TaxTMI 
TaxTMI 
2026 (6) TMI 179
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....eceived from their foreign contractors. The period involved is from 2007-08 to 2011-12. The appellants are also in appeal against OIA dt.22.03.2018, vide Appeal Nos. ST/30797 & 30798/2018, and against OIA dt.27.03.2018, vide Appeal No. ST/30799/2018, wherein, the OIOs passed by the adjudicating authorities have been upheld by the Commissioner (Appeals). The issue involved in all these three appeals is leviability of service tax on 'demurrage charges'. The appellants are also in appeal against OIA dt.28.03.2018, vide Appeal No. ST/30800/2018, whereby the OIO passed by the adjudicating authority has been upheld and the issue involved is whether 'dispatch money' received for expeditious unloading of cargo and quick turnaround of the vessel are classifiable under the category of 'Port Services' and subjected to service tax or otherwise. 2. In all these appeals, the issues are more or less common, except for certain provisions being applied post 01.07.2012. The brief facts of the case relevant to all the appeals are that the appellants are engaged in manufacture of iron and steel products and for the same, they are importing raw material as well as exporting their finished goods. In ....
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....ond proviso to section 66A read with section 66A(2), he held that the establishment of service provider located in Moscow and India are to be considered as two independent establishments and therefore, Moscow unit of service provider is concerned with provision of taxable service to the appellant and hence Moscow unit and not Indian establishment is liable to discharge service tax liability. The relevant paras of OIO are reproduced below. "39. Therefore I would like to examine the relevant statutory provisions relating to Service Tax payment under Reverse Charge mechanism covered under Section 66A of Finance Act. Section 66A: Charge of Service Tax on services received from outside India: (a) provided or to be provided by a person who has established a business or has a fixed establishment from which the service is provided or to be provided or has his permanent address or usual place of residence, in a country other than India, and (b) received by a person (hereinafter referred to as the recipient) who has his place of business, fixed establishment, permanent address or usual place of residence, in India, such service shall, for the purposes of t....
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.... to Section 66(A)(1) of Finance Act, if the service provider has his business establishment in two or more different countries, then the country, from which the service is provided, is taken into consideration for deciding the issue of provision of service. As per the explanation 1 given at the bottom of Section 66A, if a person is carrying on a business through a branch or agency in any country, then the branch or agency is treated as having a business establishment in that country. Further as per explanation 2 given at the bottom of Section 66A, in relation to a body corporate, the usual place of residence is the place where it is incorporated. 41. After examining the statutory position, I apply the same to the present situation. In the present case, it is noticed from the Agreement No. VSP/WC/AGT-4969/2010-11 dated 30/11/2010 that the agreement was entered into between the assessees and the service provider viz., M/s. CJSC "OGNEUPORTKOKSSER VIS" (OKOS) located in Moscow. The assessees submitted that the service provider is having a permanent establishment in India at Noida and that the same was registered with Service Tax Department and complying with various Indian Act....
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....y done for a consideration is taxable. The appellants are the main contractor for the work of the above operations and hence they are liable to pay service tax. The relevant paras of the OIO are reproduced below. "43. I observe that M.s RINL, Visakhapatnam are engaged in imports of the raw material and exports of their final products. The assessees paid demurrage charges to the foreign vessel owners at the discharge port i.e., Visakhapatnam or Gangavaram Port in respect of their imports and also exports. The assessees contend that demurrage charges paid on exports for delay in loading the vessel beyond the allowed time schedule as per terms & conditions of the agreement, is a part of the consideration by way of diminution and not "Port Services". Similarly, demurrage charges paid on imports is a part of transportation cost and not a consideration paid towards any provision of service and therefore demurrage charges paid by them are not liable to Service Tax under "Port Services". 44. Therefore I would like to examine the relevant statutory provisions relating to 'Port Service'. Section 65(82) and Section 65(105)(zn) of Finance Act define Port Service and Taxable S....
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.... demurrage charges being activity done for a consideration is taxable. The assessees are the main contractors for the work of the above operations and hence they are liable to pay Service Tax under the ''Port Services'." 6. Learned Advocate for the appellant has submitted that as per their procurement model, they are entering into charter party agreement with vessel operators/ owners and also with stevedores for actually doing the said work of loading/ unloading. Similarly, for exports also, they entered into contract with foreign buyers on FOB basis and the goods are delivered into vessels nominated by the buyer. In the context of their import and export, in terms of charter party agreement, certain average rate of discharge of cargo is agreed and in case of delay, the appellant is liable to pay demurrage charges. However, in the case of expeditious unloading and turnaround, the appellant would be liable to receive 'dispatch money' from the vessel operators. The final freight charges are paid to the vessel operator/ owner with adjustment towards demurrage or dispatch money. 7. Insofar as the issue of CES is concerned, learned Advocate has submitted that OKOS has permanent es....
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....volving interpretation of law. 9. Learned AR, on the other hand, has reiterated the findings of the adjudicating authority and also relied on certain case laws in support that the activities would be covered within the ambit of CES. Insofar as demurrage charges under 'port services' is concerned, he has referred to Circular No. 121/3/2010-ST - F.No.332/29/2009-TRU dt.26.04.2010, wherein, the Board had clarified certain leviability of service tax on container detention charges. He has also relied on the judgment in the case of Western Agencies Pvt Ltd Vs CCE [2011 (3) TMI 528 - CESTAT Chennai (LB)]. 10. Heard both sides and perused the records. 11. There are three broad issues, which need to be decided viz., a) Whether in respect of CES, the appellants are required to pay service tax on RCM or otherwise. b) Whether the appellants are required to pay service tax on demurrage charges paid by them to the vessel owners under the category of 'port services' or otherwise. c) Whether the appellants are required to pay service tax on dispatch money received by them from the vessel owners or otherwise. 12. The appellants are engaged in both export and i....
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....rson authorized by such port or other port in any manner in relation to vessel or goods. In this case, there is no dispute that the appellants are neither a port/other port nor they are a person authorized by such port. Therefore, the appellants cannot be said to have provided port service for the period prior to 01.07.2010. For the period beyond 01.07.2010, this restriction is gone and therefore, the only issue, which needs to be examined, is who is providing port service and to whom. It is a trite law that for levy of service tax, there has to be a service provider providing taxable service and a service recipient receiving such service and there is a consideration for providing that service paid by the recipient to the provider. Therefore, these three elements are essentially required before establishing that service tax is payable in respect of certain activity. Insofar as service provider is concerned, it is clearly alleged by the department that appellants are undertaking unloading and loading of goods for which they are getting dispatch money or paying demurrage charges. Therefore, in this context, the appellants may be treated as service provider, however, this was subject ....
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....patch money are condition of the contract, which is relating to transportation of goods and it either penalizes them or incentivize them for quick turnaround of the vessel. It is also not disputed that the demurrage charges or dispatch money is adjusted in the freight amount agreed to be paid for arriving at the net freight. Therefore, it is obvious that the demurrage charges or dispatch money are not consideration, rather condition of the contract of transportation. In the case of Bhayana Builders P Ltd (supra), the Hon'ble Supreme Court observed that any amount charged, which has no nexus with the taxable service and is not a consideration for the service provided, does not become part of the value, which is taxable under section 67. It is also a trite law that the agreement has to be read as a whole, so as to gather the intention of the parties. In this case, the intention is apparent i.e., transportation of goods for the purpose of import from the port of loading up to the port of discharge, as also transportation of goods up to the ship and its loading in the case of export of goods. Therefore, we find much force in the submission that demurrage charges incurred for import of ....
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....efore, even for the period post 01.07.2012, the view cannot be accepted that there was involvement of declared service falling under section 66E(e) and therefore, this will be subjected to service tax. In catena of judgments including South Eastern Coalfields Ltd (supra) and Sembcorp Energy India Ltd (supra), it has been clearly held that liquidated damages are not towards rendering of any service. Therefore, relying on the ratio in these judgments, the demurrage chares paid by them cannot, by any stretch of imagination, be considered as consideration paid towards any service. We also note that there is no specific agreement except for the charter party agreement exclusively entered between the vessel owners and the appellant for the purpose of loading/ unloading of goods or provision of demurrage charges/ dispatch money, relating thereto. The condition of the charter party agreement provides for certain penal charges in the nature of demurrage charges or certain incentives in the nature of dispatch money. However, as discussed, these are in the nature of penal charges, which become payable in terms of conditions agreed to in the agreement entered between the vessel owners and the ....
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....reed upon window of time during which a vessel is expected to complete loading or discharge, as the case may be, with 'demurrage' being that chargeable from the charterer for any stay beyond the stipulated 'laytime' not attributable to the vessel operator. The 'demurrage' is disincentive to delay retention of vessel in port which has cost implication to vessel operator. It is, thus, a contractual arrangement that has everything to do with transport. 6. Moreover, the 'declared service' deployed in the show cause notice and harped upon in the grounds of appeal is a conceptual expression not amenable to easy comprehension of intent of coverage. Contextually, 'declared service' is legal fiction and, particularly, when so described is hardly clarificatory. It is well-settled law that taxing statutes are to be literally construed and that legal fiction is not to be stretched beyond intent. This is evident from the exposition on that aspect by the Hon'ble High Court of Gujarat thus : '11. But it is equally well-settled and that is a principle which should not be lost sight of that legal fictions are created only for a definite purpose and they are limited to the purpose ....
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....ule to the Finance Act, 195 : "All that the fiction does is to bring profits of back years into the immediately preceding previous years, so that the requirements of the income-tax law may be complied with. As we have already stated, this fiction cannot be carried further than what it is intended for; it cannot be used to make these profits take the place of total income, which did not exist in the previous year and to which the rate is to be applied under the terms of the proviso." 13. It would, therefore, be seen that when the court is called upon to construe the effect of a legal fiction the court must first ascertain what is the purpose for which the legal fiction is enacted and then in the field of that purpose the court must give full effect to the legal fiction by carrying it to its logical conclusion.' in Commissioner of Income-Tax, Gujarat v. Bai Vina [(1965) 0 GLR 583]." 18. The conclusion drawn by the Coordinate Bench was that the scope of taxability of particular declared service is restricted to standalone agreement and not to contingent liabilities crystalizing as part and parcel of another service - taxable or exempted, which, in effect,....
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....rom which the service is provided or to be provided. (2) Where a person is carrying on a business through a permanent establishment in India and through another permanent establishment in a country other than India, such permanent establishments shall be treated as separate persons for the purposes of this section. Explanation 1.- A person carrying on a business through a branch or agency in any country shall be treated as having a business establishment in that country. Explanation 2.-Usual place of residence, in relation to a body corporate, means the place where it is incorporated or otherwise legally constituted. 21. The fact relevant to the discussion is that in this case, though the agreement was signed by an entity located outside India, but it is also an admitted fact that they were having an establishment and office in India, which was also having service tax registration. It is also an admitted position that the said Indian branch office or establishment actually paid service tax involved on such transaction, which was made by the appellant to the OKOS, Russia. In this regard, we find that there is clear provision in terms of original agreeme....