2010 (5) TMI 495 - AT - Service Tax

Under Section 75, 76 and 77 - Regarding royalty - The agreement, IGTPL shall pay to CPT a royalty equivalent to 33.3 per cent of the gross revenue earned by it every month from the operation of the project - CPT received part of revenue earned by IGTPL as consideration for allowing IGTPL to operate the port whereas IGTPL rendered services taxable under port services and paid the tax due on the total revenue - Thus do not find 1/3rd of that revenue received by CPT liable to tax under Port Services at the hands of the appellant - Letting out the port premises for operation by IGTPL does not amount to rendering of port service - If at all any service tax is paid on this amount, the same would be available to IGTPL as Cenvat credit, which can be used for paying service tax on port services rendered by it-Hence, demand not sustainable. Regarding rent - The rent collected from individuals/agencies for allowing them to construct and operate jetties, we find it to be rent and not value for port services rendered - The persons/individuals operating the berth would be required to pay tax on port services if they render such services - Demand raised on CPT under this head is not sustainable. Regarding boat registration fee - As regards boat registration fee, the assessee admitted the liability and honoured the demand. - Demand and penalty set aside.

Issues:
1. Confirmation of differential service tax and education cess.
2. Demand of interest under section 75 of the Finance Act, 1994.
3. Imposition of penalties under sections 76 and 77 of the Act.
4. Taxability of royalty received by CPT from IGTPL.
5. Taxability of rent received for use of jetties.
6. Taxability of amounts received in connection with leasing out of land.
7. Validity of invoking a larger period for assessment.
8. Justification of penalties imposed.

Confirmation of Differential Service Tax and Education Cess:
The Commissioner confirmed the demand of differential service tax and education cess against M/s. Cochin Port Trust (CPT) for the period 1-9-2005 to 31-3-2006 under the head 'Port Services.' The demand was based on the amounts received by CPT from various activities within the port limit, such as renting out jetties and receiving boat registration fees. The Commissioner also imposed penalties and interest under relevant sections of the Finance Act, 1994.

Taxability of Royalty and Rent:
CPT challenged the demands raised on the grounds that the royalty received from India Gateway Terminal Pvt. Ltd. (IGTPL) was not a consideration for services rendered by CPT but part of the revenue earned by IGTPL for operating the port. The Tribunal held that the royalty received by CPT was not liable to tax under Port Services as IGTPL had already paid tax on the total revenue. Similarly, the rent collected for allowing individuals/agencies to construct and operate jetties was considered as rent and not payment for port services rendered, making the demand raised on CPT unsustainable.

Taxability of Other Amounts and Validity of Larger Period:
The Tribunal found no justification for levying service tax on amounts received by CPT in connection with leasing out land or invoking a larger assessment period. It was noted that CPT had not suppressed any facts, and being a central PSU, the penalties imposed were deemed unwarranted. The Tribunal vacated the demands for service tax and penalties, allowing the appeal filed by CPT.

This judgment highlights the importance of distinguishing between revenue-sharing agreements and consideration for services rendered in determining the taxability of amounts received by entities operating within regulated sectors such as ports. It also emphasizes the need for proper justification and adherence to legal provisions when imposing tax demands and penalties on taxpayers.

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