2013 (8) TMI 640 - AT - Service Tax

Supply of tangible goods for use - Storage and warehousing services - appellant provided shipping vessels on hire basis - during monsoon period used for storage and transportation of crude oil from Bombay High Whether the activity would liable to be taxed Held that - The primary object of charter of hiring the vessel is for transportation of crude from the place of production to the refineries in India and not for storage and warehousing - Storage of crude oil is only incidental to the main activity of transportation and the vessels are hired only when pumping of crude cannot be made through pipelines laid under the sea bed or in specific weather conditions. As decided in Indian National Ship Owners Association v/s Union of India (2008 (12) TMI 41 - HIGH COURT OF BOMBAY) the said activity would come under supply of tangible goods for use the same was brought under the service tax net with effect from 16/05/2008. Stay application stay granted as the appellant being govt. undertaking there is no risk to revenue.

Summary

Issues:
Classification of services provided by the appellant under "storage and warehousing services" for service tax liability.

Analysis:
The appeal and stay application challenged an order seeking service tax amounting to Rs.25,04,29,302/- for services rendered by the appellant in providing vessels to another entity on charter hire basis. The dispute arose from the interpretation of whether the vessels were primarily used for storage of crude oil or for transportation. The department argued that the vessels were primarily for storage, while the appellant contended that the vessels were hired for transportation purposes.

The appellant's counsel argued that the vessels were chartered for transportation of crude oil from offshore platforms to designated refineries, emphasizing the vessel's role as a mother vessel for transferring oil to other vessels. The agreement between the parties outlined various services to be provided by the vessels, including mooring, maintenance, and transportation to discharge ports. The appellant maintained that the primary function of the vessels was transportation, not storage, and thus, they should not be classified under "storage and warehousing services" for service tax liability.

Additionally, the appellant's counsel referenced a Ministry letter and a Finance Act clarification to support their argument that the activity of charter hiring vessels for offshore operations falls under "supply of tangible goods for use service," not storage and warehousing services. They also cited a decision by the Bombay High Court regarding the classification of vessel supply for offshore operations, which supported their position that the vessels were not primarily used for storage.

On the other hand, the Revenue argued that the vessels, specifically the mother vessels, were used for storing crude oil at the production site and were integral to the transportation process to other ports in India through daughter vessels. They contended that since the mother vessels performed storage functions, they fell within the definition of storage and warehousing services, justifying the service tax demands.

After considering the submissions from both sides and reviewing the contract between the parties, the Tribunal concluded that the vessels were primarily chartered for transportation of crude oil from offshore production sites to refineries in India. The Tribunal relied on previous legal interpretations and Ministry clarifications to support the classification of the services provided by the appellant under "supply of tangible goods for use service," rather than "storage and warehousing services." As the appellant was a Government of India undertaking with a secure financial position, the Tribunal granted an unconditional waiver from pre-deposit of the adjudged dues and stayed the recovery during the appeal process.