2014 (11) TMI 991 - AT - Service Tax

Port Services - Respondent and ONGC entered into an agreement to permit ONGC to lay pipelines for carrying oil - In consideration for allowing ONGC to lay submarine pipelines through the Port limits, Mumbai Port Trust was paid compensation by ONGC - Compensation was calculated as 50% of the wharfage charges normally payable for such goods handled by the Port - Held that - Respondent has no control over the goods passing through the pipelines and the respondents are not required to maintain contact, repair or otherwise service, the actual pipeline which was laid within their limits. It is also clear from the agreement that the respondent did not extend any facility, service or personnel in relation to this pipeline or the goods flowing through these pipelines and the amount paid by ONGC therefore, cannot be considered as being amount paid towards any service rendered by the respondent towards the pipeline or the goods going through the pipeline and the amount paid for providing permission to ONGC to lay their pipelines through the port limits. If such permission would not have been granted, ONGC would have had to pass the pipeline through private land increasing the cost of the land and the pipeline. Therefore, the payments were made for the permissions and not to receive any port service from the respondent. Mere erection of wharfage by itself does not amount rendering a port service and wharf is the structure where the ships dock for loading and unloading of goods. - The term used as wharfage is merely to determine the measure of the compensation and not to determine the nature of the service rendered. Laying of pipelines and payments made by ONGC to the respondent for granting permission to laying pipelines does not cover under the category of port service . In these terms we do not find any infirmity in the impugned order - Demand id also barred y limitation - Decided against Revenue.

Summary

Issues Involved:

1. Taxability of compensation received for laying pipelines under the category of "port services."
2. Definition and interpretation of "wharf" under the Major Port Trusts Act, 1963.
3. Applicability of Service Tax on the compensation received.
4. Invocation of the extended period of limitation for raising the demand.
5. Legality of penalties and interest levied on the respondent.

Issue-wise Detailed Analysis:

1. Taxability of Compensation Received for Laying Pipelines Under the Category of "Port Services":

The Revenue appealed against the order dropping the demands proposed in the show cause notice under the category of "port services." The respondent entered into an agreement with ONGC to lay submarine pipelines within the Port Trust limits. The compensation paid by ONGC was calculated as 50% of the wharfage charges normally payable for such goods handled by the Port. The Revenue argued that this compensation is taxable under "port services" because laying a pipeline is equivalent to erecting a wharf. However, the adjudicating authority dropped the demand, stating that the respondent did not render any service related to the transportation of crude oil through the pipelines.

2. Definition and Interpretation of "Wharf" Under the Major Port Trusts Act, 1963:

The Revenue contended that laying pipelines falls under the definition of "wharf" as per Section 2(za) of the Major Port Trusts Act, 1963, which includes any part of the port used for loading or unloading goods. The respondent argued that laying pipelines does not amount to erecting a wharf, and even if it did, it does not attract Service Tax under port services. The Tribunal found that the pipelines are submarine and do not come in contact with goods during transportation. The respondent did not extend any facility, service, or personnel in relation to the pipelines, and the compensation was for permission to lay pipelines, not for rendering port services.

3. Applicability of Service Tax on the Compensation Received:

The Tribunal examined the definition of "port services" under Section 65(82) of the Finance Act, 1994, which includes any service rendered by a port in relation to a vessel or goods. It concluded that the compensation received by the respondent from ONGC was not for any service rendered in relation to goods or vessels but for granting permission to lay pipelines. Therefore, the compensation cannot be considered as wharfage charges and is not liable to Service Tax under the category of "port services."

4. Invocation of the Extended Period of Limitation for Raising the Demand:

The Revenue invoked the extended period of limitation on the ground that the respondent did not show the amount received from ONGC as wharfage in their ST-3 returns. The Tribunal found that the issue of taxability of the compensation was in dispute and involved interpretation of the provisions of law. Hence, the extended period of limitation cannot be invoked, making the demands time-barred.

5. Legality of Penalties and Interest Levied on the Respondent:

Since the Tribunal concluded that the compensation received by the respondent does not fall under "port services" and the demands are time-barred, the penalties and interest levied on the respondent are not sustainable. The respondent succeeds both on merits and limitation, and the impugned order is upheld.

Separate Judgment by Member (T):

While agreeing with the main judgment, Member (T) expanded on the reasoning. He emphasized that "port service" involves activities carried out by the port for the service receiver, and the compensation received by the respondent is in the form of lease-rental, which is outside the purview of port services. He reiterated that the manner of determining compensation in terms of wharfage cannot be used to adjudge whether port service is provided. The appeal was dismissed.

Conclusion:

The Tribunal upheld the order dropping the demands, concluding that the compensation received for laying pipelines does not fall under "port services," and the demands are time-barred. The appeal filed by Revenue was dismissed.