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2024 (5) TMI 414 - AT - Service TaxClassification of services - service of Supply of Tangible Goods for Use (STGU) - activity of hiring of rigs on charter basis, by the appellants from GGES - Import of services - RCM - Business auxiliary services (BAS) / Business support service (BSS) - various services availed from overseas vendors - reverse charge mechanism - recovery of short paid of service tax along with interest and penalties - extended period of limitation - financial years 2008-2009 to 2013-2014, 2013-2014 and 2014-2015 - Service of Supply of Tangible Goods for Use (STGU) - activity of hiring of rigs on charter basis, by the appellants from GGES - HELD THAT - The issue has already been decided by the Hon ble Supreme Court in the case of British India Steam Navigation Co. Ltd. Vs. Shanmugha Vilas Cashew Industries 1990 (3) TMI 171 - SUPREME COURT wherein the meaning of the phrase charter parties by way of demise has been explained in the context of Indian Carriage of Goods by Sea Act, 1925 and it was held that ' During the currency of the charterparty, therefore, the owner is under no liability to third persons whose goods may have been conveyed upon the demised ship or who may have done work or supplied stores for her, and those persons must look only to the charterer who has taken his place.' From the international conventions, BIMCO standard contracts and the provisions of Merchant Shipping Act, it is clear that the arrangement of contract between the ship owner and ship hirer, is a well-accepted commercial arrangement in the maritime trade. Supply of sea crew by the ship hirer on his own or as an agent on behalf of the ship owner is also recognized by the Merchant Shipping Act, 1958. This does not any way restrict the possession and actual control of the rigs by the appellants, as they had engaged the crew and other operational requirements for the activities of using the rigs for mining purpose. The Co-ordinate Bench of this Tribunal had dealt with the similar issue in the case of International Seaport Dredging Ltd., 2018 (3) TMI 633 - CESTAT CHENNAI by holding that the service tax demands confirmed under the category of supply of tangible goods services (STGU) is not legally sustainable as there is a transfer of right of possession and effective control of the vessel/dredger to the appellants. The demand for Service of Supply of Tangible Goods for Use (STGU) is set aside. Import of services - RCM - Business auxiliary services (BAS) / Business support service (BSS) - various services availed from overseas vendors - HELD THAT - It is an undisputed fact on record that the appellants have made such payments to the aforesaid foreign vendors in relation to the rigs, and that while the rigs are stationed outside India for provision of export of service. Further, the nature of services, received by the appellants are agency services for arranging ship husbandry services, crew change services, etc. - Plain reading of the definition of business support service it transpires that the activities are divided into two parts i.e. the means part and the includes part. The means part covers any service in relation to business or commerce within its sweep. However, the includes part of the definition specifies services such as telemarketing, distribution, logistics etc. Admittedly, the foreign vendors of the appellants have not undertaken any activity of marketing of the goods belonging to the appellants nor have the foreign vendors undertaken any activity for promotion of sale of the goods belonging to the appellants. Therefore, the services rendered by the foreign vendors cannot be brought under the scope of business support service for charging service tax on RCM basis on the appellants. In the present case, admittedly, the aforesaid services are provided and received by the appellants outside India and therefore, the Rule 3(ii) of the Import of Service Rules, 2006 are not attracted. Since the aforesaid services were entirely performed abroad, the same would not qualify as import of service in terms of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 - the confirmation of the service tax demands on the above grounds is not legally sustainable. Payments made to Mr. Balbir Singh Negi - appellants have submitted that Shri Balbir Singh Negi was their employee; and his functions included monitoring the progress report of the project, ensure that survey, inspection and test happens on time, ensure that construction is in compliance with the approved drawing - HELD THAT - It is not in dispute that the services of expert engineer were taken in relation to the rigs, for supervision/monitoring of appellants rigs being constructed at foreign ship yards, either at its construction stage or in ensuring compliance with the requirements of the client i.e., ONGC. Further, collection of income tax on the charges paid for such consulting services as a part of compliance requirement under the Income Tax Act, 1961 does not either enable him as employee by that act alone, or absolve from the requirement of payment of service tax on reverse charge basis. Further, even though the services of consulting engineer would have visited physically abroad at the ship building yard site, the said services were actually consumed by the appellants in India and the monitoring or reporting was directly to the appellants in India. Hence, in this case, the liability of the service tax to be paid under Section 65(105) (g) of the Finance Act, 1994 as confirmed by the learned Commissioner is sustained. The impugned order dated 11.12.2017 with regard to confirmation of adjudged service tax demands on Supply of Goods for Tangible Goods for Use (STGU) services and on Business Support Service (BSS), along with interest and penalties on the above demands are not sustainable - other part of demand upheld - Appeal allowed in part.
Issues Involved:
1. Whether the activity of hiring rigs on charter basis amounts to service of Supply of Tangible Goods for Use (STGU) and if appellants are liable to pay service tax under Reverse Charge Mechanism (RCM). 2. Whether appellants are liable to pay service tax on RCM basis for services availed from overseas vendors under 'Business Support Services' (BSS) and 'Consultancy Engineering Service'. 3. Whether confirmation of demand for short payment of service tax along with interest by invoking extended period of limitation, and subsequent periodical demands along with imposition of penalties, is sustainable. Summary: Issue 1: Hiring of Rigs on Charter Basis and STGU Service Tax Liability The Tribunal examined whether the activity of hiring rigs on a charter basis by the appellants from GGES constitutes the service of Supply of Tangible Goods for Use (STGU). The legal provisions u/s 65(105)(zzzzj) of the Finance Act, 1994, and the post-2012 definition of 'service' u/s 65B(44) were analyzed. The Tribunal found that the appellants had effective control and possession of the rigs during the charter period, supported by clauses in the BARECON 2001 agreement. The Tribunal concluded that the appellants' activities did not fall under STGU services as there was a transfer of right to use the rigs, thus not liable for service tax under RCM. Issue 2: Service Tax Liability on Business Support Services (BSS) and Consultancy Engineering Service The Tribunal considered the service tax demands on payments made to foreign vendors for various services under BSS. The definition of 'Business Support Services' u/s 65(104c) and its taxable service definition u/s 65(105)(zzzq) were examined. The Tribunal found that the services provided by foreign vendors did not fall under BSS as they were not related to marketing or sales promotion. Additionally, services performed entirely outside India did not qualify as import of services u/s Rule 3(ii) of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006. Thus, the service tax demands under BSS were not sustainable. For the payments made to Mr. Balbir Singh Negi, the Tribunal upheld the service tax demand u/s 65(105)(g) for 'Consulting Engineer Services' as his services were consumed in India, despite being performed abroad. Issue 3: Confirmation of Demand and Penalties The Tribunal found that the confirmation of service tax demands on STGU and BSS services, along with interest and penalties, was not sustainable due to the reasons discussed in Issues 1 and 2. However, the demand for Consulting Engineer Services was upheld. Conclusion: The impugned order was sustained only to the extent of the service tax demand for Consulting Engineer Services. The appeal was disposed of accordingly.
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