2016 (11) TMI 1437 - HC - Service Tax

Principle of patent illegality - GTA services - whether the claimant is liable to pay service tax, as per the terms of the contract? - Held that - Clause 21 of the contract provides that service tax/sales tax applicable if any, on chartered hired payments received by the contractor under this contract will be to the account of ONGC. It also further provides that service tax if any applicable and/or levied on charter hire payment against this contract/agreement will be reimbursed by ONGC at actual against documentary evidence. Therefore, for the charter hire payment charges, ONGC has to bear service tax as per the above Clause 21 of the Contract. The Tribunal rejected the contention of the ONGC that the service comes under Goods Transport Agency pointing out that as per the definition under Section 65(50b) of the Finance Act, 1994, the service provider should not only transport goods by road but also issue consignment note. The Tribunal also pointed out that the claimant had never issued consignment note and the consignor as well as the consignee in the transport is only ONGC and therefore, ONGC alone is liable to pay service tax if payable. Thus the Tribunal decided the nature of transaction only to conclude whether the claimant is liable to pay as per the terms of the contract and it has not gone into the question whether transaction under the contract is amenable for service tax or not. Appeal dismissed - decided against appellant.

Summary

Issues Involved:
1. Nature of service rendered by the claimant - whether it is Goods Transport Agency (GTA) or Charter Hire.
2. Liability for service tax payment under the contract terms.
3. Validity of the Arbitral Tribunal's decision and its compliance with the Arbitration and Conciliation Act, 1996.
4. Interpretation and application of contractual clauses and statutory definitions.

Issue-wise Detailed Analysis:

1. Nature of Service Rendered:
The primary issue was whether the service provided by the claimant to ONGC was classified as Goods Transport Agency (GTA) or Charter Hire. ONGC contended that the service fell under GTA, making it subject to service tax. The claimant argued that they were not a GTA but rather provided tankers on a charter hire basis. The Arbitral Tribunal concluded that the service was Charter Hire, not GTA, because the claimant did not issue consignment notes, a requirement under Section 65(50b) of the Finance Act, 1994, for a service to be classified as GTA.

2. Liability for Service Tax Payment:
Clause 21 of the contract specified that any service tax applicable on charter hire payments would be borne by ONGC. The Tribunal found that ONGC had chartered the tankers for its exclusive use, thus the payments under the contract were considered charter hire payments. Consequently, ONGC was liable for the service tax, not the claimant. The Tribunal also noted that the claimant had executed an indemnity bond to get the pending amount released by ONGC, which did not change the liability under the contract.

3. Validity of the Arbitral Tribunal's Decision:
The appellant challenged the Arbitral Award on the grounds of patent illegality, arguing that the Tribunal had overstepped its authority by deciding on matters reserved for statutory authorities. However, the court emphasized that the Tribunal's role was to interpret the contract terms and determine liability for service tax as per the contract. The court referred to the Supreme Court's ruling in Associate Builders v. DDA, which clarified that an arbitral award could only be set aside for patent illegality if it contravened substantive law, the Arbitration Act, or the terms of the contract. The Tribunal's interpretation was found to be reasonable and within its jurisdiction.

4. Interpretation and Application of Contractual Clauses and Statutory Definitions:
The Tribunal analyzed various clauses in the contract, particularly Clause 21, which clearly stated that service tax on charter hire payments would be borne by ONGC. The Tribunal also referred to the statutory definitions under the Finance Act, 1994, to ascertain the nature of the service. The court upheld the Tribunal's interpretation, noting that the Tribunal had not contravened the substantive law or the terms of the contract. The Tribunal's decision was based on a reasonable construction of the contract and the conduct of the parties.

Conclusion:
The court found no patent illegality in the Arbitral Award and upheld the Tribunal's decision. The learned single Judge's order dismissing ONGC's petition was confirmed, and the appeal was dismissed with no costs. The connected miscellaneous petition was also closed.