AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2015 (2) TMI 974
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.....E./A/23/2009 dated 7.10.2009 was issued to the appellant demanding service tax of Rs. 22,12,70,269/- for the period 16/05/2008 to31/03/2009 for the period 1.4.2009to 31.3.2010. Further show-causes V/ST/Mum Div-III/Global/49/09 dated 5.10.2010 and V-Adj/ST-II/GVHPL/15-84/2011 dated 11.10.2011 were issued demanding service tax of Rs. 24,97,81,560/- for the period April 2009 to March 2010 and Rs. 21,95,26,778/- for the period 01/04/2010 to 31/03/2011. In all these show-cause notices, it was proposed to classify the services rendered by the appellant under the category of "Supply of Tangible Goods for Use" as defined under Section 65 (105) (zzz) for the Finance Act, 1994. The notices also proposed to recover interest on the service tax demanded and to impose penalties under the provisions of the Finance Act, 1994. 3. During the course of investigation, the appellant also paid service tax collected from their customers amounting to Rs. 7,58,36,177/- in respect of the demand for the period May 2008 to March 2009, Rs. 6,73,30,529/- for the period 2009-10 and Rs. 16,25,65,416/- against the demand for the period 2010-11. The appellant also paid a sum of Rs. 20,299/- with interest of Rs.....
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.... travel. The Department's contention is that the services are in the nature of "supply of tangible goods for use of service" ("SOTG"), taxable w.e.f. 16.05.2008. 4.2 The department's contention that the appropriate classification is SOTG is based on the premise that for a service to be classified under SOTG, transfer/supply is not relevant and it is the use of tangible goods which is of essence. The SCN was issued on this premise and the demand has also been confirmed on this very premise. The very basis of the department's contention is erroneous. In this regard, reference is made to the Hon'ble Bombay High Court's decision in the case of Indian National Shipowner's Association v. Union of India., [2009 (14) S.T.R. 289 (Bom.)], the Tribunal's decision in the case of Atwood Oceanics Pacific Ltd. v. Commissioner of Service tax, Ahmedabad., [2012 (12) TMI 425 - CESTAT, AHMEDABAD] and the clarifications issued by the Ministry of Finance vide letter D.O.F. No. 334/1/2008-TRU dated 29.2.2008 at the time when SOTG first became taxable. 4.3 The crux of SOTG is supply of tangible goods. The aspect of transfer of right of possession and effective control is....
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....unless it holds a Non-Scheduled Operator's Permit granted by the Central Government". Thus, no non-scheduled air transport service can be provided by anyone other than an NSOP holder. The service of the Appellant, who is a NSOP holder (NSOP No - 8/1998), is procured by the customers for transportation from one place to another. No client of the Appellant has an NSOP. The fact that the helicopters were used for providing transportation services to passengers is not in dispute. Clearly, the clients of Appellant, not being NSOP holders could not have provided the transportation services. It was the Appellant, and the Appellant alone, who provided the transportation services. 4.6 In order to be taxable under the category of "transport of passengers by air service", the service should be provided by an aircraft operator, i.e., any person who provides the service of transport of goods or passenger by aircraft and the service should be in relation to scheduled or non-scheduled air transport service provided to any passenger embarking in India for domestic journey or international journey. The Appellant is registered with the DGCA as an aircraft operator for providing the service of....
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....nies, own employees, including Chairman and members of the Board of Directors of the company and their family members, provided it is operated for remuneration, whether such service consists of a single flight or series of flights over any period of time." 2.7 "This CAR applies to all Non-Scheduled Operator's Permit holders including to those, who have obtained their permits prior to the coming into force of this CAR. However, they shall comply with the requirements of Para 4.2 (b) of this CAR, within 06 months of the date of effectivity of the CAR." 4.9 The essential point to be noted is that charter operation is a sub-category of non-scheduled aircraft operations. The definition of charter operations is contained in that part of the CAR which pertains to Minimum Requirement for grant of permit to operate non-scheduled Air Transport Services. Hence, charter operations do not cease to be aircraft operations by reason of the fact that the entire aircraft is chartered by the client from the aircraft operator. Charter operations are essentially aircraft operations, and cannot be categorized as supply of aircraft by the aircraft operatory to the charterer. In light of the abo....
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....f Contract, which defines "Services" to mean helicopter service carried out by Contractor (i.e. the Appellant) and its personnel under this Agreement. Article 4.2 (a) of the Special Conditions of Contract further states that the Contractor's obligation shall be to provide flights in accordance with the schedule provided by ONGC, as also non-scheduled flight(s) as required by ONGC. Accordingly, it is apparent that the Appellant is responsible for flight and cabin crew, maintaining safety manuals, undertaking statutory and other maintenance, repair of the helicopters. The helicopters are flown against the NSOP of Appellant. This establishes that the obligation of Appellant is to provide that services to passengers. In the light of the above, the air transport services provided by an aircraft operator clearly fall under the taxable service category of "transport of passengers by air service" defined under clause (zzzo) of sub-section 65(105) of the Finance Act, 1994. 4.12 Penalty under Section 78 of the Finance Act, 1994 has been invoked in the SCN on the basis of (a) that the Appellant has already obtained registration under SOTG (b) that the Appellant did not seek clarificati....
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....on 76 of the Act is without any basis. 4.14 The Appellant has not violated any of the clauses of Section 77 of the Finance Act, 1994. The Appellant was not liable to pay Service Tax under "supply of tangible goods service" as has been substantially dealt with in the Appeal memo. Since there was no liability to pay Service Tax, the Appellant was also not liable to file returns or to maintain or retain books of accounts and other documents in terms of the provisions of the Finance Act, 1994. 4.15 Assuming without admitting that the Service Tax is payable by the Appellant as held in the OIO, it is submitted that the manner of calculation of the Service Tax liability is not correct. The consideration which the appellant has received is inclusive of the Service Tax payable. It is a settled position in law that if tax has not been collected separately, then the consideration received should be treated as cum-tax. Reliance is placed on the decision of the Larger Bench of the Tribunal in the case of Srichakra Tyres Ltd. v. Collector of Central Excise, Madras [1999 (108) E.L.T. 361], and the Apex Court decision in Commissioner of Central Excise, Delhi v. Maruti Udyog Limited [2002 (14....
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....by air" which covered all domestic air passengers embarking in India w.e.f. 1 st July, 2010. (2) The issue in this appeal relates to classification of service provided by the appellant to M/sONGC and M/s Transocean Offshore Deepwater Drilling Inc. 'Supply of tangible goods for use' was made taxable vide entry (zzzzj) inserted into Sectioin 65 (105) of the Finance Act, 1994 by Finance Act, 2008 with effect from 16-5-08. The said entry reads as under: "Section [65 (105) (zzzzj)] To any person, by any other person in relation to supply of tangible goods including machinery, equipment and appliances for use, without transferring right of possession and effective control of such machinery, equipment and appliance". (3) Subsequently, the CBEC vide circular No.20/Comm(ST)/2009 dated 9 th February, 2009 clarified that giving the right to use the aircraft to customers without transferring right of possession and effective control is liable to service tax under 'supply of tangible goods' service. The relevant extracts from the circular are reproduced below:- "2. It has been brought to the notice of the Board that many non-scheduled operator engaged in the busin....
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.... each on same rates, terms and conditions. XXXX SPECIAL CONDITIONS OF THE AGREEMENT XXXX (B) "Contract value" in case of each helicopter for Offshore operations would be determined by adding fixed monthly charges for 36 months, flying hourly charges for 3600 hrs and mob/demob charges. XXXX (d) "Daily Flight Schedule" means a flight program by the Charterer for helicopter(s), for each day indicating departure time and destination. 2.1 This agreement is for Nine (9) Nos. (Available exclusively for Charterer's personnel) Passenger version AS-4 compliant Helicopters with call signs as under: Bell-412 helicopters Sl. NO Call sign Sl.No 1 VT-AZA 33188 2 VT-AZB 36067 3 VT-AZC 36161 4 &n....
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....ion thereof, from Charterer's Authorised Representative unless there are nay operational or regulatory limitations prohibiting or preventing such a flight or flights. The Contractor shall confirm on the same duty that he can operate the schedule. For all operational requirements, the Contractor shall nominate a Base Manager. The Base Manager or hius authorized representative will be available for contract at all times. XXXX 4.3 Contactor shall provide experienced IFR Licensed Aircrews for operations and qualified maintenance crew for the servicing of the helicopters in accordance with Aviation Standard (AS-4). 4.4 Passengers and/or cargo may be carried in any helicopter as required by Charterer. However, such passengers and cargo are to be notified to Contractor before each flight. Contractor shall provide to the Charterer a table indicating the approximate different payloads. XXX 6. AVAILABILTY, MAINTENANCE & SAFETY 6.1 (a) The Contractor shall be under obligation to provide to the Charterer i) The contracted helicopter(s) daily in Airworthy condition regularly on all 365 days of the year and without delay at the time asked for by the Charterer to complete....
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....ions AS-4 compliant 9 helicopters with specified call signs for a period of three years. Specifications of the helicopters for Charter hire are given in Schedule I & Schedule II. The helicopters were to be made available exclusively for their personnel after due clearance from all regulatory authorities. The helicopters were to remain available and fully operational in airworthy condition on all 365 days during the term for exclusive use of ONGC and persons authorized by them. The appellant was also required to provide experienced IFR licensed crew and qualified maintenance crew. Crew and pilots provided were to remain appellant's employees and were required to operate the helicopters as per ONGC aviation standards AS-4. The flight schedule was to be determined by ONGC. Fixed monthly charges of US$ 118250/- per helicopter were to be paid to the appellant in addition to US $ 1184.50 per flying hour per helicopter for the period during which the chartered helicopters were in service. The above terms of the contract clearly indicate that the agreement is for supply of helicopters along with crew to be kept at the disposal of M/s ONGC. There is nothing in the contract to suggest th....
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....oses of this sub-clause, economy class in an aircraft meant for scheduled air transport of passengers means,- (i) Where there is more than one class of travel, the class attracting the lowest standard fare; or (ii) where there is only one class of travel, that class. Explanation 2: For the purposes of this sub-clause, in an aircraft meant for non-scheduled air transport of passengers, no class of travel shall be treated as economy class." In Budget 2010, the scope of transportation of passengers by air service was extended to cover all domestic and international air passengers embarking in India with the following amendment in sub-clause (zzzo) w.e.f. 1 st July, 2010: "(zzzo) to any passenger, by an aircraft operator, in relation to scheduled or non-scheduled air transport of such passenger embarking in India for domestic journey or international journey;"' The word 'passenger' was defined as follows:- SECTION 65 (77c) "passenger" means any person boarding an aircraft in India for performing domestic journey or international journey (8) The term 'passenger' came up for interpretation before Hon'ble CESTAT in the case of KING ROTORS & ....
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....he said goods made the appellant entitled to re-possession of the goods. The appellant was also responsible for repair and maintenance. It was held that the appellant was ineffective control of the goods and supply of equipment was without transfer of possession and therefore, the appellant was liable to pay service tax on the service under the category of supply of tangible goods. The relevant para of the order is reproduced below: "9. In the present case before us, the customer never has a right of possession since it would never become his own property at all. At any given point of time, the appellant can take re-possession and at no time, the customer would become the owner or can claim right of possession. In the case where an item is rented, the customer has right of possession so long as he keeps paying the rent. In the absence of any payment of rent for the meter and the equipment, there is no consideration in this case for right of possession by the customer and therefore the customer cannot even claim the right of possession also. On the other hand, the Company has the right to repossess the meter and other equipment at any time and whenever it is disconnected, the met....
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....in the helicopter. All necessary clearances, permission to hold helicopter licence to operate the helicopter, compliance with all laws, rules, regulations, orders, standards and schedules as specified by the Directorate General of Civil Aviation was to be complied with by the appellant, who is the service provider. The appellant was also obligated to provide the Charterer, the helicopters daily in airworthy condition regularly on all 365 days of the year. For the services rendered the appellants were eligible for remuneration on a fixed monthly charge basis for thirty six months plus flying hourly charges. The helicopters were to be operated upon by the crew provided by the appellant and such crew have complete control over the actual flying operations. The agreement with Trans Ocean Offshore Deepwater Drilling Inc. was also for providing charter service to the company by the appellant. The said agreement also envisaged operation of the aircraft for the transportation of the passengers and passenger baggage as per the instructions and requirements of the client, the crew as to be provided by the appellant and all approvals, licences, permits was the responsibility of the appellant.....
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....issue in Indian National Ship Owners Association Vs. UOI. The question before the Hon'ble High Court was whether the transaction involved in charter hiring of vessels for offshore explorations, is liable to tax under "mining services" or under "supply of tangible goods for use service". Hon'ble High Court in the said case held as follows:- 37. Entry (zzzzj) is entirely a new entry. Whereas entry (zzzy) covers services provided to any person in relation to mining of mineral, oil or gas, services covered by entry (zzzzj) can be identified by the presence of two characteristics namely (a) supply of tangible goods including machinery, equipment and appliances for use, (b) there is no transfer of right of possession and effective control of such machinery, equipment and appliances. According to the members of the 1st petitioner, they supply offshore support vessels to carry out jobs like anchor handling, towing of vessels, supply to rig or platform, diving support, fire fighting etc. Their marine construction barges support offshore construction, provide accommodation, crane support and stoppage area on main deck or equipment. Their harbour tugs are deployed for piloting big ....
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....ending 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. ........." The ratio of the above decision applies equally well to the facts of the present case. The above decision of the hon'ble High Court was affirmed by the hon'ble Apex Court also. In that view, supply of helicopters on charter hire basis would merit classification under "supply of tangible goods for use service" and we hold accordingly. 6.5 The appellant's contention that they have undertaken the services of transport of passengers by air and not supply of tangible goods for use is not borne out from the terms and condition....
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....s. One significant term of the contract was that the "helicopter shall be utilized solely for the purpose of providing the services pursuant to the agreement and the contractor shall not utilize the helicopter for any other purpose without the prior consent of the company." Accordingly, the helicopter could not be used by the assessee (contractor) for any other purpose without the prior consent of Heligo (company). It is evident that the agreement created an exclusive right in Heligo for use of the helicopter during its tenure. That Heligo exercised this right for the benefit of third party companies is, in turn, evident from the written submissions dated 23-3-2011 filed by the appellants' advocates, which read thus: "........................ even Heligo Charters Pvt. Ltd., in turn, charter the aircraft .................... The aircraft is chartered by many offshore and oil companies to ferry their personnel ...................... the aircraft has been used by independent third party offshore oil extraction/drilling companies ..................... The flights undertaken by aircraft are commercial, revenue flights paid for by third party offshore companies. " Obviously the en....
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....e. On this basis, it has been claimed that the assessee was providing "non-scheduled (passenger) service" under the permit granted by DGCA and was thereby complying with condition No. 104. This argument is fraught with analytical error. Any such dissection of the definition of "scheduled air transport service" as attempted by the counsel is not warranted to obtain the meaning of "non-scheduled air transport service". This is because requirement (b) mentioned by him is not determinative of whether the air transport service is "scheduled" or "non-scheduled". To our mind, the only difference between the two types of air transport service lies in the simple fact that one is "scheduled" while the other is "non-scheduled", which would mean that "scheduled" air transport services involve flight services operated on the basis of a schedule of time whereas "non-scheduled" air transport services are without any time schedule for the flights. [This view is fortified by clause (9.2) of "Passenger CAR", which deals with non-scheduled operators and their operations and says: In such operations, the operators shall not publish their time schedules as the operations are of non-scheduled nature.] O....
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....raft for specific time or for specific journey. The payment is not based on number of passengers. No tickets are issued to the passengers and no charges are collected from the passengers. Therefore, the service provided cannot be considered as transport of passengers, but has to be considered as charter of aircraft. There is no doubt that the right of possession and effective control while in use by the charterer is not parted with. Thus the charter hire of helicopters to ONGC and other clients for flight operations as per their requirements cannot be said to be "non-scheduled (passenger) services". Therefore, we reject the contention of the appellant in this regard. Consequently, we hold that the services rendered by the appellant in the instant case cannot be treated as air transport services for the transport of passengers. 6.6 The CBE&C had also occasion to examine the issue and vide Circular No. 20/COMMR. (ST)/2009 DATED 09/02/2009 the Board clarified, inter alia, as follows: "It has been brought to the notice of the Board that many non-scheduled operator engaged in the business of giving the right to use the aircraft to its customers (Chartering of aircraft) are not pay....
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....994. We also uphold the confirmation of service tax demand on the repairs and maintenance services undertaken by the appellant and the man-power supply services rendered by the appellant. 6.8 The appellant has raised a point that the consideration received should be treated as cum tax and the amount so received shall be apportioned between the taxable value and the service tax. There is merit in this argument. If the appellant has not charged service tax separately and the amounts received included all taxes, the appellant would be definitely eligible for cum tax benefits. However, this benefit will not accrue where the appellant has collected service tax from the customers separately. 6.9 Once the demand for service tax is confirmed, interest liability is automatic and consequential. Accordingly, we confirm the liability to pay interest on the delayed payment of service tax by the appellant under the provisions of section 75 of the Finance Act, 1994. 6.10 There is a denial of Cenvat credit to the extent of Rs. 2,33,09,951/- which was taken by the appellant but not utilized. The credit has been denied on account of non-production of duty paying documents for the credit ava....
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....uage of the statute indicates the need to establish the presence of mens rea, it is wholly unnecessary to ascertain whether such a violation was intentional or not." Therefore, we uphold the penalties imposed under Section 76 of the Finance Act, 1994 on the appellant. Similarly, the penalty under Section 77 is for non-compliance of the statutory provisions of filing of returns and in as much as there is non-compliance, the same is also confirmed. 6.13 Another penalty of Rs. 2,33,09,951/- has been imposed on the appellant for the wrong taking of credit under rule 15of the Cenvat Credit Rules read with Section 78 of the Finance Act, 1994. Inasmuch as the appellant has merely taken the credit but not utilized the same, no loss has been caused to the exchequer. Further, Rule 15of the Cenvat Credit Rules, provides for imposition of penalty equivalent to the credit taken only when there is fraud, collusion, willful mis-statement, suppression of facts or contravention of the provisions of the Act or rules made there under with an intent to evade payment of service tax. In the present case, since the appellant has not utilized the credit, no mala fide can be attributed. Therefore, we....
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.... appellant shall also be liable to pay interest on the credit wrongly availed from the date of taking the credit to the date of reversal in accordance with law. We also uphold the imposition of penalties under sections 76 and 77 of the Finance Act, 1994 for the default in payment of service tax and for non-compliance of the statutory provisions relating to service tax. We also uphold the imposition of penalty under section 78 of the Finance Act, 1994, but the same shall be restricted to the service tax payable after taking into account the amount already paid and appropriated. We set aside the penalty of Rs. 2,33,09,951/- imposed under Rule 15(2) of the Cenvat Credit Rules, 2004 read with Section 78 of the Finance Act, 1994 on account of wrong taking of credit. However, the appellant shall be liable to a penalty of Rs. 2000/- on such wrong availment under Rule 15(3) of the Cenvat Credit Rules, 2004. The appeal is disposed of in the above terms. (Pronounced in Court on /08/2013) Per: Anil Choudhary: 8. Although I agree with my brother-Learned Member (Technical) as regards classification of the service provided by the appellant under the head "Supply of Tangible Goods" under....
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.... of Passengers by Air' Section 65 (105) (zzzo), as made subsequently applicable in case of domestic journey and paid the Service Tax. 10. That in view of the aforementioned facts, no case of contumacious conduct, fraud or deliberate defiance of law is made out against the appellant. 11. That Section 80 of the Finance Act, 1994 provides that inspite of the provisions of Section 76, 77 and 78, no penalty shall be imposable on the assessee for any failure, if the assessee provides that there was reasonable cause for the said failure. 12. Thus a case of reasonable cause is made in favour of the appellant in view of the facts and circumstances. Thus, the penalties levied under Section 76 and 78 are set-aside. 13. To sum up- (a) Classification of service as 'SOTG' under section 65 (105) (zzzzj) is upheld. (b) Penalties levied under Section 76 & 78 are set-aside. 14. Thus the appeal is allowed in part with consequential relief. The following point of difference is placed before the Hon'ble President for reference to the Third Member i) Whether the appellant is liable to penalty under the provisions of Sections 76 & 78 of the Finance Act, 1994 as ....
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....23/2009 dated 7.10.2009 16 th May 2008 to March 2009 U/s 78 2 SCN No. ST/MUM/Dn. III/ Gr. VIII/Global/49/09 dated 5.10.2010 April 2009 to March 2010 U/s 76 3 SCN No. V/Adj/ST-II/GVHL/15-84/2011 dated 12.10.2011 April 2010 to March 2011 U/s 76 It would be noted that in respect of first demand, penalty is imposed under Section 78 and in respect of remaining two, it is under Section 76. 18. In order to appreciate the ingredients required for imposition of penalty under Section 78 and Section 76, I refer to the provisions at the relevant time, of Section 78 which is reproduced below:- "78. Penalty for suppressing, etc., of value of taxable service. (1) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, by reason of- (a) fraud; or (b) collusion; or (c) wilful mis-statement; or (d) suppression of facts; or (e) contravention of any of the provisions of this Chapter or of the rules made thereunder with the intent to evade payment of service tax the person, liable to pay such service tax or erroneous refund, as determined under sub-section (2) of section 73, s....
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.... the Central Government prior to the date of communication of the order referred to in the second proviso to sub-section (1) or the first proviso to sub-section (2) shall be adjusted against the total amount due from such person." Thus, for imposition of penalty under Section 78, there has to be a case of fraud, collusion, willful misstatement, suppression of facts, contravention of any provision of this Chapter or the Rules made thereunder with intent to evade payment of service tax. In the present case, penalty under Section 78 is imposed in respect of the first show cause notice which pertains to the period from 16th May 2008 to march 2009. The service tax under the category of 'supply of tangible goods' was introduced with effect from 16 th May 2008. Member (Technical) has upheld the penalty under Section 78 considering that the appellant has not declared their activities to the department not did they obtain the service tax registration under the category of 'supply of tangible goods' for use. Learned senior counsel for the appellant during the hearing has stated that this is factually incorrect. In fact, immediately after the introduction of service tax under the c....
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....ervice tax in accordance with the provisions of section 68 or the rules made under this Chapter, who fails to pay such tax, shall pay, in addition to such tax and the interest on that tax amount in accordance with the provisions of section 75, a penalty which shall not be less than 9[one hundred rupees] for every day during which such failure continues or at the rate of 10[two per cent]. of such tax, per month, whichever is higher, starting with the first day after the due date till the date of actual payment of the outstanding amount of service tax: Provided that the total amount of the penalty payable in terms of this section shall not exceed the service tax payable in terms of this section shall not exceed 11[fifty per cent of] the service tax payable." A bare reading of the above Section would show that the penalty is imposable under the said Section on a person who fails to pay tax. The said Section does not stipulate any contumacious conduct on the part of the taxpayer. Whatever the reason for the failure to pay the tax may be, the penalty under the said Section 76 is imposable. No mens rea is required for imposition of penalty under the said Section. This has been so h....
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....reported in 2008 (9) STR 350 (Bom); (5) CCE vs. D.R. Gade reported in 2008 (9) STR 348 (Bom.); (6) Nizam Sugar Factory vs. CCE reported in 2006 (197) ELT 465 (SC) (7) CCE vs. Lark Chemicals reported in 2008 (9) STR 230 (Bom.); (8) CCE vs. Ashish Vasantrao Patil reported in 2008 (10) STR 5 (Bom.) (9) CCE vs. Quick Service reported in 2008 (10) STR 235 (Bom.): I have gone through the said judgments and do not consider it necessary to discuss these judgments as the question of penalty has to be examined in the facts and circumstances of each case. The learned senior counsel has laid a lot of emphasis on this Tribunal's decision dated 18.7.2014 in the case of Greatship (India) Ltd. (supra). In the said case, the issue was relating to penalty under Section 78. Here, as held by me, Section 78 penalty is only relevant for the first show cause notice, which, in my view, is also not chargeable in the facts and circumstances of the present case. 21. In view of the above discussions, I agree with Member (Judicial) as far as imposition of penalty under Section 78 of the Finance Act in respect of the first show cause notice is concerned. As far as penalty under Section ....