Case Law Details
Port Department Vs Commissioner of GST & Central Excise (CESTAT Chennai)
CESTAT Chennai held that concession fee paid by KPPL to the Puducherry Port is payment for the right to develop/ operate/ maintain the port including project facility. Accordingly, classifying the activity of Build Operate Transfer contract u/s 65(105)(zzzq) of the Finance Act, 1994 ‘Support Services of Business or Commerce’ is unsustainable.
Facts- The Port Department, Government of Puducherry intended to develop a port at Karaikal in the Union Territory of Puducherry in the BOT format with private investments. They entered into an agreement, named ‘Concession Agreement For Development Of Karaikal Port Project’, with M/s. Marg Constructions Ltd (MCL). granting them the rights to develop / operate / maintain the Port including project facilities on a BOT basis. Subsequently, MCL transferred and assigned the project to their wholly owned subsidiary, namely M/s. Karaikal Port Pvt. Ltd. (KPPL) who would be the concessionaire for the Port project. KPPL were given the freedom for the levy, fixing and revising tariffs for various port services on the premises. In consideration for the grant of the said ‘concession’, a ‘concession fee’ was to be paid by KPPL to the Puducherry Port as a percentage of gross revenue generated by the concessionaire each year. The gross revenue included revenue generated by the concessionaire from the operation of the port or any other service in respect of vessels and cargo and all other revenues from the services within the port.
The impugned order held that the royalty / concession fee / lease charges received by the Port from KPPL represents the consideration received by the Port Department for providing services relatable to the taxable service defined u/s. 65(105)(zzzq) of the Finance Act, 1994 under the category of ‘Support Services of Business or Commerce’. Service tax of Rs.1,03,82,431/- was confirmed under the proviso to section 73(1) of the Finance Act, 1994 for the period from January 2007 to January 2012 along with appropriate interest. A penalty of Rs.1,03,82,431/- was also imposed u/s. 78 of the Finance Act, 1994.
Conclusion- The ‘concession fee’ paid by KPPL to the Puducherry Port as a percentage of gross revenue generated by the concessionaire each year is also not a payment for any support services of business or commerce given by the Port Department to KPPL. It is basically a payment for the rights to develop / operate / maintain the Port including project facilities. We are accordingly of the view that the impugned order has erred in classifying the activity of the BOT contract under sec. 65(105)(zzzq) of the Finance Act, 1994 and that the levy must fail.
FULL TEXT OF THE CESTAT CHENNAI ORDER
This is an appeal filed by the Port Department, Government of Puducherry against Order in Original No. 4/2013-ST(C) dated 18.5.2013, passed by the Commissioner of Central Excise, Puducherry Commissionerate.
2. The facts of the case are that the Port Department, Government of Puducherry (herein after referred to as ‘Port Department’) intended to develop a port at Karaikal in the Union Territory of Puducherry in the BOT format with private investments. They entered into an agreement, named ‘Concession Agreement For Development Of Karaikal Port Project’, with M/s. Marg Constructions Ltd (MCL). granting them the rights to develop / operate / maintain the Port including project facilities on a BOT basis. Subsequently, MCL transferred and assigned the project to their wholly owned subsidiary, namely M/s. Karaikal Port Pvt. Ltd. (KPPL) who would be the concessionaire for the Port project. KPPL were given the freedom for the levy, fixing and revising tariffs for various port services on the premises. In consideration for the grant of the said ‘concession’, a ‘concession fee’ was to be paid by KPPL to the Puducherry Port as a percentage of gross revenue generated by the concessionaire each year. The gross revenue included revenue generated by the concessionaire from the operation of the port or any other service in respect of vessels and cargo and all other revenues from the services within the port. The impugned order held that the royalty / concession fee / lease charges received by the Port from KPPL represents the consideration received by the Port Department for providing services relatable to the taxable service defined under sec. 65(105)(zzzq) of the Finance Act, 1994 under the category of ‘Support Services of Business or Commerce’. Service tax of Rs.1,03,82,431/- was confirmed under the proviso to section 73(1) of the Finance Act, 1994 for the period from January 2007 to January 2012 along with appropriate interest. A penalty of Rs.1,03,82,431/- was also imposed under sec. 78 of the Finance Act, 1994.
2.1 Aggrieved by the above order, the appellants are before us.
2.2 No cross-objections have been filed by the respondent.
3. We have heard Shri Raghavan Ramabhadran, learned counsel for the appellant and Smt. K. Komathi, ADC, learned AR for Revenue.
3.1. Shri Raghavan Ramabhadran, learned counsel appearing for the appellant has stated that they are an arm of the Government of Puducherry and entrusted with the administration and supervision of the Ports and were registered with the Service Tax Department for rendering Port services. The impugned order has held that Government of Puducherry has outsourced the activity of designing, financing, building, owning, maintaining, operating and transferring a port at Karaikal and has classified the activity under infrastructure support service in relation to business or commerce. He submitted that the service is performed by KPPL and not by the appellant. The fees that is received by the Appellant is not in return for provision of any infrastructural service. Rather, it is merely for leasing of vacant port land. If there is any provision of infrastructural support or service, the same flows from Karaikal Port to the Appellant. The Appellant submits that the aforesaid activity of leasing of vacant land will not be taxable under the provisions of the Finance Act, 1994. In this regard, reliance was placed upon Section 65(105)(zzzz) [mistakenly stated as Section 65(105)(zzz) in the synopsis given by the appellant] of the Finance Act, 1994 which pertains to “Renting of immovable property” which is taxable service w.e.f 01.06.2007. Reliance is placed upon the exclusion clause under Explanation I to Section 65(105)(zzzz) which excludes leasing of vacant land from the definition of immovable property. To support this contention, the Appellant relies upon CCE, Goa vs Mormugao Port Trust 2016 (41) S.T.R. 127 (Tri.-Mumbai). Further, the Appellant submits that the dispute involves interpretation of legal provisions. It is a settled position in law that suppression cannot be alleged when interpretation of legal provisions is involved as held in International Merchandising Company vs CST, New Delhi 2022 (67) G.S.T.L. 129 (S.C). On the aforesaid grounds, the Appellant submits that the demand covered under the extended period of limitation and the entire penalty merits to be set aside.
3.2 Smt. K. Komathi, ADC, learned AR for Revenue submitted that the Government of Puducherry had outsourced the activity, which was to be done by them for which they were receiving a concession fee. The entire activities carried out under the concession agreement are in the nature of composite services, and correspond to the provision of “Infrastructural Support Services” in relation to business or commerce as defined under section 65(104C) of Finance Act, 1994 and is taxable accordingly. She further stated that the Port Department which is a registered service provider who were following the self-assessment pattern and have supressed the fact of receipt of the above taxable value in their statutory periodical returns and the matter was uncovered only after the department investigated the matter based on intelligence. Hence the extended time has been rightly invoked. She prayed that the appeal be rejected.
4. We have examined the matter. It would be helpful to examine the concerned sections of the Act governing the dispute as cited in the impugned order. Sections 65(105), 65(105)(zzzq), 65(104C) of the Finance Act, 1994 are reproduced below;
Section 65(105):- “taxable service” means any service provided or to be provided,-
**** ***** ***** *****
Section 65(1 05)(zzzq):-
“to any person, by any other person, in relation to support services of business or commerce, in any manner”
Section 65(104C):-
“Support services of business or commerce” means services provided in relation to business or commerce and includes evaluation of prospective customers, telemarketing, processing of purchase orders and fulfilment services, information and tracking of delivery schedules, managing distribution and logistics, customer relationship management services, accounting and processing of transactions, operational or administrative assistance in any manner, formulation of customer service and pricing policies, infrastructural support services and other transaction processing.
Explanation.-For the purposes of this clause, the expression “infrastructural support services” includes providing office along with office utilities, lounge, reception with competent personnel to handle messages, secretarial services, internet and telecom facilities, pantry and security;
5. The questions that require determination are;
a) whether the royalty / concession fee / lease charges received by the Port from KPPL represents consideration for providing services relatable to the taxable service defined under sec. 65(105)(zzzq) of the Finance Act, 1994 under the category of ‘Support Services of Business or Commerce’.
b) whether the notice is time barred.
6. We find that to bring the activity covered by the ‘Concession Agreement For Development Of Karaikal Port Project’, between the Port Department and KPPL under sec. 65(105)(zzzq) of the Finance Act, 1994, the “taxable service” provided or to be provided, to KPPL by the Port Department, should be in relation to support services of business or commerce, in any manner. Revenue is of the opinion that the entire activities carried out under the concession agreement are in the nature of composite services, which consists of a combination of different taxable service and therefore it should be classified as if it consisted of a service which gives the essential character in accordance with Section 65A of Finance Act, 1994. The said activity of the Port Department corresponds to the provision of “Infrastructural Support Services” in relation to business or commerce as defined under section 65(104C) of Finance Act, 1994 and is taxable accordingly. By the Concession agreement, the Appellant has entrusted upon KPPL the rights to develop / operate / maintain the Port including project facilities on a BOT basis. The expression “infrastructural support services” given under Section 65(104C), includes providing office along with office utilities, lounge, reception with competent personnel to handle messages, secretarial services, internet and telecom facilities, pantry and security. None of these services are being provided or to be provided, to KPPL by the Port Department. KPPL has developed the land, built a Port and are offering services to the trading community on the basis of fees fixed by KPPL. This contractual permission by the Port Department to KPPL for setting up and running port facilities cannot be termed as support services of business or commerce, to be taxed at the Port Departments hands. The ‘concession fee’ paid by KPPL to the Puducherry Port as a percentage of gross revenue generated by the concessionaire each year is also not a payment for any support services of business or commerce given by the Port Department to KPPL. It is basically a payment for the rights to develop / operate / maintain the Port including project facilities. We are accordingly of the view that the impugned order has erred in classifying the activity of the BOT contract under sec. 65(105)(zzzq) of the Finance Act, 1994 and that the levy must fail.
6.1 The Appellant has relied upon the judgment in CCE, Goa vs Mormugao Port Trust 2016 (41) S.T.R. 127 (Tri.-Mumbai). The facts of the case are that M/s Mormugao Port Trust is rendering Port Services and is duly registered for this purpose with the service tax authorities. The Assessee had entered into an agreement with M/s. South West Port Ltd., Mormugao, (SWPL) under which it had leased out/rented out pieces or parcels of land which were situated in the operational area of the harbour to SWPL on which the latter had constructed a jetty which was used for loading and unloading of cargo from ocean going vessels, in lieu of which it received license fee and royalty from SWPL. Considering the facts of that case the Hon’ble Tribunal felt that the arrangements between the parties was one of public-private partnership and was in the nature of a joint venture where two parties have got together to carry out a specific economic venture on a revenue sharing basis and there is no service rendered by Mormugao Port which can be taxed. Since we have already concluded that on merits the levy must fail, we do not go into the legal issue discussed in the judgement. Moreso because the appellant in the present appeal is of a different view, that the concession fee received by the Port Department is in the nature of a statutory fee which derives its source from section 35 of Indian Ports Act 1908 and is deposited in Government Treasury as per Section 36(5a) of IPA 1908 and is hence not taxable. Another stand taken by the appellant is that the activity in question is covered under the scope and ambit of renting of immovable property and the legislature has excluded leasing out of vacant land from the definition of immovable property for purposes of taxation, whereas the above judgment in the Mormugao Port Trust case rules out the classification of the service under renting of immovable property.
6.2 The appeal having being decided on merits in favour of the appellant, the issue of the show cause notice invoking the extended period of time does not survive.
7. Based on the discussions above, the impugned order is set aside and the appeal is allowed with consequential relief as per law, if any.
(Pronounced in open court on 06.06.2023)
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