2016 (11) TMI 520 - AT - Service Tax

Demand - Section 73(1) of the FA, 1994 - Port Services - Renting of Immoveable Property services - whether the amount received by the Assessee from SWPL, under the nomenclature of royalty, was a consideration for the renting/leasing of the land and the waterfront and accordingly liable to tax under the head of Renting of Immoveable Property services? - Held that - there is no service that has been rendered by the Appellant, much less the taxable service of renting of immoveable property. The money flow to the Assessee from SWPL, under the nomenclature of Royalty, is not a consideration for rendition of any services but infact represents the Appellant s share of revenue arising out of the Joint Venture being carried on by the Assessee and SWPL - the Revenues appeal challenging the non-imposition of penalty does not survive as the demand of service tax itself is not sustainable - appeal of assessee allowed - Revenue s appeal dismissed - decided in favor of appellant-assessee.

Issues Involved:
1. Liability of service tax on royalty received by the appellant.
2. Nature of the agreement between the appellant and SWPL – whether it constitutes a joint venture.
3. Applicability of the principle of limitation to the demand.
4. Legitimacy of non-imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994.

Issue-wise Detailed Analysis:

1. Liability of Service Tax on Royalty Received by the Appellant:
The primary issue was whether the royalty received by the appellant from SWPL was a consideration for renting/leasing land and waterfront, thus liable to service tax under Renting of Immoveable Property services. The appellant contended that the royalty was its share of revenue from a joint business activity with SWPL and not a consideration for any specific service rendered. The Tribunal accepted this contention, noting that the royalty was a reward for several contributions made by the appellant, including granting permission to conduct port operations and fulfilling various obligations crucial for the port's smooth functioning. The Tribunal concluded that these contributions were part of a joint venture and not a service rendered for consideration.

2. Nature of the Agreement Between the Appellant and SWPL – Whether it Constitutes a Joint Venture:
The Tribunal examined the nature of the agreement and the relationship between the appellant and SWPL. It found that the agreement was a public-private partnership (PPP) model, where both parties jointly controlled the operations and shared revenue. The Tribunal referenced the Supreme Court's definition of a joint venture, emphasizing joint control over strategic financial and operative decisions. It concluded that the agreement between the appellant and SWPL constituted a joint venture, as both parties were jointly conducting port operations and sharing the revenue, thus not fitting the principal-client relationship necessary for service tax applicability.

3. Applicability of the Principle of Limitation to the Demand:
The appellant argued that the entire demand was barred by limitation, as the revenue was aware of the agreement and had previously issued a show cause notice regarding the same agreement. However, since the Tribunal decided the appeal in favor of the appellant on merits, it did not consider it necessary to address the point of limitation.

4. Legitimacy of Non-imposition of Penalties Under Sections 76, 77, and 78 of the Finance Act, 1994:
The Commissioner had not imposed any penalties under Sections 76, 77, and 78, invoking Section 80 of the Finance Act, 1994. The Revenue's appeal challenging this non-imposition of penalties was dismissed, as the Tribunal found the demand for service tax itself unsustainable. The Tribunal reiterated that since no service was rendered by the appellant that could be taxed, the question of imposing penalties did not arise.

Conclusion:
The Tribunal allowed the appellant's appeal on merits, holding that the royalty received was not consideration for any service but the appellant's share of revenue from a joint venture. Consequently, the demand for service tax was set aside, and the Revenue's appeal challenging the non-imposition of penalties was dismissed.

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