NOVEMBER 07, 2005
By G.Prabhakara Sastry, Advocate & Tax Consultant, CONVENER - TAX LAW RESEARCH GROUP
AS in the case of many other services, the levy of Service Tax on 'Port Services' is made as complicated as possible, partly by its definition and mostly by way of irresponsible clarifications issued in the shape of CBEC Circulars.
The definition of 'Port Services' read as follows.
'Port Services' 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'.
When a doubt was raised regarding applicability of Service Tax on the Services rendered by ship chandlers, the usual irresponsibility and callousness of the CBEC was amply demonstrated by issuing a clarification. The relevant portion of the Circular CBEC Circular No.67/16/2003-ST, dated 10-11-2003 read as follows
'Ship Chandlers engaged in (A) supply of provisions called 'Ship Stores' such as fresh vegetables, dried / fresh fruits, provisions, meat, engineering materials and desk stores etc., to the vessel and (B) undertake minor repair works to clear technical snag of the vessel through their locally arranged resources as workshop etc., These are services rendered in relation to the vessel under authorization from port authorities and hence come within the ambit of Port Services'
In terms of the definition, the levy of Service Tax is confined to services rendered in relation to 'vessels' or 'goods'. But suddenly, the clarification provided through the circular had the effect of enlarging its scope. Whether the food items supplied for the crew can be a supply effected to the vesseI? Is it a service rendered to the vessel or goods? A Ship chandler provides service of making available a doctor, a barber a washer-man and so on; will all these services be attributable to the vessel or goods? It is not understood as to how the Board clarification could extend the levy to Ship Chandlers who supply food and vegetables intended for the crew of the ship and not to the vessel or the goods. We can certainly understand the levy being applicable to the machinery, cargo, and related items, but not on those services rendered for the crew, since it is not specified in the definition itself.
Further, the ship Chandlers' services are rendered by outside agencies either to the port or the vessels anchored / received therein and also to the crew. Such a levy cannot extend to an outside agency like a Ship Chandler who has nothing to do with the Port except that the services are rendered by him in the port area. When the scope of port services include the levy only those relatable to goods and vessels and only on the services rendered by port or a person authorized by a port, there appears to be no justification for clarifying the inclusion of Ship chandlers in Port services, that too by way of a Circular.
Again in the case of Ship Chandler, there is no reason for the port to authorize a ship chandler to provide or not to provide any service since it is only the vessel or the crew who are availing the services and not the port. Technically, the ship chandler service is not required to be provided or authorized by port at all.
So many loose ends in the definition can only add further litigation. May be the Ship chandler's Services deserve levy of Service Tax since it forms an important part of the business relating to Ships and Port. For this, the definition of port Services is required to be changed and such mere clarifications would not suffice. It would be fair and rational if the definition of port services is amended and incorporated as follows:
Port services mean any service rendered by anybody in the port area.
Such a clear definition would set at rest most of the disputes and government should work in that direction, instead of promoting litigation in one shape or the other.
Then comes the interesting interpretations and glaring attempts of erring on the right side approach as adopted by many of the officers. There are some shipyards carrying out construction of ships as also repair of vessels. By the very nature of job, these jobs are required to be carried out in or around the water where the berths are constructed. These Shipyards are by and large Public Limited Companies duly registered under the provisions of the Companies Act, 1956. Since all the area around Port is generally owned by Port authorities, it is but inevitable for any shipyard or ship repairing unit to take the land as well as water area on lease from such Ports. These units generally have independent registrations with the Director General of Shipping, Mumbai working under the Ministry of Surface Transport, New Delhi which is a statutory requirement for carrying out ship construction and ship repair activity.
For carrying out the jobs of construction of ships as also for repair of such vessels, these units take certain land from Port on lease in which ship repair facilities are made available by creating Floating Dry Dock etc., and other facilities.
While there is no dispute regarding the imposition of levy of Service Tax at 5% on Port Services, from 16th July, 2001 the Services rendered by shipyards / ship repairing units do not amount to Port Services, as defined in terms of Section 65 (82) of the Finance Act 1994. The said definition as quoted above cannot include the activities in a shipyard or a ship repair unit.
The question for consideration is whether the services like repairing of ships as carried out by a shipyard on their own would amount to 'Port Services' for purpose of levy of Service Tax or not? Admittedly, these shipyards are not owned or controlled by any Port in any manner and all of them are carrying on their business without any control or command of any Port Trust. Further, they are not 'authorized' by the Port Trust to carryout any repair activity on their behalf nor are they obliged to carry on any of these business activities with the permission of the said Port Trust.
To bring these Services under the head, 'Port services', the authorities adopted the definition relating to the scope of works and services as given in Chapter V of the Major Port Trusts Act, 1963 to be provided by a port. The definition read as follows:
'Section 32(1)(2) : Works and services to be provided at Ports by the port authorities, dry docks, shipways, boat basins and workshops to carry out repairs or overhauling of vessels, tugs, boats, machinery or other appliances'
Merely because the certain services rendered by a Port are subjected to Service Tax, it cannot be concluded that similar services rendered by any other independent service provider is also liable for Tax. In the instant case, the levy of Tax in such cases is not on all such services but is confined only on 'such' Services provided by 'such' specified agencies. Here, the specified agencies liable for tax are 'ports and other ports' and persons 'authorised by such ports' and not any body else, like a shipyard or a ship-repairing unit working independently on their own.
It may also be appreciated that in the case of Motor vehicle servicing, it is only 'Authorised Service Stations' that are liable for Service Tax and not all motor mechanics. Similarly, even Engineering consultancy is liable for Service Tax when provided by a 'qualified engineer' or 'an engineering firm' and a non-qualified person providing services on engineering aspects by virtue of his experience is not liable for Service Tax under the Head 'Consulting Engineer'. No doubt, when these services are provided by a port themselves, they attract Service Tax as they are so included in the Chapter, but the fact remains that the services in the instant case namely 'ship repairs' done by shipyards and ship repairing units are neither carried out by port themselves nor by any of the persons 'authorized' by such ports.
Further clarifying on the Service Tax liability by the Management Committee of Paradip Port, the Central Board of Excise & Customs, New Delhi vide Circular No.44/7/2002-ST dated 26th June 2002 have already highlighted the requirement that the liability is on 'any port services rendered by a port or any person authorized by a port'. Thus, for the 'port services' to be subjected to Service Tax they should be carried out by a port or any person authorized by a port and not any other agency.
Similarly, Ship Repairing activity carried out within the port services is also clarified to be subjected to Service Tax vide Board Circular No.67/16/2003-ST dated 10th November 2003. This implies that such services carried outside the port premises are not subject to Service Tax.
The relevant para of the circular is reproduced below:
'Port services means any service rendered by port or any person authorised by them, in any manner, in relation to a vessel or goods. Thus, all such services rendered including during dry dock and repairs to the ship are taxable which should include not only the minor repairs provided by ship chandlers but also the dry dock facilities and any repairs carried out to the vessels'.
This circular is expected to clarify the levy of Service Tax on ship repair activity carried out in a port, but unfortunately does not specify those repair activities carried out by shipyards and other ship-repairing units.
Hence, the activities carried out by these shipyards and ship repairing units outside the port area are not liable for Service Tax.
To appreciate the argument that those services carried out even by the port outside its premises is not liable to Service Tax, there is a decision of the Hon'ble Tribunal, Mumbai in the case of Gujarat Chem. Port Terminal Co.Ltd Vs CC & C.Ex, Vadodara-II 2005-TIOL-125-CESTAT-MUM wherein, it is held that only those activities which take place inside the port premises are covered by the Heading 'Port Services' and not those which are undertaken outside the port. Admittedly, these shipyards and ship repairing units are located outside the port premises, which is under the lease and enjoyment of the respective Shipyard for carrying out the ship construction and ship repairing activity.
The Central Board of Excise & Customs, New Delhi in their Circular No.B11/1/2002-TRU dated 1st August 2002 dealing with Cargo Handling Services (Page 5, Annexure-II of the Circular), in Para-5 have clarified that Cargo Handling Services provided in port area would be classified under 'Port Services' and as such, no further Service Tax would be liable under Cargo Handling Services. This only mean that the services rendered in the 'port premises' alone are subjected to Service Tax under the Head 'Port Services' and not those services rendered outside such premises and more particularly outside the port premises.
These are some of the issues that are making the lives of some service providers miserable. The Taxing law is required to be clear and unambiguous. In their over anxiety to make a wider base of Service Tax, the Government included all and sundry, without vision and reasonable concept. It is high time, the authorities wake up to ensure smooth and systematic levy with least hassles and greatest clarity.
(The author is an Advocate and the views expressed are personal)