ST - Payments were made by ONGC to MPT merely for use of port limits to lay pipelines under land & seabed and not for receiving any service - Term 'wharfage' used is merely to determine compensation and not to determine nature of service: CESTAT
By TIOL News Service
MUMBAI, DEC 17, 2014: THIS is a Revenue appeal.
Revenue is aggrieved that the Commissioner of Service Tax dropped the demand issued to the respondent Mumbai Port Trust for recovery of Service Tax under the category "port services".
Facts:
The respondent and ONGC entered into an agreement to permit ONGC to lay pipelines for carrying oil - Bombay Uran Trunk (BUT), Heera Uran Trunk (HUT) and Mumbai Uran Trunk (MUT) - within the Port Trust limits on land and sea. The pipelines in question were in the nature of submarine pipelines which were buried under the land and seabed within the Port Trust limits. In consideration for allowing ONGC to lay submarine pipelines through the Port limits, Mumbai Port Trust was paid compensation by ONGC. The compensation was calculated as 50% of the wharfage charges normally payable for such goods handled by the Port. Consequent to the agreement, the respondent raised invoice for compensation on ONGC alongwith service tax during the relevant period but ONGC refused to pay service tax on compensation charges on the premise that no service tax is payable on the said compensation.
The Revenue, perhaps guided and impressed by the transitive property of equality viewed that since laying of pipeline is equivalent to erecting wharf and as per Ministry's letter dated 9.7.2001 (F.No.B.11/1/2001-TRU) wharfage on petroleum produce is covered 'under port services' therefore ST has to be paid by the respondent who received the compensation from ONGC. The period involved is 16.7.2001 to 31.3.2006.
As mentioned, the adjudicating authority dropped the demand by taking a view that crude oil passes through pipeline which was laid and maintained by ONGC at their own cost and ownership of the pipeline is with ONGC;therefore, no service has been rendered by the respondent as far as the transportation of crude oil is concerned and, therefore, the compensation received is not liable to service tax under the category 'port service' inasmuch as the respondent is not receiving wharfage charges from ONGC but are receiving compensation which is measured in terms of wharfage charges.
Before the CESTAT the special counsel for the Revenue submitted that laying of pipeline is covered as wharf as per Section 2(za) of the Major Port Trust Act, 1963 which makes it clear that even if any part of the port is used for loading or unloading goods, it is to be considered as "wharf". It is submitted that the finding of the adjudicating authority is not legal and proper as the Commissioner had failed to appreciate that the agreement entered into between ONGC and respondents is in the nature of providing land in port area for laying pipeline which is used for transportation of petroleum products through these pipelines to create wharf in the port area. It is further submitted that the respondents are regularly raising invoices on ONGC for payment of service tax in respect of oil transported through these pipelines and had paid service tax for the period 2011 onwards.
The respondent supported the order of the adjudicating authority and also submitted that wharfage charges is merely a measure for determining the compensation and it does not determine the nature and quality of the service rendered in question. The respondent also argued that the demand is hit by limitation.
The Member (Judicial) writing for the Bench adverted to the definition of port services and observed -
++ It is clear that the port or any other person must render the service in relation to a vessel or goods. Port services contemplates services being rendered to vessels and goods arriving at the port for which various charges such as port or dock services, cargo handling and storage devices, railway haulage services and container handling charges, etc.
++ In the case on hand the pipelines are submarine pipelines and the port does not come in contact with the goods at any time during the transportation within the pipeline.
++ The respondent has no control over the goods passing through the pipelines and the respondents are not required to maintain contact, repair or otherwise service, the actual pipeline which was laid within their limits. It is also clear from the agreement that the respondent did not extend any facility, service or personnel in relation to this pipeline or the goods flowing through these pipelines and the amount paid by ONGC therefore cannot be considered as being amount paid towards any service rendered by the respondent towards the pipeline or the goods going through the pipeline or the goods going through the pipeline and the amount paid for providing permission to ONGC lay their pipelines through the port limits. If such permission would not have been granted, ONGC would have had to pass the pipeline through private land increasing the cost of the land and the pipeline. Therefore, the payments were made for the permissions and not to receive any port service from the respondent.
++ From the sections 2(za) and 2(g) of the Major Port Trust Act, 1963 it is very clear that 'wharf' means to provide for walls and stage on land or foreshore, which is defined as the area between the high and low water mark. It means that what is a structure that is on the land to allow for the vessels to dock and for the goods to be loaded and unloaded. In this case, laying of pipeline below the seabed or land cannot be a structure to hold as wharf. There is no loading or unloading of goods within the port trust area. The goods are merely getting transported through the pipelines. Therefore,laying of pipelines cannot be treated as a wharf and no port service has been rendered by the respondent.
++ Mere erection of wharfage by itself does not amount to rendering a port service and wharf is the structure where the ships dock for loading and unloading of goods.
++ It is clear from the agreement between the respondent and ONGC that the payment were made merely for permission to use port limit and not for receiving any service. The term used as 'wharfage' is merely to determine the measure of the compensation and not to determine the nature of the service rendered.
++ The issue is of interpretation of the provisions of law & in that case the extended period of limitation cannot be involved. Accordingly, the demands are barred by limitation, and the liability of service tax, interest and penalty are not sustainable.
++ We do not find any infirmity in the impugned order. The respondent succeeds both on merits and limitation. Therefore, the impugned order is upheld and the appeal filed by Revenue is dismissed.
Incidentally, the Member (Technical) while agreeing with the above order wanted to expand on the reasoning given for dismissing the Revenue appeal.
The Member (Technical) inter alia observed -
++ A fundamental point has been lost sight of by Revenue. What is the service provided by MPT, under service tax law? Board's Circular (dated 09.07.2001) gives various examples of port service such as port/dock charges, mooring charges, cargo handling charges, labour charges to name a few. All these services represent an activity carried out by MPT for the service receiver. Tomorrow, if some of these services are outsourced by MPT to a private operator for lease money, the act of leasing would not form part of 'port service'. It will be the lessee who will be providing port service. Similar is the situation in the present case.
++ The compensation received by MPT is in the form of lease-rental, which is outside the purview of port service as also clarified in CBEC Circular dated 9/7/2001. Further, just because wharfage on petroleum products is mentioned in the Board Circular (supra), we cannot be led to such a simplistic conclusion that all manner of handling petroleum, e.g. by ONGC which has laid its own pipeline underground/underwater, will come under the coverage of wharfage service delivered by MPT.
++ The various minutes of meeting between MPT and ONGC and the correspondence thereof, as well as manner of determining the compensation in terms of wharfage cannot be a platform to adjudge on the correct interpretation as to whether port service is provided in the present case. We have to perceive the matter in the context of service tax law and Board Circulars.
The Appeal was dismissed, twice over, one may say!
(See 2014-TIOL-2548-CESTAT-MUM)
