2015 (7) TMI 827 - SC - Service Tax

Valuation - wharfage charges - port services - inclusion of the amount of rebate/concession granted in wharfage charges amounting to 80% allowed to the licensee - under-valuation or not - tribunal observed that no service at all was rendered by the Gujarat Maritime Board in relation to any vessel and, therefore, no amount was payable by way of service tax. - Held that - Though GMB is the owner of the jetty under the said agreement, yet for providing the service of allowing a vessel to berth at the said jetty, it is necessary for GMB itself to keep the said jetty in good order. Wharfage charges are collectible because they are in the nature of fees for services rendered. The expenses that are defrayed by the Board for the maintenance of the jetty is sought to be collected as wharfage charges. This amount would necessarily include all amounts that are spent for keeping the said jetty in good condition including dredging so that vessels can berth alongside the jetty. It is clear that so far as jetties operated by the Board are concerned, the Board itself defrays such expenses. It is only in cases like the present where the jetty is primarily meant for loading and unloading goods belonging to a particular private party that repair and maintenance expenses are to be borne by the private party and not by the Board. It is in this circumstance that we find that there is no service, therefore, rendered by GMB to UCL. Authority given to perform any of the services must first and foremost be under terms and conditions as may be agreed upon by the Board and the private person. Further, under sub-Section (4) of Section 32, it is the private person who is then authorized to charge or recover any sum in respect of such service rendered. This is conspicuously absent in the aforesaid agreement. There is no doubt on a reading of the agreement that it is the Board itself that charges or recovers wharfage charges from the licensee - UCL and does not authorize UCL to recover such charges from other persons. This being the position, it is clear that no service is rendered by a port or by any person authorized by such port and, therefore, the very first condition for levy of service tax is absent on the facts of the present case. So far as the direct berthing facilities provided for captive cargo is concerned, the lease rent charged for use of the waterfront also does not include any service in relation to a vessel or goods and cannot be described as port service . - Decided against Revenue.

Summary

Issues Involved: Service tax payable on wharfage charges, interpretation of the agreement between Gujarat Maritime Board (GMB) and Ultratech Cement Limited (UCL), and the applicability of "port services" under the Finance Act, 1994.

Detailed Analysis:

1. Service Tax on Wharfage Charges:
The core issue in these civil appeals is whether service tax is payable on wharfage charges collected by GMB from UCL under the category of "port services." The revenue authorities argued that wharfage charges fall under "port services" as defined in the Finance Act, 1994, and issued a show cause notice to GMB for under-valuation and short payment of service tax, amounting to Rs. 1,67,45,620/- for the period from 1.10.2003 to 31.3.2006, and an additional Rs. 12,53,076/- for the period from October 2003 to 2007-2008 for direct berthing facilities.

2. Tribunal's Findings:
The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) reversed the Commissioner's order, holding that no service was rendered by GMB in relation to any vessel, and thus, no service tax was payable. The Tribunal further analyzed the agreement and concluded that 20% of wharfage charges payable under the agreement was effectively a licence fee/rental, and the remaining 80% was also of a similar nature, thereby nullifying the service tax demand.

3. Revenue's Arguments:
The revenue contended that GMB rendered a service by providing space for landing goods from vessels, and alternatively, argued that GMB authorized UCL to render the service of wharfage. They emphasized that the internal arrangement of collecting only 20% of wharfage charges was irrelevant to the revenue's concern. They also challenged the Tribunal's finding that ownership of the jetty vested in UCL, arguing that GMB retained ownership and control of the jetty throughout the agreement period.

4. Respondent's Counter-Arguments:
The respondent argued that no service was rendered by GMB to UCL as per the agreement, and UCL was not authorized to render any service under Section 37 of the Gujarat Maritime Board Act. They maintained that the 20% wharfage charge was essentially a measure for calculating licence fees, not a payment for services rendered, thus negating the basis for service tax.

5. Legal Provisions:
The court examined the relevant sections of the Finance Act, 1994, defining "port service" and the Gujarat Maritime Board Act, particularly Section 35, which allows the Board to grant permission for constructing private wharves, and Section 37, which mandates the Board to frame scales of rates for services performed at the port.

6. Agreement Analysis:
The agreement between GMB and UCL was scrutinized, revealing that:
- It was a licence agreement under Section 35 of the GMB Act for constructing and using a captive jetty on a Build, Transfer, Operate, and Maintain basis.
- The ownership of the jetty and the waterfront vested in GMB, with UCL responsible for maintenance and repair.
- UCL was to pay a licence fee of Rs. 10,000 per annum and wharfage charges at a concessional rate of 20% until the construction cost was recovered.
- The agreement did not authorize UCL to charge or recover wharfage from other parties.

7. Court's Conclusion:
The court concluded that no service was rendered by GMB to UCL under the agreement, as UCL was responsible for maintaining the jetty in good order. The rebate in wharfage charges was a statutory condition under Section 35 of the GMB Act, not a service fee. Additionally, UCL was not authorized to perform services or collect charges under Section 32 of the GMB Act. Consequently, the court upheld the Tribunal's judgment and dismissed the revenue's appeals, affirming that no service tax was payable on the wharfage charges or the lease rent for waterfront use.

The appeals of the revenue were dismissed accordingly.