2014 (1) TMI 93 - AT - Service Tax

Demand of service tax - Supply of Tangible Goods Service - Held that - any service provided by a port or any person authorized by the port in relation to port service in any manner. Port service means, any service rendered in a port in relation to vessels or goods . In this case, there is no doubt that supply of bunkers is in relation to vessels. The question that arises is whether it can be considered as a sale only. In this case, it is not permissible for any one 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. From the invoice it is quite clear that it is not the cost of water alone that is charged, but it include cost of charges of other elements. Boat/barges have been supplied as seen from invoice. 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. While the appellants have made a claim that the expenses incurred by them on fuel has not been proved to be incurred for the boats and barges supplied to their sister concern, they have also not shown that they had other barges and boats and the expenses incurred were in relation to other items and not to the boats/barges supplied. In the absence of any agreement, the only document available are invoices and invoices do not support the claim of the appellant. Appellants have not made out a prima facie case in their favour. At the same time, it also cannot be said that the case against the appellant is hundred per cent against them, since the matter has to be heard in greater detail to understand the nature of transaction and interpretations that are possible on the basis of facts. In these circumstances, it can be said that the appellants have not made out a case for complete waiver - Conditional stay granted.

Summary

Issues Involved:
1. Taxability of supply of bunkers and water under "Port Services."
2. Classification of barge hire receipts under "Supply of Tangible Goods Service" (SOTG).
3. Application of extended period of limitation.
4. Imposition of penalties under various sections of the Finance Act, 1994.

Detailed Analysis:

1. Taxability of Supply of Bunkers and Water under "Port Services":
The Commissioner confirmed the demand of service tax on the amount received for the supply of water and bunkers under the category of "Port Services." The appellant argued that these transactions were sales and not services, as they involved the supply of goods. However, the tribunal noted that the supply of water and bunkers to vessels required port authorization and involved additional costs beyond the mere cost of water, indicating a service component. The tribunal referenced the Board's Circular and the principle of contemporanea expositio, which clarified that such supplies are part of port services. The tribunal found the appellant's sudden cessation of service tax payments from 1-4-2007 without clear justification unconvincing, leading to a prima facie case against the appellant.

2. Classification of Barge Hire Receipts under "Supply of Tangible Goods Service" (SOTG):
The Commissioner demanded service tax on barge hire receipts, treating them as SOTG. The appellant contended that these were sales transactions, not services, and that non-payment of sales tax was not decisive. The tribunal observed that the invoices described the transactions as "supply of boats/barges," and no sales tax was paid, indicating that the transactions did not involve the transfer of possession and control. The Board's Circular clarified that such transactions, where possession and control are not transferred, are treated as services. The tribunal found no evidence to support the appellant's claim that expenses incurred were unrelated to the boats/barges supplied to their sister concern, thus supporting the classification under SOTG.

3. Application of Extended Period of Limitation:
The Commissioner invoked the extended period of limitation, arguing that the appellant was well-versed with service tax laws but ceased payments from 1-4-2007. The appellant argued that the demand for the period October 2004 to September 2008 was time-barred, as the department was aware of the relevant facts during the notice period. The tribunal found that the search conducted on 4-6-2007 and subsequent investigations justified the invocation of the extended period, as the appellant's actions indicated a deliberate attempt to evade tax.

4. Imposition of Penalties:
Penalties were imposed under various sections of the Finance Act, 1994. The appellant argued that there was no bona fide doubt about the classification or service tax liability, and non-payment of sales tax did not determine the nature of transactions. The tribunal noted that the appellant's defense lacked convincing evidence and that the nature of the transactions, as described in the invoices and the absence of sales tax payments, supported the imposition of penalties.

Conclusion:
The tribunal concluded that the appellant had not made out a prima facie case for a complete waiver of the demand. However, given the need for a detailed hearing to understand the nature of transactions and possible interpretations, the tribunal required the appellant to deposit approximately 25% of the demanded amount (Rs. 1.5 crores) as a pre-deposit. The requirement of pre-deposit for the balance amount of service tax, interest, and penalties was waived, and a stay against recovery was granted during the pendency of the appeal. Compliance was to be reported by 2-1-2013.