TMI Blog2015 (7) TMI 553X X X X Extracts X X X X X X X X Extracts X X X X ..... , Adv. ORDER Per: P S Pruthi: This appeal filed by Revenue is directed against order of Commissioner (Appeals) who set aside the order of the adjudicating authority rejecting the refund claim of ₹ 16,40,79,318/- filed by the respondent M/s. Shipping Corporation of India Ltd. (SCI). Cross-objections were also filed by the Respondent. 2. The background of the case is that M/s. SCI are engaged in providing taxable services under the categories of 'Maintenance or Repairs' and 'Business Auxiliary Service'. They filed the refund claim on the ground that they had inadvertently paid service tax during the period from 16.6.2005 to 31.3.2006 on the entire amount paid to them by M/s. ONGC to whom they had provided services whereas the service tax was actually payable only on the commission received by them and not on the total cost reimbursed to them by M/s. ONGC. The respondent and ONGC had entered into a Master Contract on 9 th June 2005 under which the respondent provided Operation and Maintenance Management of Well Stimulation Vessel owned by ONGC. The scope of the work under the contract is given in Clause (3) of Annexure-III to the contract for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , must get specific approval from the Owner with proper justification. The consumables (items/spares) already indigenised may continue to be procured from such sources. 3.7.2 To maintain proper logbooks, store ledger, records on consumption spares etc. for marine systems/equipment and machineries on board vessel as per international practices. Such records shall be the property of the Owner. 3.7.3 The responsibility of the Contractor includes Customs clearance payment of Customs duty supply to ONGC base. 3.8 To coordinate arrange dry-dock lay up repairs. The vessel is required to undergo dry dock twice in five years to meet the statutory requirement of hull thrusters surveys. 3.9 To coordinate with Director General of Shipping/any other agencies for statutory marine requirements movement of vessel in Indian Waters and overseas for dry-dock repairs etc. 3.10 To arrange for the annual statutory and classification surveys with DNV/IRS for certification of equipments on board including the stimulation equipment and to keep the Vessel covered under classification at all the times. 3.11 To be the Lead Managers for operating the Safety Management System on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso expenses for the running operations of the vessels and its routine maintenance and supply of stores including payment of statutory taxes, service tax as applicable and custom duties or any other statutory levies (excluding the Income Tax liability for all categories of personnel to be hired/employed by the Contractor for manning of the Owner's vessels) which the Contractor may incur or become liable to pay. This shall also include the cost of the Base managers including trainee Base manager if any, to be appointed/employed by the Contractor for each vessel. The Owner shall also pay the cost of imported spares along with customs duty to Contractor in advance against submission of monthly Debit note. 8.4 The Owner shall pay to the Contractor remuneration @ 5% of the total expenses incurred or to be incurred by the Contractor under various illustrative heads mentioned in CL 8.3 above. The remuneration charge of 5% will not be applicable on customs duties, Contractor's service tax and Contractor's management expenses. 3. As the respondent had paid service tax on the entire amount of charges reimbursed to them by ONGC, they filed a refund claim on the ground that s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xable value. ONGC have not appointed the assessee to deal with any third party but to provide services to them directly and, therefore, the expenditure incurred cannot be treated as reimbursable expenditure. The Ld. A.R. relied on the judgment of M/s. Safe and Sure Marine Services Pvt. Ltd. vs. Commissioner of Service Tax, Mumbai - ST/116/2010 and the case of M/s. Jubilant Enpro Pvt. Ltd. vide order no. A/419-420/13/CSTB/C-I. 6. The Ld. Counsel appearing for SCI stated that the activity undertaken by the respondent can be described briefly as follows: (a) ONGC is the owner of the vessel. (b) ONGC has entered into an agreement with the Respondents for Operation, Management and maintenance of the said vessel. (c) The Respondents undertake to operate and manage the vessel by providing the technical personnel required. (d) The Respondents further undertake to maintain and repair the vessel to keep it in sea worthy condition. (e) ONGC is reimbursing the expenses incurred by the Respondents on actual i.e. cost to cost basis. (f) The Respondents are earning remuneration @ 5% of the total expenses incurred/reimbursed on operation, management and maintenance of the vess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. Ltd. vs. CCE - ST/ 74/2004. He also stated that any interpretation of law which renders a specific provision redundant or otiose or inconsistent needs to be avoided. He relied on Sultana Begum vs. Prem Chand Jain 1997 (1) SCC 373. 6.3 On the issue of valuation of taxable service provided by the respondent, Ld. Counsel stated that it is evident from the terms of the agreement between the respondent and ONGC as well as the invoices raised by the respondent on ONGC as well as the invoices raised by respondent on ONGC that expenses such as Launch Hire, Custom duty paid on spares, Steamer Charges, Stores Spares, Wages and Allowance etc., have been reimbursed by ONGC and the respondents have been paying service tax on the commission at 5% received from ONGC over and above the cost reimbursed on actual basis. The respondents are only making payment to service providers on behalf of ONGC who is reimbursing the expenses on a cost to cost basis. In this connection he referred to Clause 3.7 of the Contract which recognizes the fact that respondent shall procure materials spares etc. on behalf of the customer. He relied on CBEC Circular No 5/97-ST dt. 12.06.1997 and Circular No. 7/97-S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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; 8. The exact nature and scope of service provided by SCI has already been detailed in para 2 above. There appears to be no doubt that after the introduction of the 'Ship Management' Service w.e.f. 1.5.2006, the activity as a whole is most aptly covered under this service. However, the period in dispute in the present case is 16.6.2005 to 31.3.2006. Therefore the issue which requires a decision is whether the activity undertaken by the ONGC would be covered under the 'Management, Maintenance or Repair Service. It is significant to note that the word 'Management' in the above category of service was also introduced w.e.f on 1.5.2006. Prior to this date, the service was categorized as 'Maintenance or Repair' service. Thus, we have to examine whether the activities would be covered by the definition of 'Maintenance or Repair' service prior to 1.5.2006 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he reliance placed by the Ld. Counsel on the case of Glaxo Smithkline Pharmaceuticals Ltd. (supra) and the case of Sultana Begum (supra) as well as Gujarat Chem Port Terminals (supra), for the reason that the coverage of services have to be considered in the light of actual elaborate scope of work carried out by the service provider. 8.1. as we have analyzed above, the entire scope of work deserves to be split up into two categories namely 'Maintenance or Repair' service which was taxable during the impugned period and 'Operations' which was not taxable during the impugned period. We note that, prima facie, there appears to be a composite contract between ONGC and the respondent. However, on venturing into details of the contract we find that it is composed of a range of distinct and separately identifiable activities which are paid for and reimbursed by ONGC, activity-wise. Therefore as the value of each activity undertaken is based on the actual value for which invoices are raised by various Sub-Contractors on SCI, there should have been no difficulty in determining the value corresponding to each of the 'Maintenance or Repair' activities provided by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whom the respondent gets the various activities performed. The respondent raises the Debit Notes on ONGC for the reimbursement of various expenses such as - Launch Hire, Customs duty on spares, Steamer charges, Stores and spares, Wages and allowances etc. ONGC reimburses the entire expenditure to the respondent on cost to cost basis. There being no factual dispute on this reimbursement, a view can be taken that the service is actually provided by the various Sub-contractors. And for the over all management of the entire work, the respondent are paid 5% commission of the total expenses incurred on the entire activity under the Contract and on this commission of 5%, they have paid service tax. We also note that Clauses 3.12 and 3.12.1 of Annexure -III to the Contract specifically provide for payment to the Service Engineer arranged by the respondent but authorized by the owner, to be made at agreed rates and for whom travelling expenses are reimbursed as per actual. This clause indicates that all expenditure incurred by the respondent for undertaking various activities are strictly on a reimbursement basis. Neither the adjudicating authority nor the Commissioner (Appeals) have gone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Service. But the respondent has not sold any parts or material to the Service recipient during the course of providing maintenance or repair service. The lower authorities have held that ONGC has not appointed the respondents to deal with any third party but to provide services to them directly. We have noted above that the spares etc. are bought with the approval of ONGC and monthly advance is paid for reimbursement by ONGC. In the circumstances, the matter needs a comprehensive examination keeping in view Board Circulars (supra) on the issue of service tax payable on agency commission earned by Custom Houses Agents, and commission earned by Manpower Recruitment or Supply Agency. 11. In view of the above, we remand the case to the Commissioner for fresh adjudication with the following directions: (i) Only some of the activities covered under the Contract between the respondent and M/s. ONGC fall in the ambit of 'Maintenance or Repair' service. Other activities such as those related to Operations do not get covered under the category of 'Maintenance or Repair' service. Commissioner may examine each activity and decide the classification accordingly for each ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , shall be classified as if they consisted of a service which gives them their essential character. 15. I agree with the finding of the Commissioner (Appeals), so far as classification of these services involved in the present appeal under the head 'ship management service' under Section 65(96a) of the Finance Act, 1994. Admittedly ship management service was brought under the statute w.e.f. 1.5.2006 and the period in dispute relates to June,05 to March, 06, in which period 'ship management service' was not taxable. So far classification of the service is concerned, reference is made to the para 3.2 of the TRU Circular dated 28.2.2006 which reads as under:- Often services provided consist of more than one service. In such cases, it is important to decide, for the purpose of classification of services, whether each element of the transaction should be treated separately or as a single composite transaction, albeit, made up of two or more separate services. A composite service, even if it consists of more than one service, should be treated as a single service based on the main or principal service and accordingly classified. The decision is to be made on quest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices rendered. Reimbursable expenditure incurred on behalf of the client should not fall under the 'taxable services' rendered. 17. Further, the ground of the Revenue that the assessee had raised a new ground in appeal before the Commissioner (Appeals) that they are not chargeable to tax, for the period in dispute being prior to 1.5.2006, when 'ship management service' become a taxable service, is also not tenable and rejected as a ground of law, can be raised at any stage, by a part to a dispute, Thus, the appeal is dismissed. 18. To sum up, I hold that the services provided by the respondent have been rightly classified under 'ship management services'. The Revenue cannot vivisect the composite of ship management service for taxing the component of 'repair and maintenance'. The point of law can be raised at any stage including the appellate stage and accordingly, there is no infirmity or illegality in the impugned order in entertaining the ground, being point of law, raised by the respondent before him. 19. Thus, the appeal of the Revenue is dismissed. The respondent assessee will be entitled to consequential relief, if any, in accordanc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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