Custom, Excise & Service Tax Tribunal
Global Vectra Helicorp Ltd vs Commissioner Of Service Tax on 25 June, 2013
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL, WEST ZONAL BENCH AT MUMBAI COURT No. II APPEAL No.ST/341/12 (Arising out of Order-in-Original No.29/ST/SB/2011-12 dated 27/02/2012 passed by Commissioner (TAR), Mumbai) For approval and signature: Honble Mr. P.R. Chandrasekharan, Member (Technical) Honble Mr.Anil Choudhary, Member (Judicial) ========================================
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?
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Global Vectra Helicorp Ltd., Appellant
Vs.
Commissioner of Service TAx,
Mumbai-II Respondent
Appearance:
Shri. Sanjeev Sachdeva & Shri. Tarun Govil, Advocates for the appellant
Shri.Shobha Ram, Comm. (AR), for respondent
CORAM:
Honble Mr. P.R. Chandrasekharan, Member (Technical)
Honble Mr. Anil Choudhary, Member (Judicial)
Date of Hearing : 25/06/2013
Date of Decision : /08/2013
ORDER NO
Per: P.R. Chandrasekharan
The appeal is directed against Order-in-Original No.29/ST/SB/2011-12 dated 27/02/2012 passed by Commissioner (TAR), Mumbai.
2. Acting on intelligence that the appellant, M/s. Global Vectra Helicorp Pvt. Ltd., Mumbai, are engaged in providing taxable services under the category of Supply of Tangible Goods for Use and were not discharging service tax liability thereon, investigations were initiated by the anti-evasion wing of the Service Tax Commissionerate at Mumbai. On the basis of the investigations conducted, a show-cause notice ST/HQ/A.E./A/23/2009 dated 7.10.2009 was issued to the appellant demanding service tax of Rs.22,12,70,269/- for the period 16/05/2008 to 31/03/2009. for the period 1.4.2009 to 31.3.2010. Further show-causes V/ST/Mum Div-III/Global/49/09 dated 5.10.2010 and V-Adj/ST-II/GVHPL/15-84/2011 dated 11.10.2011 were issued demanding service tax of Rs.24,97,81,560/- for the period April 2009 to March 2010 and Rs.21,95,26,778/- for the period 01/04/2010 to 31/03/2011. In all these show-cause notices, it was proposed to classify the services rendered by the appellant under the category of Supply of Tangible Goods for Use as defined under Section 65 (105) (zzzj) for the Finance Act, 1994. The notices also proposed to recover interest on the service tax demanded and to impose penalties under the provisions of the Finance Act, 1994.
3. During the course of investigation, the appellant also paid service tax collected from their customers amounting to Rs.7,58,36,177/- in respect of the demand for the period May 2008 to March 2009, Rs.6,73,30,529/- for the period 2009-10 and Rs.16,25,65,416/- against the demand for the period 2010-11. The appellant also paid a sum of Rs.20,299/- with interest of Rs.1,334/- towards service tax demand under the repair and maintenance services and a sum of Rs.5,74,516/- along with interest of Rs.54,868/- towards the demand of service tax on Manpower supply recruitment services for the period 2008-09. A Cenvat credit of Rs.2,33,09,951/- taken by the appellant but not availed during 2008-09 was also sought to be denied. All the three notices were adjudicated vide the impugned order and the service tax demands as mentioned above were confirmed by holding that the services rendered by the appellant merited classification under Supply of Tangible Goods for Use of Service. Interest on the aforesaid amounts were also confirmed. Cenvat Credit of Rs.2,33,09,951/- was disallowed under the provisions of Rule 14 read with Rule 9 (a) of the Cenvat Credit Rules, 2004. The amounts paid by the appellant were appropriated under the provisions of section 73A of the Finance Act. A penalty of Rs.19,79,60,318/- was imposed on the appellant under the provisions of section 78 in respect of show cause notice dated 10-7-2009 equal to the service tax short paid apart from a separate penalty of Rs.2,33,09,951/- under the said section for the wrong availment of cenvat credit. A penalty of Rs.5000/- was also imposed under section 77 in respect of the said show cause notice. In respect of show cause notices dated 5-10-2010 and 11-10-2011, penalties were imposed on the appellant under the provisions of Section 76 of the Finance Act for the default in payment of service tax and under Section 77 for non-filing of service tax returns as required under Section 70 read with Rule 7 of the Service Tax Rules, 1994. Aggrieved of the said decision, the appellant is before us.
4. The Ld. Counsel for the appellant made the following submissions:
4.1 The issue involved is the classification of services provided by the Appellant to its clients. The Appellant owns several helicopters, has a Non Scheduled Operators Permit No. 8/1998 (NSOP) issued by the Directorate General of Civil Aviation (DGCA) and is engaged in providing services of transportation of the personnel of the clients to and from their offshore installations. The Appellant has classified the services provided under the category of transport of passengers by air service, and has paid Service Tax w.e.f. 01.07.2010, when the scope of taxable service was extended to include domestic air travel. The Departments contention is that the services are in the nature of supply of tangible goods for use service (SOTG), taxable w.e.f. 16.05.2008.
4.2 The departments contention that the appropriate classification is SOTG is based on the premise that for a service to be classified under SOTG, transfer/supply is not relevant and it is the use of tangible goods which is of essence. The SCN was issued on this premise and the demand has also been confirmed on this very premise. The very basis of the departments contention is erroneous. In this regard, reference is made to the Honble Bombay High Courts decision in the case of Indian National Shipowners Association v. Union of India., [2009 (14) S.T.R. 289 (Bom.)], the Tribunals decision in the case of Atwood Oceanics Pacific Ltd. v. Commissioner of Service tax, Ahmedabad., [2012 (12) TMI 425 - CESTAT, AHMEDABAD] and the clarifications issued by the Ministry of Finance vide letter D.O.F. No. 334/1/2008-TRU dated 29.2.2008 at the time when SOTG first became taxable.
4.3 The crux of SOTG is supply of tangible goods. The aspect of transfer of right of possession and effective control is relevant ONLY for determining whether when the tangible goods are transferred they would attract Value Added Tax or Service Tax. Transfer of right of possession and effective control is not at all relevant for deciding the issue at hand in the instant case, namely, the classification of the taxable service under the category of SOTG or transport of passengers by air service. The show cause notice and the impugned order are based on the premise that for classification under SOTG, transfer is not relevant. The notice does not even allege that the helicopters are transferred by the Appellant to the clients. This being so, ab initio, the classification of the subject services under SOTG is ruled out. Not only was there was no transfer or supply of any tangible goods (helicopters), indeed such a transfer itself is subject to regulatory controls prescribed by the DGCA.
4.4 As per the criteria for leasing of aircrafts by Indian operators provided in Civil Aviation Rules (CAR in short), Section 3 Air Transport, Series C Part I dated 29.01.2010, even for leasing of an aircraft, the DGCA clearance is required as discussed below:
Leasing aircraft from one Indian operator to another Indian operator.
In case an Indian operator intends to take an aircraft on lease from another Indian operator, (for domestic or international operations), it shall provide the following information at least 45 days prior to the purposed date of operation with leased aircraft, namely:-
(i) Name and address of operator from whom the aircraft is intended to be leased;
(ii) AOC details alongwith operations specifications of the lessee and the lessor;
Grant of Permission:
7.6 The leased aircraft shall be entered in or deleted from the Air Operators Permit of the Indian operator. In view of the aforesaid stipulations, it is implicit that the lessor and the lessee both should have a valid Air Operator Certificate (AOC).
4.5 The Aviation industry is subject to stringent regulatory controls not only in India but across the world. Much of this regulatory environment is to do with the respect of safety and security of passengers in particular and air transport in general. Rule 134A (2) of the Aircraft Rules 1937 provides that no air transport service, other than a scheduled air transport service, shall be operated by an Indian air transport undertaking unless it holds a Non-Scheduled Operators Permit granted by the Central Government. Thus, no non-scheduled air transport service can be provided by anyone other than an NSOP holder. The service of the Appellant, who is a NSOP holder (NSOP No - 8/1998), is procured by the customers for transportation from one place to another. No client of the Appellant has an NSOP. The fact that the helicopters were used for providing transportation services to passengers is not in dispute. Clearly, the clients of Appellant, not being NSOP holders could not have provided the transportation services. It was the Appellant, and the Appellant alone, who provided the transportation services.
4.6 In order to be taxable under the category of transport of passengers by air service, the 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 Appellant is registered with the DGCA as an aircraft operator for providing the service of transport of passengers by aircraft. 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 01.06.2010 also provides a similar definition of Air transport service both for Scheduled and Non-Scheduled services.
4.7 As per the above definitions, it is seen that the services rendered by the Appellant falls 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, 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.
4.8 The Civil Aviation Requirements (CAR) dated 01.06.2010 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 operators 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. 2.7 This CAR applies to all Non-Scheduled Operators 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 06 months of the date of effectivity of the CAR. 4.9 The essential point to be noted is 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 above mentioned stipulations of the CAR it is evident that 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.
4.10 in the present case, the payment terms entail a fixed monthly charge plus a variable component based on per hour of flying time. The contract between the Appellant and ONGC provides for billing of a minimum of 100 hours per month during the period of the contract. The fixed component again is explained by the peculiarities of the aviation industry. There are significant costs associated with parking, routine operational maintenance, maintaining adequate complement of flying crew as well as cabin crew, etc. The clients of the Appellant require assured availability of the helicopters for the transportation of their personnel. Hence, the payment terms are a combination of fixed and variable charges. The fact that there is a variable component related to actual flying hours only proves that the flying and operation of the helicopters is done by the Appellant. The contractual terms, read holistically, clearly establish that the obligation of the Appellant does not end by simply ensuring availability of a helicopter. The Appellant is obliged to transport personnel of the client as and when required, and has to fulfill all the obligations and responsibilities as an NSOP air transport service provider. In this regard, reliance is placed on the stay order passed by the Tribunal in the case of Mesco Airlines Ltd. v. CST, New Delhi., [2013 (3) TMI 522 CESTAT, New Delhi].
4.11 Reliance is also placed on Article 3 and Article 18.5 (General Contract Conditions) of the contract between the Appellant and ONGC and Article 1, Article 4.2, 4.6, 4.9 and 4.12 of the Special Conditions of the said Contract which show that there is no supply of tangible goods service. It is evident from the aforesaid Articles of the contract that at no point of time the intention of the contract between the parties was to supply aircraft to ONGC; rather the intention was to provide air transport services to ONGC where under the helicopters were used to transport passengers (employees of ONGC) from one place to another. Attention is invited to Article 1(r) of the Special Conditions of Contract, which defines Services to mean helicopter service carried out by Contractor (i.e. the Appellant) and its personnel under this Agreement. Article 4.2 (a) of the Special Conditions of Contract further states that the Contractors obligation shall be to provide flights in accordance with the schedule provided by ONGC, as also non-scheduled flight(s) as required by ONGC. Accordingly, it is apparent that the Appellant is responsible for flight and cabin crew, maintaining safety manuals, undertaking statutory and other maintenance, repair of the helicopters. The helicopters are flown against the NSOP of Appellant. This establishes that the obligation of Appellant is to provide that services to passengers. In the light of the above, the air transport services provided by an aircraft operator clearly fall 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.
4.12 Penalty under Section 78 of the Finance Act, 1994 has been invoked in the SCN on the basis of (a) that the Appellant has already obtained registration under SOTG (b) that the Appellant did not seek clarifications from the department (c) that the Appellant has paid the amount collected under Section 73A of the Finance Act, 1994 but did not pay the interest thereon. The fact that the Appellant has deposited amount under Section 73A or that they have obtained registration are not the grounds on the basis of which penalty under Section 78 can be imposed. It is vehemently denied that the Appellant has committed fraud, collusion, willful mis-statement, suppression, or that they have contravened any provisions of the service tax law with an intent to evade tax. The SCN has not brought on record or disclosed any such act of omission or commission on the Appellants part which would show intention to evade tax. The alleged non-payment of duty on the part of the Appellant was on account of the genuine interpretational dilemma regarding the scope of the new taxable service supply of tangible goods service introduced with effect from 16.5.2008, as also the bona fide interpretation of law by the Appellant that their services were not covered under the scope of this taxable service, which was duly supported by the legal advice provided to them. In these circumstances, it cannot be said that the Appellant ever had any intention to evade tax. Hence, no case is made for fraud or collusion or willful mis-statement or suppression of facts or violation of the Chapter or rules made thereunder by the Appellant. Accordingly, penalty cannot be imposed under Section 78 in the present case.
4.13 Section 76 of the Finance Act, 1994 provides for imposition of penalty on a person who fails to pay Service Tax if he is liable for such payment under Section 68 of the Finance Act, 1994. Section 68 provides that every person providing taxable service shall pay Service Tax at the specified rate. In other words unless a person is liable to pay Service Tax under Section 68 of the Act, penalty under Section 76 cannot be imposed on such person. It has been substantially explained in the Appeal Memo and the preceding paras that the Appellant was not liable to pay Service Tax under supply of tangible goods service in as much as the services rendered by the Appellant were not covered under the definition of this taxable service as provided in Section 65 (105) (zzzzj) of the Finance Act, 1994. Hence the appellant is not liable to pay Service Tax in terms of Section 68. Hence imposition of penalty under Section 76 of the Act is without any basis.
4.14 The Appellant has not violated any of the clauses of Section 77 of the Finance Act, 1994. The Appellant was not liable to pay Service Tax under supply of tangible goods service as has been substantially dealt with in the Appeal memo. Since there was no liability to pay Service Tax, the Appellant was also not liable to file returns or to maintain or retain books of accounts and other documents in terms of the provisions of the Finance Act, 1994.
4.15 Assuming without admitting that the Service Tax is payable by the Appellant as held in the OIO, it is submitted that the manner of calculation of the Service Tax liability is not correct. The consideration which the appellant has received is inclusive of the Service Tax payable. It is a settled position in law that if tax has not been collected separately, then the consideration received should be treated as cum-tax. Reliance is placed on the decision of the Larger Bench of the Tribunal in the case of Srichakra Tyres Ltd. v. Collector of Central Excise, Madras [1999 (108) E.L.T. 361], and the Apex Court decision in Commissioner of Central Excise, Delhi v. Maruti Udyog Limited [2002 (141) E.L.T. 3 (SC)]. Further, Explanation 2 to Section 67(2) of the Finance Act, 1994, provides that where the gross amount charged by a service provider, for the service provided or to be provided is inclusive of Service Tax payable, the value of such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged. Hence, if any demand of Service Tax has to be confirmed, it has to be treated as inclusive of Service Tax and demand has to be computed accordingly.
4.16 In the interregnum when there was doubt as to the Service Tax liability under supply of tangible goods service, the Appellant had deposited a sum of Rs. 40,88,91,305/- as Service Tax (including Cess). For the period April 2009 to March 2010, the Appellant had paid Service Tax amounting to Rs.17,04,84,332/- and had informed the department about the same vide letter dated 24.09.2010. However, the show cause notice pertaining to the period April 2009 to March 2010 as well as the OIO passed by the Commissioner has considered only Rs. 6,73,30,528/- against the abovementioned payment made by the Appellant. The OIO has not provided any reason for not accepting the total amount of Rs. 17,04, 84,332/- paid by the Appellant for the period April 2009 to March 2010. Thus, the balance amount paid i.e. Rs.10,31,53,803/- has not been reflected in the OIO. Hence, the amount of Rs 10,31,53,803/- should be taken into account while computing the total sum deposited by the Appellant.
5. The Ld. Commissioner (AR) appearing for the Revenue strongly opposed the contentions of the appellant and submitted as follows:
(1) The appellant had entered into agreements with ONGC and Transocean Offshore Deepwater Drilling inc. to supply helicopters on long term basis for use by them in transporting their staff and cargo without parting with the right of possession and effective control of such helicopters. Supply of tangible goods including machinery, equipment and appliances for use, without transferring the right of possession and effective control of such machinery, equipment and appliance became liable to service tax with effect from 16.5.2008. However, the appellant did not pay any service tax under the said service. Therefore, SCNs were issued to the appellant. Subsequently, the appellant started paying service tax under the category of transport of passengers by air which covered all domestic air passengers embarking in India w.e.f. 1st July, 2010.
(2) The issue in this appeal relates to classification of service provided by the appellant to M/s ONGC and M/s Transocean Offshore Deepwater Drilling inc. Supply of tangible goods for use was made taxable vide entry (zzzzj) inserted into Section 65(105) of the Finance Act, 1994 by Finance Act, 2008 with effect from 16-5-08. The said entry reads as under:
Section [65(105) (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 appliance.
(3) Subsequently, the CBEC vide circular No.20 / Comm (ST)/2009 dated 9th February, 2009 clarified that giving the right to use the aircraft to customers without transferring right of possession and effective control is liable to service tax under supply of tangible goods service. The relevant extracts from the circular are reproduced below:-
2. It has been brought to the notice of the Board that may non-scheduled operator engaged in the business of giving the right to use the aircraft to its customers (Chartering of aircrafts) are not paying service tax.
3. The issue has been examined in the Board. With effect from 16.05.2008, service provided to any person by any other person in relation to supply of tangible of goods including machinery, equipment and appliances for use, without transferring right of possession and effective control of such machinery, equipment and appliances is taxable service under Section 65(105) (zzzj). Chartering of aircrafts by a client only confers him with the right to use the aircraft and the owner of the aircraft in such case does not transfer right of possession. As to whether effective control over the aircraft is transferred or not would be a question of fact to be determined in each case. Where the crew is also provided by the owners of the aircrafts as in a wet lease of aircraft effective control is not transferred. (4) The terms and conditions of the contracts between the appellant and the service recipients clearly indicate that the appellant had placed their helicopters at the disposal of the service recipients on time charter basis without parting with the right of possession and effective control. The relevant part of the agreement/contract between the appellant and the ONGC is reproduced below:
XXXX Whereas CORPORATION is desirous of charter hire of helicopters for offshore operations for carrying out CORPORATIONs operations conforming to specifications as set forth in the Scope of Work of this agreement.
XXX 1.11 EQUIPMENT/MATERIALS/GOODS Shall mean and include any equipment, machinery, instruments, stores, goods which CONTRACTOR is required to provide to the ONGC for under the CONTRACT and amendments thereto.
XXX 1.14 MOBILISATION Shall mean rendering the equipment fully manned and equipped as per CONTRACT and ready to begin work at site designated by ONGC after ONHIRE survey and ONGCs acceptance thereafter. The date and time of ONGCs acceptance of ONHIRE survey will be treated as the date and time of mobilisation.
XXX 3.0 DURATION OF THE CONTRACT This CONTRACT shall remain valid for a period of three years from the date and time of commencement of operations by individual helicopters with an option to ONGC to extend the contract for a further period of one year in two equal instalments of six months each on same rates, terms and conditions XXXX .
SPECIAL CONDITIONS OF THE AGREEMENT XXXX
(b) Contract value in case of each helicopter for Offshore operations would be determined by adding fixed monthly charges for 36 months, flying hourly charges for 3600 hrs and mob/demob charges.
XXX
(d) Daily Flight Schedule means a written flight program by the Charterer for helicopter(s), for each day indicating departure time and destination.
2.1 This agreement is for Nine (9) Nos. (Available exclusively for Charterers personnel) Passenger version AS-4 compliant Helicopters with call signs as under:
Bell-412 helicopters SI.No. Call sign SI.No.
1.
VT-AZA 33188
2. VT-AZB 36067
3. VT-AZC 36161
4. VT-AZD 33172
5. VT-AZE 36024
6. VT-AZG 33185
7. I Under construction Bell-412 36394
8. I-POPA 33199
9. N412IIX 36027 2.1.1 Contractor shall deploy 2 Dhruv helicopters (Sl. Nos. DS 58, DS 59) at the rates mentioned in clause 11.9 of Special Conditions of Contract after ascertaining availability of necessary clearness from concerned authorities including DGCA, for offshore operations. In such an event of deployment of 2 Dhruv helicopters, two nos. Bell-412 helicopters on charter hire from Contractor will be demobilized.
XXX
3. DELIVERY OF HELICOPTER(S) The Contractor undertakes to deliver/mobilise the helicopter at Charterers Heli Base-Mumbai or any other base in India as may be designated by the Charterer in fully operational condition for Charterers services on or before 22.5.2006 i.e. within five months (150 days) from the date of Telefax order/NOA, after due approval/ clearance from all regulatory authorities including DGCA India and other concerned authority as per law in vogue at the time of delivery for helicopter operation in India for ONGCs offshore t..sk.
XXXX
4. SERVICES 4.1 Contractor shall during the Term provide IFR equipped helicopter(s) as required by the Charterer and Contractor shall ensure that the helicopter(s) is/are available and fully operational during the Term, for the exclusive use of Charterer and persons authorised by Charterer. The Helicopters should strictly conform to the Specification stipulated in Schedule-I & Aviation Standards AS-4 enclosed at Schedule-II 4.2 a) Charterer shall provide to the Contractor the Daily Flight Schedule by 6.00 pm of previous evening, and the Contractors obligation shall be to provide flights in accordance with the said schedule. Contractor shall also provide non-scheduled flight(s) not later than one (1) hour after the receipt of information thereof, from Charterers Authorised Representative unless there are any operational or regulatory limitations prohibiting or preventing such a flight or flights. The Contractor shall confirm on the same day that he can operate the schedule. For all operational requirements, the Contractor shall nominate a Base Manager. The Base Manager or his authorised representative will be available for contact at all times.
XXX 4.3 Contractor shall provide experienced IFR Licensed Aircrews for operations and qualified maintenance crew for the servicing of the helicopters in accordance with Aviation Standard (AS-4).
4.4 Passengers and/or cargo may be carried in any helicopter as required by Charterer. However, such passengers and cargo are to be notified to Contractor before each flight. Contractor shall provide to the Charterer a table indicating the approximate different payloads XXX.
6. AVAILABILITY, MAINTENANCE & SAFETY 6.1 (a) The Contractor shall be under obligation to provide to the Charterer
i) The contracted helicopter(s) daily in Airworthy condition regularly on all 365 days of the year and without delay at the time asked for by the Charterer to complete the daily assigned task.
XXX
8. CREW FOR THE HELICOPTER 8.1 Contractor shall provide for the duration of Agreement for each helicopter during term two appropriately licenced, qualified and experienced pilot, and qualified, licenced experienced engineering crew to operate the helicopters and provide the services accordance with the the ONGC Aviation Standards AS-4. All such personnel shall be remain the Contractors employees.
XXXX
11. CHARGES 11.1 Fixed Monthly Charges (per helicopter) Fixed Monthly Charges per month and pro-rata thereof (to the nearest half day) for part of a month and the period during which the chartered helicopter(s) is/are in service accordance with this Agreement will be US$ 118250/- (United States Dollars One Lakh Eighteen Thousand Two Hundred fifty only).
XXXX 11.2 Flying Hourly Charges (per helicopter) 11.2.1 Charterer shall in respect of the chartered helicopter pay Contractor the corresponding hourly flying charges per hour and pro-rata thereof to the nearest 6 minutes for the flying hours of each such helicopter(s) as per following rates:
US$ 1184.50 (United States Dollars One thousand eighty four & cents fifty only) XXXX XXX
12. REPLACEMENT In the event of helicopter initially provided by the Contractor not being satisfactory in operation or not being available for more than 48 hours, the Contractor shall provide replacement helicopter of the same specifications within 48 hours from the date & time of requirement, at its sole risk and cost of Contractor including ferrying charges which may arise on this account.
13. PAYMENT 13.1 In respect of the Fixed Monthly Charges, Contractor shall prepare and submit an invoice five days in advance of beginning of the month to which they relate and Charterer shall pay the amount of such invoice within 15 working days of receipt thereof from Contractor.
13.2 In respect of Hourly Flying Charges and other miscellaneous charges, the Contractor shall prepare and submit an invoice by 7th of the month with particulars of all flying done during the preceding month. The Charterer shall pay the amount of such invoice within 15 working days of its receipt.
XXX (5) It can be observed from the above terms and conditions that ONGC intended to hire for their offshore operations AS-4 compliant 9 helicopters with specified call signs for a period of three years. Specifications of the helicopters for Charter hire are given in Schedule I & Schedule II. The helicopters were to be made available exclusively for their personnel after due clearance from all regulatory authorities. The helicopters were to remain available and fully operational in airworthy condition on all 365 days during the term for exclusive use of ONGC and persons authorized by them. The appellant was also required to provide experienced IFR licensed crew and qualified maintenance crew. Crew and pilots provided were to remain appellants employees and were required to operate the helicopters as per ONGC aviation standards AS-4. The flight schedule was to be determined by ONGC. Fixed monthly charges of US $118250/-per helicopter were to be paid to the appellant in addition to US $1184.50 per flying hour per helicopter for the period during which the chartered helicopters were in service. The above terms of the contract clearly indicate that the agreement is for supply of helicopters along with crew to be kept at the disposal of M/s ONGC. There is nothing in the contract to suggest that the possession and control of the aircraft was required to be transferred to the service recipients. Therefore, the service provided by the appellant is squarely covered under the category of supply of tangible goods for use service.
(6) In a similar case of Indian National Shipowners Association Vs. Union of India [2009 (14) S.T.R. 289 (Bom.)], the appellants supplied to major oil exploration and production operators, various vessels that included offshore drilling rigs, offshore support vessels, harbour tugs and construction barges to carry out various jobs such as anchor handling, towing of vessel, supply to rig or platform, diving support, firefighting and safety support in designated and non-designated areas, supporting offshore construction, providing accommodation, crane support and stoppage area on main deck for equipment, piloting big vessels in and out of the harbour and for husbanding main fleet etc. Service tax was demanded from the appellants under mining services as the vessels were used in relation to mining of minerals. It was held by Honble Bombay High Court that the activities of giving vessels on time charter basis to oil and gas producers to carry out offshore exploration and production activities without parting with the right of possession and effective control of such machinery, equipment and appliances, clearly fall in entry (zzzzj) as supply of tangible goods for use and not under entry (zzzy) as mining service. The ratio of the said judgment is applicable to the facts of the present case as the appellant has given helicopters on time charter basis to oil and gas producers without parting with the right of possession and effective control of such helicopters.
(7) As regards the appellants contention that the service provided by them was covered under transport of passengers by air, Service Tax was introduced on air travel with effect from 1-5-2006 as a separate category on all premium classes of air travel vide sub-clause (zzzo) of Clause (105) of Section 65 of the Finance Act 1994. Clause (zzzo) of Section 65 of the Act, before it was amended, was as follows:-
(zzzo) to any passenger, by an aircraft operator, in relation to scheduled or non-scheduled air transport of such passenger embarking in India for international journey, in any class other than economy class.
Explanation 1 : For the purposes of this sub-clause, economy class in an aircraft meant for scheduled air transport of passengers means,-
(i) Where there is more than one class of travel, the class attracting the lowest standard fare; or
(ii) Where there is only one class of travel, that class.
Explanation 2 : For the purposes of this sub-clause, in an aircraft meant for non-scheduled air transport of passengers, no class of travel shall be treated as economy class. In Budget 2010, the scope of transportation of passengers by air service was extended to cover all domestic and international air passengers embarking in India with the following amendment in sub-clause (zzzo) w.e.f. 1st July, 2010:
(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 ljourney;;
The word passenger was defined as follows :-
SECTION 65 (77c) passenger means any person boarding an aircraft in India for performing a domestic journey or international journey.
(8) The term passenger came up for interpretation before Honble CESTAT in the case of KING ROTORS & AIR CHARTER (P) LTD. Vs C.C. (ACC & IMPORT), MUMBAI [2011 (269) E.L.T. 343 (Tri. - Mumbai)]. In the said case, it was held by the Honble Tribunal that the word passenger refers to natural persons and when an aircraft is chartered by an off-shore oil company to ferry their personnel, the aircraft is used by the independent third party, namely, offshore oil extraction/drilling company. It was further observed that such flights undertaken by aircraft are commercial, revenue flights paid for by such offshore companies which are third parties and the end-users of the helicopters cannot be called members of the public and such services cannot be considered as provided to passengers. Applying the ratio of the said decision, supply of helicopters to the clients on charter hire basis cannot be covered under transport of passengers by air service as such services are provided to companies and not to passengers on scheduled/nonscheduled flights.
(9) Similar view was taken by the Tribunal in the case of United Helicharters Pvt. Ltd., Vs. CC (Import), Mumbai 2010 (262) E.L.T. 293 (Tri. - Mumbai) wherein it was held that when helicopter is given on long term basis to one client for transport of persons/goods between mutually agreed airports and was not available for use other than that of one client, it could not be considered as being used for Non-scheduled passenger service since it did not satisfy the requirement for the same.
(10) Issue of classification of hiring of chartered aircrafts under Supply of Tangible Goods service vis-`-vis Air Transport Passenger service came up for consideration before the Tribunal in the case of Karnavati Aviation Pvt. Ltd., Vs. Commissioner of Service Tax, Ahmedabad 2013 (30) S.T.R. 89 (Tri. - Ahmd.). The Honble tribunal observed that where payment was not based on number of passengers, no tickets were issued, no charges were collected from passengers and right to possession and effective control of the aircraft was not parted with, service has to be considered as supply of tangible goods.
(11) In the case of Adani Gas Ltd., Vs. Commissioner of Service Tax, Ahmedabad [2012 (28) S.T.R. 170 (Tri. - Ahmd.)],the appellant had supplied pipes and measuring equipment like gas metres at the time of new gas connection to the customers in their business of distribution of CNG. Non-payment of rent on the said goods made the appellant entitled to re-possession of the goods. The appellant was also responsible for repair and maintenance. It was held that the appellant was ineffective control of the goods and supply of equipment was without transfer of possession and therefore, the appellant was liable to pay service tax on the service under the category of supply of tangible goods. The relevant para of the order is reproduced below:-
9.?In the present case before us, the customer never has a right of possession since it would never become his own property at all. At any given point of time, the appellant can take re-possession and at no time, the customer would become the owner or can claim right of possession. In the case where an item is rented, the customer has right of possession so long as he keeps paying the rent. In the absence of any payment of rent for the meter and the equipment, there is no consideration in this case for right of possession by the customer and therefore the customer cannot even claim the right of possession also. On the other hand, the Company has the right to repossess the meter and other equipment at any time and whenever it is disconnected, the meter will become the property of the Company and the meter is never passed on to the customer and the customer even does not have the right of possession, but can be said to have the possession since it is in his residence or in his premises. Therefore, the supply of goods is without transfer of right of possession. As regards effective control, there is no doubt since in terms of agreement, the responsibility for maintenance and repairs lies with the appellant and the customer has no right to get it repaired from any one else. Further, the customer cannot also obtain meter and other equipment from any other source. There is no doubt that the customer also has a use of measuring equipment which has already been discussed above. The judgments cited at (9),(10) & (11) above are interim orders and may not be binding on the Tribunal but the prima-facie observations and findings are worth adopting, being relevant in the present case. Accordingly it is prayed that the Honble Tribunal may uphold the impugned O-in-O and reject the appeal.
6. We have carefully considered the submissions made by both the sides. We have also perused the contracts/agreements entered into by the appellants in respect of the transaction which is under dispute.
6.1 From the pre-amble of the contract entered into by the appellant with M/s. ONGC, it is seen that ONGC was interested in charter hiring of helicopters for offshore operations being carried out by them and the appellant agreed to provide the required services against the corporations order in this regard. As per clause 3 of the agreement the appellant undertook to deliver/mobilize the helicopters at charterers helibase in Mumbai or at other bases in India as may be designated by the charterer in fully operational condition for the charter service. In clause 4 relating to service, it was provided that the appellant shall ensure that the helicopters are available and fully operational for the exclusive use of the charterer and the persons authorized by the Charterer and the daily flight schedule was to be provided by the charterer. The contract also envisaged that the appellant shall provide experienced IFR licensed aircrews for the operation and qualified maintenance crews for servicing of the helicopters as per the prescribed standards. Passengers and/or cargo as required by the Charterer was to be carried in the helicopter. All necessary clearances, permission to hold helicopter licence to operate the helicopter, compliance with all laws, rules, regulations, orders, standards and schedules as specified by the Directorate General of Civil Aviation was to be complied with by the appellant, who is the service provider. The appellant was also obligated to provide to the Charterer, the helicopters daily in airworthy condition regularly on all 365 days of the year. For the services rendered the appellants were eligible for remuneration on a fixed monthly charge basis for thirty six months plus flying hourly charges. The helicopters were to be operated upon by the crew provided by the appellant and such crew have complete control over the actual flying operations. The agreement with Trans Ocean Offshore Deepwater Drilling Inc. was also for providing charter service to the company by the appellant. The said agreement also envisaged operation of the aircraft for the transportation of the passengers and passenger baggage as per the instructions and requirements of the client, the crew was to be provided by the appellant and all approvals, licences, permits was the responsibility of the appellant. For the services rendered consideration was paid to the appellant in terms of the said agreement. In both these agreements the liability to pay taxes and dues was on the appellant and also the liability to insure the goods. From the tenor of the agreement and the terms and conditions provided therein, especially those specified in clauses - 1.11 relating to equipment/materials/goods, 1.14 relating to mobilization, 3 relating to delivery, 4 relating to services, 6 relating to availability, maintenance and 8 relating to safety, etc. - it is seen that the appellant was engaged in charter-hiring of helicopters to the clients for a consideration. The possession and control of the helicopters remained with the appellants.
6.2 Section 65 (105) (zzzj) defines supply of tangible goods for use service as any service rendered to any person by any other person in relation to supply of tangible goods including machinery, equipment and appliances for use, without transferring the right of possession and effective control of such machinery, equipment or appliances. There is no dispute that helicopters were mobilized/delivered by the appellant to their clients without transferring the right of possession and effective control for use by the clients. Therefore, the services rendered by the appellant to their clients in respect of charter-hire of helicopters would come under the purview of supply of tangible goods for use as defined in Section 65 (105) (zzzj) of the Finance Act, 1994.
6.3 The honble Apex Court in the case of Super Poly Fabriks Ltd. vs. Commissioner [2008 (10) STR 545 (SC)], laid down the principle of how to read an agreement or contract as under:-
There can not be any doubt whatsoever that a document has to be read as a whole. The purport and object with which the parties thereto entered into a contract ought to be ascertained only from the terms and conditions thereof. Neither the nomenclature of the document nor any particular activity undertaken by the parties to the contract would be decisive. If this principle is applied in reading the contracts entered into by the appellant with their clients, it is seen that the contract is for charter-hiring of the helicopters and not for flying of passengers/cargo.
6.4 The Honble High Court of Bombay, in a case of charter hiring of vessel for offshore oil operations, considered an identical issue in Indian National Ship Owners Association Vs. UOI. The question before the Honble High Court was whether the transaction involved in charter hiring of vessels for offshore explorations, is liable to tax under mining services or under supply of tangible goods for use service. Honble High Court in the said case held as follows:-
37.?Entry (zzzzj) is entirely a new entry. Whereas entry (zzzy) covers services provided to any person in relation to mining of mineral, oil or gas, services covered by entry (zzzzj) can be identified by the presence of two characteristics namely (a) supply of tangible goods including machinery, equipment and appliances for use, (b) there is no transfer of right of possession and effective control of such machinery, equipment and appliances. According to the members of the 1st petitioner, they supply offshore support vessels to carry out jobs like anchor handling, towing of vessels, supply to rig or platform, diving support, fire fighting etc. Their marine construction barges support offshore construction, provide accommodation, crane support and stoppage area on main deck or equipment. Their harbour tugs are deployed for piloting big vessels in and out of the harbour and for husbanding main fleet. They give vessels on time charter basis to oil and gas producers to carry out offshore exploration and production activities. The right of possession in and effective control of such machinery, equipment and appliances is not parted with. Therefore, those activities clearly fall in entry (zzzzj) and the services rendered by the members of the 1st petitioner have been specifically brought to the levy of Service Tax only upon the insertion of this new entry.
38.?If the Departments contention is accepted that would mean that the activities of the members of the 1st petitioner are covered by entry (zzzy) and entry (zzzzj). Such a result is difficult to comprehend because entry (zzzzj) is not a specie of what is covered by entry (zzzy). Introduction of new entry and inclusion of certain services in that entry would presuppose that there was no earlier entry covering the said services. Therefore, prior to introduction of entry (zzzzj), the services rendered by the members of the 1st petitioner were not taxable. Creation of new entry is not by way of amending the earlier entry. It is not a carve out of the earlier entry. Therefore, the services rendered by the members of the 1st petitioner cannot be brought to tax under that entry.
.
48.?Applying the above conclusions to the instant case, we hold that the services rendered by the members of the 1st petitioner are either pre-mining or post-mining activities. They have no direct relation to mining. They were, therefore, rightly not brought to tax till entry (zzzzj) was introduced to cover transport of tangible goods by sea without transferring right of possession and effective control thereof. The services rendered by the members of the 1st petitioner are covered by entry (zzzzj) because they inter alia supply vessels, offshore support vessels, barges, tugs etc. without transferring right of possession and effective control over them. In contrast entry (zzzy) was introduced to comprehensively bring under the service tax net activities having a direct nexus to mining activities. Entry (zzzzj) is not a carve out of entry (zzzy). Both entries are independent. Entry (zzzzj) was not inserted into the Finance Act by amending entry (zzzy). It is not possible to invent a remote connection of the services rendered by the members of the 1st petitioner to mining activities and hold that they fall in entry (zzzy). Entry (zzzzj) is not a specie of what is covered by entry (zzzy). Nature of the services rendered by the members of the 1st petitioner, legislative history of the two entries, various circulars to which, we have made reference and the relevant judgments which we have noted hereinabove lead us to hold that the entry contained in Section 65(105)(zzzy) of the Finance Act, 1994 does not apply to services provided by the members of the 1st petitioner. The ratio of the above decision applies equally well to the facts of the present case. The above decision of the honble High Court was affirmed by the honble Apex Court also. In that view, supply of helicopters on charter hire basis would merit classification under supply of tangible goods for use service and we hold accordingly.
6.5 The appellants contention that they have undertaken the services of transport of passengers by air and not supply of tangible goods for use is not borne out from the terms and conditions of the agreement entered into with the clients. It is the appellants contention that they have the licence to fly the aircraft and even charter hiring of aircraft is covered under aircraft services as defined in Civil Aviation Rules and therefore, it should be treated that the appellant has undertaken non-scheduled air transport services for their clients and not as supply of tangible goods for use. To be eligible for classification under air transportation of passengers service, the service has to be rendered to a passenger. An identical issue came up for consideration before this Tribunal in the case of King Rotors & Air Charter Pvt. Ltd., Vs. CC (ACC & Import), Mumbai 2011 (269) ELT 343 (Tri-Mum) in the context of Notification No21/2002-Cus. The issue before this Tribunal was whether the charter hire services rendered by the appellant therein would amount to non-scheduled passenger services as defined in Rule 3 of the Aircraft Rules, 1937. After considering the rival submissions, this Tribunal, in the said case held as follows:-
24.6?The question now to be considered is whether the assessee used the imported helicopter for the avowed purpose. It is not in dispute that, under a charter-hire agreement dated 14-4-2008 with Heligo, the assessee allowed the helicopter to be used by Heligo for the purpose of mobilizing and demobilizing of personnel of third party companies and for movement of their freight and/or equipment. Under the agreement, Heligo would reimburse the actual costs incurred by the assessee in sourcing and acquiring spares for maintenance of the helicopter. The necessary infrastructure for maintenance of the helicopter would also be provided by Heligo. The entire cost of insurance to cover all liabilities in respect of passengers, cargo, crew, helicopter and third party would be incurred by the assessee and reimbursed to them by Heligo. Heligo would also pay monthly remuneration to the pilots of the assessee. They would also bear the costs of maintenance of the helicopter and also the costs of fuel and comsumables required for its operation. On a perusal of the charter-hire agreement between the assessee and Heligo, we find that Heligo chartered/hired the helicopter for their exclusive use and they incurred the entire costs of operation and maintenance of the helicopter and even the cost of insurance to cover all liabilities. One significant term of the contract was that the helicopter shall be utilized solely for the purpose of providing the services pursuant to the agreement and the contractor shall not utilize the helicopter for any other purpose without the prior consent of the company. Accordingly, the helicopter could not be used by the assessee (contractor) for any other purpose without the prior consent of Heligo (company). It is evident that the agreement created an exclusive right in Heligo for use of the helicopter during its tenure. That Heligo exercised this right for the benefit of third party companies is, in turn, evident from the written submissions dated 23-3-2011 filed by the appellants advocates, which read thus : even Heligo Charters Pvt. Ltd., in turn, charter the aircraft .. The aircraft is chartered by many offshore and oil companies to ferry their personnel . the aircraft has been used by independent third party offshore oil extraction/drilling companies The flights undertaken by aircraft are commercial, revenue flights paid for by third party offshore companies. Obviously the end-users of the helicopter are the so-called third party companies which cannot be called members of the public. Popular dictionaries of English provide the following meaning of public or the public, as the case may be :-
public = the community or people in general [Collins Dictionary of the English Language] public = the people as a whole; community at large [New World Dictionary of the American Language] public = people collectively [The New Shorter Oxford English Dictionary] public = ordinary people in general; the community [Concise Oxford English Dictionary - Indian Edition] the public = ordinary people in society in general;
[Oxford Advanced Learners Dictionary of Current English, 7th Edition] Members of the public are natural persons and cannot be juristic persons like the third party companies which chartered the aircraft from Heligo.
24.7?Non-scheduled passenger services has been defined in clause (b) of Explanation to condition No. 104 and the same means air transport services other than scheduled (passenger) air transport services as defined in Rule 3 of the Aircraft Rules, 1937. [Incidentally, we note that the expression non- scheduled air transport services (passenger) is defined in the same way in clause (2) of Passenger CAR.] Scheduled air transport service has been defined under Rule 3(49) of the Aircraft Rules, 1937 and the same reads as under :-
Scheduled air transport service means air transport service undertaken between the same two or more places and operated according to a published time table or with flights so regular or frequent that they constitute a recognisably systematic series, each flight being open to use by members of the public;[underlining added] The learned counsel for the appellants has argued that two distinct requirements have to be satisfied by an air transport service to be called scheduled air transport service. According to him, the two essential requirements are the follow ing : (a) there must be regular or frequent flights or flights operated according to a published time table between the same two or more places; (b) each flight must be open to members of the public. The learned counsel has argued that any air transport service that does not meet the above two requirements will be a non-scheduled (passenger) service. On this basis, it has been claimed that the assessee was providing non-scheduled (passenger) service under the permit granted by DGCA and was thereby complying with condition No. 104. This argument is fraught with analytical error. Any such dissection of the definition of scheduled air transport service as attempted by the counsel is not warranted to obtain the meaning of non-scheduled air transport service. This is because requirement (b) mentioned by him is not determinative of whether the air transport service is scheduled or non-scheduled. To our mind, the only difference between the two types of air transport service lies in the simple fact that one is scheduled while the other is non-scheduled, which would mean that scheduled air transport services involve flight services operated on the basis of a schedule of time whereas non-scheduled air transport services are without any time schedule for the flights. [This view is fortified by clause (9.2) of Passenger CAR, which deals with non-scheduled operators and their operations and says: In such operations, the operators shall not publish their time schedules as the operations are of non-scheduled nature.] Other features are common for both scheduled and non- scheduled services. It would follow that, like scheduled air transport service (passenger), non-scheduled air transport service (passenger) also should be open to use by members of the public. As the flight operations in this case were not open to the public, the helicopter cannot be held to have been used for non-scheduled (passenger) services.
24.8?As condition No. 104 itself refers to Rule 3 of the Aircraft Rules, 1937 in the context of defining the expression non-scheduled (passenger) services, it is permissible to take aid of the said Rule in ascertaining the connotation of the word passenger used in the expression non-scheduled (passenger) services. Rule 3(39) defines passenger aircraft as aircraft which effects public transport of passengers. Public transport is also seen defined under Rule 3(45). In the instant case, it is not the claim of the appellants that they used the helicopter for public transport of passengers. They only allowed Heligo to hire the aircraft for a remuneration and use it for transporting employees of Oil & Gas/allied companies between Vishakapatnam airport and offshore oil/gas fields under contracts awarded to Heligo by those companies. The appellants were unable to use the copter (during the tenure of the agreement) for any other purpose without the prior consent of Heligo. They did not have any control over the manner in which the helicopter was used by Heligo (who professedly entered into charter contracts with third party companies in respect of the aircraft which was accordingly used for transporting the personnel of these companies) and the copter operations were not open to members of the public. Where the helicopter would not come within the meaning of passenger aircraft, the flight operations cannot be called non-scheduled (passenger) services.
The ratio of the above decision would apply squarely to the facts of the case before us. As can be seen, the service provided by the appellant cannot be covered by transport of passengers by air service since in that case, the definition specifically provides that the service is in relation to scheduled or unscheduled air transport of passengers. The thrust in the definition is on transport of passengers. In the case of the appellant, the service is provided to various companies, who chartered the aircraft for specific time or for specific journey. The payment is not based on number of passengers. No tickets are issued to the passengers and no charges are collected from the passengers. Therefore, the service provided cannot be considered as transport of passengers, but has to be considered as charter of aircraft. There is no doubt that the right of possession and effective control while in use by the charterer is not parted with. Thus the charter hire of helicopters to ONGC and other clients for flight operations as per their requirements cannot be said to be non-scheduled (passenger) services. Therefore, we reject the contention of the appellant in this regard. Consequently, we hold that the services rendered by the appellant in the instant case cannot be treated as air transport services for the transport of passengers.
6.6 The CBE&C had also occasion to examine the issue and vide Circular No.20/COMMR.(ST)/2009 DATED 09/02/2009 the Board clarified, inter alia, as follows:
It has been brought to the notice of the Board that many non-scheduled operator engaged in the business of giving the right to use the aircraft to its customers (Chartering of Aircrafts) are not paying serice tax.
The issue has been examined in the Board. With effect from 16/05/2008, service provided 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 is taxable service under section 65 (105) (zzzj). Chartering of aircrafts by a client only confers him with the right to use the aircraft and the owner of the aircraft in such case does not transfer right of possession. As to whether effective control over the aircraft is transferred or not would be a question of fact to be determined in each case. Where the crew is also provided by the owners of the aircrafts and in a wet lease of aircraft effective control is not transferred. Thus as per the CBEC Circular also, the services of charter hire of helicopters merits classification under supply of tangible goods for use services.
6.7 The appellant has relied on the interim order of the Tribunal in the case of Mesco Airlines Ltd., Vs. CST, New Delhi [2013 (3) TMI 522 CESTAT New Delhi]. In that case the appellant therein entered into an agreement with the Statement Government for transportation of personnel as an when required and received consideration for the same. The question for consideration was whether the service rendered would come under the category of supply of tangible goods for use or air travel services. The Tribunal took a prima facie view that the activity is transportation of persons in India by air and not supply of tangible goods for use. As against this decision, there are three other decisions of the Tribunal in the case of United Helicharters Ltd., Karnavati Aviation Pvt. Ltd., and Adani Gas Ltd. (supra) where a contrary view has been taken by this Tribunal at the interim stage. Since these are only prima facie views, they are neither binding nor do they have any precedential value. Therefore, the decision of the Tribunal in the case of King Rotors & Air Charter Pvt. Ltd. case (supra) and the of the Honble High Court of Bombay in Indian National Ship Owners Association affirmed by the Honble Apex Court have to prevail. Accordingly, we uphold the demand of service tax under the category of supply of tangible goods for use as defined in section 65 (105) (zzzzj) of the Finance Act, 1994. We also uphold the confirmation of service tax demand on the repairs and maintenance services undertaken by the appellant and the man-power supply services rendered by the appellant.
6.8 The appellant has raised a point that the consideration received should be treated as cum tax and the amount so received shall be apportioned between the taxable value and the service tax. There is merit in this argument. If the appellant has not charged service tax separately and the amounts received included all taxes, the appellant would be definitely eligible for cum tax benefits. However, this benefit will not accrue where the appellant has collected service tax from the customers separately.
6.9 Once the demand for service tax is confirmed, interest liability is automatic and consequential. Accordingly, we confirm the liability to pay interest on the delayed payment of service tax by the appellant under the provisions of section 75 of the Finance Act, 1994.
6.10 There is a denial of Cenvat credit to the extent of Rs.2,33,09,951/- which was taken by the appellant but not utilized. The credit has been denied on account of non-production of duty paying documents for the credit availed during 16/05/2008 to 31/03/2009. Rule 9 (9) of Cenvat Credit Rules also envisages that the provider of output service availing Cenvat credit shall submit half yearly returns in the form specified and the appellant has failed to comply with the requirements. Therefore, the availment of credit without the duty paying documents and without filing the prescribed return is not in accordance with the law and accordingly, the appellants are not eligible for the credit. Therefore, denial of credit is justified. The appellant is also liable to pay interest on the credit taken though not availed, in view of the decision of the Honble Apex Court in the case of Ind-Swift Laboratories Ltd. [2011-TIOL-21-SC-CX].
6.11 The Appellant has claimed that they had paid Service Tax amounting to Rs. 17,04,84,332/- pertaining to the period April 2009 to March 2010 whereas in the OIO passed by the Commissioner, only credit for an amount of Rs. 6,73,30,528/- has been given. Thus, the balance amount paid i.e. Rs.10,31,53, 803/- has not been reflected in the OIO. This claim of the appellant shall be verified by the department and if found due, the same shall be allowed.
6.12 The next issue for consideration is with regard to the penalty imposed under Sections 76 and 77 of the Finance Act. Penalty under Section 76 is imposable whenever there is a default /delay in payment of service tax. On the occurrence of the default or delay, the provisions are attracted. There is no mens rea required to be proved for imposition of penalty under Section 76 as held by the Honble High Court of Kerala in the case of Krishna Poduval 2006 (1) STR 185 (Ker). Further, the the honble Apex Court in the case of Chairman SEBI vs. Shriram Mutual Fund & another [2006-TIOL-72-SC-SEBI] held that-
In our considered opinion, penalty is attracted as soon as the contravention of the statutory obligation as contemplated by the Act and the Regulation is established and hence the intention of the parties committing such violation becomes wholly irrelevant. A breach of civil obligation which attracts penalty in the nature of fine under the provisions of the Act and the Regulations would immediately attract the levy of penalty irrespective of the fact whether contravention must made by the defaulter with guilty intention or not. We also further held that unless the language of the statute indicates the need to establish the presence of mens rea, it is wholly unnecessary to ascertain whether such a violation was intentional or not. Therefore, we uphold the penalties imposed under Section 76 of the Finance Act, 1994 on the appellant. Similarly, the penalty under Section 77 is for non-compliance of the statutory provisions of filing of returns and in as much as there is non-compliance, the same is also confirmed.
6.13 Another penalty of Rs.2,33,09,951/- has been imposed on the appellant for the wrong taking of credit under rule 15 of the Cenvat Credit Rules read with Section 78 of the Finance Act,1994. Inasmuch as the appellant has merely taken the credit but not utilized the same, no loss has been caused to the exchequer. Further, Rule 15 of the Cenvat Credit Rules, provides for imposition of penalty equivalent to the credit taken only when there is a fraud, collusion, willful mis-statement, suppression of facts or contravention of the provisions of the Act or rules made there under with an intent to evade payment of service tax. In the present case, since the appellant has not utilized the credit, no mala fide can be attributed. Therefore, we set aside the penalty of Rs.2,33,09,951/- imposed on the appellant under Rule 15(2) of the Cenvat Credit Rules read with Section 78 of the Finance Act. However, the appellant is liable to a penalty of Rs.2,000/- under Rule 15 (3) of the said Cenvat Credit Rules for violation of the statutory provisions.
6.14 A penalty of Rs.19,79,60,318/- has been imposed under Section 78 of the Finance Act for short payment of service tax by the appellant in respect of show cause notice dated 7-10-2009. Inasmuch as the appellant had not declared their activities to the department nor did they obtain the service tax registration under the category of supply of tangible goods for use, the charge of suppression against the appellant is sustainable. In Neminath Fabrics case [2010 (256) ELT 369 (Guj)], the honble High Court of Gujarat held that if any of the ingredients for invoking extended period of limitation is present, then mandatory penalty under section 11AC of the Central Excise Act, 1944, is imposable. A larger bench of this Tribunal in Union Quality Plastics Ltd. case [2013-TIOL-1072-CESTAT-AHM-LB] also held the same view. Therefore, penalty under Section 78 equal to the duty sought to be evaded is sustainable. However, since an amount of Rs.7,58,36,177/- already stood paid by the appellant which has been appropriated, only penalty equal to the balance of service tax payable can be imposed under section 78. Thus, we restrict the penalty amount liable to be paid under section 78 to Rs.12,21,24,141/-.
7. To sum up, we hold that the services rendered by the appellant in charter hire of helicopters to various corporates for offshore operations is classifiable under supply of tangible goods for use service. Consequently we uphold the demand of service tax under the said category along with interest thereon. However, wherever the appellant has not collected service tax separately from the customers, the consideration received shall be treated as cum-tax and the service tax demand ought to be recomputed. The claim of the appellant for payment of Rs.10,31,53,803/- towards service tax dues shall be verified and if found correct, the same shall be deducted from the amount due from the appellant. We also uphold the denial of cenvat credit taken of Rs.2,33,09,951/-. The appellant shall forthwith reverse the said credit, if not already done. The appellant shall also be liable to pay interest on the credit wrongly availed from the date of taking the credit to the date of reversal in accordance with law. We also uphold the imposition of penalties under sections 76 and 77 of the Finance Act, 1994 for the default in payment of service tax and for non-compliance of the statutory provisions relating to service tax. We also uphold the imposition of penalty under section 78 of the Finance Act, 1994, but the same shall be restricted to the service tax payable after taking into account the amount already paid and appropriated. We set aside the penalty of Rs.2,33,09,951/- imposed under Rule 15(2) of the Cenvat Credit Rules, 2004 read with section 78 of the Finance Act, 1994 on account of wrong taking of credit. However, the appellant shall be liable to a penalty of Rs.2000/- on such wrong availment under Rule 15(3) of the Cenvat Credit Rules, 2004. The appeal is disposed of in the above terms.
(Pronounced in Court on /08/2013) (Anil Choudhary) Member (Judicial) (P.R. Chandrasekharan) Member (Technical) pj 1 8