2015 (7) TMI 553 - AT - Service Tax

Vivisection of service - Composite contract - ship management service - ship management service - Difference of opion - Registry is directed to put up the file before the Hon ble President to resolve the issue, by reference to a third Member. Whether, in the facts and circumstances, the composite contract of ship management service can be vivisected for the period in question, when ship management service was not taxable, and the taxable component like repair and maintenance be charged to tax separately in view of the findings recorded by the learned Member (Technical). Or Whether the composite contract cannot be vivisected in the facts and circumstances for taxing the taxable components repair and maintenance as held by Member (Judicial).

Summary

Issues Involved:
1. Classification of Services
2. Taxability of Reimbursable Expenses
3. Composite Contract and Vivisection
4. Application of Doctrine of Unjust Enrichment

Detailed Analysis:

1. Classification of Services:
The primary issue is whether the services provided by the respondent, SCI, to ONGC fall under the category of "Maintenance or Repair" service or "Ship Management" service. The adjudicating authority classified the services under "Maintenance or Repair" service, while the Commissioner (Appeals) classified them under "Ship Management" service, which became taxable only from 1.5.2006. The Tribunal noted that the services provided included both maintenance and operational activities. Since the term "Management" was added to the category of "Maintenance or Repair" services only from 1.5.2006, the Tribunal concluded that the services provided prior to this date could not be classified under "Management, Maintenance or Repair" services. The Tribunal directed the Commissioner to identify the activities that fall under "Maintenance or Repair" services and classify them accordingly.

2. Taxability of Reimbursable Expenses:
The respondent claimed that the service tax should be payable only on the 5% commission received and not on the reimbursed expenses. The adjudicating authority rejected this claim, stating that all expenses incurred by the service provider form an integral part of the taxable value. However, the Tribunal noted that the expenses were reimbursed on a cost-to-cost basis and that the respondent acted as a pure agent. The Tribunal emphasized that the service tax should be levied only on the commission received and not on the reimbursed expenses, aligning with the Board circulars relating to Custom House Agents and Manpower Recruitment agencies.

3. Composite Contract and Vivisection:
The Tribunal discussed whether the composite contract for "Ship Management" services could be split to tax the "Maintenance or Repair" component separately. The Tribunal noted that the contract included distinct and separately identifiable activities reimbursed by ONGC. It directed the Commissioner to determine the value of each activity and classify it accordingly. The Tribunal referred to previous cases where composite services were not split for tax purposes and emphasized that the entire scope of work should be considered.

4. Application of Doctrine of Unjust Enrichment:
The respondent argued that the doctrine of unjust enrichment does not apply as the service tax amount was shown in their balance sheet as receivable and was not refunded by ONGC. The adjudicating authority did not address this argument in detail, but the Tribunal noted that the expenses were reimbursed by ONGC and the service tax was paid on the commission received. The Tribunal directed the Commissioner to consider this aspect while determining the refund eligibility.

Separate Judgment by Member (Judicial):
The Member (Judicial) disagreed with the Member (Technical) on the issue of vivisection of the composite contract. The Member (Judicial) held that the entire contract should be classified under "Ship Management" services, which were not taxable during the disputed period. The Member (Judicial) emphasized that the respondent acted as a pure agent and the reimbursed expenses should not be taxed. The Member (Judicial) also highlighted that the point of law regarding the classification of services could be raised at any stage, including the appellate stage.

Conclusion:
The Tribunal remanded the case to the Commissioner for fresh adjudication with specific directions to classify the activities and determine the taxable value accordingly. The Member (Judicial) dismissed the Revenue's appeal and directed the adjudicating authority to grant the refund to the respondent expeditiously. The difference of opinion between the Members was referred to the Hon'ble President for resolution by a third Member.