Case Law Details
HIGH COURT OF GUJARAT
Kandla Shipchandlers & Ship Repairers Association
Versus
Union of India
Special Civil Application No. 24997 OF 2005
JUNE 15, 2012
JUDGMENT
Akil Kureshi, J.
Petitioners have filed this petition praying for a direction to prevent the respondents from enforcing compliance of the provisions of the Finance Act, 1994 and from levying and demanding Service Tax in respect of activities undertaken by the members of petitioner No. 1 Association.
2. Facts in brief are as follows :
2.1 Petitioner No. 1 is an association of shipchandlers. Petitioners Nos. 2 and 3 are individual agencies undertaking certain tasks with respect to vessels beached at major and other ports in the State. Members of petitioner No. 1 Association provide various services such as, supply of provisions to the crew of the vessel and minor repairs of the vessel, as required. The case of the petitioners is that such service does not fall within the meaning of ‘port service’ as defined under section 65(82) of the Finance Act, 1994 and they are, therefore, not exigible to any Service Tax under the said Act. The respondents, however, hold a belief that the service provided by the members of petitioner No. 1 Association amounts to port service and that, therefore, they are providing taxable service as defined in section 65(105)(zn) of the Act.
2.2 On such basis, the Superintendent of Service Tax, Range Gandhid ham-Kutch issued a communication dated 2-3-2004 to the President of petitioner No. 1 Association. In the said letter, it was conveyed that shipchandlers are authorised by the Port Authority to supply provisions. They also carry out minor repair works to clear technical snag of the vessels through their locally arranged resources as workshops. It was conveyed that besides such activities, they also provide service of supply of wooden pellets for packing of goods, lug or small size marine boats are also provided on rental basis to the shipping agents for outer or inner boarding and other supply to the vessels. Except shipchandlers nobody can provide any service in the port area. It was, therefore, contended that in view of the above, shipchandlers should get themselves registered under section 69 within 15 days from the date of receipt of the letter and if they failed to do so, legal action will be initiated against them.
15-6-2012 :
2.3 Since no steps were taken, once again, the Superintendent, Service Tax, Range Gandhidham on 16th March, 2004 wrote to the petitioner-Association and reiterated that ship chandlers come within the ambit of port services and that therefore, they should register themselves under section 69 of the Finance Act, 1994 immediately.
2.4 On 19-4-2004, the Association addressed a letter to the Commissioner of Central Excise, submitting that the function of ship chandler is that of trading in goods and basically selling goods in ships and they are registered and governed by the Sales Tax Act and therefore, sale of products to ships attract no Service Tax.
2.5 On 6-5-2004, the Commissioner of Central Excise, wrote a letter to the petitioner-Association referring to two circulars of the Central Board of Excise and Customs dated 1-7-2003 and 10-11-2003 and stated that by virtue of clarification issued in such circulars, the activities carried on by the shipchandlers would fall within the purview of Service Tax and they are liable to pay such tax. We may notice that circular dated 20th June, 2003 is one granting exemption to so much of the value of all the taxable services as is equal to the value of goods and materials sold by the service provider to the recipient of service from the Service Tax leviable thereon under section 66 of the Finance Act, 1994. The circular dated 20th June, 2003 (brought into effect from 1st July, 2003) is a clarificatory circular issued by the C.B.E. & C. regarding levy of Service Tax on ship repair during the dry docking by the person duly authorized in that behalf by the port authorities. In this respect, it was clarified that as “the matter has been examined, port services means any service rendered by port or any person authorized by them, in any manner in relation to a vessel or goods. Thus, in all services rendered, including during dry dock and repairs to the ship, are taxable which should include not only the minor repairs provided by shipchandlers but also the dry dock facilities and any repairs carried out to the vessels. However, the benefit of Notification No. 12/2003-S.T., dated 20-6-2003 would be available”.
3. At that stage, the petitioners have approached this Court by filing the present petition praying for the reliefs noted above.
4. Learned counsel for the petitioners submitted that shipchandlers principally supply provisions such as fruits, vegetables, milk, etc., for the crew members of the ship. Majority of them do not carry out any repair work. Their services, therefore, cannot be made taxable under the Service Tax-net. He submitted that even the repair work, if any, carried out by the members of the petitioner-Association is extremely minor in nature and they cannot be stated to have rendered any service in relation to a vessel. Counsel submitted that service will be such which should be exclusively performed by port authorities which under some authorization has been delegated into the provider only then, the question of being covered under the Service Tax would arise.
5. On the other hand, learned counsel Shri Darshan Parikh for the Department opposed the petition contending that the members of the petitioner-Association provide taxable service and insistence of the Department for obtaining registration is therefore justified. He relied heavily on the circular issued by the C.B.E. & C dated 10th November, 2003 in this respect. Drawing our attention to the various statutory provisions, counsel submitted that the term “port service” as defined in section 65(82) is worded widely and includes any service rendered by port or any persons authorized by such port in any manner in relation to a vessel or goods. He, therefore. submitted that the service provided by the shipchandlers is covered under such statutory provisions. Counsel relied on a decision of the Apex Court in the case of Flex Engg. v. CCE [2012] 34 STT 512/18 taxmann.com 108 (SC), wherein the term “in relation to” came up for consideration. The Apex Court referred to large number of decisions wherein such term came up for interpretation holding that these words have been used to widen and expand the scope, meaning and content of the expression.
6. Having thus heard the learned counsel for the parties and having perused the documents on record, we may divide our inquiry with respect to Service Tax eligibility of the members of the petitioner-Association in two parts. First would be a part where the members who may be providing the repair services to the vessels in addition to performing all other tasks of shipchandlers. The other would be class of members who would not be undertaking any repair work of the vessel but providing only provisions in the capacity of ship chandlers. From the dictionaries and material available on the net, we gather that shipchandlers deal in goods typical for fuel-powered commercial ships, such as oil tankers, container ships, bulk carriers, etc. They supply the crew’s food, ship’s maintenance supplies, cleaning compounds, rope, etc. The principal advantage for the ships crew using a chandler is that they do not have to find stores in the town where they have landed or deal in local currency. Essentially, they supply food, vegetables, milk, drinking water for the crew of the ship, etc.
7. It is not in dispute that many of the members of the petitioner-Association in addition to supplying such provisions for the crew and for minor requirements of the vessel, they also undertake certain repair works. Of course, it is the case of the Association that such repair work is minor in nature. The respondents do not accept such proposition. Be that as it may, it is undoubtedly true that some of the members of the petitioner-Association involve themselves also in working of repairing the vessel in addition to providing supply for the crew.
8. With this factual background in mind, if we refer to the statutory provisions, it emerges that section 65(105)(zn) makes taxable any service provided to any person by a port or any person authorized by the port, in relation to port services, in any manner. The term “port service” is defined under section 65(82) as under:
‘(82) “port service” means any service rendered by a port or other port or any person authorized by such port or other port, in any manner, in relation to a vessel or goods.’ The term “port” has been defined in section 65(81) as having the same meaning assigned to it in clause (q) of section 2 of the Major Port Trusts Act, 1963.
9. It can thus be seen that for a person to be included in the Service Tax- net under section 65(105)(zn) must be one providing port service. The definition of ‘port service’ thus assumes significance. The term ‘port service’ has been defined to mean any service rendered by a port or other port or any person authorized by such port or other port in any manner, in relation to a vessel or goods. Thus, the term ‘port service’ has been defined in an expansive manner. It includes within its sweep any service rendered in any manner in relation to a vessel or goods. The expressions ‘in any manner’ and ‘in relation to’ both tend to expand the scope of such service.
10. It is not in dispute that the members of the petitioner-Association are authorized by the port authorities constituted under the Major Port Trusts Act, 1963 to provide such services. It is also not in dispute that without such authorization, such services could not be rendered by them. In fact, the petitioners have produced on record, a licence issued by port authorities authorizing the petitioners to provide such services. In that view of the matter, the question is whether the agencies involved in providing repair service to the vessel would or would not be covered within the meaning of port service. To our mind, the term ‘port service’ as defined under section 65(82) is sufficiently wide to include such services. In our opinion, the members of the petitioner-Association who have been authorized by the port authorities to provide such services can be stated to be rendering service in relation to a vessel. The words ‘in any manner’ would further go to show that the Legislature intended to make the definition wide to include range of services which may be provided in relation to a vessel. Repair work of vessel would undoubtedly be in relation to the vessel and therefore would be covered under the definition of ‘port service’ under section 65(82) of the Act.
11. Counsel for the petitioner, however, contended that the term “authorized” used under section 65(82) would include only those services which the port authorities are obliged to undertake under the Major Port Trusts Act or such other statute which are delegated to other agency. He would contend that if such service is not exclusively to be undertaken by the port authorities, any permission to carry out such service granted to the members of the petitioner-Association would not be included within the expression ‘authorized by such port” as used in section 65(82) of the Act. We are not inclined to accept such contention. The language used in Section 65(82); in our opinion, does not permit such interpretation. It includes any service rendered by a port or other port or any person authorized by such port or other port. The section does not provide that the authorization that may be granted by the port must be of such service which the port is exclusively obliged to undertake under the statute. The statutory provision docs not draw any such distinction.
12. We may notice that CESTAT in the case of Homa Engg. Works v. CCE[2007] 9 STT 294 (Mum.-CESTAT) 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 :
“11. As such, we find that the powers of the Board to execute 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. However, extension of above facility does not mean that it is the duty of the Board to undertake the repairing activity themselves. In fact, under the said section, the port is required to provide facility for repair and not to undertake the repair itself. Ship breaking activities and ship manufacturing activities may also be done in the port area, for which purposes facility may be provided by the port, but that will not make the same as “port services”.”
The Tribunal was of the opinion that the term “any other services in respect of vessels” has to be extended to the services which are connected to the movement of the vessel. The Tribunal applied the principle of ejusdem generis. The view expressed by the Tribunal does not command to us. Firstly, the authorization of the port has undoubtedly been granted in the present case. We do not find that such authorization must relate to those activities which the port is either obliged or exclusively required to perform under the Major Port Trusts Act, 1963. Further, in our opinion, the term “in relation to” a vessel must be seen as to expanding the scope of coverage of the port service and cannot be confined to those services which are in relation to movement of vessels so as to exclude from its ambit the work of repair of vessels.
13. Board of Trustees of a port is constituted under section of the Major Port Trusts Act, 1963. Under the said Act, the Board has certain duties to perform and enjoys certain powers to perform such duties. Chapter V of the said Act deals with works and services to be provided at ports. Section 35, which is part of the said chapter, pertains to power of the Board to execute works and provide appliances. Sub-section (1) of section 35 provides that the Board may execute such works within or without the limits of the port and provide such appliances as it may deem necessary or expedient. Sub-section (2) of section 35 provides that such works and appliances may include, besides others, [clause (1)] dry docks, slipways, boat basins and workshops to carry out repairs or overhauling of vessels, tugs, boats, machinery or other appliances. Sub-section (1) of section 36 authorizes the Board to undertake to carry out, on behalf of any person any works or services, on such terms and conditions as may be agreed upon between the Board and the person. Section 42 of the Act pertains to performance of services by the Board or other person. Sub-section (1) thereof provides that the Board shall have power to undertake the services mentioned in clauses (a) to (e) of the said sub-section. Such services include landing, shipping or transshipping passengers and goods between vessels in the port area, receiving, removing, shifting, etc., of goods brought within the Board’s premises, carrying passengers by rail or by other means within the limits of the port, receiving and delivering, transporting and booking, etc., of goods originating in the vessels in the port as also piloting, hauling, mooring, remooring, hooking of measuring of vessels or any other services in respect of vessels. Sub-section (3) of section 42 provides that the Board may, with the previous sanction of the Central Government, authorize any person to perform any of the services mentioned in sub-section (1) on such terms and conditions as may be agreed upon.
13.1 From the above, it can be seen that under the Major Port Trusts Act, the Board has certain functions and duties to be performed and enjoys certain powers to perform such functions and duties. It is, however, not necessary that to authorize a person to perform any functions and duties in the port area, such functions must be those which the Board must under the Act, exclusively perform. To our mind, the contention of the petitioner that such authorization must be of those functions which are to be performed by the Board exclusively under the Act is wholly erroneous. We cannot confuse authorization with delegation. If the Board was required to exclusively perform certain functions, the question of its delegation may arise. The term ‘authorization’ would indicate permitting a person or agency to perform certain tasks subject to the prescribed conditions. In absence of such authorization, it may not be open to such person or agency to perform such tasks. However, such authorization need not necessarily be in respect of only those functions which the Board itself was required to perform under the Act.
14. With respect to the members of the petitioner-Association who are engaged in repair of work of vessels, in our opinion, the authorities are justified in insisting that they must register themselves and also pay Service Tax as may be payable. With respect to those members who do not provide any such repair work, but provide exclusively the provisions to crew and for the utility of the vessel, we are of the opinion that material is scanty for us to express any opinion thereon. The petitioners have approached this Court at a stage when the Commissioner through correspondence insisted on their registration and no further inquiry was made. In fact, the petitioners have also not produced any material either before the Commissioner or before us with respect to the exact nature of activities carried on by them. We may recall that before the Commissioner, the petitioners only wrote a small letter in the nature of representation requesting to drop the demand for registration. Before us also, except this singular document showing the trade licence issued by the port authorities in favour of one of the shipchandlers, no further evidence or material is produced to demonstrate the nature of activities carried on by such members. It would, therefore, be hazardous for us to express any legal opinion on the basis of such scanty material.
15. Under the circumstances, the petition is dismissed. The question of Service Tax liability of shipchandlers not involved in repair work of the vessels is kept open and the petitioner-Association or its members are permitted to raise their objections and convey before the appropriate authorities at appropriate stage as may be permissible under law. Rule is discharged.
