SEPTEMBER 18, 2015

By S Maheswaran, B.Sc.,B.L., Superintendent of Central Excise, Chennai 

PUBLIC ACCOUNTS COMMITTEE (PAC) is visiting Chennai on 19.09.2015, as part of their On-The-Spot study visit programme to Bhubaneswar, Port Blair and Chennai from 15 th to 19 th September, 2015. During their visit apart from other discussions they propose to discuss about the service tax issues pertaining to Chennai region similar one in the C&AG Report No.4 of 2025 on “Service Tax liability in Port Sector”(the said Report No. 4 of 2015 is the outcome of examination of the mechanisms in place in AndhraPradesh which has one Major port M/s. Visakhapatnam Port and five minor ports and Odisha which has one major port M/s. Paradeep Port and two minor ports by the PAC for the period 2010-11 to 2012-13)

The aim of the article is to seek exemption from service tax for the “port services” rendered in connection with export of goods ab initio instead of refund mechanism.

Excisable goods exported by the manufacturer/merchant exporters are exempted from payment of excise duty. Similarly there are number of exemption available from payment of excise duty to raw materials, packing materials used for the goods exported.

The services exported are also exempted from payment of service tax. Rule 6A of the Service Tax Rules, 1994 deals with “Export of Services”. The services used for the manufacture –export/export of services are exempted abinitio only on very few situations viz., when rendered to the SEZ developer/units for their authorised operations by virtue of Notfn No. 12/2013-ST dt 01.07.2013 as amended,and GTA services used for export of goods by virtue of Notfn No. 31/2012 -ST dated 20.06.12 as amended.

But the service tax paid on all the services used for exporting of goods/services are available as refund/rebate to the exporters by way of one notification or the other as reproduced below:

Now we discuss about the port services and the necessity for ab-initio exemption for the same when rendered in respect of export of goods.

Service Tax was imposed on ‘Port Services' provided by the major ports with effect from 16 th July 2001. Subsequently it was extended to minor ports with effect from 1 st July 2003 .

‘Port Services' as defined under Section 65(82) of the Finance Act, 1994 (with effect from 1 July 2010 and as applicable upto 30 June 2012) covered “any service rendered within a port or other port, in any manner”.

“Port services”are relating to vessels and goods (cargo) which include pilotage, tugging, berthing, mooring, remooring of the vessels, loading and unloading of the cargo, ship to ship transfer of cargo, weighing of cargo, transport of the cargo from wharf on tippers, storage, handling, and services like supply of water, electricity to vessels, bunkering, ship chandler services, ship repair services, railway haulage charges for rail-borne goods, local haulage and storage, manpower services etc. They are rendered in connection with export and import.

W.e.f. 28.05.12 as per Sec 65B (38) of the Finance Act, 1994 “Port” has the meaning assigned to it in clause (q) of section 2 of the Major Port Trusts Act, 1963(38 of 1963) or in clause(4) of section 3 of the Indian Ports Act, 1908 (15 of 1908).

W.e.f. 01.07.2012, ‘Service' has been defined in clause (44) of the new section 65B and means - any activity

++ for consideration

++ carried out by a person for another and

++ includes a declared service

The said definition further provides that ‘Service' does not include-

++ any activity that constitutes only a transfer in title of (i) goods or (ii) immovable property by way of sale, gift or in any other manner

++ (iii) a transfer, delivery or supply of goods which is deemed to be a sale of goods within the meaning of clause (29A) of article 366 of the Constitution

++ a transaction only in (iv) money or (v) actionable claim

++ a service provided by an employee to an employee in the course of the employment.

++ fees payable to a court or a tribunal set up under a law for the time being in force

The taxability of service or the charge of service tax has been specified in section 66B of the Act. To be a taxable, a service should be

++ provided or agreed to be provided by a person to another

++ in the taxable territory

++ and should not be specified in the negative list

Hence there is no change is taxability of port services even after 01.07.2012.

We can broadly categorise the services done by port sector into four categories;

i) services In respect of import, ii) services in respect of export, iii) services in respect of coastal cargo ,and iv) services in respect of repair and maintenance of vessels. The port services when rendered in respect of goods meant for export can very well be distinguished from the other categories.

'Port Services' sector netted revenue of over 1,670 crore in 2012-13. Howeverit is pertinent to mention that port servicesare not among the top 10 revenue yielding services in the service sector.

As discussed earlier, the service tax paid on services used for exports including port services are reimbursed to both “manufacturer exporters” (services used beyond the place of removal) as well as“merchant exporters” (services used for export of the goods) by virtue of Notification No.41/2012 –ST dated 29.06.12 by way of filing refund claims by them. Though it is difficult to exempt abinitio all the input services used for export of goods, considering the place , nature and condition of its usage, it is quite possible to distinguish the "port service" used for export of goods as the same is rendered in the “ports”. Hence it is opined that the “port service” rendered in connection with the export of goods may be granted ab initio exemption from payment of service tax, instead of going for a post removal refund mechanism which consume manpower and working hours of both trade and the department. By granting this exemption there may not be much revenue loss to the government as the tax paid is already being reimbursed by the exporters by way of following refund mechanism. Will the Public Accounts Committee(PAC) visiting Chennai on 19.09.2015 consider recommending to government for abinitio exemption from payment of service tax for “port services” rendered in connection with export of goods?

(The views expressed are strictly personal.)