TAXABILITY OF TRANSPORT BY CRUISE SHIPS.

[Dr. Sanjiv Agarwal]

Service tax has been imposed on transport of passengers by cruise ships by the Finance Act, 2006 with effect from 1st May, 2006 (Notification No. 15/2006-ST dated 25.4.2006 refers). The gross amount charged by service provider to or total consideration received a person in relation to transport of such person from any port is chargeable to service tax.

Meaning of Cruise Ship

Explanation to Section 65(105)(zzzv) (as inserted by Finance Act, 2006) defines ‘cruise ship’ as under —

“cruise ship” means a ship or vessel used for providing recreational or pleasure trips, but does not include a ship or vessel used for private purposes or a ship or vessel of, or less than, fifteen net tonnage.

Thus, cruise ship is a ship or vessel and ‘ship’ has been defined under section 65(96). The ship or vessel for the purpose of cruise should be used for providing trips — pleasure or recreational. If a trip is a business trip, it may not be covered as cruise ship. The taxability depends on the usage of ship for the purpose of cruise. Only those ships which are for recreational or pleasure purposes are sought to be included in the definition for the purpose of service Tax. Dictionary meaning of cruise is to sail about in an area without a precise destination, especially for pleasure; a voyage on a ship or boat taken for pleasure or as a holiday and usually calling in at several places. The word ‘cruise’ is derived from Dutch ‘kruisen’ which means ‘to cross’.

Cruise ship will not include a ship or vessel —

(a) used for business/official trips or travel

(b) used for private purposes

(c) which is of or less than fifteen tonnage (i.e., small ships are excluded)

(d) used by military/navy etc.

(e) used for transportation of goods.

Meaning of Ship [Section 65(96)]

‘Ship’ has been defined under section 65(90) as under —

Ship means a sea-going vessel and includes a sailing vessel.

It means any vessel which goes to sea or is sea-worthy and is sailing.

It may be noted that there is a distinction between a vessel and a ship. Vessel includes any ship, boat, sailing vessel or other description of vessel used in navigation. However, TRU Circular dated 27.7.2005 clarifies that ship does not include a sailing vessel. Barges and rigs are only sailing vessels and do not fall under the category of ships. The term ship is defined in the Merchant Shipping Act, 1958. Accordingly, ship has been defined to include every description of vessel used in, navigation, not propelled by oars. The word ‘include’ in the definition does not connote an exclusive application and whether a ship is propelled with oars or not, she is still a ship.

General Clauses Act, 1897 defines ship to include every description of vessel used in navigation not exclusively propelled by oars. Indian Lighthouse Act, 1927 defines ship to include a sailing vessel but according to Merchant Ship Act, ship does not include a sailing vessel.

Meaning of Port or other Port

Port has been defined in section 65(81) and other port in section 65(76) of the Finance Act, 1994.

 Section 65(81) defines ‘port’ as under —

“port” has the meaning assigned to it in clause (q) of section 2 of the Major Port Trusts Act, 1963 (38 of 1963).

As per Section 65(81), port has been defined under Section 2(q) of the Major Port Trusts Act, 1963. It means any major port within the limits defined by the Central Government from time to time and to which major Port Trust Act, 1963 applies. Major port is a port decelerated to be a major port by the Central Government. Ports provide services as prescribed in these Acts.

Section 65(76) defines ‘other port’ as under —

“other port” has the meaning assigned to ‘port’ in clause (4) of section 3 of the Indian Ports Act, 1908, but does not include the port defined in clause (80).

Other port means a port as defined under Section 3(4) of Indian Ports Act, 1908 but it does not have the same meaning as of ‘port under Section 65(80) which has the meaning as per Major Ports Trusts Act, 1963. Port includes also any port of river or channel in which Indian Ports Act, 1908 apply.

This implies that specified areas will be notified separately. The definition is an inclusive definition which would include—

(i) a port,

(ii) any port of a river,

(iii) any port of a channel.

Port services which are rendered by other ports or by any person authorized by it will be liable to service tax. Ports such as Bhavnagar, Gogha, Talaja, etc. in Gujarat are other ports.

Taxable Service

Section 65(105)(zzzv) defines taxable service as under –

Taxable service means any service provided or to be provided to any person, by any other person, in relation to transport of such person embarking from any port or other port in India, by a cruise ship.

Explanation.—For the purposes of this sub-clause, “cruise ship” means a ship or vessel used for providing recreational or pleasure trips, but does not include a ship or vessel used for private purposes or a ship or vessel of, or less than, fifteen net tonnage.

Taxable service shall cover transport of passengers by cruise ship provided or to be provided by one person to another person. It may be noted that it is only the transportation of persons which is taxable.

To be a taxable service, following conditions should be satisfied —

(a) service may be provided or agreed to be provided by one person to another person.

(b) services should be in relation to transport of passengers (goods are not covered).

(c) such persons should embark from any port or other port in India.

(d) transport of person should be by a cruise ship.

Private use of cruise ships and journey in a cruise ship of upto fifteen tonnage is not a taxable service.

Person Liable

Any person providing services of transport of person by cruise ship embarking from any port shall be treated person liable and as an assessee for service tax purposes.

 

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