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TMI Blog2016 (11) TMI 520X X X X Extracts X X X X X X X X Extracts X X X X ..... PPEAL NO. ST/86337, 86592/15 - Order No.A/93085-93086/16/STB. - Dated:- 7-10-2016 - Mr. Ramesh Nair, Member(Judicial) And Mr. C.J. Mathew, Member(Technical) Shri. V.K. Jain, Advocate with Ms. Isha Shah, Advocate for the Appellants Shri. R. Kapoor, Commissioner (A.R.) with Shri. A.K. Goswamim Addl. Commissioner(A.R.) for the Respondent Per : Ramesh Nair These two appeals are directed against Order-in-Original No. GOA-EXCUS-000-COM-028-2014-15 dated 28.3.2015 passed by Commissioner of Central Excise, Goa Commissionerate, wherein the Ld. Commissioner has passed the following order. i ) I confirm the amount of Service tax of ₹ 6,62,49,060/- , Education Cess of ₹ 13,24,981/- and higher education cess of ₹ 6,62,491/- totally amounting to ₹ 6,82,36,532/- (Rs.SIx crores eighty two lakhs thirty six thousand five hundred thirty two only) demanded in the notice under proviso to Section 73(1) of the Finance Act, 1994. ii) I demand interest at the appropriate rate under Section 75 of the Finance Act, 1994. iii) I am not imposing any penalty under Section 76, 77 and 78, of the Finance Act, 1994 in terms of Section 80 of the Finance Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re both parties were jointly rendering port services for earning profits. Both the parties were jointly controlling the operations of the two cargo handling berths. The relation between the Assessee and SWPL was not that of a service provider and service recipient but was that of a co-venturer in a joint venture. c) According to the judgment of Apex Court in the case of Faqir Chand Gulati vs Uppal Agencies Pvt. Ltd reported in 2008 (10) SCC 345, a joint venture is a combination of two or more persons in a specific venture, where profit is jointly sought without any actual partnership or corporate designation. It clearly comes out from the judgment that to constitute a joint venture, a common enterprise for profits should be undertaken where joint control is exercised over strategic financial and operative decisions. This test is met with in the facts of the present case. d) The relation between the co-venturer and joint venture is akin to that of a partner in a partnership firm and that any activity undertaken by the partner for the joint enterprise cannot be considered as a transaction between a service provider and the service recipient inasmuch as whatever the partner does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port Retail Pvt Ltd vs UOI reported in 2014 (35) STR 659 held that variable component of a licence fee could also be a part of the consideration received for renting of the premises. A decision of the Tribunal in the case of Airport Authority of India vs Commissioner of Service Tax reported in 2015 (39) STR 35 was cited to argue that royalties earned by a statutory authority from private parties for permitting them to operate the business within the Airport premises are taxable under the head Renting of Immoveable property. iv) the mere fact that service tax on the entire of the consideration is paid by one of the contractor is not sufficient to absolve the sub-contractors of their liability to discharge service tax. Reliance in this regards was placed on the judgment in the case of Sunil Hi-tech Engineers vs CCE reported in 2014 (36) STR 408. 7. The Ld. Counsel in rejoinder submits that the decision of the Delhi bench of Tribunal in Airport Authority of India vs Commissioner of Service Tax reported in 2015 (39) STR 35 does not assist the Revenue s case as in that case existence of any joint control by the Airport Authority of India over the businesses run by retail business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , is one of the oldest ports in India, and has been in existence since 1885. With a view to expand its cargo handling capacity at Mormugao, it floated a tender, inviting bids from private parties for the construction and operation of two new multi-purpose bulk cargo handling berths viz: 5A and 6A. It is apparent that the said bids were invited in line with the Government s policy of encouraging Private participation in the port sector through the Public Private Partnership route (PPP for short). The private sector participation was invited. The Tariff authority for Major Ports, which fixed the tariff for the port services rendered at the two new multipurpose bulk cargo handing berths 5A and 6A describes this project as one setup on a PPP model. This is so stated in relevant Notification No.G 27 dated 26.2.2008. The Appellant s claim that there was no principal-client relationship between it and SWPL, and that the royalty earned by the Assesseefrom SWPL i.e. 18% of the revenue earned towards cargo handling charges was an earning from a revenue sharing arrangement has been rejected by the Commissioner mainly on the ground that since the Assessee Trust had done nothing more than leasi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance of environmental measures, supplying of power and water during construction, assistance for fire fighting, obtaining/assisting in obtaining other sanctions and donations (clause 5.10, 5.11), scheduling entry, berthing and sailing of vessels, maintenance, dredging, removal of racks, debris of liquid spillage (para 6.1), etc. 11. The various obligations of the Assessee as we have referred above show that the Commissioner s finding that the contribution of the Assessee in the running of the port operations of SWPL was limited to handing over the land and water area is incorrect. There is also no basis shown in the order to support the Commissioner s finding that the consideration for leasing, renting of land and water area was split-up by the parties into two of which royalty was the variable component. On the contrary, the various obligations of the Assesseeas set out above, show that Royalties earned by it was the reward for the several contributions made by the Assessee to the joint venture between them and SWPL. The contributions of the Assesseecomprised of the grant of a permission to conduct port business using the water front at Mormugao, a right which otherwise veste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, enter into any agreement or other arrangement, whether by way of partnership, joint venture or in any other manner with, any body corporate or any other person to perform any of the services and functions assigned to the Board under this Act on such terms and conditions as may be agreed upon. 14. The meaning of the term joint venture was interpreted by the Supreme Court in the case of Faqir Chand Gulati vs Uppal Agencies Pvt Ltd 2008 (12) STR 401 SC wherein the Apex Court quoted with approval the following extract from the American jurisprudence Second Edition Volume 46 defines Joint Venture to mean: 17 A joint venture is frequently defined as an association of two or more persons formed to carry out a single business enterprise for profit. More specifically, it is in association of persons with intent, by way of contract, express or implied, to engage in and carry out a single business venture for joint profit, for which purpose such persons combine their property, money, effects, skill, and knowledge, without creating a partnership, a corporation or other business entity , pursuant to an agreement that there shall be a community of interest among the parties a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the water front, while the obligation of constructing, operating, maintaining, repairing the bulk cargo handling jetty on the same was that of SWPL. The agreement between the two also stipulates that SWPL will construct, modify, repair and maintain the facility only after the detailed plan, design and drawings have been approved by the Appellant. Further while SWPL was to operate and maintain the facility the Assessee was also responsible interalia to undertake the several activities for the smooth operation of the said two bulk cargo handling jetties, as set out in clauses 5.10, 5.11 and 6.2.1 which we have referred to earlier. It thus clearly comes out from the agreement between the Assessee and SWPL, that the two had come together with the common objective of earning revenue by jointly rendering port services at jetty No.5A and 6A. There is joint control over the operations as it is clear from the agreement that the strategic financial and operating decisions such as those relating to the basic design, capability functionality, etc of the bulk cargo handling jetty and its subsequent upgradation, upkeep, modifications, repair, maintenance, dredging, installations, etc. are to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11. Consideration is, undoubtedly, an essential ingredient of all economic transactions and it is certainly consideration that forms the basis for computation of service tax. However, existence of consideration cannot be presumed in every money flow. - The factual matrix of the existence of a monetary flow combined with convergence of two entities for such flow cannot be moulded by tax authorities into a taxable event without identifying the specific activity that links the provider to the recipient. 12. Unless the existence of provision of a service can be established, the question of taxing an attendant monetary transaction will not arise. Contributions for the discharge of liabilities or for meeting common expenses of a group of persons aggregating for identified common objectives will not meet the criteria of taxation under Finance Act, 1994 in the absence of identifiable service that benefits an identified individual or individuals who make the contribution in return for the benefit so derived. 13. Neither can monetary contribution of the individuals that is not attributable to an identifiable activity be deemed to be a consideration that is liable to be taxe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm. By placing the office at the disposal of the firm to conduct its business the partner agrees to receive only a share of profit which is contingent upon the firm earning profits in the first place. If the venture fails and the firm does not earn any profit, the partner may not receive anything in return for the contribution made by him. On the other hand, if the firm s venture is successful, the partner may earn profit which may be much more than the normal rent that he would have earned by simply leasing out the office to the firm for a fixed rent. The profits which the partner will earn in such circumstances is a reward due to an entrepreneur for the risk that he takes and cannot be regarded as a consideration for the renting of the office to the firm. 21. The Commissioner has tried to support his conclusion to levy tax on Royalty by citing the Appellants own action of paying service tax on Royalty after April 2012 when the negative list regime of taxation was introduced. Since there is no estoppels in law, we find this aspect to be totally irrelevant for deciding the Appellant s liability for the past period. In any case, we find that under the negative list regime the mos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decided keeping in view the totality of the agreement by reading the agreement as a whole and not by reading one clause in isolation. The Commissioner himself holds so in para 27 of the order, though in a different context by observing that all clauses in the agreement have to be read in conjunction and that no one clause can be read in isolation. The law in this regard is in any case settled by the Apex Court in its judgment in the case of BHS Industries vs Export Credit Guarantee Corp Anr in Civil Appeal No.2729 of 2009 reported in (2015) 9 SCC 414 that a contract has to be read as a whole and it is impermissible to read one clause out of context and draw adverse inference from it. The relevant observations of the Apex Court in this regard are extracted herein below. 10. In Amalgamated Electricity Co. v. Ajmer Municipality, though in a different context, it has been held that:- In construing the true nature of the contract entered into between the parties, the contract has to be read as a whole and if so read it is clear that what the plaintiff undertook was to pump water from the wells in question and not to supply any electrical energy. Hence we are in agreement with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rangement of joint venture, though there is clause that the assessee will not share the revenue loss of the business of the joint venture but in fact, they are otherwise the looser of the deemed auction amount, in case of auction which the assessee could have opted instead of joint business venture. Therefore in the present set of arrangement also, it is not correct to say that the Assessee is not sharing the loss. 23. We are accordingly of the view 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. 24. Since we are allowing the party s appeal on merits the other contention to the aspect to time bar are not being gone into. The Revenues appeal challenging the non-imposition of penalty does not survive as the demand of service tax itself is not sustainable. Consequently, the party s appeal is allowed and the Revenue s appeal is dismissed. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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