2018 (6) TMI 933 - AT - Service Tax

Classification of services - Dredging and Land Reclamation Services or Supply of Tangible Goods Services? - The adjudicating authority has concluded mainly on the ground that the dredging vessel supplied by the appellants is required to be delivered with full complement of officers and crew who operate, control and supervise the dredging work - Held that - If the services provided by the appellant indeed was only dredging service , the appellant would not have been able to bill DCI for such wear and tear charges. In our considered opinion, the activity of the appellants may possibly fall under supply of Tangible Goods Service , but surely not under Dredging Service . It is interesting to note that appellants have paid service tax amount of ₹ 57,03,661/- towards the services provided to DCI under the category of Supply of Tangible Goods Services. In these circumstances, that part of the impugned order confirming demand of service tax in respect of the services provided by the appellants to Dredging Corporation of India under the category of Dredging Service cannot sustain and will therefore have to be set aside. Dredging Service - supply of vessel and equipment to Dharti Dredging & Construction Ltd. (DDCL) - Held that - Appellant merely supplies the charter vessel on charter hire to DDCL. We are also unable to fathom how the adjudicating authority has reached a conclusion that compensation for excessive wear & tear is nothing but additional consideration for dredging services - The very fact that wear and tear charges are billed to the service recipient will only serve to indicate that the nature and scope of dredging operations are decided by the said recipient, the appellant having no role in the matter of place and hours of operations etc.Only in such a scenario, will the appellants be able to bill the service recipient on a notional basis towards wear and tear caused by such recipient to the dredging equipment in the course of dredging operations conducted by the former - the services provided by appellant will not come within the fold of dredging service - demand set aside. Classification of services - Services provided by appellant to Hazira Port with their own man power and equipment for maintenance of Geo-bag bund and foreshore protection work - whether classifiable under Site Formation Service or under supply of Tangible Goods Service ? - Held that - The service tax was imposed on Dredging Services only w.e.f. 16.06.2005. Therefore, the dredging work undertaken by them at Hazira Port prior to such date cannot come under the scope of service tax under that category - the appellants were only responsible for supply of man power who in turn was under the control of Hazira Port for maintenance of Geo-bag bund and Foreshore protection work. It is not disputed that appellants have paid service tax in respect of man power supplied to the Hazira Port amounting to ₹ 4,95,471/- - services not taxable under the head Site Formation Service - demand set aside. Valuation - inclusion of reimbursable expenses in assessable value - Held that - There was no obligation to carry out dredging on the part of the appellant under the contract either for Dredging International NV or of Gangavaram Port - the contract of the appellant with Dredging International NV was also only in the nature of a Charter Hire Agreement and not a contract for carrying Dredging Services . This being so,that part of the impugned order demanding service tax liability on the appellant under dredging service in respect of the Gangavaram Project cannot be sustained and is therefore set aside. Exemption for income on account of reclamation under N/N. 17/2005-ST and under N/N. 25/2007-ST - Held that - It is not clear as to whether there were indeed three separate contracts for dredging, reclamation and soil stabilization or on the other hand, whether appellants were entrusted with a composite work for all the three related works . We do not find any clarity from the SCN or from the findings of the adjudicating authority or even from the documents submitted by the Ld. Advocate - The dispute concerning the activities done by the appellant in respect of Dhamra Port should be remanded to the adjudicating authority for deciding the issue afresh. Maintenance and Repair Services - import of services - Learned Advocate has requested that this matter may be remanded to the original Adjudicating Authority to enable the appellants to produce necessary evidence in support of this contention - Held that - This issue is remanded to the Adjudicating Authority for de novo consideration, after giving sufficient opportunity to the appellant to produce supporting evidence. Manpower Supply Services - salary payments paid to the expatriate employees employed - Held that - It is a usual practice to facilitate payment of the salaries of expatriate employees in foreign currency, to be payable in their home country. It is not the case that appellants had engaged services of a manpower service provider from abroad to have the services of these persons. It is also pertinent to note that drafts were drawn up by the appellants directly with their employees and not with any manpower supply provider abroad - the part of the impugned order which has confirmed service tax liability in respect of the employment of expatriate persons, cannot sustain and requires to be set aside. Management Consultancy Services - service charge liability on the professional services under business consultancy charges - Held that - Both during the adjudication proceedings as also during the course of hearing, Ld. Advocate has produced invoices which point out that M/s. Pinsent Masons are a law firm registered with Solicitor s Regulation Authority . Thus, they are not business consultants and is a legal firm. Legal services have become taxable only with effect from 01.09.2009. Thus, the demand raised in respect of services received from M/s. Pinsent Masons, U.K., cannot sustain under the reverse charge mechanism also and requires to be set aside. Insurance auxiliary services - consulting engineer services - In regard to advances received from customers also, it is contended that the appellant has discharged the service tax and that the Additional Commissioner has dropped the demand on the very same issue - Held that - These aspects are not clear from the impugned order. We, therefore, deem it fit to remand these issues to the adjudicating authority. Appeal disposed off.

Summary

Issues Involved:
1. Classification of services provided to Dredging Corporation of India (DCI).
2. Classification of services provided to Dharti Dredging & Construction Ltd. (DDCL).
3. Classification of services provided to Hazira Port Pvt. Ltd.
4. Classification of services provided to Gangavaram Port.
5. Classification of services provided to Dhamra Port Company Ltd.
6. Taxability of Maintenance and Repair Services under reverse charge mechanism.
7. Taxability of Manpower Supply Services under reverse charge mechanism.
8. Taxability of Management Consultancy Services under reverse charge mechanism.
9. Verification of service tax payments on insurance auxiliary services, consulting engineer services, and advances received from customers.

Detailed Analysis:

(i) Services provided to Dredging Corporation of India (DCI):
The adjudicating authority concluded that the services provided by the appellants to DCI were "Dredging Services." However, the Tribunal found that the agreement was a "Charter Hire Agreement" where the vessel was hired along with officers and crew, but the control of dredging operations was with DCI. The Tribunal stated, "the activity of the appellants may possibly fall under supply of ‘Tangible Goods Service’, but surely not under ‘Dredging Service’." The demand of service tax under "Dredging Service" was set aside.

(ii) Dharti Dredging & Construction Ltd. (DDCL):
Similar to the DCI case, the Tribunal found that the agreement with DDCL was also a "Charter Hire Agreement." The adjudicating authority's conclusion that the services were "Dredging Services" was not supported by evidence showing the appellants' control over dredging operations. The Tribunal held, "the services provided by appellant will not come within the fold of ‘dredging service’." The demand of service tax under "Dredging Services" was set aside.

(iii) Hazira Port Pvt. Ltd.:
The adjudicating authority classified the services as "Site Formation Service." However, the Tribunal found that the work contracted was for the supply of manpower and equipment for maintenance of Geo-bag bund and foreshore protection work. The Tribunal noted, "appellants have paid service tax in respect of man power supplied to the Hazira Port amounting to ? 4,95,471/-." The demand under "Site Formation Service" was set aside.

(iv) Gangavaram Port:
The adjudicating authority classified the services as "Dredging Services." However, the Tribunal found that the primary object of the agreement was to develop the port site for cargo handling and storage, with dredging being incidental. The Tribunal stated, "the remaining works undertaken by the appellants like base works required for filling port back up area, site clearance etc. would surely come within the fold of Site Formation Service in relation to port." The demand under "Dredging Services" was set aside.

(v) Dhamra Port Company Ltd.:
The Tribunal noted that there was ambiguity regarding whether the appellants had separate contracts for dredging, reclamation, and soil stabilization or a composite contract. The Tribunal remanded the issue to the adjudicating authority for fresh consideration, stating, "it is not clear as to whether there were indeed three separate contracts for dredging, reclamation and soil stabilization."

(vi) Maintenance and Repair Services:
The Tribunal noted that the appellants had paid service tax on maintenance services performed in India but contested the tax on services performed abroad. The Tribunal remanded the issue for de novo consideration, stating, "this issue is remanded to the Adjudicating Authority for de novo consideration."

(vii) Manpower Supply Services:
The Tribunal found that the expatriate employees were directly employed by the appellants, with salary payments routed through foreign companies without any markup. The Tribunal noted, "even the foreign agents who had facilitated routing of the salaries to the secondees, were functioning as pure agents." The demand under reverse charge mechanism was set aside.

(viii) Management Consultancy Services:
The Tribunal found that the services received from M/s. Pinsent Masons were legal services, not management consultancy services. The Tribunal stated, "Legal services have become taxable only with effect from 01.09.2009." The demand under reverse charge mechanism was set aside.

(ix) Verification of service tax payments:
The Tribunal remanded the issues concerning insurance auxiliary services, consulting engineer services, and advances received from customers for verification, stating, "these issues are remanded to the Adjudicating Authority for limited purpose of verification of the contentions made by the appellants."

Conclusion:
The Tribunal set aside the demands of service tax under "Dredging Services" for DCI, DDCL, Hazira Port, and Gangavaram Port. The issue concerning Dhamra Port was remanded for fresh consideration. The demands under reverse charge mechanism for maintenance and repair services, manpower supply services, and management consultancy services were also set aside. The issues concerning insurance auxiliary services, consulting engineer services, and advances received from customers were remanded for verification. All penalties imposed were set aside.