TaxTMI 
TaxTMI 
2015 (7) TMI 553
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....t paid to them by M/s. ONGC to whom they had provided services whereas the service tax was actually payable only on the commission received by them and not on the total cost reimbursed to them by M/s. ONGC. The respondent and ONGC had entered into a Master Contract on 9 th June 2005 under which the respondent provided "Operation and Maintenance Management of Well Stimulation Vessel" owned by ONGC. The scope of the work under the contract is given in Clause (3) of Annexure-III to the contract for the Well Stimulation Vessel Smaranidhi. Similar contracts were entered into for other vessels. The scope of work is extracted below: 3.2 The Marine operations broadly include: 3.2.1. Manoeuvering & dynamic positioning of the vessel, 3.2.2 Crane & deck operations, 3.2.3 Coordination for landing & take off for helicopter, 3.2.4 Repair & Maintenance of the Vessel including cleaning & painting, 3.2.5 Repairs & maintenance of navigational, communication, electrical, electronics & safety equipments including office galley, house keeping & entertainment equipments. 3.3 To provide a Base Manager for co-ordination and follow up of Offshore Operations. The Base Manager shall be r....
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.... surveys. 3.9 To coordinate with Director General of Shipping/any other agencies for statutory marine requirements & movement of vessel in Indian Waters and overseas for dry-dock repairs etc. 3.10 To arrange for the annual statutory and classification surveys with DNV/IRS for certification of equipments on board including the stimulation equipment and to keep the Vessel covered under classification at all the times. 3.11 To be the Lead Managers for operating the Safety Management System on the vessel in compliance with ISM Code, a statutory requirement. 3.12 To arrange a Service Engineer, as and when authorized by the Owner for repair & maintenance of Marine Equipment & Systems. 3.12.1 The payment to Service Engineer shall be made as per agreed rates decided mutually before mobilisation, Traveling expenses shall be reimbursed as per actual. The transportation to & from Offshore, boarding & lodging at the vessel shall be provided by ONGC. 3.13 To provide assistance to deal with any emergency situations e.g. blow out, fire fighting, pollution control etc. as per the demand of the occasion. Clause 10 of the Contract is also relevant and is extracted below: 10.0....
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....monthly Debit note. 8.4 The Owner shall pay to the Contractor remuneration @ 5% of the total expenses incurred or to be incurred by the Contractor under various illustrative heads mentioned in CL 8.3 above. The remuneration charge of 5% will not be applicable on customs duties, Contractor's service tax and Contractor's management expenses. 3. As the respondent had paid service tax on the entire amount of charges reimbursed to them by ONGC, they filed a refund claim on the ground that service tax was payable only on the amount of 5% fees received by them and not on the amount which is only a reimbursement of the actual expenses incurred. Respondent also informed to the department that they had not received refund of service tax from ONGC and therefore, the doctrine of unjust enrichment is not applicable as the amount was shown in their balance sheet as service tax receivable. The adjudicating authority, while rejecting the refund held that the entire expenditure incurred by the respondent i.e. service provider in the course of providing taxable services forms an integral part of the taxable value. He also rejected the contention of the respondent that the costs incurre....
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....intenance of the said vessel. (c) The Respondents undertake to operate and manage the vessel by providing the technical personnel required. (d) The Respondents further undertake to maintain and repair the vessel to keep it in sea worthy condition. (e) ONGC is reimbursing the expenses incurred by the Respondents on actual i.e. cost to cost basis. (f) The Respondents are earning remuneration @ 5% of the total expenses incurred/reimbursed on operation, management and maintenance of the vessel. (g) The personnel employed by the Respondents for Operation, Management and Maintenance of the said vessel are qualified and experienced Marine, Geotechical and Diving personnel satisfying the requirements of Indian Merchants Shipping Rules. Annexure-III (Schedule-D) of the above agreement stipulates the professional qualifications and requisite experience required by the Marine, Geotechnical, Diving Call out etc. personnel. 6.1 On taxability of the above activity he stated: The impugned services provided during the period (from 16.06.2005 to 31.03.2006) can be covered only under the taxable head of "Ship Management" service which was introduced with effect from 01.05.2006 a....
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....s have been paying service tax on the commission at 5% received from ONGC over and above the cost reimbursed on actual basis. The respondents are only making payment to service providers on behalf of ONGC who is reimbursing the expenses on a cost to cost basis. In this connection he referred to Clause 3.7 of the Contract which recognizes the fact that respondent shall procure materials spares etc. on behalf of the customer. He relied on CBEC Circular No 5/97-ST dt. 12.06.1997 and Circular No. 7/97-ST dated 4.7.1997 which clarify that service tax will be payable on agency commission earned by the Custom House Agent and commission earned by Manpower Recruitment or Supply Agency, respectively, and the reimbursable expenditure on behalf of the clients is not to be included in the value of taxable services rendered. He emphasized that even the 'Maintenance and Repair' activity which is covered under the Maintenance service has been provided by the said contractors and not the respondent. He relied on Glaxo Smithkline Pharmaceuticals Ltd. vs. CCE 1996 (3) STR 711 and Scott Wilson Kirkpatrick (I) Pvt. Ltd. vs. CST 2007 (5) STR 118. Lastly, he urged that although valuation Rules we....
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....es a decision is whether the activity undertaken by the ONGC would be covered under the 'Management, Maintenance or Repair Service. It is significant to note that the word 'Management' in the above category of service was also introduced w.e.f on 1.5.2006. Prior to this date, the service was categorized as 'Maintenance or Repair' service. Thus, we have to examine whether the activities would be covered by the definition of 'Maintenance or Repair' service prior to 1.5.2006 when it was defined as: (64) "maintenance or repair" means any service provided by- (i) any person under a contract or an agreement; or (ii) a manufacturer or any person authorised by him, in relation to,- (a) maintenance or repair including reconditioning or restoration, or servicing of any goods, excluding motor vehicle; or (b) maintenance or management of immovable property; From the above, it is seen that only management of immovable property was covered under the definition of 'Maintenance or Repair'. In other words, we have to see whether in the absence of maintenance of 'moveable property' in the definition, the service provided by the respondent....
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....respondent. However, on venturing into details of the contract we find that it is composed of a range of distinct and separately identifiable activities which are paid for and reimbursed by ONGC, activity-wise. Therefore as the value of each activity undertaken is based on the actual value for which invoices are raised by various Sub-Contractors on SCI, there should have been no difficulty in determining the value corresponding to each of the 'Maintenance or Repair' activities provided by the respondent i.e. SCI. The Service Tax law does not bar the splitting of a contract into distinct activities each of which has a separate value. We have seen the decisions of the Tribunal in the case of Jubilant Enpro Pvt. Ltd. (supra) and M/s. Safe & Sure Marine Services Pvt. Ltd. (supra). The facts in those cases are somewhat different. In those cases the issue was whether the appellant have provided 'Manpower Supply Service' or 'Ship Management Service'. In the present case at hand we have already examined the issue of classification and have come to the conclusion that only some activities provided under the contract fall in the ambit of 'Maintenance or Repair&....
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.... tax. We also note that Clauses 3.12 and 3.12.1 of Annexure -III to the Contract specifically provide for payment to the Service Engineer arranged by the respondent but authorized by the owner, to be made at agreed rates and for whom travelling expenses are reimbursed as per actual. This clause indicates that all expenditure incurred by the respondent for undertaking various activities are strictly on a reimbursement basis. Neither the adjudicating authority nor the Commissioner (Appeals) have gone into the details of various clauses of the Contract before arriving at a judicious decision. As regards the supply of materials and spares, here again we find from Clauses 3.7 and 3.7.1 that the materials are approved by the owner. This again indicates that all materials are being purchased on behalf of the owner i.e. ONGC. Only the billing by the suppliers is in the name of the respondent who are then reimbursed the amount entirely. The Remuneration in terms of Clause 8 of the Contract clearly specifies that all expenses are paid in advance by ONGC for various categories of personnel required for manning the vessels and also expenses for the running operations as well as supply of store....
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.... In view of the above, we remand the case to the Commissioner for fresh adjudication with the following directions: (i) Only some of the activities covered under the Contract between the respondent and M/s. ONGC fall in the ambit of 'Maintenance or Repair' service. Other activities such as those related to Operations do not get covered under the category of 'Maintenance or Repair' service. Commissioner may examine each activity and decide the classification accordingly for each activity. (ii) The value of taxable services may be determined keeping in view our observations above, Board Circulars and judicial pronouncements on this issue. 12. Appeal is disposed in above terms. Cross-objection is also disposed. (Pronounced in court on /03/2015) Per: Anil Choudhary: 13. I have gone through the order recorded by my learned brother Shri P.S. Pruthi, as I do not fully agree with his order, I am recording my separate order. 14. I agree with the learned Member (Technical) that the whole contract is found on the cost plus basis for management and maintenance of the ships, by the respondent company for the owner i.e. ONGC. I further hold that the Commissio....
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....ervices provided consist of more than one service. In such cases, it is important to decide, for the purpose of classification of services, whether each element of the transaction should be treated separately or as a single composite transaction, albeit, made up of two or more separate services. A composite service, even if it consists of more than one service, should be treated as a single service based on the main or principal service and accordingly classified. The decision is to be made on question of facts and law. It will not make a difference if the tax rates of the components are the same as that of the principal service. The problem may arise when some elements are taxable and others are exempt. While taking a view, both the form and substance of the transaction are to be taken into account. The guiding principle is to identify the essential features of the transaction. The method of charging does not in itself determine whether the service provided is a single service or multiple services." This Tribunal has held in the case of Gujarat Chemical Port Trust Co. Ltd. - 2008 (9) STR 386 (LB), wherein a question arose as to whether rental charges collected by the assessee w....