Custom, Excise & Service Tax Tribunal
Karnavati Aviation Pvt Ltd vs Service Tax - Ahmedabad on 8 March, 2024
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
West Zonal Bench At Ahmedabad
REGIONAL BENCH- COURT NO.3
SERVICE TAX Appeal No. 193 of 2012
(Arising out of OIO/STC/03/COMMR/AHD/2012 dated 13.01.2012 passed by
Commissioner of Service Tax- Ahmedabad)
KARNAVATI AVIATION PVT LTD .........Appellant
GROUND FLOOR, SHIKHAR, NR. RAILWAY CROSSING,
NR. MITHAKHALI CIRCLE, NAVRANGPURA,
AHMEDABAD-GUJARAT
VERSUS
C.S.T.-SERVICE TAX - AHMEDABAD ..........Respondent
7 th Floor, Central Excise Bhawan, Nr. Polytechnic
CENTRAL EXCISE BHAVAN, AMBAWADI,
AHMEDABAD, GUJARAT-380015
AND
SERVICE TAX Appeal No. 564 of 2012
(Arising out of OIO/STC/32/COMMR/AHD/2012 dated 25.08.2012 passed by
Commissioner of Service Tax- Ahmedabad)
GSEC AVIATION LTD .........Appellant
2ND FLOOR, GUJARAT CHAMBERS BUILDING,
ASHRAM ROAD, AHMEDABAD-GUJARAT
VERSUS
C.S.T.-SERVICE TAX - AHMEDABAD ..........Respondent
7 th Floor, Central Excise Bhawan, Nr. Polytechnic
CENTRAL EXCISE BHAVAN, AMBAWADI,
AHMEDABAD, GUJARAT-380015
APPEARANCE:
Shri J. C. Patel & Amit Laddha, Advocate appeared for the Appellant
Shri A.K. Mudvel, Superintendent (Authorized Representative) for the Respondent
CORAM: HON'BLE MEMBER (JUDICIAL), MR. RAMESH NAIR
HON'BLE MEMBER (TECHNICAL), MR. RAJU
Final Order No.__10552-10553_ /2024
DATE OF HEARING: 14.09.2023
DATE OF DECISION: 08.03.2024
RAMESH NAIR
Service Tax Appeal No. 193 of 2012 has been filed by M/s.
Karnavati Aviation Pvt. Ltd. against the impugned Order-In-Original dtd.
13.01.2012 passed by the Commissioner of Service Tax, Ahmedabad
confirming the demand of service tax under Section 73 of the Finance
Act, with interest under Section 75 of Finance Act and penalty under
Section 78 of the Finance Act.
2|Page ST/193 & 564/2012
2. Service Tax Appeal No. 564 of 2012 has been filed by the M/s.
GSEC Aviations Ltd. against the impugned order-in-original dtd.
25.08.2012 passed by the Commissioner of Service tax, Ahmedabad
confirming demand of service tax along with interest and penalty.
3. The principle issue involved in both the appeals is common, therefore
disposed of by a common order.
4. The facts of the case in brief are that the intelligence gathered by
the officers of DGCEI, Ahmedabad revealed that M/s Karnavati Aviation
Pvt. Ltd. (Formerly known as M/s Gujarat Adani Aviation Pvt. Ltd.) is
engaged in providing chartered flights to various organization but not
paying appropriate Service tax payable thereon under " Supply of
Tangible Goods Services" as specified under Section 65(105)(zzzzj) of
the Finance Act, 1944. Appellant was called to furnish information and
documents.According to the Appellants, these services fall under the
category of "Air Transport of Passenger Service" as defined under Section
65(105)(zzzo) of the Finance Act , 1944. After completion of
investigation, revenue contended that appellants had not issued tickets
to passengers. They had produced copies of invoices issued to their
clients such as M/s Adani Power Ltd., Mundra Port and SEZ Ltd., M/s
SITC, etc. Therefore, the services provided by the appellants appeared
to be not covered under "Transport of Passenger by Air Service.
However as per the revenue the service rendered by the appellant was
appropriately covered under the supply of tangible goods services.
5. From the copies of Balance Sheet of M/s Karnavati Aviation Pvt.
Ltd. (M/s KAPL) it was also found that they had incurred expenditure in
foreign currency towards interest charged paid to foreign bank, purchase
of navigation data and books & periodical, aircraft fuels, airport charges,
3|Page ST/193 & 564/2012
processing fees, repair and maintenance, payment made for inspection
charges, payment made for hiring of aircraft , etc. As these expenditures
incurred against the receipts of taxable services from the services
providers who have permanent address or usual place of residence, in
country other than India but appellant had not paid service tax payable
thereon as provided under section 66A of the Finance Act, 1994 read
with Taxation of Services (Provided from Outside India and Received in
India) Rules, 2006 and Rule 2(1)(d)(iv) of the Service tax Rules, 1994.
6. Accordingly, the appellant was issued show cause notice proposing
service tax demand. In adjudication, impugned orders has been passed
wherein it has been held that hiring of chartered air crafts by the
appellants is classifiable under the category of "Supply of tangible goods
Services" and leviable to service tax. Accordingly Service tax demands
are confirmed against the Appellants along with interest and penalties.
Aggrieved by these impugned orders, the appellants have filed these
appeals before this Tribunal.
5. Shri J.C. Patel and Amit Laddha Ld. Advocates, appeared on behalf
of the appellants submits that the Appellants have been granted Permit
for "Non-Scheduled Passenger" Air Transport Service by the Director
General of Civil Aviation (DGCA). In terms of the said Permit granted by
DGCA, the Appellants provide services of transport of passengers by
aircrafts, which includes charter flight operations.
6. He also submits that the Larger Bench in the Appellant‟s own case
reported as VRL Logistics Ltd. Vs. CCE - 2022(8)TMI -720 -CESTAT
Ahmedabad (LB), categorically held that the Appellant is an aircraft
operator holding the requisite permit from DGCA and that Charter flight
operations undertaken by the appellants are Air Transport service under
4|Page ST/193 & 564/2012
the category of Non-Scheduled Passenger Service. It is clear from the
findings of the Hon‟ble Larger Bench that the Appellant is aircraft
operator and in Charter Flight operations undertaken by the Appellant,
the aircrafts has been used by the Appellant to transport passengers.
Accordingly, by undertaking charter flight operations, the Appellants
have rendered air transport service falling under the category of Non-
Scheduled passenger Service.
7. He further submits that the Larger Bench has categorically held
that the manner or mode of fixing the remuneration for such air
transport service, whether seat wise, daily or weekly or annual basis is
entirely irrelevant and does not detract from the service being air
transport service. Since it is clear that by undertaking charter flight
operations the Appellant has rendered air transport service which is not -
scheduled passenger service, the same squarely falls under Section
65(105)(zzzo) and since under the said provision, domestic journey was
not taxable prior to 01.07.2010, the Appellant has rightly not paid the
service tax prior to 01.07.20210.
8. He also argued that even in Charter Flight operation, the Aircraft is
used by the Appellant to provide the service of transportation of
passengers, there is no supply of the aircrafts by the Appellant and
hence Section 65(105)(zzzzj) has no application. To constitute supply of
the aircrafts, there ought to be demise or lease of the aircrafts. A wet
lease of the aircraft would be a supply of aircraft, in which the lessor
retains the possession and effective control of the aircrafts. In the
present case there is no demise of lease of the aircrafts by the Appellant.
The agreement relied by the revenue in the impugned matter speaks of
operation of flights by the appellant and not of demise, lease or supply of
aircraft. The provision for arriving at the tariff by mutual agreement
5|Page ST/193 & 564/2012
based on destination or number of days or time is entirely irrelevant in
view of the categorical finding of the Larger Bench that the manner or
mode of fixing the remuneration for such air transport service, whether
seat wise, daily or weekly or annual basis is irrelevant and does not
detract from the service being air transport service. In any event, the
appellant has either charged the remuneration on per -seat basis or on
the basis of flying time of the flight operated, which clearly shows that
what has been charged is only for the service of air transport to specific
destinations and not for supply of the aircraft.
9. Without prejudice, he submits that assuming while denying that
there was supply of aircraft, even so, such supply is not covered by
Section 65(105)(zzzzj) which applies only to supply of machinery,
equipment and appliances and not to supply of aircraft. In the context of
the said Section 65(105)(zzzzj), the term "including" is not a word of
enlargement, but a terms of limitation and limits or restricts the scope of
"Tangible Goods" to machinery, equipment and appliances.
10. He also submits that when a provision while setting out the scope
of any terms or expression uses the word „including‟ followed by things
that would not fall within the ordinary connotation of such term or
expression, then the word „including‟ is a word of enlargement or
extension and it enlarges and extends the scope of such term or
expression so as to cover not only things which are as per the ordinary
connotation of such term or expression but also those mentioned after
the word including. On the other hand, if the things mentioned after the
word „ including‟ fall within the ordinary connotation of the term or
expression defined, the word including is not a word of enlargement, but
a word of limitation and the word "including" in such context means
6|Page ST/193 & 564/2012
comprising and accordingly the term or expression comprises the things
mentioned after the word including.
11. He further submits that in Section 65(105)(zzzzj), the things
following the word "including" are machinery, equipment and appliances
which are covered by the ordinary connotation of the expression
"tangible goods" as there can be no manner of doubt the same are
tangible goods. There is therefore no question of enlarging the meaning
of "tangible goods" by mentioning machinery, equipment and appliances
after the words "including". The word "including" in Section
65(105)(zzzzj) is therefore not a word of enlargement and in the context
of Section 65 (105)(zzzzj) it must mean comprising. It therefore applies
to supply of tangible goods comprising machinery, equipment and
appliances. Such interpretation is placed beyond any doubt or
controversy by the latter part of Section 65(105)(zzzzj) which provides
for non-transferring of right of possession and effective control of such
machinery, equipment and appliances. If the use of the word "including‟
was to enlarge the scope of tangible goods and not to restrict the same
to machinery, equipment and appliances, the letter part of Section
65(105)(zzzzj) would have referred to tangible goods and not to
machinery, equipment and appliances. He placed reliance on the
following judgments.
(i) South Gujarat Roffing Tiles Manufacturing Association Vs. State of
Gujarat - (1976) 4SCC 601.
(ii) N.D.P. Namboodripad Vs. UOI -(2007) 4 SCCC 502
(iii) CC Vs. Caryaire Equipment India Pvt. Ltd. - 2012 (278)ELT 30 (SC)
12. He also argued that the demand for the larger period of limitation
is not sustainable as there was no fraud, collusion, willfulmis-statement,
suppression of facts or contravention with intention to evade payment of
service tax. The very fact that prior to 01.07.2010, the appellant was
7|Page ST/193 & 564/2012
paying service tax under Section 65(105)(zzzo) in respect of
international journey establishes that the Appellant‟s bona fide held the
view that service it rendered was non-scheduled air transport of
passengers and not of supply of tangible goods and since prior to
01.07.2010 , domestic journey was not taxable, no service tax was paid
thereon. Further the appellant had raised invoices for domestic journey
and maintained complete records in respect of the same, which
establishes that there was no clandestine activity or positive act of
concealment. He placed reliance on the following judgments.
(i) Steelcast Ltd. Vs. CC-2009(14)STR 129
(ii) CC Vs Steel cast Ltd -2011(21)STR 500(Guj)
13. As regard the demand related to „Banking and Financial Services"
and "Management, Maintenance and Repairs" service received from
parties located abroad, he submits that the appellant had paid the
service tax under reverse charge on these services received from parties
located abroad, along with interest, prior to issuance of show cause
notice and therefore no show cause notice should have been issued in
respect of the same as provided in Section 73(3) of the Finance Act
1994.
14. He also submits that there was no question of any intention to
evade Service tax in respect of the said services. The Appellant had duly
maintained all records in respect of the same and therefore there was no
clandestine activity or positive act of concealment in respect of the same.
Further the entire service tax so paid under reverse charge is available
as Cenvat credit to the appellant and therefore the issue is revenue
neutral and there could be no intention to evade payment of service tax.
He placed reliance on the following judgments.
(i) CCE Vs. Adecco Flexione Workforce solution Ltd.
(ii) Jet Airways (I) Ltd. Vs. CST - 2016(44)STR 465
8|Page ST/193 & 564/2012
(iii) Essar Steel Ltd. Vs. CCE -2009(13)STR 579
15. He also submits that demand of service tax of Rs. 11,73,173/-
under „supply of tangible goods service‟ in respect of service received by
the appellant from Kellet and Singleton Aviation is untenable in law. The
service received by the appellant from Kellet and Singleton Aviation, who
are located outside India, was of air transport service from Ahmedabad
to Moscow and Back. The said Service falls under Section 65(105)(zzzo),
which is excluded from Rule 3 under Sub-rule (iii)(a) of Taxation of
Services(Provided from Outside India and received in India) Rules 2006,
and is therefore not taxable.
16. Without prejudice, he also submits that services received from
Kellet and Singleton Aviation was not one falling under Section
65(105)(zzzo), but was for supply of tangible goods falling under Section
65(105)(zzzzj), even so,the same is not taxable in view of the Proviso to
Rule 3(iii) of Taxation of Services (Provided from outside India and
received in India) Rules, 2006. Further as held in the case of Petronet
LNG Ltd. Vs. CST -2016(946)STR 513, the proviso requires that the
goods should be located in India during the entire course of their use.
Since the aircraft was used for transport to Moscow and back, it was not
within India during the entire course of its use and therefore the
requirement of the said Proviso is not satisfied and therefore service tax
is not payable.
17. Shri A. K. Mudvel. Learned departmental representative, opposed
the arguments of Appellants by reiterating the findings of the impugned
order.
18. Heard both the sides and perused the records.
9|Page ST/193 & 564/2012
19. The first common issue to be decided in both the appeals is
whether the activity of appellants providing chartered aircrafts to their
clients/ customers is classifiable under the taxable category of "Supply of
Tangible Goods Services" as defined under Section 65 (105)(zzzj) of
Finance Act, 1994 or under the taxable category of "Air Transport of
Passengers Services" as defined under Section 65(105)(zzzo) of the
Finance Act, 1944. For convenience, the above two sections are
reproduced below :
(105) "taxable service" means any service provided or to be provided,
---
(zzzo) to any passenger, by an aircraft operator, in relation to scheduled or non- scheduled air transport of such passenger embarking in India for domestic journey or international journey.
---
(zzzzj) to any person, by any other person in relation to supply of tangible goods including machinery, equipment and appliances for use, without transferring right of possession and effective control of such machinery, equipment and appliances.
20. The appellants have classified the services provided under the category of "transport of passengers by air service", and have paid Service Tax w.e.f. 1-7-2010, when the scope of taxable service was extended to include domestic air travel. The Department‟s contention is that the services are in the nature of "supply of tangible goods service"
("SOTG"), taxable w.e.f. 16-5-2008.
21. We find thatfor the service to be taxable under the category of "transport of passengers by air service", such service should be provided by an aircraft operator, i.e., any person who provides the service of transport of goods or passenger by aircraft and the service should be in relation to scheduled or non-scheduled air transport service provided to any passenger embarking in India for domestic journey or international journey. The appellants are registered with the Director General of Civil Aviation (DGCA) as an aircraft operator for providing the service of 10 | P a g e ST/193 & 564/2012 transport of passengers by aircraft. „Aircraft Operator‟ as defined in Section 65(3b) of the Finance Act 1994 as under:-
"Aircraft operator‟ means any person, who provides the service of transport of goods or passengers by aircraft."
Further, "Air transport service" is defined in Rule 3(9) of the Aircraft Rules, 1937 as "a service for the transport by air of persons, mails or any other thing, animate or inanimate, for any kind of remuneration whatsoever, whether such service consists of a single flight or series of flights."
The Civil Aviation Requirements ("CAR") dated 1-6-2010 also provides a similar definition of "Air transport service" both for Scheduled and Non- Scheduled services.
22. We also find that the the Civil Aviation Requirements ("CAR") dated 1-6-2010 relating to minimum requirements for grant of permit to operate non-scheduled Air Transport Services defines "Charter operation"
as under :
„3.4 "Charter operation" is an operation for hire and reward in which the departure time, departure location and arrival locations are specially negotiated with the customer or the customer‟s representative for entire aircraft. No ticket is sold to individual passenger for such operation.‟ CAR also provides that,-
„2.4 "The carriage of passengers by a non-scheduled operator‟s permit holder may be performed on per seat basis or by way of chartering the whole aircraft on per flight basis, or both. There is no bar on the same aircraft being used for either purpose as per the requirement of customers from time to time. The operator is also free to operate a series of flights on any sector within India by selling individual seats but will not be permitted to publish time table for such flights. Operation of revenue charters to points outside India may also be undertaken as per paragraph 9.2."
2.5 "A non-Scheduled Operator is also allowed to operate revenue charter flights for a company within its group companies, subsidiary companies, sister concern, associated companies, own employees, including Chairman and members of the Board of Directors of the company and their family members, provided it is operated for remuneration, whether such service consists of a single flight or series of flights over any period of time." 11 | P a g e ST/193 & 564/2012 2.7 "This CAR applies to all Non-Scheduled Operator‟s Permit holders including to those, who have obtained their permits prior to the coming into force of this CAR. However, they shall comply with the requirements of Para 4.2(b) of this CAR, within 6 months of the date of effectivity of the CAR.‟
23. In view of above we find that charter operation is a sub-category of non-scheduled aircraft operations. The definition of charter operations is contained in that part of the CAR which pertains to Minimum Requirement for grant of permit to operate non-scheduled Air Transport Services. Hence, charter operations do not cease to be aircraft operations by reason of the fact that the entire aircraft is chartered by the client from the aircraft operator. Charter operations are essentially aircraft operations, and cannot be categorized as supply of aircraft by the aircraft operator to the charterer. In light of the abovementioned stipulations of the CAR it is evident that in case of charter operation, no ticket is required to be sold to the individual passenger. Further, the charter may be for single journey or for multiple journeys over a period of time. Regardless of this the services remains one of charter operation.
24. In view of above, it is seen that the services rendered by the appellants fall within the category of non-scheduled air transport services. Further, the appellant is in the business of providing service to its customers embarking in India for domestic journey. Hence, the conditions for coverage under the "transport of passengers by air service" are satisfied. Therefore, in our view the service provided by the appellant is covered under the taxable service category of "transport of passengers by air service" defined under clause (zzzo) of sub-section 65(105) of the Finance Act, 1994.
25. We also find that the nature of the appellant‟s activity is also clear from the fact that they hold a permit for operating non-scheduled airtransport service granted by the Director General of Civil Aviation, that 12 | P a g e ST/193 & 564/2012 services of transportation of passengers by air within India became taxable u/s 65(105)(zzzo) of the Finance Act w.e.f. 1-7-2010, that prior to 1-7-2010 only the airtransport of passengers embarking in India for international journey in any class other than economy class was taxable and only w.e.f. 1-7-2010 the domestic transportation of passengers by air by any air craft operator, whether operating scheduled or non- scheduled flights, became taxable, that the appellant are paying service tax w.e.f. 1-7-2010 u/s 65(105)(zzzo), therefore, during the period prior to 1-7-2010, their activity can not be subjected to tax u/s 65(105)(zzzzj) by treating the same as supply of tangible goods. It is well settled law when an activity becomes taxable from a particular date, it is to be treated as non-taxable for the previous period, therefore, for the period prior to 1-7-2010, the appellant‟s activity can not be treated as supply of tangible goods service covered by Section 65(105)(zzzzj), that since the cost of operation of the Aircrafts such as maintenance, cost of the crew, fuel expenses, parking fee etc. are borne by the appellants, and since the main remuneration received by the appellant is on the basis of flying hours, trips, per seats the appellant‟s activity can not be treated as supply of tangible goods, but has to be treated service of transportation of passengers in India by air. When there is an entry specifically for taxing "transport of passenger by aircraft", the activity cannot be brought under a more general entry like "supply of tangible goods".
26. As regards the next issue related to Appellant M/s KAPL is whether the appellant is liable to pay service tax on the Banking and Financial Services and Management, Maintenance and Repairs services, received from the parties located aboard. We find that in this regard appellant has accepted their liability and paid the entire service tax alongwith interest before the issuance of show cause notice and appellant only argued that since the service tax amount in dispute was 13 | P a g e ST/193 & 564/2012 paid along with interest before issuance of showcausenotice, benefit of sub-section (3) of Section 73 of Finance Act, 1994 should be available to the appellant. Accordingly, the issuance of show cause notice and imposition of penalty in respect of the said demand is unsustainable in law.
27. We find that the Division Bench of the Karnataka High Court in the case of CCE & ST, LTU, Bangalore v. Adecco Flexione Workforce Solutions Limited - 2012 (26) S.T.R. 3 (Kar.), had held that assessee is not liable to pay any penalty under such circumstances. For better appreciation, relevant portion of the said decision is reproduced below :-
"2. Facts are not in dispute. The assessee has paid both the service tax and interest for delayed payments before issue of show cause notice under the Act. Sub-sec. (3) of Section 73 of the Finance Act, 1994 categorically states, after the payment of service tax and interest is made and the said information is furnished to the authorities, then the authorities shall not serve any notice under sub-sec. (1) in respect of the amount so paid. Therefore, authorities have no authority to initiate proceedings for recovery of penalty under Sec. 76 of the Act.
3. Unfortunately the assessing authority as well as the appellate authority seem to think. If an assessee does not pay the tax within the stipulated time and regularly pays tax after the due date with interest. It is something which is not pardonable in law. Though the law does not say so, authorities working under the law seem to think otherwise and thus they are wasting that valuable time in proceeding against persons who are paying service tax with interest promptly. They are paid salary to act in accordance with law and to initiate proceedings against defaulters who have not paid service tax and interest in spite of service of notice calling upon them to make payment and certainly not to harass and initiate proceedings against persons who are paying tax with interest for delayed payment. It is high time, the authorities will change their attitude towards these tax payers, understanding the object with which this enactment is passed and also keep in mind the express provision as contained in sub-sec. (3) of Sec. 73. The Parliament has expressly stated that against persons who have paid tax with interest, no notice shall be served. If notices are issued contrary to the said Section, the person to be punished is the person who has issued notice and not the person to whom it is issued. We take that, in ignorance of law, the authorities are indulging in the extravaganza and wasting their precious time and also the time of the Tribunal and this Court. It is high time that the authorities shall issue appropriate directions to see that such tax payers are not harassed. If such instances are noticed by this Court hereafter, certainly it will be a case for taking proper action against those law breakers.
4. In that view of the matter, we do not see any merit in these appeals. The appeals are dismissed.
5. Mark a copy of this order to the Commissioner of Large Tax Payers Unit who is in charge of collection of service tax to issue proper circular to all the concerned authorities, not to contravene this provision, namely sub-section (3) of Section 73 of the Act."
We agree with the submission of appellant and find that the appellant has already paidservice tax along with interest before issuance of the showcausenotice. Therefore, we hold that in terms of Section 73(3) of 14 | P a g e ST/193 & 564/2012 the Act, the proceedings were not required to be initiated against the appellant and therefore, penalty imposed on the appellant is set aside.
28. Now as reread the third issue whether the hiring of charter aircrafts by M/s KAPL from Kellet and Singleton Aviation is liable to service tax under the category of "Supply of Tangible Goods Service" and appellant being recipient of these service is liable pay service tax under reverse charge mechanism as per Rule 2(1)(d)(iv) of Service tax Rules, 1994 read with Section 66A of the Finance Act, 1994. We find that the said hiring of charter aircrafts was of air transport services from Ahmedabad to Moscow and Back. As already discussed in above para the said service is appropriately classifiable under the category of "Transportation of Passengers embarks in India for International Journey by Air Services"
defined under Section 65(105)(zzzo) and not under the category of "Supply of Tangible Goods Services"
29. Without prejudice, we also find that on the said services appellant also not liable for payment of service tax under the taxable category of "supply of Tangible Goods Service". The said service falls under Section 65(105)(zzzzj), which is excluded from Rule 3 under Sub-rule (iii)(a) of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 which provided as under :
"Provided that where the taxable service referred to in sub-clause (zzzzj) of clause (105) of section 65 of the Act is received by a recipient located in India, then such taxable service shall be treated as taxable service provided from outsideIndia and received in India subject to the condition that the tangible goods supplied for use are located in India during the period of use of such tangible goods by such recipient."
In the present case Kellett provided the Aircrafts for transportation of passengers from Ahmedabad to Moscow. The Appellant used the services received from Kellett outside India therefore appellant are not liable for service tax on said service received from outside India. Further the 15 | P a g e ST/193 & 564/2012 conditions precedent for Notification of reverse charge in respect of supply of tangible goods from foreign service provider, the expression „during the period of use‟ appear under Rule 3(iii) of the Rules has been interpreted by the Tribunal in the case of Petronet LNG (supra) relied upon by the appellant. The Tribunal held that for being tangible goods must be located in India during the entire period of use and it is not so located in India for any part of the period it cannot be said to be located in India and the Service Tax in respect of the same cannot be levied under the reverse charge mechanism. The Tribunal held as under :-
37. Whether there is no liability to pay service tax under the proviso to Rule 3(iii) of the Import of Service Rules :
(i) Paragraphs 19 and 34 (sub-paras 54 to 70) of the adjudication order extract contentions of the assessee in this behalf. To summarise, the assessee asserted before the adjudication authority that its liability to the charge of tax under the reverse charge mechanism (Section 66A) must be considered in the context of the 2006 Rules as well. The proviso to Rule 3(iii) of the Rules, is a specific provision applicable to the taxable service specified and defined in Section 65(105)(zzzzj); and reads :
"Provided that where the taxable service referred to in sub-clause (zzzzj) of clause (105) of Section 65 of the Act is received by a recipient located in India, then such taxable service shall be treated as taxable service provided from outside India and received in India subject to the condition that the tangible goods supplied for use are located in India during the period of use of such tangible goods by such recipient".
According to the assessee, on a true and fair construction of the language of the proviso, where the tangible goods supplied for use cannot be said to be located in India during the period of their use by the recipient of the service; the transaction cannot be treated as a taxable service provided from outside India and received in India. The assessee contended that the tangible goods in issue are oil tankers used for transportation of LNG under cryogenic conditions, from Qatar to the assessee‟s regasification terminal at Dahej, Gujarat.
(ii) During a substantial portion of the charter period, whether long term or short term, the tankers are in transit on the high seas and come to the shore only for loading of LNG (outside India) and unloading LNG (in India). All other operations of the tankers is outside India, either in the high seas beyond the territorial limits of India or in another country. As the tankers (tangible goods) supplied for use of the assessee cannot be said to be located in India during the period of use of such tangible goods, the transactions fall outside the purview of the proviso.
(iii) The assessee also contended that the 2006 Rules classified the taxable services considered therein into three categories and specified distinct criteria for each of the categories, subject to exceptions specified. For services falling under Rule 3(ii), performance of the service In India is the specified criterion. The first proviso to this sub-rule states that where a part of the service is performed in India, the whole of the service shall be treated as performed in India. STGU is not one of the taxable services covered by Rule 3(ii).
(iv) STGU is considered only in the proviso to Rule 3(iii). It is therefore impermissible to read a criterion enacted in the proviso to Rule 3(ii) (that part of performance of a service in India shall be treated as performance in India), into the proviso to Rule 3(iii). This would lead to a manipulative interpretation; not a permissible interpretation of the statutory provision.
(v) The assessee further contended that the interpretative principle of nosciturasociis should be applied to identify the meaning of the expression "during" occurring in association with the expression "location", in the proviso to Rule 3(iii).
16 | P a g e ST/193 & 564/2012
(vi) Despite the elaborate pleadings by the assessee on this aspect, the adjudicating authority rejected the interpretation proffered by the assessee in a two sentence conclusion set out in para 38.6 of the adjudication order, as follows :
"38.6 After going through submissions of Department as well as the noticee I find that there is no reason to interpret the word „during‟ any differently from what it accurately means in the given context. As has been given in Rule 3(ii) of the Import of Service Rules that even if a service is partly performed in India, it would be treated as having been performed in India. Hence I hold that as the service is provided at some point of time in India it is enough to be covered in the word „during‟ as it appears in proviso to Notification No. 11/2006-S.T., dated 19-4-2006."
(vii) The 2006 Rules were issued (by Notification No. 11/2006-S.T., dated 19-4-2006), in exercise of powers conferred by Sections 93 and 94 read with Section 66A of the Act. Rule 3 of these rules sets out provisions specifying the circumstances in which taxable services provided from outside India and received in India would amount to a taxable service, under the Act. Rule 3(i) enumerates specified categories of taxable services, provided or to be provided in relation to immovable property situated in India. Rule 3(ii) specifies taxable services, (other than those specified in Rule 3(i); and the first proviso thereto enjoins that where such taxable services are partly performed in India, it shall be treated as performed in India. Rule 3(iii) enumerates taxable services excluding those specified in Clauses (a), (b) and (c) thereunder.
(viii) The proviso to Rule 3(iii) is a specific and distinct provision in relation to STGU, a taxable service enumerated and defined in Section 65(105)(zzzzj). In the context of the elegant and distinct design of the several distinct provisions in Rule 3, and exclusive treatment of various taxable services therein, it is impermissible to read the stipulation of one clause of this rule into another. The proviso to Rule 3(iii) is therefore, on a true and fair construction of the provisions of Rule 3, a stand-alone provision specifically and exclusively applicable to the taxable STGU. Accordingly, tangible goods supplied for use must be located in India during the period of use of such goods by the recipient, for the charge of service tax to apply under the reverse charge mechanism enjoined by Section 66A.
(ix) "Located in India during the period of use of such tangible goods" is the governing criterion for applicability of the reverse charge mechanism in the case of STGU. The expression "during" does not occur in isolation but occurs in the company of the other expression "located in India". Applying the principle of noscituorasociis, the inference is compelling that for the charge of service tax to apply the tangible goods must be located in India during the entire course of their use.
(x) In the case of the LNG tankers, undisputedly a substantial period of their use by the assessee is outside the Indian territorial waters, either during loading of LNG at the Qatar port or during voyage on the high seas towards the destination at the Dahej, Gujarat; and while heading back to Qatar for loading LNG afresh for delivery again to the assessee‟s LNG terminal at Dahej.
(xi) The expression "location", on its lexicographic exposition connotes:
"to set, fix, or establish in a position, situation or locality; to establish in a place; to settle; to place at a certain location, station or situate; to determine or specify the position or limits". In its adjectival context the expression implies "situated in a particular spot; situation; place or locality". The expression "location" therefore connotes a degree of geo- specific permanence, typically implied for physical spaces.
(xii) In the circumstances, the phrase in Rule 3(iii); the tangible goods supplied for use are located in India during the period of use of such tangible goods by the recipient, can only mean that the tangible goods must be located during the entirety of the period of use of such tangible goods by the recipient, in India.
(xiii) The separate and distinct treatment specified for the taxable STGU service, in the proviso to Rule 3(iii) of the 2006 Rules, in our considered view clearly signals the statutory intent that tangible goods, for falling within the fold of the reverse charge mechanism, must when supplied for use be located in India during the entirety of the period of their use, by the recipient.
The contrary conclusion by the adjudicating authority in para 38.6 of the order cannot therefore be sustained.
38. Legality of imposition of penalties under Sections 76 to 78 :
17 | P a g e ST/193 & 564/2012
(i) As indicated in the factual narrative set out in paragraphs 6 and 7 (supra), penalties under Sections 76 to 78 of the Act were imposed on the assessee, either by the adjudication order or subsequent corrigenda issued. The assessee challenges imposition of penalties, contending that penalties are liable to be chewed by invocation of the discretion of Section 80 of the Act.
(ii) It is contended that on 26-2-2009, a letter was issued by the Assistant Commissioner of Service Tax seeking certain documents with regard to the charter agreements. The documents were furnished by the assessee, vide its letter dated 28-2-2009. On 4-3-2009, further documents were sought. These were submitted on 12-4-2009. On 13-4- 2009, the Assistant Commissioner (Anti-Evasion Division) sought further information/documents. These were furnished on 27-5-2009. On 22-6- 2009, personal appearance of the authorised representative of the appellant was called for recording a statement on 29-6-2009. The statement was recorded on 26-6-2009 under Section 14 of the Central Excise Act, 1944. On 28-8-2009, the assessee received a detailed legal advice from a Senior Advocate clearly advising that no service tax is leviable on the hiring charges paid by the assessee for hiring the tankers. On 9-9-2009, the assessee addressed the Department, informing about the legal advice; asserting that there is no liability to service tax and requested dropping of proceedings. On 7-10-2009, the Commissioner, Service Tax addressed the assessee appreciating its initiative in depositing service tax under protest and stated that discharge of service tax would also obviate the need for issuing a show cause notice or invoking penal provisions and requested details of service tax deposited. On 15-10-2009, the assessee addressed the Superintendent, Service Tax, New Delhi intimating deposit of specified amounts of service tax including the interest component. A tabular statement of the tax, cess and interest deposited was also furnished.
(iii) The show cause notices were issued nevertheless.
30. Even if it is assumed that the appellant provided supply of tangiblegoods for use, liability to Service Tax is not attracted since as per the principles set out in, as the goods are not in India during the entire period of use. Reliance is placed on the above decision of this Tribunal in the case of Petronet LNG Ltd. v. Commissioner of Service Tax [2013- TIOL-1700-CESTA-DEL] wherein the phrase "during the period of use"
was interpreted and it was held that to come within the scope of SOTG, the tangible goods must be located in India during the entire period of use. The same ratio was followed in the case of M/s. Reliance Industries Ltd. v. Commissioner of Service Tax vide Final Order No. A/720- 722/14/CSTB/C-I, dated 13-5-2014 [2014 (36) S.T.R. 820 (Tri. -
Mumbai)] wherein also it was held that if the tangible goods are used at different points of time at different places and outside the designated place in India, liability under SOTG service would not arise. In the 18 | P a g e ST/193 & 564/2012 present case since the Aircrafts was used for transport to Moscow and back, it was not within India during the entire course of its use.
31. In view of the above, the appellant cannot be held liable for payment of service tax under the reverse charge mechanism in respect of Aircrafts not located in India during the entire period of their use. In view of above, we find that the ratio of above decisions of the Tribunals (supra) is squarely applicable to the facts of the present case.
32. Accordingly, the impugned orders are set aside. Appeals are allowed with consequential relief, if any, as per law.
(Pronounced in the open court on 08.03.2024) (RAMESH NAIR) MEMBER (JUDICIAL) (RAJU) MEMBER (TECHNICAL) Neha