Custom, Excise & Service Tax Tribunal
Cairn Energy India Pvt Ltd vs Visakhapatnam-Ii on 8 March, 2019
(1) Appeals No. ST/622/2008
ST/625/2008
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
REGIONAL BENCH AT HYDERABAD
Division Bench
Court - I
Appeal No. Appellant Respondent Impugned Order No. &
Date
ST/622/2008 Cairn Energy CCE & C O-I-O No. 37/2008 (PVR),
India Pvt. Ltd. Visakhapatnam dt. 28.08.2008 passed by
CCE &C,Visakhapatnam.
ST625/2008 CCE & C, Cairn Energy .do.
Visakhapatnam-II (India) Pvt. LTd.
Appearance
S/Shri Rahul Binani & K. Sivarajan, CAs for the appellant
Shri P.S. Reddy, Dy. Commissioner/AR for the Respondent.
Coram:
Hon'ble Mr. M.V. RAVINDRAN, MEMBER (JUDICIAL)
Hon'ble Mr. P.V. SUBBA RAO, MEMBER (TECHNICAL)
Date of Hearing: 31.01.2019
Date of Decision: 08.03.2019
FINAL ORDER No. A/30316 - 30317/2019
[Order per: Mr. P. Venkata Subba Rao)
1. Both these appeals are against the same impugned order and hence
are being disposed of together. Appeal No. ST/622/08 has been filed by
the assessee challenging levy of service tax on the pilotage charges
received by them under the head 'Port Services'. Appeal No. ST/625/2008
is filed by Revenue on the same issue holding that the impugned order is
(2) Appeals No. ST/622/2008
ST/625/2008
incorrect inasmuch as the adjudicating authority has imposed lesser
amount of penalty under section 78 of the Finance Act, 1994.
2. Heard both sides and perused the records. The facts of the case in
brief are that a joint venture Ravva Oil and Gas field has been set up under
a Production sharing contract, dated 28.10.2004 between the Govt. of
India, Oil & Natural Gas Corporation Limited, Videocon Petroleum Limited,
Cairn Energy India Private Limited (the appellant herein) and Ravva Oil
(Singapore) Private Limited for the purpose of prospecting, exploring,
developing and production of petroleum from Ravva Oil and Gas Field
area. As a part of the agreement, the appellant conducts all the joint
operations under the agreement. A show cause notice dated 21.07.2007
was issued to the appellant covering the period 01.07.2003 to 30.09.2006
demanding service tax of Rs. 1,93,79,560/- (including Education Cess)
under 'Port Services' invoking extended period of limitation, under the
proviso to Section 73(1) read with Sections 66 & 68 of Finance Act, 1994. It
was also proposed to charge interest under section 75 and impose
penalties under sections 76, 77 & 78 of the Finance Act. Service tax was
proposed to be levied on a value of Rs. 19,33,00,000/- of taxable services
i.e. 'Port Services' rendered by them during the aforesaid period. The
amounts in question were received by them as pilotage charges. The
appellant contested the demand both on merits and on limitation. After
following due process, Ld. Adjudicating Authority confirmed a demand of
Rs. 1,79,53,285/- towards service tax and an amount of Rs. 2,69,881/-
(3) Appeals No. ST/622/2008
ST/625/2008
towards education cess. He allowed deduction of Rs. 42,44,476/- towards
service tax and Rs. 84,890/- towards education cess which they have
already paid at Gurgaon through T.R. 6 Challan. He also confirmed
recovery of interest under section 75 of the Finance Act and imposed a
penalty of Rs. 1,38,93,799/- under section 78 of the Finance Act, 1994. He
also imposed penalty of Rs. 100/- per day upto 17.04.2006 and @ 2% of
the amount confirmed per month from 18.04.2006 till the payment of the
confirmed amount. He further imposed a penalty of Rs. 1,000/- under
section 77 of the Finance Act, 1994 for their failure to take registration of
the service tax for the Port Service. It is the case of the Revenue in their
appeal No. ST/625/2008 that the amount of penalty imposed under section
78 is low and the Commissioner could not have reduced the mandatory
penalty.
3. Ld. Counsel submits that they are not liable to pay service tax at all.
Firstly, he drew the attention of the Bench in the Stay Order in their own
case as reported in [2010(19)S.T.R. 110 (Tri.-Bang.)]. This stay was given
holding that appellants had not undertaken the activities under any
authorisation issued by the Port under sub section 3 of Section 42 of Major
Port Trusts Act, 1963. On this point Ld. DR points out that the activities in
question were not conducted in any major port but were conducted in
Ravva port which is a minor port located in Andhra Pradesh, hence any
authorisation in a major port trust is irrelevant. The other grounds of the
appeal of the appellant are as follows:
(4) Appeals No. ST/622/2008
ST/625/2008
(a) The appellant is not a port authority or a person authorised by the
port authority to render port services.
(b) Port Services in terms of Section 65(82) of Finance Act, 1994 means
"any service rendered by a port or other port or any person authorised
by such port or other port, in any manner, in relation to a vessel or
goods."
(c) Taxable service with respect of Port Service is defined In Section
65(105)(zzl) as "any service provided or to be provided to any person,
by other port or any person authorized by that port in relation to port
services, in any manner."
(d) The word "Port" has been defined in Section 65 (81) as "Port has the
meaning assigned to it in clause (q) of Section 2 of the Major Port
Trusts Act, 1963."
(e) The word "Other Port" has been defined in Section 65(76) as "Other
Port has the meaning assigned to Port in Clause (4) of Section 3 of
the Indian Ports Act, 1908 but does not include the port defined in
Clause (81)."
(5) Appeals No. ST/622/2008
ST/625/2008
(f) A Port has been defined in Indian Ports Act as follows:
"Port includes any part of a river or channel in which this Act is for the
time being in force."
4. The appellant contends that "Other Port" in view of the above
definitions means "any port other than the major port". Ravva Port in which
they are operating is declared as minor port and hence falls under the
definition of "other port". The concerned Port Authorities in this case is
Kakinada Port authority. They are not acting as port authority or providing
any services to buyers' vessels. In fact, they themselves were paying port
charges to the port authorities. Therefore, they were only users of port
facility. The show cause notice relies on the letter No. P3/397/96, dated
05.07.1996 issued by Port Officer, Kakinada intimates that they were
permitted by the Kakinada Port Authority to carry out the berthing and
tanker vessels at SBM and loading of crude oil into the tanker vessels. The
letter in question does not authorise them to provide port services to the
vessels. It only authorises them to carry out berthing and mooring
operations. Therefore, they are not liable to pay service tax on these
services.
5. They were not providing any port services and arranging for certain
services through third party contractors for the buyer's vessels. The letter
of agreement between them and their clients merely provides that they shall
(6) Appeals No. ST/622/2008
ST/625/2008
arrange for tag assistance, pilotage etc. for movement and positioning of
the vessels at the Port.
6. It was never the intention of the parties that the appellants shall
themselves provide such services. Therefore, they are not liable to pay
service tax.
7. The amount received by them under the head "pilotage revenue"
was in the nature of reimbursement of costs and not in the nature of
consideration for any service. Even if it was treated as services rendered
by them upto 18.04.2006, the value of taxable services for the purpose of
charging service tax was a cost charged by them for providing taxable
service. The amounts which they received as reimbursement were not
chargeable to service tax. With effect from 18.04.2006, Rule 5 of Service
Tax (Determination of Value) Rules, 2006 were introduced which provided
for inclusion of expenses incurred by the service provider but excluded
what was collected by them as a pure agent. The show cause notice as
well as Order-in-Original has been issued without jurisdiction as they were
raising the invoices as pilotage charges from their Gurgaon office and the
Commissioner of Central Excise, Visakhapatnam is not authorised to issue
the demand. The calculation of service tax by the adjudicating authority in
the impugned order is incorrect as the amounts collected by them have not
been taken as cum tax value. The demand is also barred by limitation as
there is no evidence of fraud, collusion or wilful mis-statement or
(7) Appeals No. ST/622/2008
ST/625/2008
suppression of facts or contravention of any provisions of the Acts and
Rules with intent to evade payment of duty. They have never suppressed
or mis-represented any facts and they have provided all the information
sought by the department. He also contended that no penalty is imposable
on them. Even if it is held that service tax is payable because it is a
question of interpretation of the law, no penalty may be imposed on them;
he relied on the following case laws.
Cairn Energy India Pvt. Ltd. 2010(19)STR 110 (Tri-Bang.)
Ashok International 2016(43)S.T.R. 430 (Tri.-Hyd.)
Shreeji Shipping 2014(36)STR 569 (Tri.-Ahmd.)
Aspinwall & Co. Ltd. 2011(21)STR 257 (Tri.-Bang.)
HML Agencies Pvt. Ltd. 2018(12)GSTL 46 (Tri.-Bang.)
Velji P & Sons (Agencies) Pvt.Ltd. 2007(8)STR 236 (Tri.-Ahmd.)
South India Corporation (Agencies) Ltd. 2010(17)STR 170 (Tri.-Bang.)
Konkan Mrine Agencies 2007(8)STR 472 (Tri.-Bang.)
Konkan Marine Agencies 2009(13)STR 7 (Kar.)
Reliance Ada Group Pvt. Ltd. 2016(43)STR 372 (Tri.-Mumbai)
Synchron Research Services pvt. Ltd. 2011(24)STR 654 (Tri.-Ahmd.)
Reliance Clinical Resarch Services P Ltd 2016(41)STR 113 (Tri.-Mumbai)
B.A. Research India Ltd. 2010(18(STR 604 (Tri.-Ahmd.)
Brindavan Beverages Pvt. Ltd. 2007(213) E.L.T. 487 (S.C.)
Padmini Products 1989(43)ELT 195 (S.C)
Anand Nishikawa Co. Ltd. 2005(188)ELT 149 (S.C)
PUshpam Pharmaceuticals Company 1995(78)ELT 401 (S.C.)
Pragathi Concrete Products Pvt.Ltd. 2015(322)ELT 819 (S.C).
Nizam Sugar Factory 2006(197)ELT 465 (S.C.)
ITW India Limited 2009(14)STR 826 (Tri.-Bang.)
TATA Consultancy Services Limited 2018 (18)GSTL 478 (Tri.-Del.)
Pepsi Foods Limited 2010(260)ELT 481 (S.C)
(8) Appeals No. ST/622/2008
ST/625/2008
Hindustan Steel Limited 1978(2) ELT (J 159) S.C.)
Shreenath Motors Pvt. Ltd. 2018-TIOL-2051-HC MUM-ST
Secretary, Town Hall Committee 2007(8) STR 170 (Tri.-Bang.)
Intercontinental Consultants & Technocrats Pvt. Ltd. 2018(10(GSTL 401 (SC)
Malabar Management Services Pvt. Ltd. 2008(9) S.T.R. 483 (Tri.-Chennai)
8. Ld. DR reiterates the findings of the lower authority and asserts that
the impugned order was correct except to the extent of reducing the
mandatory penalty payable under section 78. It is his assertion that Ld.
Commissioner should not have to reduce the penalty under section 78
which is equal to the amount of service tax. On the question of
inapplicability of Major Port Trust Act, as claimed by the appellant at the
time of stay application, he points out that Major Port Trust Act does not
apply because the service was rendered in a minor port. Therefore, the
question of any authorisation of the Major Port Trust Act does not apply.
He asserts that the service which has been rendered under section
65(105)(zzl), as Port Service rendered in 'other Ports'. During the relevant
period, it covered the services provided to any person by other port or any
person authorised by the Port in relation to Port Services, in any manner.
Other Port has been defined in Section 65(76) as the Port as defined in
Clause 4, Section 3 of the Indian Ports Act other than major ports. It is not
in doubt that Ravva Port was not a major port and hence it was a minor port
under the Indian Ports Act and therefore it is other Port under section
65(76) of the Finance Act, 1994. The service was provided in the Port and
by the appellant for an authorisation issued by the Port authorities.
(9) Appeals No. ST/622/2008
ST/625/2008
Therefore, it is clearly covered by the definition of Port services and the
service tax is applicable. The case of Shreeji Shipping (supra) does not
apply as in that case although the services were rendered in a minor port,
there was a specific requirement under Gujarat Maritime Board Act, 1980
for an authorisation to be given in a particular format which was not done.
The Gujarat Mariline Port Act does not apply to this Port in question as it is
located in Andhra Pradesh and there is no corresponding requirement of
authorisation to be in a particular format with respect to this Port. The case
of Aspinwall & Co. Ltd. (supra) does not apply in this case because in that
case, the question was whether loading and unloading of goods, drawback
processing, etc. within the Port area were in the nature of port services and
it was held that they were not. In this case, the amounts were collected
towards pilotage. If pilotage is not a service of the Port, nothing can be a
port service. Pilotage of ships and vessels is one of the fundamental
activity in any port undertaken by Port or under their authorisation by
somebody else. In this case the authorisation has been issued by the Port
Officer to the appellant in exercise of which he undertook pilotage activities
and collected the charges thereof. He, therefore, prayed that Revenue's
appeal may be allowed and the assessee's appeal may be rejected.
9. We have carefully considered the arguments on both sides and
perused the records. The issue to be decided is whether the appellant is
liable to pay service tax on Port Service as per Section 65(105)(zzl) in
respect of the services rendered by them in Ravva Port with permission of
(10) Appeals No. ST/622/2008
ST/625/2008
the Port Authority. Upto 22.06.2010, 'Port Services' under Section
65(105)(zzl) were the services "provided to any person by other port or any
port authorised by that port in relation to port services, in any manner". Port
services were defined in Section 65(82) as "any service rendered by a port
or other port or any person authorised by such port or other port in any
manner, in relation to a vessel or goods." In several specific cases, the
Tribunal took a view that services rendered cannot be called port services
for the following reasons:
(a) Where services were rendered by a person with permission of the
Port authority in a major port but that such permission cannot be called
'authorisation' under the Major Port Trusts Act.
(b) Where services rendered were of the nature such as stevedoring
where it was held that 'stevedoring' is not the activity of the Port and
even if the Port Authority authorises, someone to do stevedoring, it
cannot be called 'Port Services'.
(c) Where the services were rendered with the approval of the Port
authority in a Minor Port in Gujarat but the permission did not meet the
requirements of 'Authorisation' as per the Gujarat Martime Board Act .
10. The question as to whether the provisions of other statutes (such as
Major Port Trusts Act) can be adopted to determine the taxability under
'Port Services' was examined by the Larger Bench of the Tribunal in the
case of Western Agencies Pvt. Ltd. [2011(22)STR 305 (Tri.-LB) in negative.
This decision was challenged in writ, but the Hon'ble High Court of Madras
(11) Appeals No. ST/622/2008
ST/625/2008
in Chidambaram Ship Care Pvt. Ltd. vs. CESTAT [2015(38)STR J 123
(Mad.) dismissed the same as being not maintenable before them.
Therefore, the settled position till date is that legal provisions of other Acts
cannot determine the taxability of the Port Services. Notwithstanding this
position, even on merits of this case, the first question to be decided is
whether the Port in question is a major port or other port. Ravva Port is not
a major port but is a minor port operated by Government of Andhra
Pradesh. Therefore it is defined as other port as per Finance Act.
Therefore, the question of authorisation if any under Major Ports Act does
not apply.
11. The second question is whether the appellant has received
authorisation from the Port authorities and if so whether it can be
considered as a valid authorisation. In the case laws discussed above,
wherever the services were rendered in the Major ports, the word
'authorisation' has specific meaning under the Major Ports Act and if it has
not been fulfilled even if the assessee was permitted to do some activities,
it was held to be not an authorisation. In the case of Shreeji Shipping
(supra), the activities were in a minor port which was regulated under
Gujarat Maritime Board Act, 1980 which provided for a specific mechanism
of authorisation. This act does not apply in the present case and there is
nothing on record to show that there is a corresponding law in Andhra
Pradesh that applies to this Port. Therefore, the word 'authorisation' has to
be understood in its common sense i.e. permitting somebody to do some
(12) Appeals No. ST/622/2008
ST/625/2008
activity. We have gone through the letter of the Port Officer, Kakinada
issued to the appellant (letter No. P3/397/96, dated 05.07.1996) which is
clearly, in our view, an authorisation which reads as follows:
"GOVERNMENT OF ANDHRA PRADESH
PORT DEPARTMENT
---
From To
Capt. D. Satyanarayana M/s Command Petroleum (India
Port Officer I/c Pvt. Limited,
KAKINADA 533 007. Willington Plaza, 2nd floor, Andhra Pradesh 90, Anna Salai, MADRAS-2 Letter No. P3/397/96 dated 5.7.1996 Sir, Sub: RAWA PORT - Handling of Crude Oil at Single Point Mooring at Rawa Oil Fields by M/s Command Petroleum (India) Pvt. Ltd. - Permission accorded.
Ref: 1) G.O.Ms. No. 19,TE&B (P) Department, dt. 30.01.96.
___ As discussed with Mr. Peter Jarvis, Production Manager, Rawa Development on 2.7.96, regarding the tanker vessel berthing at single point mooring and loading of crude oil into tanker vessel at Rawa Port you are permitted to carry out berthing and loading operations subject to the following conditions.
1. Berthing and mooring of the vessel shall be done under the direct supervision of a pilot holding a licence issued by Government of India for pilotage.
2. The vessel shall comply with the tanker safety regulations fire, environmental pollution regulations.
3. The inert gas system pressure vaccum valves, fire pumps and mains shall be in good working condition and to the satisfaction of the inspecting officer of the department.
4. Emergency and contingency plan, ship to shore communication system shall be ensured to the satisfaction of the undersigned. One VHF R/T (13) Appeals No. ST/622/2008 ST/625/2008 communication system shall be provided to the officer-in-charge of this Department at Rawa Port.
5. All Port formalities under statutory regulations such as inward clearances, payment of Port dues on arrival and also filing of export application and charges there on at rate of Rs. 8.40/- per M.T. (provisional) shall be complied with.
The following documents (xerox copies duly attested) shall be submitted to this department before commencement of loading the vessel.
i) The licence for the pilot issued by the Government of India.
ii) Tanker nomination approval check list.
iii) Safety check list signed by the mooring master.
iv) Copies of Worpol/Tovelop/CIC certificates.
v) Copy of environment and pollution control certificates issued by the Government of India and Government of Andhra Pradesh. The receipt of this communication shall be acknowledged immediately.
Sd/- xx xx xx xx PORT OFFICER KAKINADA Copy to M/s Atlantic Shipping Company, 31/1/16, Dr. Sitaramayya Buildings, Suryanarayanapuram, Kakinada With a request to furnish all the required documents pertaining to the Vessel.
Copy submitted to the Director of State Ports, Kakinada for information.
Sd/- Harbour Crafts Superintendent, PORT OFFICE, Kakinada"
(14) Appeals No. ST/622/2008
ST/625/2008
12. A plain reading of the above letter shows that the appellant has been authorised to undertake various activities including pilotage and for this purpose, they need a licenced pilot. Therefore, the requirement under section 65(105)(zzl) that the services must have been rendered at Port or by a person authorised by the Port, is fulfilled. In this case is appellant, authorised by the Port has rendered the services. The next question is whether the services in question are in the nature of services which are rendered by the Port. In the cases discussed above, activities such as stevedoring or processing draw back claims were held as not activities undertaken by the Port were held nor liable to service tax even if they are rendered within the port area. The present demand is that pilotage charges. Pilotage is the process of helping the ship come to the berth. It is one of the primary activities undertaken by any Port because it is their responsibility to show the path to the berth to the ship. They are fully familiar with the contours of the under-sea surface and the traffic and accordingly pilot ships into berths. When the ship has to leave the Port, they similarly pilot it back to the main sea. When the ship reaches about a kilometer or so from the Port, the pilot guides it and two tugs push it from behind into the berth. The process is reversed when the ship leaves the Port. This activity has been undertaken by the appellant with authorisation of the Port and they have received charges for the same. They have credited these amounts in their accounts as pilotage charges. It is their contention that they get the job done through somebody else. It is not necessary for any service provider to perform himself all the tasks, he may (15) Appeals No. ST/622/2008 ST/625/2008 perform through his employees, through sub contractors of other agents etc. What is important is whether he is the one rendering the services to the client and getting paid for the same. It is a different matter if the services are rendered by somebody else and appellant have paid to that person and has only sought reimbursement from their customers. In this case, the appellants were authorised to undertake pilotage and not somebody else. Therefore, they rendered the services. Even the records of the appellant show that these are in the nature of pilotage charges and not as reimbursement of expenses incurred towards pilotage charges. The mere fact that appellant has outsourced of some of his activities does not extinguish his tax liability. Holding such a view would nullify the entire service tax provisions and anyone can escape tax net by simply outsourcing some of his work.
13. In view of the above, we find that on merits the appellant was fully liable to pay service tax on the pilotage charges which they received from their customers under the head "Port Services", under section 65(105)(zzl) of Finance Act, 1994. On the question of limitation, we find that the appellant has definitely violated the conditions of the Act and Rules and has not paid the service tax. The benefit of not paying the service tax is evident. Therefore we find no force in the argument that they have not violated any provisions of Act with an intent to evade payment of service tax. On the question of jurisdiction we find that the services were rendered within the jurisdiction of the adjudicating authority and therefore the order (16) Appeals No. ST/622/2008 ST/625/2008 was correctly issued by him. Wherever they have paid the service tax on these services, he has already taken them into account while computing the tax liability. On the question of computation of demand, if the appellant has not collected the service tax from their customers, the amount which they have collected need to be taken as cum tax value and correspondingly the amount of service tax needs to be re-computed.
14. Interest under section 75 on the recomputing amount of service tax also needs to be paid.
15. On the question of penalty, in view of our findings that the appellant has not paid service tax in violation of the Act and Rules with an intention to evade, we find no ground to set aside the penalties. However, the penalties need to be re-computed in view of the re-computation of service tax as above.
16. In view of above,
(a) the demand of service tax on port services on the pilotage charges received by the appellant are upheld and any amounts which they must have already paid will be adjusted against the same, but the amounts need to be recomputed reckoning the amounts they received as cum tax amounts, (17) Appeals No. ST/622/2008 ST/625/2008
(b) interest is payable under section 75 as applicable; and
c) penalties are upheld except that the penalty under section 78 need to be re-computed based on the total service tax evaded.
17. The appeals are disposed of as above.
(Pronounced in open court on 08.03.2019)
(P.VENKATA SUBBA RAO) (M.V. RAVINDRAN)
MEMBER (TECHNICAL) MEMBER (JUDICIAL)
Vrg