By TIOL News Service

AHMEDABAD, DEC 28, 2012: THE Appellant is a registered provider of various services under the category of "Port Services".

Two demand notices were issued to the appellant for recovery of Service Tax, details of which are as under -

+ demand of Rs.3.05 Crores on the ground that supply of bunkers to vessels, transportation and charter hire of assets is liable to ST; Rs.10.50 Crores demand on the ground that the appellant was liable to pay Service Tax on the charter hire charges paid by them by supply of dredger to a foreign supplier treating it as Supply of Tangible Goods Service (SOTG);

+ demand of Rs 2,01,99,117/- on ports service which is nothing but supply of bunkers and Under SOTG in respect of Charter hire of dredger from foreign owners.

The demands were confirmed along with imposition of penalties and interest by the CCE, Rajkot and so the appellant is before the CESTAT.

After hearing the extensive submissions made by both sides, the bench observed -

"5. As regards bunker, it is the submission of the appellant that, in fact, they were selling water and other ship stores to the vessels and, therefore, it is simple transaction of sale and does not include the component of service. It is his submission that because of this reason, the appellant stopped payment Service Tax.

6. We find that as regards port service, it means "any service provided by a port or any person authorized by the port in relation to port service in any manner". Port service means, "any service rendered in a port in relation to vessels or goods". In this case, there is no doubt that supply of bunkers is in relation to vessels. The question that arises is whether it can be considered as a sale only. In this case, it is not permissible for anyone to supply water or bunker to vessels and to supply these items the port's authorization is a must. Further, from the sample invoices reproduced in the show-cause notice, it is seen that the invoice mentions "supply of fresh water by barge as per nomination". It has to be noted that in this case, supply of fresh water would include cost of procurement of water, transportation of the same to the vessel and other costs incurred in relation to provision of service in the port. From the invoice it is quite clear that it is not the cost of water alone that is charged, but it includes other elements. Prima-facie we consider that the submission of Ld. AR that contemporanea exposito principle would apply in this case since while introducing port services as services liable to Service Tax, the Board had clarified that supply of water and bunker to vessels is part of port services. It has not been explained why the appellant suddenly came to the conclusion that supply of water is not covered by port services on 1/04/2007, except stating that the transaction is a sale and they got legal advice. Details of legal advice and whether legal advice had taken note of Board's Circular is not clear. The question arises whether in this kind of transaction the dominant intention is sale or service? Obviously, the fact that the water is supplied by barges to the vessels only by nominated persons by port and invoice is containing the description "supply of water" would, in our opinion, prima-facie go against the appellant.

7. We are also not convinced of the correctness of arguments advanced regarding subsequent amendment and the precedent decisions cited.

8. As regards supply of barges/vessels to the customers that too without agreement, we find that the appellant's defense is that non-payment of Sales Tax is not decisive, expenses towards fuel as per the balance-sheet is a wrong presumption. We notice that the invoice raised by the appellant gives description "supply of boats/barges for transportation, port bunkering etc. and the rate shown is a specific amount per month. In the absence of an agreement, the only option available is to arrive at a conclusion based on the invoice. The invoice used the words "supply of boats/barges". The normal terms used when the transaction is not a supply but some other transaction as lease/hire/renting etc. Transactions where hiring/leasing were involved attract sales tax or VAT in many States. However, in the circular issued by the Board when service of tangible goods was introduced, the Board had clarified on 29/02/2008 that transfer of right to use any good is liable to Service Tax/VAT as deemed sale and it involves transfer of both possession and control of the goods to the user. Further, allowing another person to use the goods without giving legal right or possession and effective control is treated as service. In this case what is evident is that the boat/barges have been supplied as seen from invoice. Since no Sales Tax has been paid and no evidence has been shown that the transaction is a transaction of right to use and was liable to sale tax, the natural conclusion would be that the transaction is supply of tangible goods for use without parting with the right of possession and control. While the appellants have made a claim that the expenses incurred by them on fuel has not been proved to be incurred for the boats and barges supplied to customers, they have also not shown that they had other barges and boats and the expenses incurred were in relation to other items and not to the boats/barges supplied. In the absence of any agreement, the only documents available are invoices and invoices do not support the claim of the appellant.

9. In view of the above discussion, the appellants have not made out a prima-facie case in their favour. At the same time, it also cannot be said that the case against the appellant is hundred per cent against them, since the matter has to be heard in greater detail to understand the nature of transaction and interpretations that are possible on the basis of facts. In these circumstances, it can be said that the appellants have not made out a case for complete waiver; therefore we will have to require at least a portion of the amount demanded as pre-deposit."

In fine, the appellants were directed to make a pre-deposit of Rs 3.5 Crores for obtaining a Stay.

(See 2012-TIOL-1957-CESTAT-AHM)