2013 (1) TMI 241 - AT - Service Tax

Supply of bunkers to vessels transportation and charter hire of assets - Supply of Tangible Goods Service (SOTG) - demand of service tax - Assessee is registered under the category of Port Services - Held that - It is not permissible for anyone to supply water or bunker to vessels and to supply these items the port s authorization is a must. Further from the sample invoices reproduced in the show-cause notice it is seen that the invoice mentions supply of fresh water by barge as per nomination . It has to be noted that in this case supply of fresh water would include cost of procurement of water transportation of the same to the vessel and other costs incurred in relation to provision of service in the port. Supply of water and bunker to vessels is part of port services. It has not been explained why the appellant suddenly came to the conclusion that supply of water is not covered by port services on 1/04/2007 except stating that the transaction is a sale and they got legal advice. Details of legal advice and whether legal advice had taken note of Board s Circular is not clear. Thus the fact that the water is supplied by barges to the vessels only by nominated persons by port and invoice is containing the description supply of water would prima-facie go against the appellant. Supply of barges/vessels to the customers without agreement - The invoice raised by the appellant gives description supply of boats/barges for transportation port bunkering etc. and the rate shown is a specific amount per month. In the absence of an agreement the only option available is to arrive at a conclusion based on the invoice. The invoice used the words supply of boats/barges . Transactions where hiring/leasing were involved attract sales tax or VAT in many States. Further allowing another person to use the goods without giving legal right or possession and effective control is treated as service. Since no Sales Tax has been paid and no evidence has been shown that the transaction is a transaction of right to use and was liable to sale tax the natural conclusion would be that the transaction is supply of tangible goods for use without parting with the right of possession and control. In the absence of any agreement the only document available are invoices and invoices do not support the claim of the appellant. The appellants have not made out a prima-facie case in their favour - since the matter has to be heard in greater detail to understand the nature of transaction at least a portion of the amount demanded as pre-deposit is required appropriate to Rs.3.5 crores within 8 weeks from today and report compliance on 05/02/2013.

Issues Involved:
1. Classification of services under "Port Services" and "Supply of Tangible Goods Service (SOTG)"
2. Demand for service tax on various receipts
3. Applicability of extended period of limitation
4. Imposition of penalties

Issue-Wise Detailed Analysis:

1. Classification of Services under "Port Services" and "Supply of Tangible Goods Service (SOTG)":
The appellant, a registered provider of "Port Services," was issued show-cause notices for demanding service tax on various activities. The Commissioner confirmed the demand based on the classification of services, including barge hire receipts, water supply, and supply of bunker under "Port Services," and charges for supplying boats/barges to a sister concern under "Supply of Tangible Goods Service (SOTG)." The appellant argued that these transactions were sales, not services, and hence not taxable. However, the tribunal noted that the supply of water and bunker to vessels involved additional costs beyond mere sale, indicating a service component. The tribunal referred to the definition of port services, which includes any service rendered in relation to vessels or goods in a port, and found that the appellant's activities fell within this scope.

2. Demand for Service Tax on Various Receipts:
The Commissioner demanded service tax on amounts received for barge hire, water supply, and bunker supply under "Port Services," and on charter hire charges for dredgers under SOTG. The appellant contended that these were sale transactions and not liable for service tax. However, the tribunal found that the invoices indicated the supply of services, not just goods. For instance, the supply of water included costs for procurement, transportation, and other related services, which supported the classification as port services. Similarly, the supply of boats/barges was treated as a service since the appellant retained possession and control, and no sales tax was paid, indicating it was not a sale transaction.

3. Applicability of Extended Period of Limitation:
The Commissioner invoked the extended period of limitation, arguing that the appellant was aware of the service tax provisions but stopped paying tax from 01/04/2007. The appellant claimed that the demand for the period October 2004 to September 2008 was time-barred, as the department was aware of the relevant facts. The tribunal noted that the appellant had stopped paying service tax and that the department conducted a search and investigation. Given these circumstances, the tribunal found that the extended period of limitation was correctly invoked due to the appellant's suppression of facts.

4. Imposition of Penalties:
Penalties were imposed under various sections of the Finance Act, 1994. The appellant argued that there was no willful suppression or intention to evade tax, and hence penalties were not justified. The tribunal, however, found that the appellant's actions, such as stopping payment of service tax and not providing sufficient evidence to support their claims, indicated a lack of bona fide doubt about their tax liability. Consequently, the imposition of penalties was upheld.

Conclusion and Pre-Deposit Requirement:
The tribunal concluded that the appellant had not made out a prima facie case for complete waiver of the service tax demand. However, recognizing that the matter required detailed examination, the tribunal directed the appellant to deposit Rs. 3.5 crores within 8 weeks and report compliance. Subject to this deposit, the requirement for pre-deposit of the balance amount of service tax, interest, and penalties was waived, and a stay against recovery was granted during the pendency of the appeal.

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