2009 (3) TMI 29 - HC - Service Tax

Offshore marine logistics via vessels, barges and tugs fall under entry (zzzzj), not entry (zzzy); tax demands quashed

INDIAN NATIONAL SHIPOWNERS' ASSOCIATION Versus UNION OF INDIA

The HC held that offshore marine logistics services supplied via vessels, barges and tugs do not fall under entry (zzzy) as services directly related to ... Taxability of the offshore oil-field services - Marine Logistic Services under entry (zzzy) i.e. treating them as services “in relation to mining or mineral’ oil or gas” - Nature of the services - Scope of the phrase 'in relation to' - scope of entry (zzzzj) while interpreting entry (zzzy) - HELD THAT:- The Supreme Court in Navin Chemical's case [1993 (9) TMI 107 - SUPREME COURT] considered this provision against the backdrop of other provisions and more particularly Section 129-D and observed that though the phrase 'relation to' is ordinarily, of wide import, in the context of its use in the said expression in Section 129-C, it must be read as meaning a direct and proximate relationship to the rate of duty and to the value of goods for the purposes of assessment. We hold that the services rendered by the members of the 1st petitioner are either premining or post mining activities. They have no direct relation to mining. They were, therefore, rightly not brought to tax till entry (zzzzj) was introduced to cover transport of tangible goods by sea without transferring right of possession and effective control thereof. The services rendered by the members of the 1st petitioner are covered by entry (zzzzj) because they inter alia supply vessels offshore support vessels, barges, tugs etc. without transferring right of possession and effective control over them. In contrast entry (zzzy) was introduced to comprehensively bring under the service tax net activities having a direct nexus to mining activities. Entry (zzzzj) is not a carve out of entry (zzzy). Both entries are independent. Entry (zzzzj) was not inserted into the Finance Act by amending entry (zzzy). It is not possible to invent a remote connection of the services rendered by the members of the 1st petitioner to mining activities and hold that they fall in entry (zzzy). Entry (zzzzj) is not a specie of what is covered by entry (zzzy). Nature of the services rendered by the members of the 1st petitioner, legislative history of the two entries, various circulars to which, we have made reference and the relevant judgments which we have noted hereinabove lead us to hold that the entry contained in Section 65(105)(zzzy) of the Finance Act, 1994 does not apply to services provided by the members of the 1st petitioner. Needless to say that respondents 1 to 4 and respondent 6 cannot demand service tax from the members of the 1st petitioner on the services rendered by them to the 5th respondent. As a consequence of this view of ours proceedings leading to issuance of letters dated 17/12/07, 19/2/08 and 5/3/08 annexed as Exhibits H, N & R respectively to the petition stand quashed and set aside. The petition is disposed of in the aforestated terms. Issues Involved:1. Applicability of Service Tax under entry (zzzy) of Section 65(105) of the Finance Act, 1994 to Marine Logistic Services provided by the members of the 1st petitioner.2. Interpretation of entry (zzzy) and its relation to entry (zzzzj) introduced later.3. Whether the services rendered by the members of the 1st petitioner fall under entry (zzzy) or entry (zzzzj).4. The right of the petitioners to seek reimbursement of Service Tax from the 5th respondent if found leviable.5. Prematurity of the petition in the absence of a show cause notice.Detailed Analysis:1. Applicability of Service Tax under entry (zzzy) to Marine Logistic Services:The petitioners argued that the Marine Logistic Services provided by their members do not fall under entry (zzzy) of Section 65(105) of the Finance Act, 1994, which pertains to services 'in relation to mining of mineral, oil or gas.' They contended that their services are pre-mining or post-mining activities and do not have a direct nexus to mining operations. The court agreed, stating that the services provided by the petitioners are either pre-mining or post-mining activities and have no direct relation to mining.2. Interpretation of entry (zzzy) and its relation to entry (zzzzj):The court emphasized that entry (zzzzj), introduced later by the Finance Act 2008, specifically covers the supply of tangible goods including machinery, equipment, and appliances for use without transferring the right of possession and effective control. The court held that the introduction of entry (zzzzj) indicates that prior to its introduction, the services rendered by the petitioners were not taxable under entry (zzzy). The court relied on the principle that the introduction of a new entry implies that the activity was not liable to tax under the earlier entry unless the new entry is a carve-out from the pre-existing entry.3. Whether the services rendered fall under entry (zzzy) or entry (zzzzj):The court concluded that the services rendered by the petitioners, such as the supply of offshore support vessels, barges, and tugs on a time charter basis, fall under entry (zzzzj) and not under entry (zzzy). Entry (zzzzj) specifically covers the supply of tangible goods without transferring the right of possession and effective control, which aligns with the nature of services provided by the petitioners. The court held that entry (zzzzj) is not a carve-out of entry (zzzy) and both entries are independent.4. Right to seek reimbursement of Service Tax from the 5th respondent:The petitioners sought an order directing the 5th respondent to pay Service Tax on the Marine Logistic Services if found leviable. The court did not address this issue in detail as it concluded that the services rendered by the petitioners are not covered by entry (zzzy) and are taxable only under entry (zzzzj) from 16/5/08 onwards. Therefore, the question of reimbursement did not arise.5. Prematurity of the petition:The respondents argued that the petition was premature as no show cause notice had been issued. The court dismissed this argument, stating that the petitioners had approached the court seeking clarification on the applicability of Service Tax to their services. The court held that the petition was maintainable and proceeded to decide on the merits of the case.Conclusion:The court held that the services provided by the members of the 1st petitioner are not covered by entry (zzzy) of Section 65(105) of the Finance Act, 1994. The court quashed the proceedings leading to the issuance of letters dated 17/12/07, 19/2/08, and 5/3/08, which demanded Service Tax from the petitioners. The petition was disposed of in these terms.