2013 (12) TMI 1124 - AT - Service Tax

Demand of service tax - Classification of service - Supply of Tangible Goods for Use Service or storage and warehousing services - Held that - contract entered into between the appellant and the ONGC is one for supply of vessels on charter hire basis and the operation and control of the vessel remains with the appellant. The vessels are used to store the crude oil produced at Bombay High and also to transport the same to the refineries or to the ports situated in various parts of India. The purpose of production of oil is for its use and since the crude oil is produced offshore, they have to be necessarily transported to refineries situated onshore. Storage of crude oil is only incidental to the main activity of transportation and the vessels are hired only when pumping of crude cannot be made through pipelines laid under the sea bed or in specific weather conditions. Thus, the primary object of charter hiring the vessel is for transportation of crude from the place of production i.e. in the High Sea to the refineries in India and not for storage and warehousing . Appellant herein, M/s. Shipping Corporation of India, does not provide for security of the goods, nor are they loading or unloading the goods, or stacking the goods, or maintaining the inventory of the goods. As per the agreement, these responsibilities rest with the recipient of the service which is ONGC. Thus, the mother vessels are being used only as temporary storage space apart from transporting the crude oil from Bombay High to refinery situated onshore or other ports in India - Services rendered by the appellant in respect of mother vessels cannot be classified under Storage and Warehousing Services as defined in Finance Act, 1994 - Appellant have discharged service tax liability under the category of Supply of Tangible Goods for Use Service as defined under Section 65(105)(zzzzj). Therefore, the tax paid by them has to be appropriated and accounted under the said taxable service - Decided in favour of assessee.

Issues Involved:
1. Classification of services provided by the appellant.
2. Liability for service tax under "Storage and Warehousing Services."
3. Applicability of "Supply of Tangible Goods for Use Service."
4. Consideration of penalties and interest imposed.

Issue-wise Detailed Analysis:

1. Classification of Services Provided by the Appellant:
The appellant, M/s. Shipping Corporation of India Ltd. (SCI), provided shipping vessels to M/s. Oil & Natural Gas Commission (ONGC) on a charter hire basis. The vessels were used during the monsoon period and on a call-out basis for the storage and transportation of crude oil from Bombay High. The department classified the services rendered under "Storage and Warehousing Services," asserting that the primary function of the mother vessels was storage, with transportation being incidental. The appellant contended that the primary function was transportation, not storage, and thus should not be classified under "Storage and Warehousing Services."

2. Liability for Service Tax under "Storage and Warehousing Services":
The department demanded service tax amounting to Rs. 26,78,75,717/- for various periods between October 2002 and March 2010, arguing that the mother vessels primarily performed storage functions. The appellant argued that the vessels were primarily used for transportation of crude oil from offshore platforms to refineries or ports, with storage being incidental. The appellant cited agreements and operational details to support their claim that the primary function was transportation.

3. Applicability of "Supply of Tangible Goods for Use Service":
The appellant referenced Ministry Circular No. 334/1/2008-TRU, which clarified that the supply of vessels for offshore operations falls under "Supply of Tangible Goods for Use Service," effective from 16/05/2008. The appellant argued that their activities should be classified under this category, not "Storage and Warehousing Services." They cited the Bombay High Court decision in Indian National Ship Owners Association vs. Union of India, which supported their position.

4. Consideration of Penalties and Interest Imposed:
The Tribunal considered the appellant's argument that as a Government of India undertaking, they could not have indulged in suppression of facts to evade tax. The Tribunal also reviewed similar cases, such as Aban Loyd Chiles Offshore Ltd. and Finolex Industries Ltd., where it was held that mere provision of storage space without additional services like security, loading/unloading, and inventory management does not constitute "Storage and Warehousing Services."

Judgment:
The Tribunal concluded that the services rendered by the appellant could not be classified under "Storage and Warehousing Services." The primary objective of the charter hire was for the transportation of crude oil, with storage being incidental. The Tribunal set aside the impugned demands, nullified the interest liability and penalties, and acknowledged that the appellant had discharged service tax liability under "Supply of Tangible Goods for Use Service" from 16/05/2008 onwards. The appeals were allowed.

Operative Part Pronounced in Court:
The Tribunal's decision was pronounced in court, allowing the appeals and setting aside the demands, interest, and penalties imposed on the appellant.

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