2024 (3) TMI 640 - AT - Service Tax

Classification of services - Works Contract Services or not - development of shipyard facilities at Kakinada for which they had entered into a Contract - Dredging service or not - applicability of provisions under Sec 75, 76, 77 78 of FA. Whether the appellants are entitled for the exemption notifications claimed by them for not paying service tax in respect of certain activities undertaken by them pursuant to their contract with M/s Sembmarine? - HELD THAT - The perusal of the Agreement dt.06.04.2011, as also the amendment dt.24.02.2014, clearly brings out that this is an Agreement for development of shipyard facilities at Kakinada port. It is also not disputed that they were doing certain limited work in terms of the scope of work covered within the agreement, which primarily involved three broad categories viz., land and land development, marine infrastructure development and new building facilities. Essentially, it is part of the work which was undertaken by them towards the development of shipyard facilities at Kakinada Port - The nature of work described in the RA Bills, as also from the terms of agreement, it is obvious that those activities cannot be covered but for construction, repair, alteration or renovation of any of the specified structures viz., wharves, quays, docks, stages, jetties, piers and railways. Thus, on strict construction of Notification No. 11/2011, exemption is not admissible in the facts of the case. There are no force in this line of argument as the notification issued declaring certain areas within a Customs station as Customs area is for the limited purpose as envisaged in the Customs Act and that in itself cannot declare that space as a deemed port or otherwise. A Customs area within a port is a specified area but the entire Customs area cannot become port, if it is not otherwise a port, in terms of definition of port in the Statute. Thus, on this count also, the appellants have no case. Dredging services or not - services rendered were dredging for approach channel, repair berth and floating dry dock - HELD THAT - It is obvious that as long as these activities were being in relation to construction of shipyard, these activities will also not be entitled to exemption either under Notification No. 25/2007 or under 11/2011. Time limitation - HELD THAT - The appellants have not been able to bring anything concrete on record to suggest that they were under any bonafide belief regarding non-payment of service tax, whereas, the department has been able to clearly establish that they were collecting service tax but neither paying the same nor reflecting the same in their ST3 Returns, or claiming any specific exemption notification for exemption - The fact that appellants have argued that in terms of agreement dt.06.04.2011, clause 70.4, they were aware about exemption from service tax and cess and yet they collected service tax, further, indicating their determinate disregard to statutory obligations. Thus, on this count also, the extended period of limitation has been rightly invoked. Penalty - HELD THAT - The Original Authority has not imposed penalty in terms of Sec 76 as penalty has been imposed under Sec 78 of the Act. There are no infirmity in the impugned order passed by the Original Authority and hold that the appellants are not entitled to the benefits of the notifications claimed by them, in the facts of the case and evidence on record - appeal dismissed.

Summary

Issues Involved:
1. Classification of services under RA Bill No. 01.
2. Classification of services under RA Bill No. 02 & 03.
3. Applicability of provisions under Sec 75, 76, 77 & 78.

Issue 1: Classification of services under RA Bill No. 01

The Original Authority observed that the services covered under RA Bill No. 01 issued by the appellant to M/s Sembmarine Kakinada Ltd are taxable under the category of 'Works Contract Services' (WCS). The appellant did not contest the classification but claimed exemptions under Notification Nos. 11/2011, 25/2007, and 25/2012. The authority found that Notification No. 25/2012 was not applicable as the services and bills were dated before its effective date. Notification No. 25/2007 was also not applicable since the Kakinada port is an existing port and the exemption applies only to new ports. Notification No. 11/2011 was strictly interpreted, and the services were not found to be covered under the specified exemptions for wharves, quays, docks, stages, jetties, piers, and railways.

Issue 2: Classification of services under RA Bill No. 02 & 03

The services under RA Bill No. 02 & 03 were classified as 'dredging services' for approach channels, repair berths, and floating dry docks. The authority negated the appellant's contention that the entire work was a composite contract for the development of shipyard facilities. It was held that the services were not eligible for exemptions under Notification Nos. 25/2007 or 11/2011 as they did not pertain to the construction of a port but rather to a shipyard, which is distinct from a port.

Issue 3: Applicability of provisions under Sec 75, 76, 77 & 78

The appellants were found to have collected service tax but not paid it to the government nor reflected it in their ST3 Returns, indicating suppression with intent to evade tax. The extended period of limitation was rightly invoked, and penalties were imposed under Sec 78 of the Finance Act. The Original Authority did not impose penalties under Sec 76 as penalties were already imposed under Sec 78.

Conclusion

The appeal was dismissed, and the Original Authority's order was upheld, confirming that the appellants were not entitled to the claimed exemptions and were liable to pay the service tax as demanded. The judgment emphasized strict interpretation of exemption notifications and distinguished between port and shipyard facilities.