2019 (3) TMI 820 - AT - Service Tax

Liability of service tax - terminal charges received from Indian Railways - demurrages which they have collected from various clients - royalty which they received from terminal operator with whom they entered into a contract on Build-Operate-Transfer basis (BOT). Terminal charges received from Indian Railways - Held that - The services rendered by the appellant, who are undisputedly a major port, in the port area for Indian Railways and for which they are getting paid is squarely covered by the definition of port services. The exemption available to Sec.99 of the Finance Act, 1994 and the notification 43/2012-ST dated 2-7-2012 are available to the services rendered by the Indian Railways the exemptions cannot be extended to services received by Indian Railways - the appellant is liable to pay the service tax on the terminal charges which they received from the Indian Railways. Demurrages which they have collected from various clients - Held that - In view of the lack of clarity of the nature of demurrage charges as to whether these are the charges levied by the Indian Railways and only collected by the appellant and transferred to the Railways or only collected by the appellant from the client on their own, it is deemed to be a fit case to be remitted back to the original authority for determining as to who is service provider, what is the nature of service and who is the client paying the service charge. Royalty which they received from terminal operator with whom they entered into a contract on Build-Operate-Transfer basis (BOT) - Held that - The service tax is proposed to be levied on the amount paid by the container terminal operator to the appellant as a part of the BOT agreement in which the appellant performs some services and the container terminal operator performs some other services. The question is whether such an arrangement would amount to container terminal operator using the franchise of the appellant and consequently, whether the royalty charges being chargeable to service tax under franchise services at the hands of the appellant or otherwise. Time limitation - Held that - The appellant is an organisation under the Government of India and it is extremely difficult to imagine that they have an intention to evade payment of service tax. It is true that their understanding of the law could be different from that of the department. It is not in dispute that the appellant filed their ST-3 returns and were audited and they had provided whatever information was sought by the department - the extended period of limitation cannot be invoked. Appeal disposed off.

Issues Involved:
1. Liability to pay service tax on "terminal charges" received from Indian Railways.
2. Liability to pay service tax on "demurrages" collected from various clients.
3. Liability to pay service tax on "royalty" received from the terminal operator under a Build-Operate-Transfer (BOT) contract.

Issue-wise Detailed Analysis:

Terminal Charges:
The primary issue was whether the appellant was liable to pay service tax on terminal charges received from Indian Railways. The revenue argued that these charges fell under the definition of "port services" as per Sec. 65(82) of the Finance Act, 1994, which includes any service rendered by a port in relation to a vessel or goods. The appellant contended that these services were exempt under Sec. 99 of the Finance Act, 1994, and Notification 43/2012-ST, which exempts services provided by Indian Railways.

However, the tribunal noted that the exemption under Notification 43/2012-ST applies only to services provided by Indian Railways, not to services received by them. The tribunal also referred to the Larger Bench decision, which clarified that services rendered within the port area by a port are classified as "port services." Consequently, the tribunal concluded that the appellant is liable to pay service tax on terminal charges received from Indian Railways.

Demurrage Charges:
The issue was whether demurrage charges collected by the appellant from clients were liable for service tax. The appellant argued that these charges were collected on behalf of Indian Railways and hence not their income. The revenue contended that demurrage charges and wagon hire charges were different, and there was no one-to-one correlation between the two.

The tribunal found that the nature of demurrage charges needed further factual examination to determine if they were indeed collected on behalf of Indian Railways or were the appellant’s own charges. Therefore, the matter was remitted back to the original authority for further investigation.

Royalty Charges:
The issue was whether the royalty charges received by the appellant from the terminal operator under the BOT agreement were liable for service tax under "franchise services." The revenue argued that these charges were for the use of the appellant's name and brand, thus falling under franchise services. The appellant contended that the BOT agreement was a joint venture, not a service provider-client relationship.

The tribunal referred to previous judgments, including the Mormugao Port Trust case, where it was held that such BOT agreements are joint ventures and not subject to service tax under franchise services. The tribunal concluded that the appellant is not liable to pay service tax on royalty charges received from the terminal operator.

Limitation and Penalties:
On the question of limitation, the tribunal found that the appellant, being a government organization, could not be presumed to have the intention to evade service tax. The appellant had filed their returns and cooperated with audits. Therefore, the extended period of limitation could not be invoked, and penalties under Sec. 76, 77, and 78 were set aside.

Final Order:
1. The demand for service tax on terminal charges received from Indian Railways under "port services" was confirmed along with interest within the normal period of limitation. The demand for the extended period was set aside.
2. The demand for service tax on royalty charges under "franchise services" was set aside.
3. The demand for service tax on demurrage charges was remitted back to the original authority for further factual examination.
4. All penalties were set aside.

The appeals were disposed of accordingly.

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