TaxTMI 
TaxTMI 
2015 (12) TMI 1057
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....container terminal on BOT basis and as a consideration they have received monthly royalty charges. Show-cause notices were issued to them demanding service tax on the royalty charges for the period June 2003 to February 2006 and March 2006 to January 2007. The adjudicating authority in his order dt. 25.1.2007 confirmed the service tax of Rs. 3,22,87,322/- under port services and imposed equal amount of penalty under sections 76 and 78 of Finance Act, 1994 and in his order dated 29.5.2008 confirmed the service tax of Rs. 2,55,27,328/- and imposed penalty of Rs. 15,05,811/- under section 76 & 78 of Finance Act, 1994. Hence the present appeals. 3. Heard both sides. 4. Learned counsel appearing for the appellant submits that the appellants are regularly discharging service tax on all the activities carried out under port services. The period involved in this case is from June 2003 and January 2007. As per policy of the Government they have decided to lease a portion of the port area i.e. Berth No.VII to a private operator M/s. PSA SICAL Terminals Ltd. to construct and operate the container terminal on BOT basis. He submits that as per the agreement only a vacant land was leased o....
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....tice demanded service tax only on the royalty amount received as per the agreement whereas the adjudicating authority has said that the appellants are also providing port services and submits that since whatever the port services are provided by the appellant service tax has been discharged, therefore, the royalty amount is not in relation to any port services and the dispute is in relation to royalty amount which is nothing for consideration of leasing out of Berth No. VII. He drew our attention to the extracts of the agreement at page 5, 8, the Articles 2.1, 2.2 explains the scope of agreement between the licensor and licensee and Article 3.1 which clearly stipulates that after the execution of the agreement the licensor will hand over licensed premises. 7. He relied on clause 6.1.8 and submits that these charges are levied on actual as per Article 6.2.1. He reiterated Article 7.3.1 which has got three parts,the first part stipulates that certain charges collected from the owners or agents from vessels and they shall be payable to licensee, second part payable by the appellant and third part speaks on the discount. 8. He further submits that Article 7.3.5.2 is only provides....
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.... and maintenance which directly relates to port services. As per the agreement, operating a jetty includes leasing in addition to other services. Regarding appellant's claim that service tax has been discharged by them on certain services which described in the agreement under obligation 6.2.1 he submits that it is a question of fact which has to be verified whether service tax has actually been paid on the activities or not. He further submits that the entire BOT agreement is not mere a renting of vacant land as claimed by the appellant to let out empty land but it is a licensed premises which has got certain facilities and also got certain facilities extended to both the appellant and the licensee PSA SICAL. He submits that the under the clause obligations, it clearly stipulates the list of host of services. He relied on Article 7.3.5.2 which clearly sets out how the royalty to be computed as per Appendix 12 of the agreement. Appendix 12 of the agreement clearly says royalty are computed for each instalment as per the TEOs handled in the berth which clearly confirms that the charges have direct nexus with the handling of the berth. He further submits that port services was so....
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....for 30 years at Tuticorin Port-India". As a consideration for the said project TPT received both initial lump sum payments and monthly royalty charges from PSA SICAL. The bone of contention between the Revenue and the TPT is that adjudicating authority held the monthly royalty charges received by the appellant (TPT) is taxable under Port Service as the said development falls under "Port Services". Whereas the appellant's main and sole contention that the said charges are not taxable under Port Services as it is only leasing of portion of the port and the leasing is not covered under the definition of port services. Both sides, vehemently put forth their contentions and relied various clauses/provisions of BOT Agreements. It is relevant to see the definition of Port Services" [under Section 65 (82) of Finance Act] as it stood during the relevant period which is as under : "Port Service means "any services rendered by a port or other port or any person authorized by such port or other port, in any manner in relation to vessel or goods". 15. Further the definition of "Taxable Service" is defined under Section 65 (105) (zn) of Finance Act which is reproduced as under :-....
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....hey will be incorporating a company in India in the name and style of M/s.PSA SICAL TERMINALS LIMITED. WHEREAS on 24.10.1997 the Joint Venture submitted a bid; WHEREAS, the Licensor, after evaluating all the bids received by it, has selected the Licensee's proposal as acceptable and decided to award the License vide Letter of Intent for award of Licence, enclosed as Appendix 2; WHEREAS, the Licensee has agreed to design, engineer, finance, erect, operate, replae OCNTAINER HANDLING EQUIPMENT, maintain and repair the CONTAINER Terminal and the Licensor has agreed to grant License to the Lienssee to do so on the terms and conditions set forth below :- Article 1 Definition of Terms 1.1 Defined Terms (i) Seventh Berth - "Seventh Berth" or the "Terminal" means the Container Terminal situated on the Licensed Premises together with allied back up facilities and equipments. (ii) Design & Drawings - "Design and Drawings" shall mean the conceptual and the detailed drawings and backup technical information of a like nature required f....
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....de necessary clarification to the Licensor. The Licensor shall, after considering the clarification, grant its approval or reject any design and drawing or part thereof. In case the changes and/or modifications and/or corrections suggested by the Licensor are acceptable to the Licensee, the Licensee shall resubmit fresh Design and Drawings incorporating such changes and/or modifications and/or corrections.... ... ... ... The Licensee shall not change any detailed Design and Drawings, specifications and calculations approved by the Licensor, without the prior written consent of the Licensor. Article 5.3: Principal Obligations of Licensor (TPT) The Licensor undertakes to comply with its obligations to enable the Licensee to satisfy the overall scope of facilities to be provided by the Licensee as set out in Appendix. 8. 5.5:Equipment and Materials The Licensor shall provide or cause to be provided at its own cost, charges and expenses all equipments, raw materials and other items that may be required for construction of either temporary or permanent nature. 5.6:Power & Water The Licensor shall supply power ....
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.... Licensee at rates to be prescribed by the Licensor from time to time as per Article 6.1.8. Take all point for water to be supplied at berths shall be the nearest available water line: (x) monitoring pollution in the air and water and ensure compliance of environmental protection measures in the Licensed Premises at the cost of the Licensee. (xi) obtaining customs notification for the Licensed Premises to be utilised as a Container Terminal. Note: With respect to (i) and (ii) above, normally vessels will be given service on "'First Come Fist Served" basis. However, berthing norms in Appendix 14 shall apply, but sailing shall be scheduled by the Deputy Conservator of the Licensor as per ship's characteristics and tidal conditions on non-discriminatory basis. Article 6.4 :Dredging The Licensor has represented to the Licensee that the container vessels drawing laden draught upto 8.24 m can be handled at the terminal. The Licensor proposes at its cost, charge, expenses and risk to carry out dredging required to maintain a draught of 10.7 m for approach channel and dock basin. The Licensor will endeavour to keep the channe....
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...... Charges on account of Berth Hire, Port Dues and Pilotage shall be raised and recovered directly by the Licensor from the users. Article 7.3.5 Payment and payment terms 7.3.5.1:Initial payment In consideration of the grant of this License, the Licensee shall pay to the Licensor an initial amount of Rs. 45 million (Rupees Forty Five Millions only) simultaneously on the Date of Award of License. Article 7.3.5.2:Monthly Royalty Payment The Licensee shall pay to the Licensor, royalty calculated on the basis of Minimum guaranteed traffic royalty rates, as set out in Appendix. 12 irrespective of discounts in tariffs, if any, that may be granted by the Licensee. Royalty shall be paid every Month on the basis of annual minimum guaranteed traffic as set out in Appendix 12. Monthly royalty shall be initially calculated proportionately to the yearly royalty based on the annual minimum guaranteed traffic as per the Appendix 12 and shall be paid latest by the 7th Day of the subsequent Month. At the end of each 3 Month period the total royalty payable shall be computed and the difference, if any, between the amount of royalty actually payab....
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....or (ie. TPT appellant) set out at Article 5.3 and 6.2.1 of the above agreement we find it clearly reveals the role of the appellant and the number of activities/services rendered by the appellant, these are direct and explicit activities carried out by the appellant in the development of C.H.T. by the licencee ie. PSA. The clause (i) to (xi) above articles are specific that the appellant shall provide entry berthing, sailing, piolatage, towage, maintenance of entrance channel draft at 8.24 MT and 10.4 MT dredging of the water way leading to the container terminal and maintenance of dredged draft, water ride safety and safety of navigation etc., In addition, the appellant also provide supply of electricity and water subject to payment by the licencee. 17. The above activities form part of the obligation of the appellant as built in BOT agreement for the development of container terminal. Therefore, the agreement itself makes it clear that the appellant has to provide certain services which are essential for movement of vessels and goods. Therefore, it is established beyond doubt that all the activities provided in the development of VII Berth on container terminal are rightly cov....
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....of the logistics, staffing, reporting. Therefore, BOT agreement cannot be compared or equated to any normal agreement of leasing of property. Generally in any lease agreement the term used are Lessor & Lessee whereas here the agreement is between Licensor & Licensee Similarly, in the case of lease under normal circumstances, there would not be any obligation vests with Lessor and the consideration is purely a rent or lease amount. The term Licence used in the present BOT agreement is to include the Licensor, Licensed Premises and Licence period and they are used with full meaning and these cannot be by any stretch of imagination can be called or termed as Lessor or Leased Premises or Lease Period. Therefore, the appellant's claim that they have only leased out portion of the port area and received lease amount as Royalty charges has no basis and the monthly Royalty charges are worked out as per Appendix 12, based on Tonnage handling is in totality of all the services rendered either direct or indirect as stipulated in the various Articles of the Agreement and it is only for the port services i.e. Development of Container Terminal for handling of vessels and goods. 20. The ap....
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....ax cannot be demanded for the earlier period under Port Services. In this regard, we find the definition of 'Port Services' include any service to any person and in any manner in relation to vessel and goods. The Hon'ble Gujarat High Court in the case of Kandla Shipchandlers and Ship Repairers Association Vs UOI (supra) held that the definition under Section 65 (105) (zn) is expressive and include any services rendered in any manner. The relevant paragraphs of the High Court decision are reproduced as under :- 8. With this factual background in mind, if we refer to the statutory provisions, it emerges that Section 65(105)(zn) makes taxable any service provided to any person by a port or any person authorized by the port, in relation to port services, in any manner. The term "port service" is defined under section 65(82) as under : "(82) "port service" means any service rendered by a port or other port or any person authorized by such port or other port, in any manner, in relation to a vessel or goods." The term "port" has been defined in Section 65(81) as having the same meaning assigned to it in clause (q) of Section 2 of the Major Port Trust....
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....he movement of the vessel. The Tribunal applied the principle of ejusdem generis. The view expressed by the Tribunal does not command to us. Firstly, the authorization of the port has undoubtedly been granted in the present case. We do not find that such authorization must relate to those activities which the port is either obliged or exclusively required to perform under the Major Port Trusts Act, 1963. Further, in our opinion, the term "in relation to" a vessel must be seen as to expanding the scope of coverage of the port service and cannot be confined to those services which are in relation to movement of vessels so as to exclude from its ambit the work of repair of vessels. The ratio of the High Court's above decision squarely applies to the present case. Further, the Tribunal LB decision in the case of Western Agencies Pvt. Ltd. Vs S CC (supra) clearly held that the definition of "Port Services" is exhaustive. The relevant paragraph is reproduced as under :- "11. Answer to question (c) So far as the third question is concerned that question deals with cluster of services provided by a port or other port. The services provided in any manner directly or....
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....sessee." 22. Further, the Tribunal's Principal Bench in the recent decision in the case of Airport Authority of India Vs CC reported in 2015-TIOL-148-CESTAT-DEL held that the definition of 'Airport Services' under Section 65 (105) (zzm) includes any service and held that service tax is chargeable on the revenue collected from Renting and Leasing out of space inside airport. Though the above decision relates to definition of "Airport Services" the ratio of the above decision squarely applicable to the present case. 23. In view of foregoing discussions and by respectfully following the Hon'ble High Court decision and Tribunal (LB) decision we hold that the Royalty charges received by the appellant from Licensee as per Licence Agreement for Development of VII Berth as Container Terminal, operation and maintenance on BOT basis is chargeable to service tax under Port Service. 24. Further, we find that the service tax demand was confirmed on the gross monthly royalty charges received during the disputed period without allowing cum tax benefit. It is settled law that appellants are eligible for the cum tax benefit on the total amount received as monthly royalty ch....