2022 (9) TMI 393 - HC - Service Tax

Way Leave Agreements not Subject to Service Tax: Court Rules in Favor

Bharat Petroleum Corporation Limited, Sudhir Kumar Malik, Versus The Board of Trustees of the Port of Mumbai, The Estate Manager, Estate Department and The Union of India through the Secretary, Ministry of Revenue.

The court held that the Way Leave Agreements for laying and maintaining pipelines do not constitute port services, and the amounts collected under these ... Levy of service tax - Port service or not - amount collected under the Way Leave Agreements entered with Petitioners - nature of the Way Leave Agreements - permissions of Respondents to laydown/construct and maintain four oil pipe lines and a steam pipe line at Wadala Estate and Elphinstone Estate at Petitioners’ own costs - payment of lincence fees would construe a port service or not? - HELD THAT:- The Way Leave Agreements are agreements that essentially provide permission to Petitioners to construct and maintain at its own cost oil and steam pipe lines subject to payment of licence fee. The arrangement is clear that Mumbai Port Trust is not constructing or maintaining the pipe lines but is only giving a licence or permission to Petitioners to construct and maintain the pipe lines. The opening page of the Way Leave Agreement says “Way Leave Agreement for laying and maintaining four oil pipe lines and a steam pipe line at Wadi Bunder on the Elphinstone Estate”. Admittedly as provided in the agreement, Respondents have been charging only an annual fixed fee from the time the agreement was entered into as late as upto 2001. Copies of the bills annexed to the Petition also indicate that these are fixed charges irrespective of whether any oil cargo passes through the pipe lines and irrespective of the quantity of the oil cargo that passes. The agreement also clearly indicates that pipe line laid was to be used for only Petitioners’ cargo and not for any third party - the Respondents were only charging a licence fee for giving permissions to Petitioners to carry out construction/laying down of pipe line work on the port land and nothing else. Elaboration was particularly necessary since the Way Leave Agreements provide for laying of pipe lines at the cost of Petitioners and maintenance by Petitioners of the pipelines. Even annual compensation payable was called licence fees. Further, the services provided for under Section 42 of the Major Port Trusts Act, 1963, Respondents levy and collect charges based on the Port-Scale of Rates, that later came to be approved by Tariff Authority for Major Ports (TAMP). The License Fees paid by Petitioners was not as per the Port Scale of Rates. Therefore, the nature of the Way Leave Agreements cannot be stated to be for Port Services under Section 42 of the Major Port Trusts Act, 1963. Whether the fee payable to Respondents under the Way Leave Agreements for granting permission to Petitioners to lay/construct and maintain its own pipe lines was for a port service defined under the Finance Act, 2001? - HELD THAT:- The Hon’ble Apex Court in ALL INDIA FEDERATION OF TAX PRACTITIONERS & ORS VERSUS UNION OF INDIA & ORS [2007 (8) TMI 1 - SUPREME COURT] held service tax is a value added tax. For Respondents to be entitled to levy service tax or become liable to pay any service tax to the Government of India, Respondents must render a service and to render a service it must do some activity which amounts to value addition. In our view, merely granting a licence/permission to a person to carry out construction of pipe lines or maintain its own pipe lines on land belonging to Respondents would not amount to a service or port service. In the case at hand, it is Petitioners who have laid the pipe lines and have been maintaining the pipe lines. The pipe lines also do not belong to Respondents because the agreement itself provides that on termination of the Way Leave Agreements Petitioners are bound to remove the pipe lines and restore the land at its own cost. Therefore, it cannot be stated that Respondents are providing port services under the Way Leave Agreement. Respondents are also not doing any activity which amounts to value addition. Where a private party itself is constructing and maintaining a facility on land belonging to port authority the mere grant of permission by the port authority to use its land for the construction and maintainance of the facility does not amount to rendering any port service and therefore would not attract service tax - the Way Leave Agreements cannot be said to fall under any other category of service that was taxable at the relevant time, i.e., the period between 16th July 2001 and 1st March 2002. Petition disposed off. Issues Involved:1. Nature of the Way Leave Agreements.2. Whether permissions to lay down/construct and maintain pipelines constitute a port service.3. Whether amounts collected under Way Leave Agreements attract service tax.Issue-wise Analysis:1. Nature of the Way Leave Agreements:The Way Leave Agreements between the Petitioners (a Government of India company and its Territory Manager) and the Respondents (Mumbai Port Trust and its officer) essentially provide permission to the Petitioners to construct and maintain oil and steam pipelines at their own cost, subject to payment of a licence fee. The agreements specify that the Mumbai Port Trust is not responsible for constructing or maintaining the pipelines but only grants permission to the Petitioners to do so. The agreements detail the terms under which the pipelines can be laid, maintained, and eventually removed, emphasizing that the Petitioners bear all associated costs and risks.2. Whether permissions to lay down/construct and maintain pipelines constitute a port service:The Finance Act, 2001 introduced service tax on port services, defined as any service rendered by a port or any person authorized by the port in relation to a vessel or goods. However, the agreements in question do not involve the Mumbai Port Trust providing any such services. Instead, they merely grant the Petitioners permission to lay and maintain their pipelines. The court noted that the services listed under Section 42 of the Major Port Trusts Act, 1963, which include landing, shipping, storing, and transporting goods, were not being provided by the Respondents to the Petitioners. The Respondents were only charging a licence fee for the permission granted, with no involvement in the construction or maintenance of the pipelines.3. Whether amounts collected under Way Leave Agreements attract service tax:The court held that the amounts collected under the Way Leave Agreements do not attract service tax because the Respondents are not rendering any port services to the Petitioners. The agreements are for the leasing of land and permission to lay pipelines, which does not constitute a taxable service under the Finance Act, 2001. The court referred to a Government of India circular clarifying that estate rentals and lease rentals for land are not liable to service tax as they do not relate to goods or vessels. Additionally, the court cited the Supreme Court's decision in Commissioner of Central Excise, Bhavnagar Vs. M/s Gujarat Maritime Board, which held that where a private party constructs and maintains a facility on port land, the mere grant of permission by the port authority does not amount to rendering a port service and does not attract service tax.Conclusion:The court concluded that the Way Leave Agreements do not constitute port services and the amounts collected under these agreements do not attract service tax. The Rule granted on 16th December 2003 was made absolute, and the Petition was disposed of with no order as to costs.