Letting Out of Port Premises Cannot Be Classified As ‘Port Service’ and Cenvat Credit on Telephone At Residential Premises Of Officers Allowed Since Port Operates 24*7.
SERVICE TAX ON TOLL COLLECTION AND ENTRY FEE –
Assessee relied on Circular no. 354/27/2012-TRU dated 22.02.2012 wherein it was clarified that service tax is not leviable on toll charges paid by the users of the road. Assessee submitted that entry fee is in the nature of toll charges and cannot be charged to tax.
Held- Port service definition applicable at relevant time is narrated hereunder –
‘Port service’ means any service rendered by a port or any person authorized by the port in any manner in relation to a vessel or goods.
It is clear from the definition that services rendered by a port in relation to vessels or goods can be described as port service.
It was held that entry fee and toll fees are in relation to goods and persons attending to vessel and goods only and thus service can be covered under the definition of port service.
ROYALTY FOR CONTAINER –
Assessee used to get the revenue share from M/s. ABG and CWC for permitting them to operate within their premises. Assesse submitted that the M/s. ABG and CWC are the service providers and have discharged their respective tax liability.
Held- In the identical case, Tribunal has held that letting out the port premises for operation does not amount to rendering of port service. Even if the service tax is paid on this amount, the same would be available as cenvat credit. Royalty collected by port is not taxable.
CENVAT CREDIT –
1. INPUT SERVICE OF TELEPHONE USED BY VARIOUS OFFICERS INSTALLED AT THEIR RESIDENTIAL PREMISES –
Assessee argued that since port operates round the clock and officers are required to remain in touch all the time, cenvat credit cannot be denied.
Held- Since port operates 24*7 at 365 days, telephone at the residential premises are essential ingredients and thus credit on telephone installed at residential premises is allowed.
2. HIRING OF TAXI AND BUS FOR MOVEMENT OF EMPLOYEE –
Assessee argued that taxi and bus service was used for movement of employee to various places and hence cenvat cannot be denied.
Held: Cenvat for taxi and bus service for movement of employee is allowed.
3. TRANSPORTATION EXPENSE OF SECURITY STAFF PROVIDING SECURITY SERVICE –
Held– Cenvat credit on transportation expenses of security staff who are engaged in providing security service is allowed.
FULL TEXT OF THE CESTAT JUDGMENT
This appeal has been filed by M/s. Kandla Port Trust against confirmation of demand of service tax and for recovery of Cenvat credit, interest and imposition of penalties.
2. Ld. Counsel for the appellant pointed out that they are a major Port and holding service tax registration under two primary taxable categories i.e. Port Services and Renting of Immovable Property Service. Audits of the appellant were conducted during 18.11.2011 to 27.08.2012 and consequently the show cause notice dated 19.10.2012 was issued demanding service tax, interest and seeking to impose penalty under Section 76 and 78 of the Finance Act, 1994. Notice also proposed recovery of wrongly availed Cenvat credit, interest and imposition of penalties under Rule 15 of Cenvat Credit Rules read with Section 78 of the Finance Act, 1994. The show cause notice proposes to recover the service tax under the heads:-
(a) Testing charges of bitumen
(b) charges for entry permit and toll collection
(c) the difference between the value declared under the head Port service viz. the certain specified heads of income shown towards Cargo Handling and Storage charges and Port and Dock charges shown in the books of accounts
(d) service tax on miscellaneous income and township income under the head of Port services.
2.1 The show cause notice also seeks to deny Cenvat credit on;
(a) Telephone charges installed in the residential premises
(b) Construction! repairing work at staff colony! quarters
(c) Taxi! bus hiring charges
(d) Construction service and transportation expenses without
3. Ld. Counsel pointed out that service tax has been demand on Entry Permit Fee and Toll collection cannot be charged to service tax. He relied on the Circular F. No. 354/27/2012-TRU dated 22.02.2012 therein it has been clarified that service tax is not leviable on the toll charges paid by the users of the road. He pointed out that the Circular has further clarified that the Tolls is enumerated (serial No. 59) in List-II (State List) in the 7th Schedule of the Constitution of India and the same is not covered by any of the taxable services. He submits that even the Entry Fees is also in the nature of Toll charges and cannot be charged to tax.
3.1 The Revenue on the other hand argued that the said Toll Collection and Entry Fee collected from any person/ vehicles carrying goods within the port area is an integral part of the payment being made by the service receivers who are receiving various services within the port area.
3.2 We find that the Circular F. No. 354/27/2012-TRU dated 22.02.2012
clarified as follow:-
“2. Service tax is not leviable on toll paid by the users of roads, including those roads constructed by a Special Purpose Vehicle (SPV) created under an agreement between National Highway Authority of India (NHAI) or a State Authority and the concessionaire (Public Private Partnership Model, Build-Own/Operate-Transfer arrangement). ‘Tolls’ is a matter enumerated (serial number 59) in List-II (State List), in the Seventh Schedule of the Constitution of India and the same is not covered by any of the taxable services at present. Tolls collected under the PPP model by the SPV is collection on own account and not on behalf of the person who has made the land available for construction of the road.
3. However, if the SPV engages an independent entity to collect toll from users on its behalf and a part of toll collection is retained by that independent entity as commission or is compensated in any other manner, service tax liability arises on such commission or charges, under the Business Auxiliary Service [section 65(105) (zzb) read with section 65(19) of the Finance Act, 1994].
4. Further, an SPV formed as a result of agreement between NHAI or State Authority and the concessionaire under the BOT arrangement, cannot be considered as an agent of the NHAI. Renting, leasing or licensing of vacant land by the NHAI or State Authority to an SPV for construction of road and such construction do not attract service tax. “
It is seen that Circular refers to Toll collected for road users and the ‘Tolls’ is falling under (serial No. 59) in List-II (State List) in the 7th Schedule of the Constitution of India and is in respect of general rules. In the instant case, while nomenclature is Toll and it should not be strictly considered as Toll. Moreover, these charges are paid for using the facility of road and other infrastructure within the Port area and thus, it is not in the nature of Toll Charges. Ld. Counsel sought to argue that these services of Entry Fee/ Toll charges are not in relation to vessels or goods. The ld. Counsel sought to argue that prior to 01.07.2010 the Port Service definition reads as under:-
“Port Service” means any service rendered by a port or any person authorized by the port in any manner in relation to a vessel or goods.
After 01.07.2010, the Port Service is defined as under:-
“Port Service” means any service rendered within a port or other port in any manner;.
He argued that amended definition cannot be applied prior to the amendment and thus the service in relation to vessels and goods can be covered in Port Service. He argued that entry fees and toll charges are not in relation to vessels or goods.
The port services at the relevant time, were described as follows:-
“Port Service” means any service rendered by a port or any person authorized by the port in any manner in relation to a vessel or goods.
From the above definition, it is clear that any service rendered by a Port in relation to Vessels or goods can be described as Port Service. The term “in any manner in relation to goods and vessels” is very wide and the entry fees of vehicles carrying goods or persons for vessels would clearly come under the ambit of term “in any manner in relation of vessels or goods”. Thus, he argued that the entry charges and toll charges can be in the ambit of term Port Service only with effect from 01.07.2010. In this case, the Entry fees and Toll fees are in relation to the goods and persons attending to vessel and/ or goods only. Thus, this service can be covered under the definition of Port Service. Therefore, the demand in respect of Toll charges and Entry Fees charges is upheld.
4. The next issue relates to demand of service tax on the charges collected as testing charges of bitumen. It has been pointed out that it is a duplicate demand in the sense that these charges are also included in the demand relating to miscellaneous income. The appellants are not contesting demand under this head, except for appropriate adjustment in demand under the head of miscellaneous Income.
5. From the appeal it is seen that appellant are contesting the confirmation of demand under Para 21A of the order which relates to miscellaneous income. The appellants are contesting the taxability of amount received under following heads
(a) Sundry handling
(b) entry permit
(c) Royalty for containers
(d) income from berth No. 11 and 12 and other receipts.
5.1 In respect of Sundry Handling, the appellant has argued that amount of Rs. 33,33,333/- is not taxable as the same is appropriation of reimbursement of Rs. 10,00,00,000/- received as upfront fee for the period of 30 years for the lease granted to ABG Kandla Container Terminal Limited (M/s. ABG Limited for short). The impugned order observe as follows:-
“Sundry handling : I find that the notice, in their earlier Exhibit submitted vide letter dated 27.12.2012, agreed that this amount is taxable, however, vide their revised Exhibit submitted vide letter dated 23.04.2013, that some part Rs. 33,33,333/- is not taxable. There is no specific reason given for exclusion of the said amount from taxable income. I find that handling of goods, in any manner or in any case, is taxable as per Finance Act, 1994. There is no specific contention of the notice as to how it is exempted, therefore, I hold that the Sundry Handling income is clearly taxable and is liable to be taxed.”
We find that reasons given by the appellant was not properly dealt with by the Adjudicating Authority and therefore, the same was not considered and the observations of the Adjudicating Authority against this head are vague and without any authority of law. We find that exact same issue was considered by Tribunal in case of Cochin Port Trust – 2011 (21) STR 25 (Tri. Bang.). In the said decision Para 3(ii) details the facts and Para 5.2 gives the observations on the said facts. The same are reproduced below:-
“3 (ii) As regards the upfront charges, the Commissioner had failed to appreciate that this amount was paid towards cost and use of appellants’ equipment. The agreement stipulated a transfer of ownership of the equipment belonging to the appellant upon IGTPL making payment in installments over a period of eight years. As the transaction in question was one of sale and the amount received from IGTPL was part of the sale consideration, there was no justification for imposition of service tax on the said amount. They had pointed out to the Commissioner at the time of hearing that the appellant had accounted the amounts received as sale consideration in its books of account. The fact that the appellant received legal advice that it was not required to pay sales tax under Kerala Govt. Sales Tax Act, as it could not be held to be a “dealer” did not mean that the transaction did not constitute sale. This sale could not be subjected to service tax. “
“5.2 As regards the upfront charges, we note that these are collected from IGTPL as per clause 6.1 of the agreement entered into between the appellant and IGTPL. The relevant clause 6.1(b) reads as follows :-
“The ownership of all infrastructure assets, buildings, structures, berths, wharves, equipment and other immovable and Movable Assets constructed, installed, located, created or provided by the Licensee pursuant to this Agreement shall, until transfer to the Licensor in accordance with this Agreement, be with the Licensee. The ownership/leasehold rights of the Licensor’s Equipment shall stand transferred to the Licensee from the date of receipt of the first installment of the Upfront Payment under Article 5.1 hereof, and in respect of the crane leased from M/s. ABG Heavy Industries Ltd., the leasehold rights and subsequently the ownership shall pass in accordance with the provisions of Article 2.4(A)(v). Provided that except as provided in Article 6.2 hereof, nothing herein contained shall entitle the Licensee to create any encumbrance thereon including an encumbrance by way of a license without the prior written permission of the Licensor. Provided further that, no encumbrance shall be created by the Licensee over the Licensor’s Equipment, except that the Licensee may dispose off in any manner such Licensor’s Equipment, with the prior approval of the Licensor (such approval shall not be unreasonably withheld by the Licensor. For the purpose of making its decision, the Licensor shall hold discussions with the Licensee, and consider factors such as the remaining useful life of the Licensor’s Equipment sought to be disposed off and appropriation of the value received on disposal against the remaining installments of the Upfront Payment.”
In terms of this clause, ownership/lease hold rights of the equipment of the appellant shall stand transferred to the licensee from the date of receipt of first installment of the upfront payment. The leasehold rights and ownership of crane leased from M/s. ABG Heavy Industries Ltd., was also passed on to the licensee. The consideration received was accounted in the financial records of CPT as sundry debtors and the value of the assets written off at the written down value of Rs. 7.6 crores. Even if the equipment is held to have been leased to IGTPL and not sold, we find that no tax can be levied on the consideration as it is not received towards port services rendered by CPT.
Thus relying on the aforesaid decision we do not set-aside the demand on this count.
5.2 The second issue relating to Entry Fee and Toll collection has already been discussed above in Para 3 and therefore demand under this head is sustainable and is upheld.
5.3 The demand under the head of Royalty for containers and Income from 11th and 12th cargo berth are in respect of Revenue share received by the appellant from the income of M/s. ABG Limited and CWC. Ld. Counsel contended that M/s. ABG and CWC are the service provider and have discharged their respective tax liability. He argued that the appellant are only receiving a part of income as Revenue share for permitting M/s. ABG Limited and CWC to operate within their premises. Ld. Counsel argued that the issue is squarely covered by the decision of the Tribunal in the case of Cochin Port Trust vs. CCE, Cochin – 2011 (21) STR 400 (Tri. Bang.) and Cochin Port Trust vs. CCE, Cochin – 2011 (21) STR 25 (Tri. Bang.). He argued that in identical circumstances the Tribunal has held that income share/ Royalty collected by the Cochin Port is not taxable, in that case M/s. India Gateway Terminal Pvt. Limited (IGTPL) who was permitted to operate within the premises of Cochin on Revenue share basis. It was argued that the demand under this head cannot be sustained. Ld. AR pointed out that the appellants in return for the revenue share, were required to provide following facilities to this licensee for operating in their premises as per article 5 and 5.2 with M/s. ABG Limited which are as follows:-
“ Article 5 of the agreement provides Infrastructure Facilities to be provided by the noticee. According to article 5.1 of the agreement, the noticee has to provide infrastructure facilities to M/s. ABG Kandla Container Terminal Limited.
Article 5.2 provides obligation of licensor, according to which the noticee has to provide following facilities to M/s. ABG Kandla Container Terminal Ltd.:
2. Fire brigade Service.
3. Additional Stack Yard.
4. Additional land.
5. Right of Way for Zeera Rail Link.
6. Access and Right of Way/ use of Rail Link.
7. Land for Rail Lines
8. Access and Right to use. “
He also argued pointed out that in terms of Para 9.2.4, it was the appellant’s obligation to maintain the draft of navigation channel as per the requirement of the vessel and it was their obligation for dredging the channel to enable the ship berth at the berth No. 11 and 12.
5.4 We have considered the rival submissions on this issue. We find that identical matter was decided in the case of Cochin Port Trust vs. CCE, Cochin – 2011 (21) STR 400 (Tri. Bang.) wherein the Tribunal observed as follows:-
“5.1 As regards royalty, we find that CPT received part of revenue earned by IGTPL as consideration for allowing IGTPL to operate the port whereas IGTPL rendered services taxable under port services and paid the tax due on the total revenue. We do not find 1/3rd of that revenue received by CPT liable to tax under Port Services at the hands of the appellant. Letting out the port premises for operation by IGTPL does not amount to rendering of port service. In any case, if at all any service tax is paid on this amount, the same would be available to IGTPL as Cenvat credit, which can be used for paying service tax on port services rendered by it. We find this demand not sustainable.”
Similarly, in the case of Cochin Port Trust vs. CCE, Cochin – 2011 (21) STR 25 (Tri. Bang.) the Tribunal observed as follows:-
“5.1 The impugned demands are under ‘port services’ rendered by CPT. The relevant entry in clause 82 of Section 65 of the Act read as under during the period of dispute :
“Port service means any service rendered by a port or other port, or by such port or other port, in any manner in relation to a vessel or goods.”
The royalty amounts were paid by IGTPL @33.33% of its gross revenue under its agreement with CPT. This amount was paid by IGTPL to CPT for allowing it to develop and operate Rajiv Gandhi Container Terminal at the port premises. We do not find any logic in treating CPT allowing IGTPL, to develop and operate the container terminal as an activity falling under port services. The royalty received by the appellant is not a consideration for any port services rendered by CPT. If at all IGTPL pays service tax as demanded, the same will be available to it as cenvat credit, and can be used to meet its liability on services rendered by it. We find the impugned demand not liable to be sustained.”
We find that the issue stands decided in favour of the appellant in the similar circumstances by aforesaid decisions. Thus, the demand under the head of Royalty for containers and Income from 11th and 12th cargo berth cannot be sustained and is set-aside.
6. The next issue relates to demand of service tax of Township income, the demand has been confirmed under the head of renting of immovable property services. The impugned order in Para 21.B. identifies the following heads under which the receipt is shown:-
|SR No.||Heads of Income||Noticee’s contention||As per order||Remarks as
|1||TOWNSHIP LAND RENT||Non Taxable||Taxable|
|2||MORTAGE CHARGES||Non Taxable||Taxable|
|3||TRANSFER FEES||Non Taxable||Taxable|
|4||MISC. INCOME (GDM
|5||PREMIUM ON LEASED LAND||Non Taxable||Taxable|
It also identifies that the figure mentioned in the show cause notice as Rs. 9,60,80,200/- is not correct and the correct figure as per books of accounts is Rs. 3,60,88,200/-. The impugned order simply reproduces Service Tax Rules, 1994- Fourth Amendment of 2007, CBEC DOF No. 334/1/2007-TRU dated 28.02.2007 and DOF No. 334/1/2010-TRU dated 26.02.2010 to hold that amount received by the notice under the head of income from Township falls under the taxable income of renting of immovable property. There is no discussion on the nature of service against which this amount is received, who is the person who paid the amount and what is the arrangement between the appellant and the person paying for such amounts. In these circumstances, we find that the impugned order is not a speaking order on this issue and therefore, the same needs to be set-aside and issue needs to be remanded for determining the exact grounds and arguments on the basis of which the demand under the head of township income was confirmed.
7. Next issue relates to Cenvat credit availed by the appellant which is sought to be denied. The impugned order seeks to deny Cenvat credit on the input service of Telephone used by various officers installed at their residential premises. The impugned order relied on the CBEC clarification to hold that the Cenvat credit is admissible only in respect of telephone service if the same are installed in the office premises. In the appeal memorandum, it has been argued that only the specific amount of Rs. 385/- per month is reimbursed to certain officer (except HODs). In case of HODs the actual amount is reimbursed. He argued that the Port operates round the clock and the officers are required to remain in touch all the time. It was argued that in these circumstances the credit should not be denied. We find significant merit in the argument. The Port operates 24×7 at 365 days and there can be any emergency and all the officers needs to be accessible all time. In this circumstance, telephones at the residential premises are essential ingredient for provision of service and thus, credit on the Telephone installed at the residential premises cannot be denied.
7.2 The next issue relates to denial of Cenvat credit of hiring of taxi and bus, school bus for the movement of employees of the organization. The appellant are not contesting the demand in respect of the credit taken on school bus service. It has been argued that the taxi and bus services are used for movement of the employees to various places and the credit cannot be denied. We find significant merit in the argument. The appellant are not contesting the demand in respect of Cenvat credit availed on school bus, however for the taxi and bus services used for movement of their employees cannot be denied. The appeal on this count therefore, is partly allowed.
7.3 The next issue relates to denial of Cenvat credit on transportation expenses of Central Industrial Security Force (CISF) Staff who are engaged in providing security services to the appellant. It is seen that the impugned order does not dispute the said service is used for transportation of CISF Staff employed for security. In these circumstances, the credit of service tax cannot be denied. The appeal on this count is also allowed.
7.4 The appellants are not contesting the demand of reversal of credit in respect of construction services where the relevant documents are not available. The appellants are also not contesting the denial of Cenvat credit on construction/ repairing work of staff colony etc. thus the demand on the same are sustained.
8. The appellants have contended that they are a Public Sector Unit and do not have any malafide intention to evade taxes. From the above discussion, it is seen that most issues in dispute are either contentious or decided in favour of the appellant. In these facts and circumstances, we do not find merit in invocation of extended period or in position of penalty under Section 78.
9. In view of the above, the appeal disposed of in following manner:-
(a) Demand on testing charges of Bitumen is confirmed. However, the same needs to be re-quantified against the miscellaneous income as admittedly, there is duplication of the demand.
(b) The demand on account of Toll Collection and Entry Fee is
(c) Demand under the head of Port service on Sundry Charges, Royalty for Containers and in case of services 11th and 12th Cargo berth are set-
(d) Demand in respect of miscellaneous income under the head of renting of immovable property services is set-aside and the matter is remanded to the Adjudicating Authority for fresh decision.
(e) Cenvat credit is partly allowed as detailed in Para 7.
The matter is remanded to Commissioner for re-quantification and order in terms of above observations.
9. Appeal is disposed off in above terms.