By TIOL News Service

CHENNAI, MAR 16, 2016: THE appellant is statutory body constituted under Port Trust Act which administers and operates Tuticorin Port which is one of the major ports in Tamil Nadu and registered with the service tax department for rendering port services and discharging service tax and filing returns. The appellants have entered into agreement with M/s. PSA SICAL for development of their Berth No. VII as container terminal on BOT basis and as a consideration they have received monthly royalty charges. Show cause notices were issued to them demanding service tax on the royalty charges. The adjudicating authority confirmed the demand under port services and imposed equal amount of penalty. The appellant is before the Tribunal challenging the same.

The appellant contended that the consideration received as royalty charges is not towards discharging any port services to the PSA SICAL. During the relevant period the only services which are liable for service tax under port services are in relation to vessels and goods as to section 65(82) of the Finance Act, 1994. The definition of the port service is very clear. Any service rendered by a port or other port or any person authorized by such port in any manner, in relation to a vessel or goods. In their case, the royalty amount is not in relation to any service rendered in relation to vessel or goods but purely on the leasing of Berth No. VII.

After hearing both sides, the Tribunal held:

++ The agreement is a licence agreement (and not lease or rent agreement) under which the licence is granted to develop the appellants VII Berth into a Container Handling Terminal operation and maintenance on BOT basis. The agreement also casts certain principal obligations and operational obligation on the appellant. The obligations of the licensor (ie. TPT appellant) are set out at Article 5.3 and 6.2.1; clearly revealing the role of the appellant and the number of activities/services rendered by the appellant, which are direct and explicit activities carried out in the development of Terminal by the licencee. The appellant is obliged to provide entry berthing, sailing, piolatage, towage, maintenance of entrance channel draft, dredging of the water way leading to the container terminal and maintenance of dredged draft, water ride safety and safety of navigation etc., apart from supply of electricity and water subject to payment by the licencee. The agreement itself makes it clear that the appellant has to provide certain services which are essential for movement of vessels and goods; and it is established beyond doubt that all the activities provided in the development of VII Berth on container terminal are rightly covered under port services. The consideration received by the appellant in the form of royalty charges is thus taxable under “Port Services”. As per Article 7.3.5 of the agreement, there is an initial lump sum payment apart from the monthly royalty payment as stipulated in Article 7.3.5.2. The present demand is only on the monthly royalty charges collected for the licencee and not on the lumpsum payment; thus the royalty charges received by the appellants is for overall consideration towards the development of VIIth Berth as container terminal under the above BOT agreement and rightly falls under “port services” and the amount of royalty charges are rightly chargeable to service tax under port services. The appellant's contention that they have not provided any service except leasing/ renting of the berth and the amount is only towards lease/rent of vacant land is not at all justified and not supported by law.

Accordingly, the Tribunal upheld the demand of Service Tax under extended period, extended cum-tax benefit and waived penalties under Sections 76 and 78 by invoking Section 80 of the Finance Act, 1994.

(See 2016-TIOL-623-CESTAT-MAD)