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TMI Blog2025 (4) TMI 1332X X X X Extracts X X X X X X X X Extracts X X X X ..... ices, offshore services and related services in connection with supply and management of ships/vessels. Some of the services provided by the appellants included Supply of Tangible Goods for Use (STGU) service, ship management service, business auxiliary service, business support service, management consultancy service, maintenance or repair service, commercial training and coaching, Insurance auxiliary service, Banking and Financial Services etc. For the purpose of payment of service tax on taxable services and for compliance with Service tax statute, the appellants were registered with jurisdictional service tax authorities and are holding Centralised service tax registration No. AAACT1524FST001. Further, they are also registered with LTU Mumbai bearing registration No. LTU/MUM/1113 and are filing the periodic ST-3 returns with the jurisdictional service tax authorities under the Finance Act, 1944. 2.2 During the course of EA-2000 audit conducted on the records of the appellants, the department had objected to the non-payment of service tax on bunker/fuel charges and water charges recovered by the appellants in the course of providing charter hiring of vessels to their customers. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Advocate that the appellants purchase the fuel/bunker on payment of VAT while supplying the same to their customers and there is no tax on water; therefore, he submitted that the appellants were of the bonafide belief that no service would be leviable of supply of such bunkers/fuel and water. 3.2 Learned Advocate relied upon the clarification issued by the CBEC in Circular No.65/14/2003-S.T. dated 05.11.2003, to support their stand that the fuel/bunker and water charges as per agreement for delivery of the vessel cannot form part of the taxable value of services in terms of Section 67 of the Finance Act, 1994, and therefore there is no scope for levy of service tax thereon. Further, he contended that for the period w.e.f. 01.07.2012, since the activity relating to supply/sale of goods has been kept out of the purview of service tax in terms Section 66B(44)(a)(i) ibid, no service tax is leviable on such supply of bunker fuel/water. In support thereof, he quoted the explanation provided in paragraph 2.6.4 of the Education guide issued by CBIC for taxation of services. 3.3 In support of their stand, learned Advocate had relied upon following decisions of the Tribunal in the respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inance Act, 1994 and the rules made there under are extracted and given below: "Chapter V of the Finance Act, 1994 Definitions. Section 65. In this Chapter, unless the context otherwise requires,- (105) "taxable service" means any service provided or to be provided,- (zzzzj) to any person, by any other person in relation to supply of tangible goods including machinery, equipment and appliances for use, without transferring right of possession and effective control of such machinery, equipment and appliances; Interpretations. Section 65B. In this Chapter, unless the context otherwise requires,- (44) "service" means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include- (a) an activity which constitutes merely, - (i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or (ii) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of article 366 of the Constitution; or (iii) a transaction in money or actionable claim; (b) a provision of service by an employee to the employer in the course of or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ATION NO. 12/2006-SERVICE TAX, DATED 19-4-2006 Inclusion in or exclusion from value of certain expenditure or costs. Rule 5. (1) Where any expenditure or costs are incurred by the service provider in the course of providing taxable service, all such expenditure or costs shall be treated as consideration for the taxable service provided or to be provided and shall be included in the value for the purpose of charging service tax on the said service. Inserted by the Service Tax (Determination of Value) (Amendment) Rules, 2011, w.e.f. 1-3-2011. Explanation.-For the removal of doubts, it is hereby clarified that for the value of the telecommunication service shall be the gross amount paid by the person to whom telecommunication service is actually provided...." 8.1 From plain reading of the above legal provisions, it transpires that service tax is liable to be paid in respect of taxable services provided by one person i.e., service provider to the other person i.e., service receiver. It is not in dispute that the appellants-vessel owner is the service provider and their customer-charterers are the service receiver, in respect of the taxable service. Further, it also transpires that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TER OPTION) from the date the vessel is delivered to charterers as specified in the notice of delivery, with provision of extension as mentioned in Clause 55, for the purpose of carrying all lawful merchandise (subject always to Clause 29) including in particular, clean petroleum products.... 6. Owners to provide Owners undertake to provide and to pay for all provisions, wages, and shipping and discharging fees and all other expenses of the master, officers and crew; also, except as provided in Clauses 4 and 35 thereof, for all insurance on the vessel, for all deck, cabin and engine-room stores, and for water; for all dry docking, overhaul, maintenance and repairs to the vessel; and for all fumigation expenses and de-rat certificates...... 7. Charterers to provide Charterers shall provide and pay for all fuel and water for boilers, hire, towage and pilotage and shall pay agency fees, port charges, commissions, expenses of loading and unloading cargoes, canal dues and all charges other than those payable by Owners in accordance with Clause 6 thereof. 8. Rate of Hire 8.1 Subject as herein provided, Charterers shall pay for the use and hire of the vessel at the all-inclusi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ER SURVEY AND COASTAL CONVERSION (IF REQUIRED) AT ONE SP/LPO/SBM EAST / WEST COAST OF INDIA AT CHARTER OPTION II) THE VESSEL WILL BE RE-DELIVERED TO OWNERS AT ONE SP/LPO/SBM WCI / ECI OR A FOREIGN PORT CHOPTION UPON DISCONNECTION OF HOSES AFTER COMPLETION OF DISCHARGE AT THE RE-DELIVERY PORT AFTER RE-DELIVERY BUNKER SURVEY III) COST AND TIME OF DELIVERY BUNKER SURVEY WILL BE ON OWNERS' ACCOUNT AND COST AND TIME OF RE-DELIVERY BUNKER SURVEY WILL BE ON CHARTERERS' ACCOUNT IV) THE COST OF BUNKERS AT THE TIME OF DELIVERY WILL BE REIMBURSED TO THE OWNERS AT CURRENT INDIAN COASTAL DUTY PAID BUNKER PRICES PREVAILING AT THE DELIVERY PORT V) CHARTERERS WILL RECOVER THE COST OF ESTIMATED REDELIVERY BUNKERS AND THE RECOVERY SHALL BE MADE BY CHARTERERS AT CURRENT INDIAN COASTAL DUTY PAID BUNKER PRICES PREVAILING AT THE RE-DELIVERY PORT. IF RE-DELIVERY AT A FOREIGN PORT, THE BUNKER PRICES PREVAILING AT THE LAST PORT CF CARGO OPERATION IN INDIA WILL BE CONSIDERED. VI) FINAL SETTLEMENT FOR THE ACTUAL RE-DELIVERY BUNKER QUANTITIES (EITHER REFUND TO THE OWNERS FOR THE EXCESS RECOVERY OR PAYMENT TO THE CHARTERERS FOR THE UNDER RECOVERY) WILL BE DONE ALONGWITH LAST PERFORMANCE SETTL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant to its customers would amount to supply of STGU/transfer of goods for hire service, as the effective control over the diesel generator sets remained with the appellant. 36. The transportation and installation of diesel generator sets at the site of the customers cannot lead to a conclusion that the appellant was rendering STGU service. The Agreement itself provides that the appellant would be responsible for providing diesel generator sets to the customers. It was, therefore, imperative for the appellant to ensure that the diesel generator sets were transported and installed at the site of the customer. 37. Though, the appellant may be providing operators to the customer, but these operators were working entirely under the direction and control of the customers and the appellant had no control over them. Thus, so long as the effective control over the diesel generator sets remained with the customers, the mere providing of operators who were also under the direction and control of the customers, would not mean that the transaction was not that of sale. This view finds support from the judgments of the Gauhati High Court in Dipak Nath and of the Andhra Pradesh High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lves transfer of possession and control is a question of facts and is to be decided based on the terms of the contract and other material facts. This could be ascertainable from the fact whether VAT is payable or paid." (Emphasis supplied) 41. Thus, for all the reasons stated above, it is more than apparent that the supply of diesel generator sets to the customers would not amount to STGU service for the period from 1-4-2011 to 30-6-2012, or a declared service from 1-7-2012 to 2014-15. The orders passed by the Commissioner (Appeals), therefore, cannot be sustained." 10. Further, we also find that the Co-ordinate Bench of the Tribunal in another case of Kiran Gems Private Limited (supra), have by relying on the decision of the Tribunal in the case of ICC Reality (India) Private Limited, have held that electricity charges reimbursed to the service provider by the service recipient is not includable in the gross of value of taxable service. 11. Furthermore, we find that the Tribunal in the case of International Seaport Dredging Limited (supra) have held that the owner of the vessel had put in certain restrictions and obligations on his part and the charterer who uses the vessel ..... 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