 and Circular No. 73/3/2004 ST, dated 05.01.2004.
7. In terms of the above Circulars and Clarification it was submitted that the appellant is not concerned with clearing of any goods. The crude oil is delivered to the appellant at its tank. Further the appellant does not forward the said Crude to any customer of ONGC. As can be seen from the agreement and invoices raised by the appellant the Crude Oil is redelivered back to ONGC and thereafter ONGC acts as a consignor and its customers as consignee without the appellant playing any role in the transaction. In fact Clause 3 of the Agreement specifically sets out the various conditions to be met by ONGC and nominee namely HPCL which clearly brings out that the appellants have no role either in the delivery of the Crude to the receipt point or to the delivery point.
8. In terms of the Clarification given in CBECs Order dated 24.04.2002, services rendered for hiring of storage of chemicals and liquids are not covered under the category of C & F Agency as those agencies are not carrying out any services directly or indirectly connected with the C & F operations. The following case laws are relied on:
a. Gujarat State Fertilizers & Chem. Ltd. Vs. CCE & C, Rajkot 2006 (3) STR 68 (Tri.-Mumbai) b. Commissioner of C. Ex., Cochin Vs. Cardamom Mkg. Corporation 2008 (9) STR 247 (Tri.-Bang.) c. Dina Iron & Steel Ltd. Vs. Commissioner of C. Ex. Patna 2007 (7) STR 19 (Tri.-Del.) d. CCE Vadodara Vs. Parekh Apparel 2008 (9) STR 87 (Tri.-Ahd) e. Bhagyanagar Services Vs. Commr. Of C. Ex., Hyderabad 2006 (4) STR 22 (Tri.-Bang.)
9. The appellants are already covered under the new taxable service transportation of goods through pipeline defined under Section 65 (105) (zzz) w.e.f 01.05.2006. Therefore, the appellant has been registered and paying service tax on the above category. Department has never objected to such payment of tax under transportation of goods through pipeline w.e.f. 01.05.2006. The appellants are relied on the following case laws:
a. Homa Engineering Works Vs. CCE, Mumbai 2007 (7) STR 546 (Tri.-Mum.) b. Gujarat Chem. Port Terminal Co. Ltd. Vs. CCE & C, Vadodara II 2008 (9) STR 386 (Tri.-Ahmd.) c. Glaxo Smithkline Pharmaceuticals Ltd. Vs. CCE, Mumbai IV 2005 (188) ELT 171 (Tri.-Mum.) d. Diebold Systems (P) Ltd. Vs. Commissioner of Service Tax, Chennai 2008 (9) STR 546 (Tri.-Chennai) e. S.R. Kalyana Krishnan Vs. CCE, Cochin 2007 (83) RLT 602 (CESTAT Bang.)
10. The Show Cause Notice has included the value of the Port fee which is recovered on actual basis by the appellants from ONGC in the computation of taxable value for the purpose of demanding service tax. It was submitted that even if the appellant is taxable under C & F Agency, it can be charged to service tax only on service charges and not reimbursements.
a. Keralam Enterprises Vs. CCE CUS & ST Cochin 2008 (9) STR 503 (Tri.-Bang.) b. Jayalaxmi Enterprises Vs. CCE, Mangalore 2008 (9) STR 19 (Tri.-Bang.) c. Scott Wilson Kirkpatrick (I) Pvt. Ltd. Vs. CST, Bangalore 2007 (5) STR 118 (Tri.-Bang.)
11. The appellants were under the bona fide belief that their services are not covered under the C & F Agency service and therefore imposition of extended period of limitation is not justified. Had the appellant known of its service tax liability they would have simply recovered it from the ONGC as it is clearly provided in the OTS Agreement in Clause 12 that all taxes as applicable will be reimbursed by ONGC. Hence, the intention to evade payment of service tax cannot be held against the appellants.
a. CCE, Bhavnagar Vs. Velji & Sons (Agencies) Ltd. 2008-TIOL-68-SC-ST b. Rajasthan Cyliners & Containers Vs. CCE, Jaipur 1998 (29) RLT 423 (CEGAT) c. Hindustan Syringes Pvt. Ltd. Vs. CCE, New Delhi 1998 (29) RLT 323 (CEGAT) d. Continental Foundation Jt. Venture Vs. CCE Chandigarh I 2007 (216) ELT 177 (SC)
12. Further, the first Show Cause Notice was issued on 25.09.2001 and thereafter for the same service and under same agreement the second Show Cause Notice was issued only much later on 26.02.2004 invoking the extended period of limitation. It was submitted that once the Department is aware of the activities of the appellant and had already issued similar Show Cause Notice for earlier period, invocation of extended period of limitation in the subsequent Show Cause Notice does not arise.
a. Nizam Sugar factory Vs. CCE, AP 2008 (9) STR 314 (SC) b. Larsen & Toubro Ltd. Vs. CCE, Pune-II 2007 (211) ELT 513 (SC) c. CCE, Belgaum Vs. Ghataprabha Sahakari Sakkare Karkhane Niyamit 2007 (8) STR 545 (Tri.-Bang.)
13. The learned Departmental Representative reiterated the impugned Orders - in - Appeal.
14. On a very careful consideration of the issue, we find that the main service rendered by the appellant to M/s. ONGC is receipt of the crude and its transfer in terms of the Oil Transfer Services Agreement. Further, w.e.f. 01.05.2006 the appellants are paying service tax under the category of transportation of goods through pipeline. This fact is not in dispute. The scope of the C & F Agency has been clarified in the Mumbai Commissionerates Trade Notice dated 04.10.1999, which is as follows:
Clearing and forwarding agent has been defined as any person who is engaged in providing any service, either directly or indirectly, connected with clearing and forwarding operations in any manner to any other person and includes a consigning agent. The taxable service has been defined as any service provided to a client, by C & F agent in relation to clearing and forwarding operations in any manner. The clearing and forwarding agents are engaged / appointed by manufacturer of goods (both excisable and non-excisable good), producers and distributors of goods and shall also include such agents appointed for agricultural and mineral goods.
Normally, there is a contract between the principal and the clearing and forwarding agent detailing the terms and conditions and also indicating the commission or remuneration to which the C & F agent is entitled. A clearing and forwarding agent normally undertakes the following:
a. Receiving the goods from the factories or premises of the principal or his agents; b. Warehousing these goods;
c. Receiving despatch orders from the principal;
d. Arranging despatch of goods as per the directions of the principal by engaging transport on his own or through the authorized transporters of the principal; e. Maintaining records of the receipt and despatch of goods and the stock available at the warehouse; f. Preparing invoices on behalf of the principal.
15. Moreover, the Board in its letter dated 24.04.2002 has also clarified the scope of the C & F Agents service and it has been specifically clarified that services rendered by agencies in relation to storage cannot be considered to be in the nature of clearing and forwarding. The said Circular is reproduced here.
Order No. 2/1/2002-ST, dated 24.04.2002 issued vide F. No. 137/04/2002-CX.4 The issue is whether the activity/service of providing storage facility and charging rent, for storage of liquid cargo in tanks, can fall under the category of Clearing and Forwarding operations as defined under Section 65 of Finance Act, 1994.
The main point raised by the agencies is that they are not at all rendering any clearing and forwarding services and hence they do not come under the category of clearing and forwarding agents. They simply issue Invoices/Bills to their customers towards storage charges only and for no other charges.
The matter has been examined. Normally, a C & F agent receives goods from the factories or premises of the Principal or his agents, stores these goods, despatches these goods as per orders received from the Principal or owner, arranges transport, etc. for the purpose and prepares invoices on behalf of the Principal. For this service, the C & F agents receive commissions on the basis of agreed terms. Therefore, an essential characteristic of any services, to fall in the category of C & F agent, is that the relationship between the service provider and receiver should be in the nature of principal (owner) and agent. The C & F agent carries out all activities in respect of goods right from stage of their clearances from the premises of the principal to its storage and delivery to the customers.
However, in the cases under consideration, the agencies are providing only storage facility for liquid cargo which has been imported or is intended for export. They charge rent for storage of liquid cargo deposited with them. They are not connected with the vessel bringing the goods and are not concerned with customs formalities. They issue invoices to customers towards storage charges and for no other charges. These agencies are not receiving any commission from the principal but only rental for storage facility, whereas a C & F agents remunerations is in the form of commission. The transactions between the parties are not transactions between principal and an agent but between principal and principal. These agencies are neither receiving any de spatch orders from the owners of the goods, nor are they arranging for the despatch of goods as per their directions by engaging transport, as is done normally by C & F agents. They are also not carrying out any service directly or indirectly in connection with clearing and forwarding operations. Therefore, services rendered by such agencies, in relation to storage of cargo, cannot be considered to be in the nature of clearing and forwarding and such agencies cannot be considered as clearing and forwarding agents
16. Further, in Circular No. 39/2/2002, dated 20.02.2002 the following is clarified.
Normally C & F agents do the job of clearing and forwarding. In a typical situation clearing & forwarding agents are appointed in outstation location by manufacturers or wholesale distributors so that they may clear the goods, store them and then forward the goods according to the instructions of the Principal owner. Thus the person concerned is an agent and an agent is an authorized representative of a named principal owner.
There is a contract between the principal (owner) and C & F agent detailing the terms and conditions and also indicating the commission or remuneration to which the C & F agent is entitled.
17. Further it has been clarified in Circular No. 73/3/2004-ST, dated 05.01.2004 in the following manner.
I am directed to say that under Section 65 of Finance Act, 1944 and as brought out by Boards letter No. F.B. 43/7/97-TRU, dated 11.07.97 there must exist a relationship of principal and an agent for bringing grain agent in the ambit of C & F agent of the farmer and in CBEC Circular No. 48/10/2002-ST, dated 13.09.2002, [2002 (145) E.L.T. T73] it has been clarified that Adhatiyas (Food grain agents) activity do not fall under the scope of Clearing and Forwarding Agents services and hence would not be liable for Service Tax under this category.
18. It is clear from the above clarifications, that there must exist relationship of principle and agent for bringing the agent within the ambit of C&F Agent. In the present case the appellants have stated that the relation between them and the agents and ONGC is on a principal-to-principal basis and moreover the appellants do not do the work of clearing and forwarding. They are only storing the crude received on behalf of the ONGC and then through pipeline transfer it to the vessles. So, the Bill of Lading is issue by the ONGC and the consigner is the HPCL refinery. Therefore, the appellants do not play any role in delivering the goods to consignees. After examining the issue, we are of the view that the services rendered by the appellants do not fall within the ambit of C&F Agencies Service in terms of the various clarifications, which have been reproduced above. Moreover, as regards time bar we are of the view that the appellants were under the bona fide impression that they do not come under the category of C&F services. In the second show cause notice extended period has been imposed. This is not correct, because once the first show cause notice was issued, the department was in the know of the things. So they cannot invoke a longer period in the subsequent show cause notice in terms of the citations given. In view of this there is no merit in the finding of the Commissioner (Appeals) that the services rendered by the appellants amount to C&F Agency service. The port fee which is a reimbursable expense can not also be subjected to any service tax as it is not a receipt in relation to any taxable service rendered by the appellants. Hence, we set aside the impugned orders and allow the appeals with consequential relief.
(Operative portion of this Order was pronounced in open court on conclusion of hearing) (T.K. JAYARAMAN)Member (T) (S.L.PEERAN) Member (J) /pr/