2025 (5) TMI 483 - AT - Service Tax

Levy of service tax on the lease rent charged by the appellant on the port users like stevedores etc. for providing of storage space in the land parcel belonging to the Kolkata Port Trust for storage of import/export goods in terms of Port Service as defined under Section 65 (82) of the Finance Act 1994 - time limitation - HELD THAT - During the impugned period any activity not falling under the scope of the defined taxable service was not liable to tax. Thus even though the appellant collected rent for vacant land acquired for storage of goods for its customers it will not come within the ambit of Port Service . It cannot be denied that such license fee received was for the purpose of renting of immovable property which became taxable only w.e.f. 01.06.2007 as evident from the licence agreement. It is also noticed that this Tribunal on a similar question arising in the case of Cochin Port Trust Vs. Commissioner of Central Excise Cochin 2010 (5) TMI 479 - CESTAT BANGALORE with regard to a similar question had held that these are recovered for leasing out immovable property to IGTPL for permitting it the use of the site belonging to CPT. Renting of immovable property services under which the impugned activity will be appropriately classified was introduced only on 1-6-2007 post the period of dispute. Therefore the impugned demand under port services is liable to be set aside. Time Limitation - HELD THAT - It is found from the record that there is nothing to substantiate the Department s charge of suppression or wilful mis-statement. The appellant has been regularly filing returns in respect of the service rendered and the rental income so received has been duly accounted in their Books of Account. This cannot be a case of deliberate evasion of tax on the part of the assessee - Moreover under the circumstances when the CBIC has itself issued a Circular wherein it specifically clarified in respect of non-levy of tax on such rental income no case for invoking extended period is also made out. The order of the lower authority is therefore not in accordance with legal provision and therefore the same is required to be set aside. Conclusion - i) The appellant is not providing storage services to the stevedores and is merely renting the immovable property for which the service tax on such license fee is being paid w.e.f. 01.06.2007 as Renting of Immovable Property i.e. when the said service came under the purview of tax net under Service Tax statute. ii) When the CBIC has itself issued a Circular wherein it specifically clarified in respect of non-levy of tax on such rental income no case for invoking extended period is also made out. Appeal allowed.

Summary

The core legal questions considered by the Tribunal in this appeal are:

1. Whether the lease rent charged by the appellant for providing storage space in port land parcels to port users such as stevedores constitutes a taxable "Port Service" under Section 65(82) of the Finance Act, 1994, thereby attracting service tax for the period April 2004 to March 2007.

2. Whether the lease rental for land or estate rentals charged by the port trust fall within the ambit of taxable services under the "Port Service" category as clarified by CBIC Circular No.B11/1/2001-TRU dated 09.07.2001.

3. Whether the penalty and interest imposed under the relevant provisions of the Finance Act and Cenvat Credit Rules are justified, including the question of limitation for issuing the show-cause notice and imposing penalty.

4. The nature and character of the income received by the appellant from the lease/licensing of land and sheds to stevedores-whether it is rent of immovable property or a service related to storage of goods.

5. The applicability of extended period of limitation under Section 73(1) of the Finance Act for the demand raised.

Issue-wise Detailed Analysis

Issue 1 & 2: Taxability of Lease Rent under "Port Service"

The legal framework centers on the definition of "Port Service" under Section 65(82) of the Finance Act, 1994, and the clarifications issued by CBIC Circular dated 09.07.2001. The Circular explicitly delineates which charges constitute taxable port services, including port and dock charges, cargo handling and storage charges, railway haulage, container handling, and labour charges. Crucially, Paragraph 2.2 of the Circular excludes estate rentals and lease rentals for land from the taxable ambit of port services, stating these are not services rendered in relation to goods or vessels.

The appellant contended that the lease rent charged to stevedores for storage space was estate rental and not a service related to goods storage, relying heavily on the Circular's explicit exclusion. The appellant further clarified that the lease/license agreements were for a fixed period and the income was consistently accounted as estate rental, except for a mere nomenclatural change from "License Fee" to "License Fee for Storage of Goods" during the disputed period, which did not alter the nature of the transaction.

The Revenue argued that the lease rent was for storage of goods and thus fell within the port service taxable category. However, the Tribunal noted that the appellant was not directly providing storage services but merely leasing immovable property. The Tribunal relied on the admitted facts that the appellant had accounted for the income as estate rental before and after the disputed period and that service tax on renting of immovable property was introduced only from 01.06.2007.

The Tribunal also referred to precedents, notably a similar decision involving a port trust where the Tribunal held that rentals for spaces or godowns leased out for storage of goods did not constitute port services if the storage was not at the instance of the port trust. The rentals were treated as estate rentals and not taxable under port services before the introduction of renting of immovable property service tax in 2007. Another precedent from the Mumbai International Airport case reinforced this interpretation.

Thus, the Tribunal concluded that the lease rent charged by the appellant did not fall within the scope of "Port Service" taxable under the Finance Act for the disputed period.

Issue 3 & 5: Penalty, Interest, and Limitation

The show-cause notice was issued on 27.03.2009 for the period April 2004 to March 2007, invoking extended limitation under Section 73(1) of the Finance Act. The appellant challenged the validity of invoking extended limitation, arguing there was no suppression or willful misstatement warranting such extension.

The Tribunal examined the record and found no evidence of suppression or deliberate evasion by the appellant. The appellant had regularly filed returns and accounted for the income transparently as estate rental. The CBIC Circular explicitly clarified that estate rentals were not taxable under port services, which formed the basis of the appellant's bonafide belief in non-taxability.

Given this, the Tribunal held that the extended period of limitation was incorrectly invoked. The absence of any fraudulent intent or concealment negated the applicability of extended limitation, and the penalty imposed was therefore not justified.

Issue 4: Nature of Income from Lease/License Agreements

The characterization of the income was pivotal. The appellant maintained that the income was rent from immovable property, not remuneration for a service related to goods storage. The Tribunal emphasized that a mere change in nomenclature from "License Fee" to "License Fee for Storage of Goods" did not alter the essential character of the transaction, which remained a lease of immovable property.

The Tribunal underscored that the lease/license agreements were for a specified period, not perpetual, and the appellant was not directly providing storage services but only granting the right to use space. This distinction was critical in applying the CBIC Circular's clarification and the statutory definition of taxable services.

Conclusions on Issues

The Tribunal concluded that the lease rent charged by the appellant on port land for storage purposes did not constitute a taxable port service under the Finance Act for the period April 2004 to March 2007. The income was rightly treated as estate rental, exempt from service tax under the port service category during the disputed period. The penalty and interest imposed were set aside on the ground of incorrect invocation of extended limitation and absence of any suppression or evasion.

Significant Holdings

The Tribunal's reasoning is encapsulated in the following crucial observations:

"The appellant is not providing storage services to the stevedores and is merely renting the immovable property, for which, the service tax on such license fee is being paid w.e.f. 01.06.2007 as 'Renting of Immovable Property' i.e. when the said service came under the purview of tax net under Service Tax statute."

"Mere change in nomenclature of a given act, does not bring about any change in the nature of activity so undertaken."

"The CBIC vide its Circular No.B11/1/2001-TRU dated 09.07.2001 had clarified that the 'Estate Rental' was not covered under the category of 'Port Service'. It is thus the clarification issued by the Board that formed the essential basis for the appellant not paying the service tax on such license fee till 31st May, 2007."

"There is nothing to substantiate the Department's charge of suppression or wilful mis-statement. The appellant has been regularly filing returns in respect of the service rendered and the rental income so received has been duly accounted in their Books of Account."

"No case for invoking extended period is also made out. The order of the lower authority is, therefore, not in accordance with legal provision and therefore, the same is required to be set aside."

Core principles established include the primacy of the CBIC Circular clarifications in interpreting taxable port services, the importance of substance over form in characterizing income for service tax purposes, and the strict conditions for invoking extended limitation under the Finance Act.

The final determinations were that the demand of service tax on lease rent for storage space was not sustainable for the disputed period, the penalty and interest imposed were unwarranted, and the appeal was allowed on both merits and limitation grounds.