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TMI Blog2015 (12) TMI 1057X X X X Extracts X X X X X X X X Extracts X X X X ..... d any service except leasing/ renting of the berth and the amount is only towards lease/rent of vacant land is not at all justified and not supported by law. The licencee cannot change the design and drawing once approved by the appellant without prior consent of the TPT. This clearly shows the indirect activities/services rendered by the appellant on the development of the above project which clearly falls under Port Services. The appellant contended that the said Royalty Charges are received only towards Renting/leasing of the vacant land and not for any services rendered whereas on perusal of the entire Licence Agreement, we failed to see the word "Renting or Leasing of the Property" is used in any of the articles of the agreement. Further, we find that the Licence agreement dt. 15.7.98 entered by appellant for development of Container Terminal is a self-contained document envisaging every details of the project. It is not only lists out terms and conditions of operation and maintenance but brings out minute details, specification of the logistics, staffing, reporting. Therefore, BOT agreement cannot be compared or equated to any normal agreement of leasing of property. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th under Section 76 and 78 of Finance Act, we find that the appellants, a PSU are duly registered with Department and paying service tax regularly on the Port Services rendered from the beginning. The appellants are under bonafide belief that the said charges are not taxable during the relevant period. We also find that the appellants regularly paying service tax on the Royalty charges w.e.f. 1.6.2007. Therefore, we are of the view that there was a reasonable and bonafide cause for appellant's failure to pay service tax. Therefore, by invoking Section 80 of Finance Act, we set aside the penalty imposed under Section 76 and 78. Monthly Royalty Charges received by the appellants from their Licensee during the period under dispute for the development of Seventh Operation and Maintenance on BOT basis as per the Licence Agreement dt. 15.7.1998 are chargeable to service tax under "Port Services". The demand is upheld but for the cum tax benefit. The penalty imposed under Section 76 and 78 are waived - Decided partly in favour of assessee. - ST/75/2007 and ST/199/2008 - Final Order No.41663-41664/2015 - Dated:- 4-12-2015 - Shri R. Periasami, Technical Member And Shri P. K. Choudhary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mits that as per the show-cause notice the demand was raised only on the royalty charges as per clause 7.3.5.2 of the agreement which relates to monthly royalty payment in consideration of the above authorization whereas the Department has demanded service tax under port services on the amount received as a royalty from the licensee. During the relevant period the only services which are liable for service tax under port services are in relation to vessels and goods as to section 65(82) of the Finance Act, 1994. He submits that the definition of the port service is very clear. Any service rendered by a port or other port or any person authorized by such port in any manner, in relation to a vessel or goods. In their case, the royalty amount is not in relation to any service rendered in relation to vessel or goods but purely on the leasing of Berth No. VII. 5. He further submits that PSA SICAL is also registered under service tax and discharging service tax on all the activities carried out by them under port services. He further submits that only with effect from 1.6.2007 service tax was introduced on renting of immovable property. Therefore, prior to this period there was no ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e received the lump sum amount of ₹ 45 million as an initial amount on which there is no demand. The methodology calculated for royalty payment as per Appendix 12 relates to only minimum guaranteed traffic. He also submits that the Appendix 3 of the agreement clearly shows the total area of licensed premises as 10 hectares leased out to the licensee. The entire monthly royalty amount received is only in relation to leasing of Berth No. VII and not related to any port services rendered by the appellant. 9. He relied on the decision of the Tribunal in the case of Cochin Port Trust Vs. CCE, Cochin- 2011 (21) STR 25 (Tr. - Bang.) wherein the Tribunal on an identical issue has allowed the appeal of the appellant. He also submits that when service tax was introduced only from 1.6.2007 on these services, service tax cannot be demanded for earlier period under different category. He relied on the following case laws:- (a) Gujarat Chem Port Terminal Co. Ltd. Vs. CCE, Vadodara - II 2008 (9) STR 386 (Tri. - Ahmd.) (b) Cochin Port Trust Vs. CCE, Cochin - 2011 (21) STR 400 (Tri. - Bang.) 10. Without prejudice he also submits that the extended period cannot be invoked as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (c) KandlaShipchandlersAnd Ship Repairers Asso. Vs. Union of India - 2013 (29) STR 233 (Guj.) 12. Countering the argument, learned counsel for the appellant submits that the case laws relied by learned AR in the case of Airport Authority of India relates to airport services falling under section 65(105)(zzm) where service is clearly defined and does not include the word aircraft or goods . The entry in port services 65(82) was amended only with effect from 1.7.2010 and vessels and goods have been removed and this decision will not apply and if it all applies it will apply only post 2010. Regarding the Tribunals Larger Bench decision in Western Agencies (supra) the Larger Bench dealt only goods and not dealt leasing of land. Similarly the decision of Kandla Port (supra) relates to vessel. 13. We have carefully considered the submissions of both sides and examined the relevant agreements and other records. The issue to be decided in the present appeal is whether the monthly Royalty charges collected by the appellant towards Development of VIIth Berth as Container Terminal and its operation and maintenance on BOT basis is taxable under port services or otherwise. The period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty to any person in any manner in relation to vessel or goods. Both sides advanced their points and relied the various clauses of the BOT licence agreement dated 15.7.1998 between TPT and PSA to support their view. Therefore it is relevant to see the provisions of the said agreement so as to understand the whole issue. BOT Licence agreement is 166 pages and the terms conditions contents are spelt out in 16 Articles with sub clause broadly grouped into VI Chapters. Only few import provisions of the Licence Agreement are reproduced as under :- PREAMBLE This LICENSE AGREEMENT is made and entered into this Day of 15th July, 1998 BETWEEN: TUTICORIN PORT TRUST having its office at Administrative Building, Tuticorin Port Trust, Tuticorin-628 004, INDIA hereinafter referred to as the Licensor .... as party of the first part, AND M/s.PSA SICAL TERMINALS LIMITED ..... having its registered office at CHENNAI hereinafter referred to as the Licensee as party of the second part: Each of the Licensor and the Licensee shall be referred to herein as a Party and collectively as Parties . WHEREAS, the Licensor is desirous of developing THE SEVENTH BERTH AS A CONT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. ... ... ... Article 2.1:Grant of License In consideration of the Licensee agreeing to pay an initial payment, royalty and other payments under this Agreement as set out in Article 7 and subject to the provisions of this Agreement, the Licensor grants to the Licensee at the cost, charges and expenses of the Licensee, an exclusive License for designing, engineering, financing, constructing, equipping, operating, maintaining, replacing of container handling equipments, and repairing of Container Terminal and any ancillary functions related thereto as approved by the Licensor from time to time during the License Period as specified in Article 2.3. Article 4.3:Review Application of designs drawings The Licenssee shall submit the Design and Drawings for the approval of the Licensor before commencing civil works in the Container Terminal. The Licensor shall, at its costs, charges and expenses appoint consultants for the purpose of verifying the soundness of the Design and Drawings submitted by the Licensee from time to time. The Licensee shall, along with the Design and Drawings, submit specifications and design calculations to the Licensor. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provided The Licensor agrees and undertakes to provide the following services. (i) scheduling entry, berthing and sailing of the vessels on a non-discriminatory basis; (ii) pilotage and towage on a non-discriminatory basis; (iii) maintenance of the entrance channel draft 8.24 m now and 10.7 m after completion of capital dredging as per Article 6.4; (iv) provision and maintenance of all general port infrastructures other than those covered under the License for management operation and maintenance of the Container Terminal. (v) maintenance of the dredged draft alongside the berths at the Container Terminal as per Article 6.4; (vi) waterside safety and safety of navigation which remain vested with the Deputy Conservator of the Licensor; Note: For services enlisted in sub clauses (i) to (vi) above, the cost, charges and expenses shall be borne by the Licensor. (vii) coordinating and overseeing the dock side safety and implementation by and at the cost of the Licensee of all orders and directions of the regulatory authorities viz., the Dock Safety Inspector, Government Authority etc.; (viii) supply powe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the security regulations/procedures as stipulated by the Licensor. Article 6.9.1:Corporate Staffing The key personnel of the Licensee, to be deployed for the operations and maintenance management functions of the Container Terminal, such as the Chief Executive Officer/General Manager, the Terminal Manager and the Engineering Manager shall be changed with prior intimation to the Licensor. ...... It is agreed between the Parties that although the Container terminals of the Licensor and the Licensee are envisaged to operate independently of each other, in order to optimise the facilities and create synergies, sharing of various resources (including human resources) may be considered at appropriate time on mutually agreed terms and conditions between the Licensor and the Licensee. Article 7.3 Tariff 7.3.1.:Setting Prices The Licensee shall be entitled to recover from the owners/consignees or vessel owners/agents rates and/or charges due and payable by them for use of the Container Terminal Services including terminal charges, wharfage on cargo containerised, container box and cargo related charges in respect of cargo and other services provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applied to all the figures quoted as royalty vide Appendix 12. This single percentage shall be decided on the basis of sum of weighted average of variations to the rates in respect of tariff for containers. Article 11. Common obligations and right to both parties 11.2 Rights to Documents 11.2.1. Licensor Documents Documents and computer programs or copies thereof, if any, provided by the Licensor to the Licensee, shall always remain the property of the Licensor. Such documents, computer programs and / or copies shall not be used by the Licensee for the purposes other than for the Project. .... Appendix - 12 Minimum Guaranteed Traffic Royalty Rates and Amount payable Sr. No. Particulars Reference to Tender Clause Amount 01. Initial Payment 5.6 (a) Rs.45,000,000 02. Royalty Fees 5.6 (b c) 4.9.2 Rs.1,346,534,608 16. combi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved beyond doubt that the royalty charges received by the appellants is for overall consideration towards the development of VIIth Berth as container terminal under the above BOT agreement and rightly falls under port services and the amount of royalty charges are rightly chargeable to service tax under port services. Therefore, the appellants contention that they have not provided any service except leasing/ renting of the berth and the amount is only towards lease/rent of vacant land is not at all justified and not supported by law. 19. Further, it is seen from the Article 4.2 and 4.3 of the agreement that the licencee shall submit the designs and drawings of the proposed development of terminal for the prior approval of the appellant and the appellant s have right to raise their objection or seek any modification and the licencee shall have to re-submit the drawings and designs incorporating the changes proposed by the appellant. The licencee cannot change the design and drawing once approved by the appellant without prior consent of the TPT. This clearly shows the indirect activities/services rendered by the appellant on the development of the above project which clearly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round the jetty including dredging, navigation and water supply etc. At para14, it is held that GMB has not authorized UCL to collect any charges from other persons. Therefore the Hon'ble Supreme Court held that no service is rendered by GMB. Whereas in the present case as explained in the above paragraph as per Article 6.2.1, it is the appellant who renders Dredging, navigation, water supply, electricity and host of other services. Further, as per Article 7.3.1, TPT has authorized the Licensee PSA to collect all charges including wharfage etc. from the users. Therefore, the agreement of GMB in the above case is entirely different from the present case. Further, in the above case law, the consideration is only collection of wharfage charges for setting up of private jetty. There is no obligation of GMB brought out in the said order. Further, GMB has granted rebate of 80% wharfage to be adjusted against the cost of construction of jetty by UCL. Whereas in the present case there is a clear obligation of Licensor i.e. TPT is set out in the agreement and there is no rebate granted by TPT to PSA towards construction cost. TPT received Lump sum payment in addition to Royalty charges. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssel or goods. The expressions in any manner and in relation to both tend to expand the scope of such service. ... ... 12. We may notice that CESTAT in the case of Homa Engineering Works v. Commissioner of C.Ex., Mumbai, 2007 (7) S.T.R. 546 (Tri.-Mumbai) did hold that activity of ship repair at dry docks would not amount to port service. In the said decision, the Tribunal referred to the provisions contained in the Major Port Trusts Act, 1963 and formed an opinion that repair of the vessel not being done by the port, it cannot be stated to have been authorized by the port. It was held as under : As such, we find that the powers of the Board to execute-11. the work and provide compliance in terms of section 35(1) are not to the effect so as to carry out the repairing activity themselves. Understandably, the vessel which come on the port after sailing for a considerable period, would require minor/major repairing activities on account of the damages or mechanical faults incurred on account of vagaries of sea and for the subject purposes dry docks and workshops are established in the port for the purposes of rectifying the defect and to make the vessel seaworthy. Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ster of services under one class of port services except to the extent of different classifications recognised by the 1994 Act. Accordingly, any service provided by a Port or other port fall under one class of service called the port services . Nomenclature of service not being decisive, charging provision of the 1994 Act prevails. It is not possible for legislature to provide an exhaustive list of service to be classified as port service . Therefore, legislature defined the term port service using the terms any service rendered by a port in any manner in relation to- vessel or goods to bring to the net of taxation. Innovative means to name a service does not take away a taxable service from the scope of taxation. When a service is attributable or inevitable or indispensable for the functioning of the port or other port and advances the object of setting up of the ports, such service is said to have been provided by a port or other port. Thus, the very nature of services under the category of any services encompassed by the term port service does not exclude any service provided by a port or other port to serve the purpose of the port. It is quite common that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tation is not tenable and the demand is rightly confirmed by invoking longer period. 26. As regards imposition of penalty on the appellant, both under Section 76 and 78 of Finance Act, we find that the appellants, a PSU are duly registered with Department and paying service tax regularly on the Port Services rendered from the beginning. The appellants are under bonafide belief that the said charges are not taxable during the relevant period. We also find that the appellants regularly paying service tax on the Royalty charges w.e.f. 1.6.2007. Therefore, we are of the view that there was a reasonable and bonafide cause for appellant's failure to pay service tax. Therefore, by invoking Section 80 of Finance Act, we set aside the penalty imposed under Section 76 and 78. 27. In view of the foregoing discussions and findings we hold that the monthly Royalty Charges received by the appellants from their Licensee during the period under dispute for the development of Seventh Operation and Maintenance on BOT basis as per the Licence Agreement dt. 15.7.1998 are chargeable to service tax under Port Services . The demand is upheld but for the cum tax benefit. The penalty imposed und ..... X X X X Extracts X X X X X X X X Extracts X X X X
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