Rashtriya Ispat Nigam Pvt. Ltd. Vs Commissioner of Central Excise & Service Tax (CESTAT Hyderabad)
The appeal concerns whether “despatch money” received by the appellant can be classified as a taxable service under “port service” as defined in the Finance Act, 1994. The adjudicating authority had confirmed a demand of ₹2.58 crore along with an equal penalty on the ground that such despatch money constituted consideration for services rendered to vessel owners.
The appellant, a Government of India undertaking engaged in importing raw materials, enters into charter party agreements with vessel owners for transportation and separate arrangements with stevedores for unloading cargo. Under these agreements, despatch money is paid by vessel owners when cargo is unloaded before the stipulated time, while demurrage is payable by the appellant in case of delay. The department treated the receipt of despatch money as consideration for facilitating quicker turnaround of vessels, thereby classifying it as “port service.”
The adjudicating authority held that the appellant acted as a main contractor engaging stevedores and provided services benefiting the vessel owner by ensuring faster unloading. Accordingly, the despatch money was treated as a separate consideration for such services.
The appellant argued that the issue is no longer res integra, relying on a prior decision which held that despatch money is not taxable under “port service.” It was further contended that despatch money is not an independent service but a contractual condition linked to transportation. The appellant emphasized that the contract cannot be split to artificially treat despatch money as a separate taxable service when it is intrinsically linked with freight and demurrage. It was also submitted that despatch money is in the nature of an incentive or bonus and not consideration for any service.
