TAXABILITY OF DREDGING SERVICES.

[Dr. Sanjiv Agarwal]

Service tax has been imposed on dredging services rendered to any person by any other person engaged in provision of such services by the Finance Act, 2005 with effect from 16th June, 2005, vide Notification No. 15/2005-ST, dated 17-6-2005. The gross amount charged to or gross consideration received from any person in relation to dredging services or activities shall be chargeable to service tax.

Meaning of Dredging

Section 65(36a) defines ‘dredging’ as under —

“dredging” includes removal of material including, silt, sediments, rocks, sand, refuse, debris, plant or animal matter in any excavating, cleaning, deepening, widening or lengthening, either permanently or temporarily, of any river, port, harbour, backwater or estuary”.

The definition of dredging is an inclusive definition and it does not convey what is meant by dredging. It includes certain objects or things while carrying out certain activities in specified areas or locations.

Accordingly, dredging:

(a) Includes removal of material including silt, sediments, rocks, sand, refuse, debris, plant or animal matter.

(b) In any excavating, cleaning, deepening, widening or lengthening, whether temporary or permanent.

(c) Of any river, port, harbour, backwater or estuary.

The dictionary meaning of ‘dredge’ is to clear mud, sand etc. from a bed of river or sea. Oxford English dictionary defines dredging to mean cleaning out the bed of a harbour, river or other area of water by scooping out mud, weeds and rubbish with a dredge, bring up or clear something from river, sea etc. dredge is an apparatus for bringing up objects or mud from a river or sea bed by scooping or dragging.

To excavate means to make a hole or channel by digging, dig out or extract material from the ground, remove earth carefully and systematically from an area to find buried remains. Excavation means the action of excavating something.

Estuary means the tidal mouth of a large river, where the tides meet the stream.

Taxable Service

Section 65(105)(zzzb) defines taxable service as under—

‘Any service provided or to be provided to any person, by any other person, in relation to dredging’.

Dredging services to be taxable, should satisfy the following conditions —

(a) service should be provided to other person i.e., service should be undertaken on behalf of others,

(b) service may be any service in relation to dredging,

(c) service should be rendered for a consideration,

(d) dredging services should be specified services/of specified objects/in specified areas only.

Following services shall not be covered in the scope of taxable services-

a) Dredging for any other purpose except river, port, harbour backwater or estuary will not attract service tax.

b) Cleaning of garbage from drainage by any person for a Municipal corporation will not attract service tax as cleaning is not done in relation to river, port, harbour, backwater or estuary.

The services covered in the scope of taxable service shall include services undertaken for removal of materials such as silt, sediments, rocks, sand, refuse, debris, etc of river, ports harbour, backwater or estuary for providing adequate draught for ships and other vessels and to maintain shipping channels.

This taxable service covers dredging which is generally undertaken for removal of material such as silt, sediments, rocks etc. of rivers, ports, harbour, backwater or estuary for providing adequate draught for ships and other vessels and to maintain shipping channels. Service tax is leviable only on dredging of river, port, harbour, backwater or estuary and dredging in any other cases does not attract service tax. The definition of dredging is an inclusive definition and the activities specified are only indicative and not exhaustive. (Refer Circular No. B1/6/2005-TRU dated 27.07.2005).

In Mackintosh Burn Ltd. v. CCE, Kolkata 2010 -TMI - 201894 – (CESTAT, KOLKATA) where assessee was engaged in dredging activities of river for the purpose of drainage and flood control, it was held that dredging undertaken in a river is clearly specified in the definition of ‘dredging’ and related entry under ‘taxable service’ and the purpose for which dredging was undertakes is irrelevant for taxability. Activities undertaken in river are covered under the definition of ‘dredging: The definition implies exclusion of the dredging activities of pond or lake. The dredging undertaken in a river is clearly specified. The purpose for which the dredging is undertaken in the river, whether it is for the navigational purpose, or for other purposes, appears irrelevant. From the Board’s instruction dated 27-7-2005, it could not be inferred that the dredging service is limited to ‘maintenance of the shipping channels: The clarification clearly refers to the inclusive nature of the definition of dredging and states that the activities specified are only indicative and not exhaustive. No difference between the Board’s guidelines dated 27-7-2005 and the definition of the term, ‘Dredging ‘and the related ‘taxable service’ was found. Even if there was any difference, undoubtedly, the provisions of the section would prevail over the instructions/guidelines. Therefore, on merits, the activities of the assessee clearly fell under ‘dredging services: as rightly held by the Commissioner.

Person Liable

Any person (including individuals) providing dredging services or activities to any other person shall be liable to pay service tax and shall be treated as an assessee for service tax purposes.