TaxTMI 
TaxTMI 
2014 (6) TMI 557
X X X X Extracts X X X X
X X X X Extracts X X X X
....ich were deployed by the appellant in the Eastern and Western Coast of India in their Offshore Oil and Exploration sites. Details of the agreements were as under: Sr No Party Name Vessel name Contract No Contract Date 1 Canyon Offshore Inc Olympic Canyon OG8/3645062 28.11.2007 2 Pacific Richfield Marine Pte Ltd Pacific Silver OG3/3623505 12.12.2006 3 Farstad Shipping Pte Lady Grete OG3/3610211 17.06.2006 4 Emas Offshore Pte Ltd Lewek Harrier OG3/3606222 17.06.2006 5 Emas Offshore Pte Ltd Lewek Stork OG3/3631202 12.01.2007 6 Bourbon Offshore Bourbon Agathe OC2/3671944 01.10.2008 7 Bourbon Offshore Bourbon Hamelin OC2/3660108 06.08.2008 8 Bourbon Offshore Bourbon Liberty OC2/3660608 17.07.2008 9 Bourbon Offshore Bourbon Sapphine OG3/3660278 08.07.2008 10 Bourbon Offshore Bourbon Viking OG2/3664578 06.08.2008 11 Greatship Global Offshore Services Pte Ltd Skandi Falcon 3663352 17.07.2008 12 Bourbon Offshore Bourbon Himalaya OC2/3667292 12.08.2008 4. Show Cause Notices wer....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of amended Notification No. 1/2002-ST. The vessels in the context of Notification are those which remained located with the some degree of permanency. 7. The appellant also submitted that the contracts entered with the owner prior to 16.5.2008 and not liable to service tax under the service supply of tangible goods for use even though the use of vessels and the payments made from the same maybe after 16.5.2008. The appellant heavily relies upon the decision of the Tribunal in Petronet LNG Ltd vs CST reported in Appeal No.745 of 2012 particularly para 36 of the judgment. 8. The above principle also applies even for the contracts entered into on 16.5.2008 or before. The definition of India was widened only from 7.7.2009 vide Notification No. 1/2002-ST. The contention is that out of 12 contracts entered into with the Off-shore Supply Vessels for supply of vessels which are subject matter of dispute, five contracts were entered into during the period prior to 16.5.2008 i.e. the date on which the service tax was levied for the first time for supply of tangible goods for use. The balance 7 contracts are entered into during the period after 16.5.2008 and before 7.7.2009 i.e. the da....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent the Area of Operation will be Offshore Area of East Coast/West Coast of India and the vessels shall be employed for such activities from the port of delivery. (Emphasis added). c) Clause A.1.1 to the Exhibit A 'Scope of Work' reads as "The Vessels shall be employed at the direction of Charterers, only in lawful activities in connection with offshore Exploration and development activities including but not limited to equipment and material supply, crew changes, diving operations after prior approval from Owner, sea bed clearance, fuel & water supply, buoy laying and recovery, and any other activity incidental to the aforesaid, and with voyages between any good and safe port and place or offshore installation where she can safely lie always afloat provided such are within Indian waters"[Emphasis added). "Para 4.2 Whereas, the Charter Party Agreement for deployment of the vessel for use as sub-sea intervention the same shall be for, installation, inspection, repair and maintenance of all sub-sea facilities and other support activities as, transportation of material, search and rescue and etc. in oil fields in the wa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bove that the operation of the OSVs commence from the Indian Ports of Kakinada, Paradip, Vizag etc and materials are procured from the Indian terriroty and OSVs move through the Indian territory for the lions' share of time. The vessels also lie always afloat within Indian waters. 14. Revenue also submitted that the concept of taxable even commences when the vessels are transferred to the appellants at India ports. The taxable event is a continuous one and each supply of tangible goods would amount to taxable event. 15. Revenue also submitted that the ratio of the decision of the Tribunal in the case of Petronet LNG supra is not applicable on the facts and circumstances of the present case. In the case of Petronet LNG the vessels carried LNG from Qatar to Indian port therefore during the lions' portion of time the vessel was plying in international waters. In the present case lions' portion of operations is within Indian waters. In view of the above contentions, the demand is rightly made. 16. We find that in the present case the demand is confirmed on the ground that appellant received the taxable service which merits classification under Section 65 (105)(zzzz....
X X X X Extracts X X X X
X X X X Extracts X X X X
...." 19. The appeal field by Revenue was dismissed by the Hon'ble Supreme Court as reported in Union of India vs Indian National Ship Owners Association-2011 (21)STR 3 (SC). In view of the above we find that the ratio of the decision on the facts of the present case particularly taking into consideration the terms and conditions of the Charter Party Agreements. Hence we find no merit in the contention that the activity does not come under the scope of Supply of Tangible Goods for Use service. 20. The other issue is whether the appellant being recipient of service on which service tax has been demanded were taxable under the head 'Supply of Tangible Goods for Use' was not liable to discharge service tax in respect of the same as the said vessels were not located in India during the entire period of use of such tangible goods by the recipient of service. 21. Under rule 3 (iii) of the Taxation of Service (Provided from Outside India and received in India) Rules, 2006 which is the exemption notification has been issued under the Finance Act, 1994 a specific provision was inserted with effect from 16.5.2008 in respect of Supply of Tangible Goods for Use provided therein th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a and received in India subject to the condition that the tangible goods supplied for use are located in India during the period of use of such tangible goods by such recipient". According to the assessee, on a true and fair construction of the language of the proviso, where the tangible goods supplied for use cannot be said to be located in India during the period of their use by the recipient of the service; the transaction cannot be treated as a taxable service provided from outside India and received in India. The assessee contended that the tangible goods in issue are oil tankers used for transportation of LNG under cryogenic conditions, from Qatar to the assessee's regasification terminal at Dahej, Gujarat. (ii) During a substantial portion of the charter period, whether long term or short term, the tankers are in transit, on the high seas and come to the shore only for loading of LNG (outside India) and unloading LNG (in India). All other operations of the tankers is outside India, either in the high seas beyond the territorial limits of India or in another country. As the tankers....
X X X X Extracts X X X X
X X X X Extracts X X X X
....so to Notification No. 11/2006-ST dated 19.04.2006" (vii) The 2006 Rules were issued (by Notification No. 11/2006-ST dated 19.04.2006), in exercise of powers conferred by Sections 93 and 94 read with Section 66A of the Act. Rule 3 of these rules sets out provisions specifying in the circumstances in which taxable services provided from outside India and received in India fall would amount to a taxable service, under the Act. Rule 3(i) enumerates specified categories of taxable services, provided or to be provided in relation to immovable property situated in India. Rule 3(11) specifies taxable services, (other than those specified in rule 3(i); and the first proviso thereto enjoins that where such taxable services are partly performed in India, it shall be treated as performed in India. Rule 3(iii) enumerates taxable services excluding those specified in Clauses (a), (b) and (c) thereunder. (viii) The proviso to Rule 3(iii) is a specific and distinct provision in relation to STGU, a taxable service enumerated and defined in Section 65(105)(zzzzj), In the context of the elegant and distinct d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....must be located during the entirety of the period of use of such tangible goods by the recipient, in India. (xiii) The separate and distinct treatment specified for the taxable STGU service, in the proviso to Rule 3(iii) of the 2006 Rules, in our considered view clearly signals the statutory intent that tangible goods, for falling within the fold of the reverse charge mechanism, must when supplied for use be located in India during the entirety of the period of their use, by the recipient. The contrary conclusion by the adjudicating authority in para 38.6 of the order cannot therefore be sustained. 38. Legality of imposition of penalties under Sections 76 to 78: (i) As indicated in the factual narrative set out in paragraphs 6 and 7 (supra), penalties under Sections 76 to 78 of the Act were imposed on the assessee, either by the adjudication order or subsequent corrigenda issued, The assessee challenges imposition of penalties, contending that penalties are liable to be chewed by invocation of the discretion Section 80 of the Act. &nb....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ill 6.7.2009 "India"includes the designated areas in the Continental Shelf and the Exclusive Economic Zone of India as declared by the Notifications of the Government of India in the Ministry of External Affairs S.O. 429E dated 18.7.1986 and S.O. 643 (E) dated 19.9.1996". With effect from 7.7.2009 to 27.2.2010 "India includes installations, structures and vessels in the Continental Shelf of India and the Exclusive Zone of India." From 28.2.2010 till 30.6.2012 "India includes installations, structures and vessels located in the Continental Shelf of India and the Exclusive Economic Zone of India, for the purpose of prospecting of or extraction of production of Mineral Oil and Natural Gas and supply thereof." 25. The period in dispute in the present case is 16.5.2008 to 1.9.2009, as after 1.9.2009 service tax is being paid under the heading transportation of coastal goods. 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 amen....