2010 (1) TMI 694 - AT - Service Tax

Waiver of pre-deposit - Service tax liability under port service - Royalty - ownership / lease hold rights of the equipment of the appellant shall stand transferred to the licensee from the date of receipt of first installment of the upfront payment - The leasehold rights and ownership of crane leased from M/s. ABG Heavy Industries Ltd. was also passed on to the licensee - The consideration received was accounted in the financial records of CPT as sundry debtors and the value of the assets written off at the written down value of Rs.7.6 crores - Even if the equipment is held to have been leased to IGTPL and not sold we find that no tax can be levied on the consideration as it is not received towards port services rendered by CPT. Upfront charges - The royalty amounts were paid by IGTPL @ 33.33% of its gross revenue under its agreement with CPT - This amount was paid by IGTPL to CPT for allowing it to develop and operate Rajiv Gandhi Container Terminal at the port premises - Do not find any logic in treating CPT allowing IGTPL to develop and operate the container terminal as an activity falling under port services. The royalty received by the appellant is not a consideration for any port services rendered by CPT. If at all IGTPL pays service tax as demanded the same will be available to it as cenvat credit and can be used to meet its liability on services rendered by it. We find the impugned demand not liable to be sustained. Rent on jetties - the rental amounts collected for renting out various jetties within the port area find that the same cannot be subjected to tax under Port Services - The assessee did not put up jetties but collected charges for licenses granted to other persons to put up structures on the waters coming within the administrative jurisdiction of CPT - These charges are collected in accordance with Cochin Port (licensing of jetties slipways and boat pen) Regulations 1968 - find these charges for licenses as not classifiable under port services or taxable under that head. Estate rentals received - find that these are recovered for leasing out immovable property of IGTPL for permitting it the use of the site belonging to CPT - Renting of immovable property services under which the impugned activity will be appropriately classified was introduced only on 1.6.2007 post the period of dispute - Therefore the impugned demand under Port Services is liable to be set aside.

Summary

Issues:
1. Whether the appellant, M/s. Cochin Port Trust (CPT), is liable to pay Service Tax on various receipts including royalty, upfront charges, rent on jetties, and estate rentals.
2. Whether penalties imposed on CPT under Section 76, 77, and 78 of the Finance Act, 1994 are justified.

Analysis:

Issue 1: Liability to pay Service Tax
The appellant entered into an agreement with M/s. India Gateway Terminal Pvt. Ltd. (IGTPL) for operation and management of facilities at Rajiv Gandhi Container Terminal (RGCT) at Cochin Port. The agreement involved royalty payments, upfront charges, and rent on jetties and estate rentals. The authorities held that these activities constituted "Port Services" and CPT was liable to pay Service Tax. The Commissioner confirmed the demand of Service Tax and penalties. The appellant challenged the order on various grounds, arguing that the amounts received were not consideration for taxable services. During the hearing, it was noted that a similar dispute had been decided in favor of the assessee by the Tribunal in a previous order. The Tribunal found that the royalty payments, upfront charges, rental amounts, and estate rentals were not liable for Service Tax under "Port Services." The Tribunal also highlighted specific clauses from the agreement to support its decision. Ultimately, the Tribunal vacated the demand and penalties, allowing the appeal.

Issue 2: Penalties Imposed
The Commissioner imposed penalties on CPT under Section 76, 77, and 78 of the Finance Act, 1994. However, during the hearing, it was pointed out that a previous order by the Tribunal had already decided in favor of the assessee on similar grounds. The Tribunal found that the penalties were not justified in this case and vacated them along with the demand for Service Tax. The Tribunal's decision was based on the interpretation of the relevant clauses of the agreement and the nature of the receipts in question. The Tribunal concluded that the impugned demands and penalties were not sustainable, leading to the allowance of the appeal.

In conclusion, the Appellate Tribunal CESTAT Bangalore, in the cited judgment, addressed the issue of liability to pay Service Tax on various receipts received by M/s. Cochin Port Trust (CPT) and the imposition of penalties under the Finance Act, 1994. The Tribunal examined the nature of the receipts, the terms of the agreement between CPT and IGTPL, and relevant legal provisions to determine that the amounts in question were not subject to Service Tax under "Port Services." The Tribunal also found that the penalties imposed were not justified, as a similar dispute had been decided in favor of the assessee in a previous order. As a result, the Tribunal vacated the demand for Service Tax and the penalties, allowing the appeal in favor of CPT.