2013 (2) TMI 433 - Commissioner - Service Tax

Ship Management Service vs. Business Support Service registered for Business Auxiliary Services, Good Transport Agency, Ship Management Services and Renting of Immovable Property services - Assessee was in agreement with Eagle Ship Management Private Limited, an overseas Company - to provide facilities like Office space, telephone, secretarial assistance and other facilities at assessee s office premises - As per the agreement effective from 1-9-2006 to 31-8-2009, assessee was appointed as an agent to the principal, M/s. Red Eagle Ship Management Pvt. Ltd., a company incorporated in Singapore Held that - Primary and essential nature of service is providing crews to the ships; that ship management service under Section 65(96a) includes engagement or providing crews; that crew members of the ship fall under the category of seafarers since these activities are specifically included under Ship Management Service under Section 65(96a) of the Act. When a taxable service is, prima facie, classifiable under two or more sub-clauses, Section 65A(2)(a) says the sub-clause which provides the most specific description shall be preferred to sub-clauses providing a more general description. There is a specific inclusion of providing of crews under Section 96(96a)(ii) meant for ship management service. Whereas there is no such inclusion in BSS. Therefore the supply or providing of seafarers to ESMPL, a foreign Company, would definitely classifiable under ship management service. Further they fall under Export of service as these services satisfy the condition prescribed in terms of Rule 4 read with Rule 3 and hence can be exported without payment of tax. C.B.E. & C. s Circular No. 111/05/2009-S.T., dated 24-2-2009, it is clarified that for category III services (Rule 3(1)(iii)) the relevant factor is the location of the service receiver and not the place of performance and in the instant case it is admitted that the location of service receiver is outside India Aappellant is not liable to pay Service tax for the surviving demand period. Notification No. 4/2004-S.T. clearly exempts all taxable services provided to a Developer of SEZ or a SEZ unit for consumption of the services within such SEZ. - whether the Steamer Agent s services could be treated as consumption of services within SEZ units - Just like Courier, Telecommunication and Manpower recruitment services, this Steamer Agent s service is also provided by service providers from outside SEZ and the provision of service commence from outside the SEZ premises, but ends within the SEZ units and construed to be consumed within SEZ premise. Invocation of extended period of time Appellant are filing returns regularly and their unit is audited periodically, the Department is aware about the fact of the services rendered by them. Thus there is no suppression of facts with an intent to evade payment of tax - proviso to extended period of time cannot be invoked. Thus the demand in the instant case is partly hit by limitation of time and the period w.e.f. 1-4-2007 alone will survive as it is within a period of one year from the relevant date.

Summary

Issues Involved:

1. Time-bar of the demand.
2. Classification of service rendered to M/s. Eagle Ship Management Pvt. Ltd. (ESMPL).
3. Export of Service classification.
4. Service tax exemption under Notification No. 4/2004-S.T. for services provided to SEZ units.

Detailed Analysis:

1. Time-bar of the Demand:

The period covered by the demand is from September 2006 to December 2007, with the Show Cause Notice (SCN) issued on 2-7-2008. The appellant argued that since they regularly filed returns and were periodically audited, there was no suppression of facts with an intent to evade tax. The judgment concluded that the extended period under Section 73(1) of the Finance Act could not be invoked, making the demand partly time-barred, and only the period from 1-4-2007 survived.

2. Classification of Service Rendered to ESMPL:

The appellant contested the classification of their service under "Business Support Service" (BSS) by the Department, arguing it should be classified under "Ship Management Service" (SMS). The judgment accepted the appellant's argument, noting that the primary service was providing seafarers (crew members) to ships owned by ESMPL, which falls specifically under SMS as per Section 65(96a) of the Finance Act. The presence of ESMPL's representative in India was deemed ancillary. The judgment emphasized the specific inclusion of providing crews under SMS, making it the correct classification.

3. Export of Service Classification:

The appellant argued that their services to ESMPL should be considered as "Export of Service" under Rule 3 and 4 of the Export of Service Rules, 2005, as the services were rendered to a foreign company, and payments were received in foreign exchange. The judgment agreed, concluding that the services were exported, fulfilling the conditions of Rule 4 of the Export of Service Rules, thus exempting the appellant from paying Service tax for the surviving demand period.

4. Service Tax Exemption under Notification No. 4/2004-S.T.:

The appellant claimed exemption for services provided to SEZ units under Notification No. 4/2004-S.T. The Lower Adjudicating Authority denied this, arguing the services were not consumed within SEZ. The judgment, however, interpreted that SEZ units are deemed foreign territory for trade purposes, and the services provided by the appellant, like Steamer Agent's services, were ultimately consumed within SEZ units. Hence, the appellant was eligible for the exemption.

Conclusion:

The judgment set aside the impugned order, allowing the appeal on the following grounds:

1. The extended period for demand was not applicable, and only the period from 1-4-2007 survived.
2. The service rendered to ESMPL was correctly classified under "Ship Management Service."
3. The services rendered to ESMPL were "Export of Service," exempting the appellant from Service tax.
4. The appellant was eligible for Service tax exemption under Notification No. 4/2004-S.T. for services provided to SEZ units.