T.K. Jayaraman, Member (T)

1. Both the assessee and the revenue have filed appeals against the following Orders-in-Original. The details are given below. The assessee have also filed their cross objection.

Order-in-Original

Service Tax on Port Services

Service Tax on CHA

Education Cess

No. 2/2007-08 (RS) dated 3.5.2007

Rs. 60,17,953/-

Rs. 22,630/-

Rs. 31,391/-

No. 1/2007-08 (RS) dated 3.5.2007

Rs. 115338577/-

-

Rs. 740874/-

2. We heard both sides.

3. The appellants M/s. South India Corporation (Agencies Ltd.), Chennai are providing clearing and forwarding and stevedoring services. They had entered into contract with the following parties.

(i) M/s. Vikram Ispat

(ii) M/s. Ispat Industries

(iii) M/s. Steel Authority of India

(iv) M/s. Chhatisgarh Electricity Company Limited

(v) M/s. Deccan Mining Syndicate (P) Ltd.

In respect of Order-in-Original No. 2/2007 dt. 3.5.2007.

(i) M/s. Tamilnadu Electricity Board and (ii) RINL in respect of Order-in-Original No. 1/2007 dt. 3.5.2007.

4. On the basis of the intelligence received, the Service Tax officers conducted investigations. On the basis of investigations, revenue was of the view that the appellants had evaded payment of Service tax on various services (taxable) rendered by them. Show cause notice dt. 23.1.2006 and 18.1.2006 were issued to the appellants for payment of Service Tax payable on "Port Services" rendered by them. The details of the show cause notices are given below in the tabular column.

Sl. No.

Date of show cause notice

Amounts involved

1.

23.1.2006

(i) Service Tax of Rs. 1,11,78,544/- on "Port Services"

(ii) Service Tax of Rs. 22,630/- on "CHA Services"

(iii) Education Cess of Rs. 58,210/- on the value of taxable services

(iv) Penalties under Section 76 & 78

(v) Interest under Section 75

2.

18.1.2006

(i) Service Tax of Rs. 17,43,57,724/- on "Port Services"

(ii) Education Cess of Rs. 11,19,982/- on the value of taxable services

(iii) Penalties under Section 76 & 78

(iv) Interest under Section 75

5. The Commissioner after considering all the submissions made by the appellants confirmed the demands as shown in the first tabular column in Paragraph 1.

6. The appellants are highly aggrieved over the impugned order. The learned advocate made the following submissions.

(i) The appellants are holders of a stevedoring licence issued by M/s. Visakhapatnam Port Trust (VPT) and are not persons authorized by the Port. Even the meaning of "Authorised person" as laid down in Section 42 of the Major Port Trust Act, 1963" and thereby are not liable to payment of Service Tax under Section 65(82) of the Finance Act which defines "Port Services" as "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". The learned Commissioner has dismissed the submissions in the impugned order on the ground that they are persons authorized under Section 42(3A) and in accordance with Section 123 of the Major Port Trust Act, 1963.

(ii) Our attention was invited to the decision of the Tribunal in the case of Velji P and Sons (Agencies) Pvt. Ltd. v. CCE, Bhavnagar 2007 (8) STR 236 (Tri.-Ahmedabad) wherein it has been clearly held that the activities of handling stevedoring, loading, unloading, tug hire and labour arrangement do not fall under the category of Port Services". Such services not being required by the port, any authorization by ports cannot covert the services into port services. In the said decision, the Tribunal distinguished between licence and authorization. Licences issued by ports to various agencies under Section 123 should not be confused with authorization issued under Section 42 of the Major Port Trust Act. It was also clarified in the said decision that licence means a permission given for specific purpose. Licence holder should not be interpreted as having powers and authority of the person issuing the licence, unless the licence specifically mentions about it. Authorization may be issued by way of licence but not all licences are authorizations.

(iii) Assuming but not accepting that the appellants are persons authorized by the port, the demand is hit by bar of limitation. The Commissioner has not considered the case laws cited by the appellants. Even in the Velji P. and Sons decision, it was observed that there was confusion on the part of the officers as regards correct scope of services being provided by the appellant. Therefore, short levy if any is not on account of malafide intention on the part of the appellant and no suppression or misstatement with a view to evade duty can be attributed to him. This has not been considered by the Adjudicating Authority.

(iv) The first order has confirmed a demand of Service Tax amounting to Rs. 60,40,583/- our of which Rs. 37,09,474/- was allowed as credit available for payment of demand confirmed and an amount of Rs. 10,72,011/- paid by the appellant during investigation was appropriated and the balance is Rs. 12,59,098/-. Out of the above amount demanded, an amount of Rs. 5,62,606/- is Service Tax demanded on the amounts paid by the appellants to M/s. VPT and M/s. Dock Labour Board (DLB) during the period 16.7.2001 to 15.8.2002 which were already subjected to Service Tax through M/s. VPT and DLB on the ground that there was no provision for removal of this value of taxable services.

(v) In the second impugned order, Service Tax for an amount of Rs. 11,53,38,577/- has been confirmed. Out of the above amount Rs. 3,63,17,200/- was allowed as credit available for payment of demand confirmed and Rs. 3,26,51,000/- paid by the appellant during the course of investigation was appropriated. Out of the remaining amount of Rs. 4,63,70,377/-, an amount of Rs. 1,86,096/- is Service Tax demanded on the amounts paid by the appellants to M/s. VPT and DLB for the period from 16.7.2001 to 31.3.2005. The above amounts were already subject to Service Tax through M/s. VPT and DLB.

(vi) In view of the above submissions and position of law in respect of the present demands, the appeals may be allowed.

(vii) In the course of the hearing before the Tribunal, the learned advocate for the appellants relied on the following decisions.

a. Homa Engg. Works v. CCE, Mumbai 2006 (7) STR 546 (Tri.-Mumbai);

b. Kin-Ship Services (India) Pvt. Ltd. v. CCE & C, Cochin : 2008 (10) STR 331 (Tri.-Bang.);

c. VBC Exports Ltd. v. CCE, Visakhapatnam : 2008 (10) STR 613 (Tri.-Bang.); and

d. Konkan marine Agencies v. CCE, Mangalore : 2007 (8) STR 472 (Tri. - Bang.).

7. The learned SDR invited our attention to the following decisions which are against the appellants.

(i) SICAL v. CST, Chennai 2008 17 STT 114 (Chennai-CESTAT) wherein the Chennai Bench held that all services otherwise taxable would qualify to be Port Services when rendered within territorial limits of a port. In fact in the said decision, the Chennai Bench had not agreed with the other decisions in favour of the assessee, therefore, the matter has been referred to Larger Bench.

(ii) Further, he relied on the following decisions:

a. Bhoruka Steel Ltd. v. CST, Chennai : 2007 (7) STR 555 (Tri.-Chennai); and

b. Western Agencies (Madras) Pvt. Ltd. v. CST, Chennai : 2007 (8) STR 522 (Tri.-Chennai).

In view of the above judgments, he prayed that the demands may be confirmed.

8. We have gone through the records of the case carefully. It is seen that in terms of the contract entered by the appellants with the parties mentioned above, they were required to undertake generally the following activities.

Handling and stevedoring; unloading of material, loading and shifting cargo from the designated plot to the vessel; liasioning; unloading of imported manganese ore from vessel; transportation up to designated port plot and stacking; reloading on the road transport trucks / railways rakes with proper liasioning coordination with port authorities; unloading of wagons; loading cargo from wagon siding to tipper; transportation from wagon siding to stockyard at VPT; at outer harbour of VPT, they undertake unloading of wagon/trucks, loading onto tippers; transportation from wagon siding to outside stockyard, high stacking; loading on to tippers, transportation to OHC plot, feeding to reclaimer; water sprinkling; at inner harbour, they undertake wagon / truck unloading; loading onto tippers; transportation to outside plot and high stacking, loading at stockyard to tippers; transportation from stockyard to vessel hook point; stevedoring and water sprinkling, etc.

8.1 On going through the above, it is very clear that the appellants undertake various activities inside and outside the port on behalf of their clients. The appellants are basically Custom House Agent (CHA). They also undertake the loading and unloading of cargo. This requires a stevedoring licence issued by the port. The appellants are licenced to do the stevedoring work inside the port. The contention of the revenue is that all the services which are carried out inside the port should be classified as Port Services. For this, they had relied on the CBEC Circular No. B. II/1/2001-TRU dated 9.7.2001. Consequently, the demands have been confirmed. The main contention of the appellant is that they are not the person authorized by the port under Section 42(3) of the Major Port Trust Act and to that extent any liability in respect of Port Services should be restricted to the Service Tax paid through M/s. VPT and M/s. DLB.

8.2 The Commissioner has considered the following issue for determination.

Whether, the assessee are liable to discharge Service Tax under the heading port services.

She has referred to the definition of Port Services in terms Finance Act, 1994. Port Service 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. She has not accepted the contention of the appellant that they are not the persons authorized by the port under Section 42(3) of the Major Port Trust Act, 1963 and to that extent any liability in respect of port trust services is to be restricted to the Service Tax paid through M/s. VPL and DLB. According to her, the stevedoring licence issued to the appellant falls squarely under Section 42(3A). The assessee is functioning inside the port area, providing the services which the port is empowered to, under licence issued by the port and for them to argue that they are not authorized under the for providing the services is simply a feeble attempt to dissolve the matter and not accepted.

8.3 The appellants plea of time bar has also not been accepted by the learned Commissioner. The appellants submitted to the Commissioner that the allegation of suppression is untenable for the reason that the bills raised by M/s. VPT and M/s. DLB who have been registered by the department since introduction of Service Tax on Port Services contain the particulars of the appellants. This submission was also not accepted by the Commissioner.

8.4 In the order, she has explained the term stevedoring and came to the conclusion that the assessee are liable to pay Service Tax on the stevedoring activity undertaken by them within the port area. She has given allowance for the Service Tax already paid by the port and which has been collected from the appellant.

8.5 She has also given a finding that the value of transportation taken for calculation of total amount liable under Port Service in the show cause notice issued to the assessee has to be excluded. The Service Tax on account of this in the first order is Rs. 46,59,090/-. In the second order, the corresponding amount of Service Tax on account of inclusion of transportation is Rs. 2,90,24,713/-.

8.6 The assessees request for exclusion of expenses incurred with M/s. VPT ad M/s. DLB had not been accepted by the Commissioner. She has given a finding in the first order "I am of the view that there was no provision during 16.7.2001 to 15.8.2002 for removal of this value on taxable services provided by M/s. VPT and M/s. DLB as inputs stevedoring service provided by the assessee to his clients and therefore, reject the assessees plea to reduce the demand to the extent of Rs. 5,62,606/- being the Service Tax paid by M/s. VPT and M/s. DLB from 16.7.2001 to 15.8.2002 on input services during this period". Similar decision has been taken in respect of second order also.

8.7 She has allowed credit of Rs. 37,09,474/- availed on input services during 16.8.2002 to 31.3.2005 and they may utilize the same for payment Service Tax. In respect of the second order, an amount of Rs. 3,63,17,200/- has been allowed by the Commissioner as credit of duty paid on input services for the period form 16.8.2002 to 31.3.2005.

8.8 In the second order, as regards the Service Tax received by the assessee, she has held that demand should be made only after the assessee receives the amount and accordingly she has given a benefit to the tune of Rs. 1,93,71,879/-.

8.8 She has refrained from imposing any penalties under Section 76 and 78 of the Finance Act by virtue of the provisions of Section 80. She has given a justification on the ground that there was confusion with regard to the scope of the services and also the assessee has been cooperative with the department and nothing was hidden from the department.

9. The leviability to Service Tax in respect of stevedoring activity was examined by this Bench in the case of Konkan Marine (supra) and it was held that the said services cannot be levied to Service Tax under the category of Port Service. The said decision has been upheld by the Honble Karnataka High Court. The findings of this Bench in the said decision are reproduced below.

6. We have gone through the records of the case carefully. The point at issue is whether the services rendered by the appellants amount to "Port Services" and whether they are liable to pay Service Tax in terms of the Finance Act, 1994. We find that the appellants obtained the stevedoring license from the Mangalore Port Trust for carrying out the stevedoring operations. The stevedoring operations actually mean loading and unloading of cargo within the port premises. The Commissioner has interpreted that the appellant is carrying out the services within the port and he has been authorized by the port to render such services in view of the licence given to him. Therefore, he would rightly fall within the ambit of the "Port Services". However, when we examined the issue in terms of Section 42 of the Major Port Trust Act, we find that in terms of that Section, the major port is supposed to carry out a number of activities and there is provision in terms of the said section for the port to authorize any other person to render such services after taking prior approval of the Central Government. In the present case, the appellants strongly contend that the services rendered by them are not on behalf of the ports but on their own behalf. In other words, the appellants render directly the services and the licence is only a permission to undertake such services within the port premises. Therefore, it cannot be interpreted that the appellants are rendering any service on behalf of the port. We also find that the issue has been gone in depth in the I cited decision of the Mumbai Tribunal wherein the Tribunal held that the port is supposed to give only facility for ship repairing and it is not expected of a port to directly render the services of ship repairing. Interpreting Section 42 and the provisions of the Service Tax in the Finance Act, the Mumbai Tribunal even held that the Boards circular issued on this behalf is not in accordance with law. Moreover, the appellants have produced a letter from the Mangalore Port Trust which clearly say that the appellants are rendering the services directly and not on behalf of the port. In these circumstances, there is much force in the appellants contention that services rendered by them would not amount to "Port Services". In other words, it would only be "Cargo Handling Services". But, the appellants would not come within the ambit of taxation, because in respect of "Cargo Handling Services", the cargo in relation to exports are excluded from the purview. Since the appellant is only handling the export cargo, he would not be liable to Service Tax even under the category of "Cargo Handling Services. In these circumstances, we do not find any merit in the order of the Commissioner and therefore, we set aside the same and allow the appeal of the appellants with consequential relief.

The ratio of the above is squarely applicable to the present case. Even though, the matter has been referred to the Larger Bench by the Chennai Bench by the Tribunal, the fact that Honble High Court of Karnataka as reported at : 2009 (13) STR 7 (Kar.) had upheld this decision of this Bench, has not been brought to their notice. As we are bound by the decision of the Honble High Court of Karnataka, we hold that no Service Tax is payable under the category of Port Services for the activities undertaken by the appellants in the M/s. Visakhapatnam Port Area.

9.1 The learned Commissioner herself has refrained from imposing any penalties on the assessee on the ground that they had not withheld any information to the department. Under these circumstances, longer period also could not have been invoked.

9.2 Moreover, for the period prior to 16.8.2002 even though the appellants had paid Service Tax on the input services rendered to them by the M/s. VPT and M/s. DLB, no allowance had been given. This is also incorrect on the part of the Commissioner.

9.3 In view of the above observations, the impugned orders do not have any merit. They are liable to be set aside. Hence, we set aside the impugned orders and allow the assessees appeals with consequential relief.

Revenues appeals - ST/318 & 348/2007

10. Revenue has filed against the impugned orders on the following grounds.

(i) It appears that the Commissioner has erred in holding that since the Port has already paid the taxes on Haulage and Wharfage during 2004-05 amounting to Rs. 4,55,498/- for which the assessee has billed his client at actuals, the same should be excluded from the instant demand contending that the charges once taxed, cannot be taxed a second time, because she has allowed credit of Service Tax paid by the Port and DLB (to the tune of Rs. 37,09,474/-) holding that the services rendered by the Port and DLB are input services. The order has resulted in allowing credit of tax paid, holding them as input services and at the same time excluding such input services from the total assessable value, a double jeopardy to revenue. Moreover, this vitiates the law that the Service Tax has to be paid on the gross amount charged by the service provider for such service provided or to be provided by him.

(ii) Similarly, with regard to transportation, the Commissioner has held that the assessee is licensed for stevedoring operations and not for transport. It is pertinent to reiterate that the assessee enters into a comprehensive contract with his client for carrying out stevedoring work at the Port and this job includes transportation. In this connection, it may be seen that the Board, in letter F. No. BI 1/1/2002-TRU, dated 1-8-2002 has clarified with regard to cargo handling services as under:

4. A point has been raised as to what would be the value of service tax in a case where transport and cargo handling service is provided in a composite manner. The measure of tax is the gross amount charged by the cargo handling agency from the customer. Therefore, if lump sum amount is charged for both transportation and cargo handling, the tax will be payable on the entire amount On the other hand, if the bill indicates the amount charged for cargo handling and transportation separately on actuals basis (verifiable by documentary evidence), then the tax would be leviable only on the cargo handling charges.

5. Cargo handling services are provided in the port also. Whether such service will be covered in the category of port services or cargo handling service. In this context, it may be mentioned that port services cover any service provided in relation to goods or vessels by a port or a person authorized by the port. This includes the cargo handling service provided within the port premises. Therefore, to this extent there may be an overlap in cargo handling service and the port service. However since port services covers all the service in relation to goods and vessels and therefore more specific to port, the service provided in a port in relation to handling of goods would be appropriately covered under port service and no separate levy will be attracted under the category of cargo handling agency service. Similar would be the case in respect of service provided for storage of goods in the port premises.

On a careful perusal of the aforesaid instructions, it is evident that these instructions/clarifications would mutatis mutandis apply in respect of transportation also and therefore the Commissioner has erred in excluding the cost of transportation from the total value of Port services.

(iii) In view of what has been stated above, it appears that the Order-in-Original No. 1 & 2/2007-08 (RS) dated 03-05-2007 passed by the Commissioner of Central Excise, Visakhapatnam - I Commissionerate, is not legal and proper and therefore needs to be appealed against.

10.1 As we have allowed the appeals of the assessee, revenues appeals become infructuous. Hence, we do not feel it necessary to examine their grounds of appeal. Since the impugned orders are themselves set aside, there is no question of further inclusion of any amount in the demand. In other words, when the demands have been set aside, the grounds raised by the revenue have become irrelevant. Hence, revenues appeals are dismissed.

(Pronounced in open Court on 01.05.2009)