TaxTMI 
TaxTMI 
2023 (8) TMI 743
X X X X Extracts X X X X
X X X X Extracts X X X X
....mmissionerate, Mumbai, it was found that the appellants were rendering the services of ship management, commercial management, technical management and crew management services to vessel owners and are receiving fixed cost equivalent to monthly management fees and are getting reimbursed the cost incurred by them for ship/vessel crew, cost of purchase of vessel consumables, repairs and maintenance of ships/vessels, and administrative costs etc. The appellants assessee is paying service tax on management fees for service rendered to Indian shipowners for which payment is received in Indian currency and in respect of foreign owners where payment is received in foreign currency, the appellants are not paying service tax claiming it as export of service. The investigation concluded that various reimbursable expenses received during October 2006 to March 2011, on which service tax is liable to be paid has not been paid by the appellants. Accordingly show cause proceedings were initiated by issue of three show cause notices dated 20.04.2012, 16.10.2012 and 16.09.2014 as per the Finance Act, 1994, as detailed below: SCN reference Period Service Tax demand in Rs. F. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... BIMCO agreement and statutory disclosure requirements. The said amount was not claimed by the appellants as income or expenditure in their books of accounts. In further explaining the nature of reimbursement expenses, the learned counsel had stated that the appellants receive monthly advance from the Vessel/ship Owners for procuring various goods and services for and on behalf of Vessel/ship Owners such as crew salary, vessel consumables, repair and maintenance, etc. The following process was adopted for incurring expenditure for and on behalf of vessel owner: (i) The budget of expenses was prepared by the Appellants, which was approved by the Vessel/ship Owners. The Vessel/ship Owners monitored actual expenses for procurement of goods and services and for payment to the crew of the ship, against the budgeted cost. (ii) All purchase orders issued to vendors and the bills issued by the vendors were issued in the name of Master/Owner of the Vessel/ship and c/o the Appellants. Further, the crew was recruited by the Appellants for and on behalf of the Vessel/Ship Owners. (iii) For the purpose of facilitating payment of expenses, on behalf of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....wing decisions in support of their stand and prayed for setting aside the order dated 14.10.2015 passed by the Commissioner of Service Tax, Mumbai-V. (i) PI Shipping and Logistics Ltd. Vs. Commissioner of Central Excise and Service Tax, Chennai - 2018 - TIOL - 3112 - CESTAT-MAD. (ii) Prime Consultancy Services Vs. Commissioner of Service Tax, Chennai - 2018 - TIOL - 2291 - CESTAT-MAD. (iii) Commissioner of Service Tax, New Delhi Vs. Karam Freight Movers - 2017 (2) G.S.T.L. 215 (Tri. - Del.) (iv) Intercontinental Consultants & Technocrats Pvt. Ltd. Vs. Union of India - 2013 (29) STR 9 (Del.) (v) Union of India Vs. Intercontinental Consultants & Technocrats Pvt. Ltd. - 2018 (10) GSTL 401 (SC) 4.1. Learned Authorised Representative for Revenue submits that the activity of the appellants is covered under the 'ship management service' and are rightly chargeable to service tax on the reimbursement charges. He further submitted that the amount recovered by the appellants cannot be considered as reimbursable expenses or amount received as pure agent as this amount has been received for providing the ship ma....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssed an order confirming the adjudged demands. The relevant paragraphs of the impugned order are extracted below: "32. The following aspects are not under dispute: • The noticee is rendering "Ship Management Services" as defined under Section 65(96a) and as referred to in Section 65(105)(zzzt) as a taxable service liable to Service Tax under Section 66 of the Finance Act, 1994. The taxability of the service provided by the noticee is not in doubt. • The noticee had in their ST-3 returns declared and paid Service Tax on the amount billed to their clients under their invoices. • The noticee had, in addition to invoices, raised debit notes on their clients. Service Tax was not paid by the noticee on the consideration recovered by the noticee from their clients through such debit notes. xx xx xx xx xx 35. Therefore, the only point of dispute is whether the amounts recovered by the noticee through debit notes are to be treated as part of "Gross Amount" (taxable value) as defied under Section 67 of the Fi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n providing services or in relation to the management of ship; (viii) the entry of ship in a protection or indemnity association; (ix) dealing with insurance, salvage and other claims; and (x) arranging of insurance in relation to ship;" 8.2. The charge of service tax is effectuated in Section 66 of the Act. It says that "there shall be levy of tax (hereinafter referred to as the service tax) @ 12% of the value of taxable services referred to in sub- clauses (a) (d) (e) ...(zzzt) ... (zzzzv) and (zzzzw) of Section 65 and collected in such manner as may be prescribed". Further, the provisions of Section 67 of the Act, as it stood before being substituted by the Finance Act, 2006, w. e. f. 01.05.2006 was as under: "67. Valuation of taxable services for charging service tax:- For the purposes of this Chapter, the value of any taxable service shall be the gross amount charged by the service provider for such service provided or to be provided by him. Explanation 1.- For the removal of doubts, it is hereby declared that the value of a taxable service, as the case may be, includes,- ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as with the addition of tax payable, is equal to the gross amount charged. Explanation 3.- For the removal of doubts, it is hereby declared that the gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service." 8.3. The new Section 67 which came into effect from 01.05.2006 is shorter and later amended in 2008 and 2012, is as follows: - 'Section 67. Valuation of taxable services for charging service tax (1) Subject to the provisions of this Chapter, service tax chargeable on any taxable service with reference to its value shall,- (i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him; (ii) in a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money, with the addition of service tax charged, is equivalent to the consideration; (iii) in a case where the provision of service is for a consideration which is not as....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... taxable service. Prior to this, service tax was charged on the gross amount received. The proposed section provides for determination of taxable value in cases where the consideration received for taxable services provided is not wholly in money terms and the consideration received is in money terms but not known explicitly. Separate valuation rules were also brought out for this purpose. Hence, it is desirable to examine the above legal provisions along with the rules. 9.2. The Service Tax (Determination of Value) Rules, 2006, was brought into effect from 01.06.2007. Rule 5 provided for "inclusion in or exclusion from value of certain expenditure or costs". The relevant portion of the rule, is extracted as follows: - "5. Inclusion in or exclusion from value of certain expenditure or costs: (1) Where any expenditure or costs are incurred by the service provider in the course of providing taxable service, all such expenditure or costs shall be treated as consideration for the taxable service provided or to be provided and shall be included in the value for the purpose of charging service tax on the said service. (2) Subject to the pro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Y, a real estate agent to sell his house and thereupon Y gives an advertisement in television. Y billed X including charges for Television advertisement and paid service tax on the total consideration billed. In such a case, consideration for the service provided is what X pays to Y. Y does not act as an agent behalf of X when obtaining the television advertisement even if the cost of television advertisement is mentioned separately in the invoice issued by X. Advertising service is an input service for the estate agent in order to enable or facilitate him to perform his services as an estate agent. Illustration 2 : In the course of providing a taxable service, a service provider incurs costs such as traveling expenses, postage, telephone, etc., and may indicate these items separately on the invoice issued to the recipient of service. In such a case, the service provider is not acting as an agent of the recipient of service but procures such inputs or input service on his own account for providing the taxable service. Such expenses do not become reimbursable expenditure merely because they are indicated separately in the invoice issued by the service provider to the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....scribed conditions. Hence, in order to determine the includability or exclusion from the taxable value for levy of service tax, these conditions are to be examined for coming to a conclusion. The requirement of such conditions and whether the appellants have fulfilled the same, in order to treat him as 'pure agent' are tabulated below: Description of the condition Whether the conditions were fulfilled in the present case The service provider acts as a pure agent of the recipient of service when he makes payment to third party for the goods or services procured; The appellants are acting as 'pure agent' of the recipient of the service. The BIMCO contract entered specifically defines the scope of the authority as agent acting on behalf of ship owner. All purchase orders issued to vendors and the bills issued by the vendors are issued in the name of master / owner of the ship and C/o the appellants. Further, appellants are making payment to seafarer/workers on behalf of the owner of the ship. The agreement with the seafarer is made by the appellants on behalf of 0wner of the ship. This fact is illustrated from the agreement with the seafarer. It is spe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....icate that the amounts incurred are only for reimbursement of the same, to the appellants. The service provider recovers from the recipient of service only such amount as has been paid by him to the third party; and The appellants makes the payment from separate bank account maintained by them. The appellants gets reimbursement of the amount paid on actual basis and no mark-up/ profit is added on such amount. The goods or services procured by the service provider from the third party as a pure agent of the recipient of service are in addition to the services he provides on his own account. The goods or services procured by the appellants from the third party are in addition to the services of ship management. In respect of ship management service, the appellants had paid the service tax and have also indicated the said value of services separately in the documents to be provided to the ship owner. The above factual position indicates that the appellants are fulfilling the conditions prescribed under Rule 5 (2) ibid, and hence the reimbursement expenditure collected by appellants have to be treated as expenditure or costs incurred by the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... ensure compliance with various legal requirements of international maritime law, the ship owners first and foremost, generally enter into a contractual relationship with terms agreed between them and with a ship manager or ship management agents, by adopting the standard agreements. BIMCO in their efforts to complement the global regulatory regime developed by the International Maritime Organization (IMO) have created standard contracts and clauses that address the commercial and practical implications of global regulations on charter parties and other shipping contracts that allocate obligations, responsibilities and liabilities fairly. SHIPMAN is one such model agreement covering various aspects such as crew, technical, commercial management as well as insurance arrangements. The latest edition of such contract/ agreement is SHIPMAN 2009. The advantage are of such contract is that all potential specifics of ship management are included in this form thus, allowing the contracting parties to shape a unique business relationship between the Owner and the Ship Manager. The main structure of the SHIPMAN 2009 Contract is as follows: Structure of the BIMCO standard ship ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e entered on board any ship in India unless that person is the owner, master or mate of the ship, or is the agent of the owner or is bona fide the servant and in the constant employ of the owner, or is a director of a seaman's employment office, or a shipping master. (2) A person shall not employ for the purpose of engaging or supplying a seaman to be entered on board any ship in India, any persons unless that person is the owner, master or mate of the ship, or is the agent of the owner or is bona fide the servant and in the constant employ of the owner, or is a director of a seamen's employment office, or a shipping master. (3) A person shall not receive or accept to be entered on board any ship any seaman, if that person knows that the seaman has been engaged or supplied in contravention of this section or section 95." From the above international conventions, BIMCO standard contracts and the provisions of Merchant Shipping Act, it is clear that the arrangement of contract between the ship owner and ship management agent, is a wellaccepted commercial arrangement in the maritime trade. Supply of sea crew by the ship manager on behalf of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....owsoever arising in the course of performance of the Management Services UNLESS same is proved to have resulted solely from the negligence, gross negligence or willful default of the Managers or their employees or agents, or subcontractors employed by them in connection with the Vessel, in which case (save where loss, damage, delay or expense has resulted from the Managers' personal act or omission committed with the intent to cause same or recklessly and with knowledge that such loss, damage, delay or expense has resulted from the Managers' personal act or omission committed with the intent to cause same or recklessly and with the knowledge that such loss, damage, delay or expense would probably result) the Managers' liability for each Incident or series of Incidents giving rise to a claim or claims shall never exceed a total of ten (10) times the annual management fee payable hereunder. (II) Acts or omission of the Crew - Notwithstanding anything that may appear to the contrary in this Agreement, the Managers shall not be liable for any acts or omissions of the crew, even if such acts or omissions are negligent, grossly negligent or willful, except only to the exte....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ond the mandate of Section 67, which is a charging section for levy of service tax. Section 67, both before and after 01.05.2006 amendment authorises the determination of the value of the taxable service for the purpose of charging service tax under Section 66 as the gross amount charged by the service provider for such service provided or to be provided by him, in a case where the consideration for the service is money. The underlined words i.e. "for such service" are important in the setting of Section 66 and 67. The charge of service tax under Section 66 is on the value of taxable services. The taxable services are listed in Section 65(105). The service provided by the petitioner falls under clause (zzzt). It is only the value of such service that is to say, the value of the service rendered by the appellants to ship owner, which is that of a ship management service, that can be brought to charge and nothing more. It is not the case of the Revenue that on ship management fees, for the services rendered by the appellants, they have failed to pay the service tax. Thus the quantification of the value of the service can therefore never exceed the gross amount charged by the service ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....06, i.e., in the absence of any such Rule, the valuation was to be done as per the provisions of Section 67 of the Act. 22. Section 66 of the Act is the charging Section which reads as under: "there shall be levy of tax (hereinafter referred to as the service tax) @ 12% of the value of taxable services referred to in sub-clauses of Section 65 and collected in such manner as may be prescribed." 23. Obviously, this Section refers to service tax, i.e., in respect of those services which are taxable and specifically referred to in various sub-clauses of Section 65. Further, it also specifically mentions that the service tax will be @ 12% of the 'value of taxable services'. Thus, service tax is reference to the value of service. As a necessary corollary, it is the value of the services which are actually rendered, the value whereof is to be ascertained for the purpose of calculating the service tax payable thereupon. 24. In this hue, the expression 'such' occurring in Section 67 of the Act assumes importance. In other words, valuation of taxable services for charging service tax, the authorities are to find what is the gross amount charged....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... "the Rules were meant only for the purpose of carrying out the provisions of the Act and they could not take away what was conferred by the Act or whittle down its effect." 29. In the present case, the aforesaid view gets strengthened from the manner in which the Legislature itself acted. Realising that Section 67, dealing with valuation of taxable services, does not include reimbursable expenses for providing such service, the Legislature amended by Finance Act, 2015 with effect from May 14, 2015, whereby Clause (a) which deals with 'consideration' is suitably amended to include reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service. Thus, only with effect from May 14, 2015, by virtue of provisions of Section 67 itself, such reimbursable expenditure or cost would also form part of valuation of taxable services for charging service tax. Though, it was not argued by the Learned Counsel for the Department that Section 67 is a declaratory provision, nor could it be argued so, as we find that this is a substantive change brought about with the amendment to Section 67 and, therefore, h....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is the principle of "fairness", which must be the basis of every legal rule as was observed in L'Office Cherifien des Phosphates v. Yamashita-Shinnihon Steamship Co. Ltd. Thus, legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former legislation. We need not note the cornucopia of case law available on the subject because aforesaid legal position clearly emerges from the various decisions and this legal position was conceded by the counsel for the parties. In any case, we shall refer to few judgments containing this dicta, a little later." 30. As a result, we do not find any merit in any of those appeals which are accordingly dismissed." 19. We further find that the Principal Bench of this Tribunal had dealt with the similar issue in the case of M/s Seher Vs. Commissioner of Service Tax, Delhi - II by holding that the service tax demands confirmed under Rule....