TAXATION OF SHIP MANAGEMENT SERVICES

[Dr. Sanjiv Agarwal]

Service tax had been imposed on ship management services by the Finance Act, 2006 with effect from 1st May, 2006 vide Notification No. 15/2006-ST dated 25.4.2006. The gross amount charged or total consideration received by service provider to a person in relation to ship management services is chargeable to service tax.

Meaning of Ship [Section 65(96)]

Section 65(96) defines ‘ship’ as under –

Ship means a sea going vessel and includes a sailing ship.

‘Ship’ has been defined as a sea going vessel and includes a sailing vessel. It means any vessel which goes to sea or is seaworthy and sailing for the purposes of carrying goods or persons.

General Clauses Act, 1897 defines ship to include every description of vessel used in navigation not exclusively propelled by oars. Indian Lighthouse Act, 1927 defines ship to include a sailing vessel but according to Merchant Ship Act, ship does not include a sailing vessel.

It may be noted that there is a distinction between a vessel and a ship. Vessel includes any ship, boat, sailing vessel or other description of vessel used in navigation. However, TRU Circular dated 27.07.2005 clarifies that ship does not include a sailing vessel. Barges and rigs are only sailing vessels and do not fall under the category of ships. The term ship is defined in the Merchant Shipping Act, 1958. Accordingly, ship has been defined to include every description of vessel used in, navigation, not propelled by oars. The word ‘include’ in the definition does not connote an exclusive application and whether a ship is propelled with oars or not, she is still a ship.

According to UK Merchant Shipping Act, a distinction has been drawn between vessel and ship. A vessel includes any ship or boat or other description of vessel used in navigation. Ship includes every description of vessel used in navigation not propelled by oars. The statutory definitions are intended to enlarge the meaning of ship. To be a ship, a vessel must be used in navigable waters, either inland or at sea and although she must be constructed for navigation, it is not necessary to the definition that she should be able to navigate and under her own power.

Meaning of Ship Management Services [Section 65(96a)]

Section 65(96a) (as inserted by Finance Act, 2006) defines “ship management services” as under —

“ship management services” includes —

(i) the supervision of the maintenance, survey and repair of ship;

(ii) engagement or providing of crews;

 (iii) receiving the hire or freight charges on behalf of the owner;

(iv) arrangements for loading and unloading;

(v) providing for victualling or storing of ship;

(vi) negotiating contracts for bunker fuel and lubricating oil;

(vii) payment, on behalf of the owner, of expenses incurred in providing services or in relation to the management of ship;

(viii) the entry of ship in a protection or indemnity association;

(ix) dealing with insurance, salvage and other claims; and

(x) arranging of insurance in relation to ship.

The term has been defined as an inclusive definition. Ship management service includes supervision of the maintenance, survey and repair of ship, engagement or providing of crews, receiving the hire or freight charges on behalf of the owner, arrangements for loading and unloading, providing for victualling or storing of ship, negotiating contracts for bunker fuel and lubricating oil, payment, on behalf of the owner, of expenses incurred in providing services or in relation to the management of ship, the entry of ship in a protection or indemnity association, dealing with insurance, salvage and other claims; and arranging of insurance in relation to ship. The list is an indicative list only.

Taxable Service [Section 65(105)(zzzt)]

Section 65(105)(zzzt) defines taxable service as under –

Taxable service means any service provided or to be provided to any person, under a contract or an agreement, by any other person, in relation to ship management service.

Ship management service has been defined to include the following services —

(i) the supervision of the maintenance, survey and repair of ship;

(ii) engagement or providing of crews;

(iii) receiving the hire or freight charges on behalf of the owner;

(iv) arrangements for loading and unloading;

(v) providing for victualling or storing of ship;

(vi) negotiating contracts for bunker fuel and lubricating oil;

(vii) payment, on behalf of the owner, of expenses incurred in providing services or in relation to the management of ship;

(viii) the entry of ship in a protection or indemnity association;

(ix) dealing with insurance, salvage and other claims; and

(x) arranging of insurance in relation to ship

Taxable services in relation to ship management should meet the following requirements—

(a) service can be provided by any person

(b) service should be provided to any other person (c) service should be provided in relation to management of ships

(d) service should be provided under an agreement or contract, i.e., service provider and receiver should enter into an agreement.

In Creative Marine Services v. CCE, Mumbai 2006 -TMI - 87731 - (CESTAT, MUMBAI) where services were sought to be taxed under management consultancy services, it was held that since the services were vessel specific, they were covered under ship management services and as such, stay was granted.

These services are generally provided to ship owners or operators and not to the customers who use ships for transportation. Owners and operators of ships enter into an agreement with ship managers for provisions of aforementioned services in respect of running and operations of ships. The above list is only an indicative list of services provided under ship management services.

The taxable services will include all types of shipping logistics which may cover transportation , warehousing distribution, freight management, logistics and supply chain management, customs clearances management, freight forwarding, distribution, containerized service etc.

Person Liable

Service provider being any person providing ship management services shall be person liable and be treated as an assessee for service tax purposes.

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