Shipping Corporation of India Ltd. Vs Commissioner of Central Excise & Service Tax (CESTAT Mumbai)
The Shipping Corporation of India Ltd. (SCI) contested an Order-in-Original that demanded service tax amounting to over Rs. 15.64 crores, along with interest and penalties, for the period October 2009 to September 2014. The demand stemmed from the department’s objection to SCI’s non-payment of service tax on bunker/fuel charges and water charges recovered during the charter hiring of vessels. SCI, engaged in various shipping and related services, argued that these charges pertained to the supply of goods, not services, and therefore should not be subject to service tax. They maintained that for voyage charters, the lump sum price included all costs, with applicable service tax paid on the total. However, for time charters, where customers paid for fuel and port charges, SCI excluded the value of bunker from the service value, considering it a supply of goods. They further asserted that Value Added Tax (VAT) was paid on the bunker, and there was no tax on water, supporting their belief that service tax was not applicable.
SCI supported its position by referencing a CBEC Circular No. 65/14/2003-S.T. dated November 5, 2003, which clarified that fuel and water charges should not be part of the taxable value of services. They also cited Section 66B(44)(a)(i) of the Finance Act, 1994, effective July 1, 2012, which excludes activities constituting merely a transfer of title in goods from the purview of service tax. The CESTAT Mumbai reviewed the agreement between SCI and its charterers, noting that the charterer pays for fuel and water during the hiring period, and the cost of fuel and water incurred by SCI to deliver the vessel before the service commencement was reimbursed separately. The Tribunal concluded that this activity of delivering the vessel was distinct from the service contract, and thus, the fuel/bunker and water charges should not be included in the taxable value of services. The Tribunal also relied on previous rulings, including Express Engineers & Spares Pvt. Ltd. vs. Commissioner of CGST and Kiran Gems Pvt. Ltd. vs. Commissioner of Central Excise & S.T., which similarly held that the supply of goods or reimbursement of electricity charges would not fall under taxable services.
