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TMI Blog2016 (8) TMI 852X X X X Extracts X X X X X X X X Extracts X X X X ..... orthy manner in the course of its operation by husbanding her with due diligence and care; such an obligation may not even require maintenance as contemplated in section 65(64) of Finance Act, 1994. Not to be overlooked also is the performance of service on goods or equipment with ‘goods’ having the specific import supra. It may not be entirely correct in describing a ship or vessel as equipment though equipment may be fitted on board rendering the ascertainment thereof by the original authority to be that much more complex. It is also moot whether a ship or vessel may, with some degree of accuracy, be described as ‘goods.’ Logically, the oceans and the seas are equivalences of land and the inextricability of a vessel or ship from the waters should bring them within the ambit of immoveable. Ships before launch and for breaking up are goods but vessels or ships that are afloat are not goods except for the time that they are the subject of a sale agreement. That ships, vessels and motor vehicles need not exclusively be goods is also apparent in section 2 of Customs Act, 1962; they could also be conveyances. As conveyances, ships/vessels and motor vehicles move easily on water ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice tax was actually payable only on the commission received by them and not on the total cost reimbursed to them by M/s. ONGC. The respondent and ONGC had entered into a Master Contract on 9th June 2005 under which the respondent provided Operation and Maintenance Management of Well Stimulation Vessel owned by ONGC. The scope of the work under the contract is given in Clause (3) of Annexure-III to the contract for the Well Stimulation Vessel Smaranidhi. Similar contracts were entered into for other vessels. The scope of work is extracted below: 3.2 The Marine operations broadly include: 3.2.1. Manoeuvering dynamic positioning of the vessel, 3.2.2 Crane deck operations, 3.2.3 Coordination for landing take off for helicopter, 3.2.4 Repair Maintenance of the Vessel including cleaning painting, 3.2.5 Repairs maintenance of navigational, communication, electrical, electronics safety equipments including office galley, house keeping entertainment equipments. 3.3 To provide a Base Manager for co-ordination and follow up of Offshore Operations. The Base Manager shall be responsible for smooth operations as well as maintenance of the Vess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor General of Shipping/any other agencies for statutory marine requirements movement of vessel in Indian Waters and overseas for dry-dock repairs etc. 3.10 To arrange for the annual statutory and classification surveys with DNV/IRS for certification of equipments on board including the stimulation equipment and to keep the Vessel covered under classification at all the times. 3.11 To be the Lead Managers for operating the Safety Management System on the vessel in compliance with ISM Code, a statutory requirement. 3.12 To arrange a Service Engineer, as and when authorized by the Owner for repair maintenance of Marine Equipment Systems. 3.12.1 The payment to Service Engineer shall be made as per agreed rates decided mutually before mobilisation, Traveling expenses shall be reimbursed as per actual. The transportation to from Offshore, boarding lodging at the vessel shall be provided by ONGC. 3.13 To provide assistance to deal with any emergency situations e.g. blow out, fire fighting, pollution control etc. as per the demand of the occasion. Clause 10 of the Contract is also relevant and is extracted below: 10.0 MAINTENANCE The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onthly Debit note. 8.4 The Owner shall pay to the Contractor remuneration @ 5% of the total expenses incurred or to be incurred by the Contractor under various illustrative heads mentioned in CL 8.3 above. The remuneration charge of 5% will not be applicable on customs duties, Contractor's service tax and Contractor's management expenses. 3. As the respondent had paid service tax on the entire amount of charges reimbursed to them by ONGC, they filed a refund claim on the ground that service tax was payable only on the amount of 5% fees received by them and not on the amount which is only a reimbursement of the actual expenses incurred. Respondent also informed to the department that they had not received refund of service tax from ONGC and therefore, the doctrine of unjust enrichment is not applicable as the amount was shown in their balance sheet as service tax receivable. The adjudicating authority, while rejecting the refund held that the entire expenditure incurred by the respondent i.e. service provider in the course of providing taxable services forms an integral part of the taxable value. He also rejected the contention of the respondent that the costs incur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and maintenance of the said vessel. (c) The Respondents undertake to operate and manage the vessel by providing the technical personnel required. (d) The Respondents further undertake to maintain and repair the vessel to keep it in sea worthy condition. (e) ONGC is reimbursing the expenses incurred by the Respondents on actual i.e. cost to cost basis. (f) The Respondents are earning remuneration @ 5% of the total expenses incurred/reimbursed on operation, management and maintenance of the vessel. (g) The personnel employed by the Respondents for Operation, Management and Maintenance of the said vessel are qualified and experienced Marine, Geotechical and Diving personnel satisfying the requirements of Indian Merchants Shipping Rules. Annexure-III (Schedule-D) of the above agreement stipulates the professional qualifications and requisite experience required by the Marine, Geotechnical, Diving Call out etc. personnel. 6.1 On taxability of the above activity he stated: The impugned services provided during the period (from 16.06.2005 to 31.03.2006) can be covered only under the taxable head of Ship Management service which was introduced with e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve been reimbursed by ONGC and the respondents have been paying service tax on the commission at 5% received from ONGC over and above the cost reimbursed on actual basis. The respondents are only making payment to service providers on behalf of ONGC who is reimbursing the expenses on a cost to cost basis. In this connection he referred to Clause 3.7 of the Contract which recognizes the fact that respondent shall procure materials spares etc. on behalf of the customer. He relied on CBEC Circular No 5/97-ST dt. 12.06.1997 and Circular No. 7/97-ST dated 4.7.1997 which clarify that service tax will be payable on agency commission earned by the Custom House Agent and commission earned by Manpower Recruitment or Supply Agency, respectively, and the reimbursable expenditure on behalf of the clients is not to be included in the value of taxable services rendered. He emphasized that even the 'Maintenance and Repair' activity which is covered under the Maintenance service has been provided by the said contractors and not the respondent. He relied on Glaxo Smithkline Pharmaceuticals Ltd. vs. CCE 1996 (3) STR 711 and Scott Wilson Kirkpatrick (I) Pvt. Ltd. vs. CST 2007 (5) STR 118 . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dispute in the present case is 16.6.2005 to 31.3.2006. Therefore the issue which requires a decision is whether the activity undertaken by the ONGC would be covered under the 'Management, Maintenance or Repair Service. It is significant to note that the word 'Management' in the above category of service was also introduced w.e.f on 1.5.2006. Prior to this date, the service was categorized as 'Maintenance or Repair' service. Thus, we have to examine whether the activities would be covered by the definition of 'Maintenance or Repair' service prior to 1.5.2006 when it was defined as: (64) maintenance or repair means any service provided by- (i) any person under a contract or an agreement; or (ii) a manufacturer or any person authorised by him, in relation to,- (a) maintenance or repair including reconditioning or restoration, or servicing of any goods, excluding motor vehicle; or (b) maintenance or management of immovable property; From the above, it is seen that only management of immovable property was covered under the definition of 'Maintenance or Repair'. In other words, we have to see whether in the absence of mai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period. We note that, prima facie, there appears to be a composite contract between ONGC and the respondent. However, on venturing into details of the contract we find that it is composed of a range of distinct and separately identifiable activities which are paid for and reimbursed by ONGC, activity-wise. Therefore as the value of each activity undertaken is based on the actual value for which invoices are raised by various Sub-Contractors on SCI, there should have been no difficulty in determining the value corresponding to each of the 'Maintenance or Repair' activities provided by the respondent i.e. SCI. The Service Tax law does not bar the splitting of a contract into distinct activities each of which has a separate value. We have seen the decisions of the Tribunal in the case of Jubilant Enpro Pvt. Ltd. (supra) and M/s. Safe Sure Marine Services Pvt. Ltd. (supra). The facts in those cases are somewhat different. In those cases the issue was whether the appellant have provided 'Manpower Supply Service' or 'Ship Management Service'. In the present case at hand we have already examined the issue of classification and have come to the conclusion that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on the entire activity under the Contract and on this commission of 5%, they have paid service tax. We also note that Clauses 3.12 and 3.12.1 of Annexure -III to the Contract specifically provide for payment to the Service Engineer arranged by the respondent but authorized by the owner, to be made at agreed rates and for whom travelling expenses are reimbursed as per actual. This clause indicates that all expenditure incurred by the respondent for undertaking various activities are strictly on a reimbursement basis. Neither the adjudicating authority nor the Commissioner (Appeals) have gone into the details of various clauses of the Contract before arriving at a judicious decision. As regards the supply of materials and spares, here again we find from Clauses 3.7 and 3.7.1 that the materials are approved by the owner. This again indicates that all materials are being purchased on behalf of the owner i.e. ONGC. Only the billing by the suppliers is in the name of the respondent who are then reimbursed the amount entirely. The Remuneration in terms of Clause 8 of the Contract clearly specifies that all expenses are paid in advance by ONGC for various categories of personnel require ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned by Custom Houses Agents, and commission earned by Manpower Recruitment or Supply Agency. 11. In view of the above, we remand the case to the Commissioner for fresh adjudication with the following directions: (i) Only some of the activities covered under the Contract between the respondent and M/s. ONGC fall in the ambit of 'Maintenance or Repair' service. Other activities such as those related to Operations do not get covered under the category of 'Maintenance or Repair' service. Commissioner may examine each activity and decide the classification accordingly for each activity. (ii) The value of taxable services may be determined keeping in view our observations above, Board Circulars and judicial pronouncements on this issue. 12. Appeal is disposed in above terms. Cross-objection is also disposed. (Pronounced in court on /03/2015) Per: Anil Choudhary: 13. I have gone through the order recorded by my learned brother Shri P.S. Pruthi, as I do not fully agree with his order, I am recording my separate order. 14. I agree with the learned Member (Technical) that the whole contract is found on the cost plus basis for management and m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncerned, reference is made to the para 3.2 of the TRU Circular dated 28.2.2006 which reads as under:- Often services provided consist of more than one service. In such cases, it is important to decide, for the purpose of classification of services, whether each element of the transaction should be treated separately or as a single composite transaction, albeit, made up of two or more separate services. A composite service, even if it consists of more than one service, should be treated as a single service based on the main or principal service and accordingly classified. The decision is to be made on question of facts and law. It will not make a difference if the tax rates of the components are the same as that of the principal service. The problem may arise when some elements are taxable and others are exempt. While taking a view, both the form and substance of the transaction are to be taken into account. The guiding principle is to identify the essential features of the transaction. The method of charging does not in itself determine whether the service provided is a single service or multiple services. This Tribunal has held in the case of Gujarat Chemical Port Trus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I hold that the services provided by the respondent have been rightly classified under 'ship management services'. The Revenue cannot vivisect the composite of ship management service for taxing the component of 'repair and maintenance'. The point of law can be raised at any stage including the appellate stage and accordingly, there is no infirmity or illegality in the impugned order in entertaining the ground, being point of law, raised by the respondent before him. 19. Thus, the appeal of the Revenue is dismissed. The respondent assessee will be entitled to consequential relief, if any, in accordance with law. The adjudicating authority is directed to grant refund expeditiously preferably within a period of two months from the date of production of copy of this order, with interest as per Rules. DIFFERENCE OF OPINION (i) Whether, in the facts and circumstances, the composite contract of ship management service can be vivisected for the period in question, when 'ship management service' was not taxable, and the taxable component like 'repair and maintenance' be charged to tax separately in view of the findings recorded by the learned Memb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the entire amount collected from M/s Oil Natural Gas Corporation (ONGC) was liable to tax as consideration for rendering of maintenance or repair service defined in section 65 (64) and taxable under section 65(105)(zzg) of Finance Act, 1994 whereas the first appellate authority concluded that the activities in the performance of the contract fell within the definition of ship management services as defined in section 65 (96a), taxable under section 65(105)(zzzt) of Finance Act, 1994 and hence outside the ambit of Finance Act, 1994 before 1st May 2006 in any other category of taxable service. 22. The dissonance in disposing off the appeal of M/s Shipping Corporation of India against order-in-appeal no. BPS/170/LTU/MUM dated 29th August 2013 relates primarily to classification of the taxable service and the proposal to remand the matter back for ascertaining the value of repair or maintenance service rendered by the appellant to M/s ONGC. 23. Considering the elaborate narration by two Learned Members, I do not propose to recount the facts and circumstances in full; it shall suffice to merely recapitulate the salient features of the dispute between M/s Shipping Corpora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce, held that some portion of the receipts was taxable under that head. The proposal of Learned Member (Technical) to remand the matter back for segregating the value of that component from the much broader area of activities is founded on that conclusion. 26. Both the Learned Members have considered the various decisions cited by Learned Authorized Representative and Learned Counsel for M/s Shipping Corporation of India. In view of those elaborations, I do not have to bring them into record for rendering my findings. It may, however, be of import to consider two aspects that are germane to resolution of the dispute between Revenue and the assessee: gross amount charged and the scope of repair or maintenance service. 27. The taxable value, as defined in section 67 of Finance Act, 1994, is the gross amount charged by the service provider and the amount to be taxed is the totality of the consideration for rendering of a service. Undoubtedly, it would include all the expenses and costs incurred by the provider in the course of rendering the service. While this provision is not a recourse available to the tax administration to determine the appropriateness of business pricing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, the tax levy is not crystallized by the mere execution of a contract promising to render service on the agreed terms; section 65(105(zzg) makes it necessary that some repair or maintenance must have been undertaken for a consideration for the tax liability to arise. In proceeding to deny the claim of the assessee for refund, the undertaking, if any, of repairs or maintenance has not been ascertained by the original authority. The operator of a ship or vessel under an O M contract is also bound to maintain the vessel in a sea-worthy manner in the course of its operation by husbanding her with due diligence and care; such an obligation may not even require maintenance as contemplated in section 65(64) of Finance Act, 1994. 29. Not to be overlooked also is the performance of service on goods or equipment with goods having the specific import supra. It may not be entirely correct in describing a ship or vessel as equipment though equipment may be fitted on board rendering the ascertainment thereof by the original authority to be that much more complex. It is also moot whether a ship or vessel may, with some degree of accuracy, be described as goods. During the releva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ored as that was service that was liable to tax during the relevant period. The principal finding of his before alluding to that specific facet is worth recalling here: 8. The exact nature and scope of service provided by SCI has already been detailed in para 2 above. There appears to be no doubt that after the introduction of the Ship Management Service w.e.f 1.5.20006, the activity as a whole is most aptly covered under this service. He, however, goes on to state that: ..However, the period in dispute in the present case is 16.6.2005 to 31.3.2006. Therefore, the issue which requires a decision is whether the activity undertaken by ONGC (sic) would be covered under the Management, Maintenance or Repair Service. It is significant to note that the word Management in the above category of service was also introduced w.e.f. on 1.5.20065. Prior to this date, the service was categorized as Maintenance or Repair service. Thus, we have to examine whether the activities would be covered by the definition of Maintenance or Repair service prior to 1.5.2006 when it was defined as: . and, accordingly, ventured to hold that that legislative intent to tax the repa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry (zzzzj) because they inter alia supply vessels offshore support vessels, barges, tugs etc. without transferring right of possession and effective control over them. In contrast entry (zzzy) was introduced to comprehensively bring under the service tax net activities having a direct nexus to mining activities. Entry (zzzzj) is not a carve out of entry (zzzy). Both entries are independent. Entry (zzzzj) was not inserted into the Finance Act by amending entry (zzzy). It is not possible to invent a remote connection of the services rendered by the members of the 1st petitioner to mining activities and hold that they fall in entry (zzzy). Entry (zzzzj) is not a specie of what is covered by entry (zzzy). Nature of the services rendered by the members of the 1st petitioner, legislative history of the two entries, various circulars to which, we have made reference and the relevant judgments which we have noted hereinabove lead us to hold that the entry contained in Section 65(105)(zzzy) of the Finance Act, 1994 does not apply to services provided by the members of the 1st petitioner. From the above and the circumstances of the present dispute, it would appear that there is no alter ..... X X X X Extracts X X X X X X X X Extracts X X X X
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