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TMI Blog2014 (6) TMI 557X X X X Extracts X X X X X X X X Extracts X X X X ..... area in the Continental Shelf and the Executive Economic Zone of India during the relevant period even after the amendment definition "India" included only the installations, structures and vessels in the Continental Shelf of India and the Exclusive Economic Zone itself. Apart from the above a ship is plying in the Continental Shelf and the Exclusive Economic Zone of India carrying goods or persons cannot be regarded as India for the purpose of Import of Service Rules. Further the expression ‘vessels' is preceded by the words "installation and structures". Applying the principle of Noscitur A Sociis the vessels covered therein would be such vessels which are akin to installation and structures and which are to be stationed at a fixed location in the Continental Shelf and Exclusive Economic Zone of India while rendering services. In our opinion such vessels may be of the type such as floating or submersible drilling of production platforms, generally designed for the discovery or the exploitation of offshore deposits of oil and natural gas. The vessels in question are offshore supply vessels which are different from function in a fixed or stationary position. Appellant cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourbon Offshore Bourbon Agathe OC2/3671944 01.10.2008 7 Bourbon Offshore Bourbon Hamelin OC2/3660108 06.08.2008 8 Bourbon Offshore Bourbon Liberty OC2/3660608 17.07.2008 9 Bourbon Offshore Bourbon Sapphine OG3/3660278 08.07.2008 10 Bourbon Offshore Bourbon Viking OG2/3664578 06.08.2008 11 Greatship Global Offshore Services Pte Ltd Skandi Falcon 3663352 17.07.2008 12 Bourbon Offshore Bourbon Himalaya OC2/3667292 12.08.2008 4. Show Cause Notices were issued to the appellants demanding service tax for the period 16.5.2008 to 1.9.2009 on reverse charge mechanism on the ground that the appellants received the service of supply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted that the contracts entered with the owner prior to 16.5.2008 and not liable to service tax under the service supply of tangible goods for use even though the use of vessels and the payments made from the same maybe after 16.5.2008. The appellant heavily relies upon the decision of the Tribunal in Petronet LNG Ltd vs CST reported in Appeal No.745 of 2012 particularly para 36 of the judgment. 8. The above principle also applies even for the contracts entered into on 16.5.2008 or before. The definition of India was widened only from 7.7.2009 vide Notification No. 1/2002-ST. The contention is that out of 12 contracts entered into with the Off-shore Supply Vessels for supply of vessels which are subject matter of dispute, five contracts were entered into during the period prior to 16.5.2008 i.e. the date on which the service tax was levied for the first time for supply of tangible goods for use. The balance 7 contracts are entered into during the period after 16.5.2008 and before 7.7.2009 i.e. the date of entry into contract was prior to extension of levy. With effect from 1.3.2002 and prior to 7.7.2009 the provisions of Chapter V of the Finance Act, 1994 were extended only t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as The Vessels shall be employed at the direction of Charterers, only in lawful activities in connection with offshore Exploration and development activities including but not limited to equipment and material supply, crew changes, diving operations after prior approval from Owner, sea bed clearance, fuel water supply, buoy laying and recovery, and any other activity incidental to the aforesaid, and with voyages between any good and safe port and place or offshore installation where she can safely lie always afloat provided such are within Indian waters [Emphasis added). Para 4.2 Whereas, the Charter Party Agreement for deployment of the vessel for use as sub-sea intervention the same shall be for, installation, inspection, repair and maintenance of all sub-sea facilities and other support activities as, transportation of material, search and rescue and etc. in oil fields in the water depth upto 2000 M and are for operations in Indian waters especially on the East Coast of India-where RIL are developing deepwater offshore oil and gas fields in Block KG-DWN-98/3 in the Krishna Godavari Basis, Bay of Bengal off the East Coast of India. The blocks cover an area of approx 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that the concept of taxable even commences when the vessels are transferred to the appellants at India ports. The taxable event is a continuous one and each supply of tangible goods would amount to taxable event. 15. Revenue also submitted that the ratio of the decision of the Tribunal in the case of Petronet LNG supra is not applicable on the facts and circumstances of the present case. In the case of Petronet LNG the vessels carried LNG from Qatar to Indian port therefore during the lions' portion of time the vessel was plying in international waters. In the present case lions' portion of operations is within Indian waters. In view of the above contentions, the demand is rightly made. 16. We find that in the present case the demand is confirmed on the ground that appellant received the taxable service which merits classification under Section 65 (105)(zzzzj) of the Finance Act, 1994 and the appellants were liable to discharge tax liability under the reverse charge mechanism for the service so received. The provisions of Section 65 (105) (zzzzj) of the Finance Act, 1994 is reproduced below:- To any person, by any other person in relation to supply of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Charter Party Agreements. Hence we find no merit in the contention that the activity does not come under the scope of Supply of Tangible Goods for Use service. 20. The other issue is whether the appellant being recipient of service on which service tax has been demanded were taxable under the head Supply of Tangible Goods for Use' was not liable to discharge service tax in respect of the same as the said vessels were not located in India during the entire period of use of such tangible goods by the recipient of service. 21. Under rule 3 (iii) of the Taxation of Service (Provided from Outside India and received in India) Rules, 2006 which is the exemption notification has been issued under the Finance Act, 1994 a specific provision was inserted with effect from 16.5.2008 in respect of Supply of Tangible Goods for Use provided therein that the said services should be considered having received in India subject to condition that Tangible Goods supplied for use are located in India during the period of use for such tangible goods. The relevant provisions of the proviso is reproduced below:- Provided that where the taxable service referred to in sub-clause (z ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from outside India and received in India. The assessee contended that the tangible goods in issue are oil tankers used for transportation of LNG under cryogenic conditions, from Qatar to the assessee's regasification terminal at Dahej, Gujarat. (ii) During a substantial portion of the charter period, whether long term or short term, the tankers are in transit, on the high seas and come to the shore only for loading of LNG (outside India) and unloading LNG (in India). All other operations of the tankers is outside India, either in the high seas beyond the territorial limits of India or in another country. As the tankers (tangible goods) supplied for use of the assessee cannot be said to located in India during the period of use of such tangible goods, the transactions fall outside the purview of the proviso. (iii) The assessee also contended that the 2006 Rules classified the taxable services considered therein into three categories and specified distinct criteria for each of the categories, subject to exceptions specified. For services falling under Rule 3(ii), performance of the service in India is the specified criterion. The first proviso to this sub-ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in India, it shall be treated as performed in India. Rule 3(iii) enumerates taxable services excluding those specified in Clauses (a), (b) and (c) thereunder. (viii) The proviso to Rule 3(iii) is a specific and distinct provision in relation to STGU, a taxable service enumerated and defined in Section 65(105)(zzzzj), In the context of the elegant and distinct design of the several distinct provisions in Rule 3, and exclusive treatment of various taxable services therein, it is impermissible to read the stipulation of one clause of this rule into another. The proviso to Rule 3(iii) is therefore, on a true and fair construction of the provisions of Rule 3, a stand-alone provision specifically and exclusively applicable to the taxable STGU. Accordingly, tangible goods supplied for use must be located in India during the period of use of such goods by the recipient, for the charge of service tax to apply under the reverse charge mechanism enjoined by Section 66A (ix) Located in India during the period of use of such tangible goods is the governing criterion for applicability of the reverse charge mechanism in the case of STGU. The expression during does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enalties, contending that penalties are liable to be chewed by invocation of the discretion Section 80 of the Act. (ii) It is contended that on 26.2.09, a letter was issued by the Assistant Commissioner of Service Tax seeking certain documents with regard to the charter agreements. The documents were furnished by the assessee, vide its letter dated 28.2.09. On 4.3.09, further documents were sought. These were submitted on 12.4.09. On 13.4.09, the Assistant Commissioner (Anti-Evasion Division) sought further information/documents. These were furnished on 27.5.09. On 22.6.09, personal appearance of the authorised representative of the appellant was called, for recording a statement on 29.6.09. The statement was recorded on 26.6.09 under Section 14 of the Central Excise Act, 1944. On 28.8.09, the assessee received a detailed legal advice from a Senior Advocate clearly advising that no service tax is leviable on the hiring charges paid by the assessee for hiring the tankers. On 9.9.09, the assessee addressed the Department, informing about the legal advice; asserting that there is no liability to service tax and requested dropping of proceedings. On 7.10.09, the Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d even after the amendment definition India included only the installations, structures and vessels in the Continental Shelf of India and the Exclusive Economic Zone itself. Apart from the above a ship is plying in the Continental Shelf and the Exclusive Economic Zone of India carrying goods or persons cannot be regarded as India for the purpose of Import of Service Rules. Further the expression vessels' is preceded by the words installation and structures . Applying the principle of Noscitur A Sociis the vessels covered therein would be such vessels which are akin to installation and structures and which are to be stationed at a fixed location in the Continental Shelf and Exclusive Economic Zone of India while rendering services. In our opinion such vessels may be of the type such as floating or submersible drilling of production platforms, generally designed for the discovery or the exploitation of offshore deposits of oil and natural gas. The vessels in question are offshore supply vessels which are different from function in a fixed or stationary position. 26. In view of the above, the appellant cannot be held to be under the reverse charge mechanism in respect of ve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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