2014 (6) TMI 557 - AT - Service Tax

Appellant not liable for service tax on vessels outside India.

RELIANCE INDUSTRIES LTD. Versus COMMISSIONER OF CENTRAL EXCISE & SERVICE TAX, LTU, MUMBAI

The Tribunal held that the appellant was not liable to pay service tax under the reverse charge mechanism as the vessels were not located in India during ... Classification under Section 65 (105)(zzzzj) - supply of tangible goods - reverse charge mechanism - vessels were not located in India - The contention of the appellant is that there is no supply of vessels by the ship owners to the appellant - Held that:- The conditions precedent for Notification of reverse charge in respect of Supply of Tangible Goods from foreign service provider, the expression during the period of use appear under Rule 3 (iii) of the Rules has been interpreted by the Tribunal in the case of Petronet LNG (2013 (11) TMI 1011 - CESTAT NEW DELHI) relied upon by the appellant. The Tribunal held that for being tangible goods must be located in India during the entire period of use and it is not so located in India for any part of the period it cannot be said to be located in India and the Service Tax in respect of the same cannot be levied under the reverse charge mechanism. It is clear from the definition of 'India'as extracted above that for the purpose of Import of Service Rules, non-designated area in the Continental Shelf and the Executive Economic Zone of India during the relevant period even after the amendment definition 'India' included only the installations, structures and vessels in the Continental Shelf of India and the Exclusive Economic Zone itself. Apart from the above a ship is plying in the Continental Shelf and the Exclusive Economic Zone of India carrying goods or persons cannot be regarded as India for the purpose of Import of Service Rules. Further the expression ‘vessels' is preceded by the words 'installation and structures'. Applying the principle of Noscitur A Sociis the vessels covered therein would be such vessels which are akin to installation and structures and which are to be stationed at a fixed location in the Continental Shelf and Exclusive Economic Zone of India while rendering services. In our opinion such vessels may be of the type such as floating or submersible drilling of production platforms, generally designed for the discovery or the exploitation of offshore deposits of oil and natural gas. The vessels in question are offshore supply vessels which are different from function in a fixed or stationary position. Appellant cannot be held to be under the reverse charge mechanism in respect of vessels not located in India during the entire period of their use. In view of above, we find that the ratio of the decision of the Tribunal in the case of Petronet LNG (2013 (11) TMI 1011 - CESTAT NEW DELHI) is squarely applicable to the facts of the present case - Decided in favour of assessee. Issues Involved:1. Classification of the service received by the appellant under the category of 'Supply of Tangible Goods for Use.'2. Applicability of service tax on the appellant under reverse charge mechanism.3. Interpretation of the term 'located in India' as per the Import of Service Rules, 2006.4. Validity of demand based on the period of contracts and amendments in the definition of 'India.'5. Applicability of limitation period for the demand of service tax.Detailed Analysis:1. Classification of the Service Received:The primary issue was whether the service received by the appellant from foreign suppliers of Offshore Supply Vessels (OSVs) falls under the category of 'Supply of Tangible Goods for Use' as per Section 65(105)(zzzzj) of the Finance Act, 1994. The appellant contended that there was no supply of vessels as the vessels remained under the control of the owners. However, the Revenue argued that the terms of the Charter Party Agreements indicated that the vessels were supplied to the appellant. The Tribunal referred to the decision of the Hon'ble Bombay High Court in the case of Indian National Ship Owners Association vs Union of India, which held that similar activities fall under the category of 'Supply of Tangible Goods for Use.' The Tribunal concluded that the service received by the appellant indeed falls under this category.2. Applicability of Service Tax under Reverse Charge Mechanism:The appellant argued that the vessels were not supplied to them and hence, the activity does not come under the scope of 'Supply of Tangible Goods for Use' service. The Revenue, relying on the terms of the Charter Party Agreements and the decision of the Bombay High Court, contended that the vessels were indeed supplied to the appellant, making them liable to pay service tax under the reverse charge mechanism. The Tribunal upheld the Revenue's contention, stating that the appellant was liable to discharge tax liability under the reverse charge mechanism for the service received.3. Interpretation of 'Located in India':The appellant contended that the OSVs were not located in India during the entire period of their use, and hence, the service tax under the reverse charge mechanism was not applicable. The Tribunal referred to Rule 3(iii) of the Taxation of Service (Provided from Outside India and received in India) Rules, 2006, which requires that tangible goods supplied for use must be located in India during the period of use. The Tribunal relied on the decision in Petronet LNG Ltd vs CST, which held that tangible goods must be located in India during the entire period of use for the service tax to be applicable. The Tribunal found that the vessels were plying in non-designated areas in the Continental Shelf and the Exclusive Economic Zone of India, which do not fall within the definition of 'India' during the relevant period.4. Validity of Demand Based on Contract Periods and Amendments:The appellant argued that contracts entered into before 16.5.2008 were not liable to service tax, even if the use of vessels and payments were made after this date. They also contended that the definition of 'India' was widened only from 7.7.2009. The Tribunal noted that the definition of 'India' for the purpose of Import of Service Rules varied at different points of time and concluded that the vessels were not located in India during the entire period of their use, thus, service tax under the reverse charge mechanism was not applicable for the period in dispute.5. Applicability of Limitation Period:The appellant claimed that the major portion of the demand was hit by limitation as they were under the bona fide belief that they were not liable under the reverse charge mechanism. The Tribunal did not specifically address this issue in detail, as the primary contention regarding the location of the vessels was sufficient to set aside the demand.Conclusion:The Tribunal concluded that the appellant was not liable to pay service tax under the reverse charge mechanism for the period in dispute, as the vessels were not located in India during the entire period of their use. The impugned orders were set aside, and the appeals were allowed.