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2015 (7) TMI 827 - SUPREME COURT

2015 (7) TMI 827 - SUPREME COURT - 2015 (39) S.T.R. 529 (SC), [2015] 83 VST 1 (SC) - Valuation - wharfage charges - port services - inclusion of the amount of rebate/concession granted in wharfage charges amounting to 80% allowed to the licensee - under-valuation or not - tribunal observed that no service at all was rendered by the Gujarat Maritime Board in relation to any vessel and, therefore, no amount was payable by way of service tax. - Held that:- Though GMB is the owner of the jetty under .....

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condition including dredging so that vessels can berth alongside the jetty. It is clear that so far as jetties operated by the Board are concerned, the Board itself defrays such expenses. It is only in cases like the present where the jetty is primarily meant for loading and unloading goods belonging to a particular private party that repair and maintenance expenses are to be borne by the private party and not by the Board. It is in this circumstance that we find that there is no service, theref .....

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arges or recovers wharfage charges from the licensee - UCL and does not authorize UCL to recover such charges from other persons. This being the position, it is clear that no service is rendered by a port or by any person authorized by such port and, therefore, the very first condition for levy of service tax is absent on the facts of the present case. So far as the direct berthing facilities provided for captive cargo is concerned, the lease rent charged for use of the waterfront also does not .....

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1981 (hereinafter referred to as GMB Act ). This authority administers and operates minor ports in the State of Gujarat. GMB entered into an agreement dated 28.2.2000 with Larsen & Toubro which ultimately became M/s Ultratech Cement Limited (hereinafter referred to as UCL ) whereby a licence was granted to UCL to construct and use a jetty for landing of goods and raw materials manufactured by UCL in their cement factory which was situate close to the said jetty at Pipavav port. As the true c .....

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wharfage charges which was not paid by the assessee. This was for the period 1.10.2003 to 31.3.2006, the differential amount being a sum of ₹ 1,67,45,620/-. A further amount of ₹ 12,53,076/- was also demanded for the period 2003 October upto 2007-2008 on account of the provision of direct berthing facilities provided for captive cargo of a ship size of 10,000 DWT and above on account of lease rent for use of the waterfront. By the order in original dated 16.7.2009, the Commissioner, .....

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h was imposed on the assessee. 3. In appeal from this order, CESTAT by its judgment dated 1.8.2013 reversed the Commissioner s order holding that no service at all was rendered by the Gujarat Maritime Board in relation to any vessel and, therefore, no amount was payable by way of service tax. Equally, on an analysis of the agreement between GMB and UCL, it was held that 20% of wharfage charges which was payable under the agreement was really payable as licence fee/rental and, therefore, the bala .....

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ar on a correct reading of the agreement between GMB and UCL that service was rendered by GMB as owner of the jetty, the service being the provision of a space for landing of goods from vessels which are allowed to berth there. As an alternative argument, on a correct reading of the agreement, it was also argued that GMB had authorized UCL to render the service of wharfage and since what was collected was actual wharfage charges in accordance with the schedule of rates prescribed under the Gujar .....

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ties and that 20% of wharfage levied and collected cannot be said to be rental or licence fee but is wharfage charges collected under the GMB Act for the service of allowing goods to be landed at the said jetty. According to learned counsel, the Gujarat Maritime Board was the owner and in control of the said jetty throughout the term of the agreement and all findings to the contrary by the Tribunal were incorrect. 5. Shri P.P. Tripathi, learned senior advocate appearing for the respondent counte .....

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er the agreement was really only a measure to calculate what is in fact payable as licence fee and that, therefore, the agreement read as a whole would lead to the conclusion that no service was in fact rendered by the respondent and, therefore, no service tax could be collected. 6. It is important first to advert to the Finance Act, 1994 under which the charge is laid for service tax. Section 65(82) defines port service as under:- Port service means any service rendered by a port or other port .....

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ch service provided or to be provided by him. 8. The relevant provisions of the Gujarat Maritime Board Act are as follows:- 35. Power to permit erection of private wharves, etc. within a port subject to conditions: (1) No person shall make, erect or fix within the limits of a port or port approaches any wharf, dock, quay, stage, jetty, pier, place of anchorage, erection or mooring or undertake any reclamation of foreshore within the said limits except with the previous permission in writing of t .....

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of rates for services performed by Board or other person:- (1) The Board shall from time to time frame a scale of rates at which and a statement of the conditions under which any of the services specified hereunder (except the State charges) shall be performed by itself or any person authorized under Section 32 at or in relation to the port or port approaches- (a) transshipping of passengers or goods between vessels in the port or port approaches; (b) stevedoring, landing and shipping of passeng .....

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e under the Indian Port Act, 1908 (15 of 1908). (2) Different scales of rates and conditions may be framed for different classes of goods and vessels and for different ports. 32. Performance of services by Board or other person:- 1) The Board shall have power to undertake the following services:- (a) stevedoring, landing, shipping or transshipping passengers and goods between vessels in port and the wharves, piers, quays, or docks belonging to or in the possession of the Board; (b) receiving, re .....

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g the service or services and shall give a receipt in such form as the Board may specify. (3) Notwithstanding anything contained in this section, the Board may authorize any person to perform any of the services mentioned in sub-section (1) on such terms and conditions as may be agreed upon. (4) No person authorized under sub-section (3) shall charge or recover for such service any sum in excess of the amount leviable according to the scale framed under Section 37, 38 or 40. (5) Any such person .....

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charge of and a receipt given for them under this section, no liability for any loss or damage which may occur to them shall attach to any person to whom a receipt has been given or to the matter or owner of the vessel from which the goods have been landed or transshipped. 9. Since a large part of the arguments on both sides revolved around the agreement dated 28.2.2000, between GMB and UCL, it would be important to advert to the various provisions of the agreement. The agreement begins as follo .....

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Toubro Limited having its Registered Office at L&T House, Ballard Estate, Mumbai - 21, hereinafter referred to as the LICENSEE (which expression shall unless it be repugnant to the context or meaning thereof mean and include its successors and assigns) of the other part; WHEREAS the Licensee approached the Board for permission for construction and use of a Captive Jetty at Port Pipavav in the State of Gujarat on a license basis for the purpose of handling, storage and transportation of raw-m .....

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ed against the Rebate, that may be granted by the Board, the Board as empowered under Section 35 of the Gujarat Maritime Board Act, 1981 granted to the Licensee a license or permission for construction/use of the captive Jetty on the said port at the place aligned, demarcated, provided and approved by the Board upon the terms and conditions specified herein on Build, transfer, Operate and Maintain basis; NOW IT IS AGREED BY AND BETWEEN THE PARTIES HERETO AS FOLLOWS: (c) PORT CHARGES would mean p .....

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that specific industry. 2. The Board has granted permission to the licensee for continuing with construction and use of the Captive Jetty at the site demarcated on the plan, a layout of which has been annexed to this agreement. 3. The Licensee shall pay and continue to pay for the license granted under this Agreement a license fee of ₹ 10,000/- (Rupees Ten Thousand only) per annum to the Board regularly on or before the 30th day of April every year during the currency of this agreement. 12 .....

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lien on its rights or property only on the basis of investment made by it for construction i.e. to say taking into consideration the extent of investment made by it in the construction; PROVIDED that and it is agreed that the cost can be divided for the purpose of obtaining finance for the Jetty construction, it being, however, clearly understood that the water-front is a sovereign right of Government and the right of the Licensee is limited only for the purpose of mortgage or hypothecation to t .....

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onstruction, the equivalent amount at the relevant time shall be utilized by the Licensee in repayment of loan so that at the end of the period of this agreement when the Licensee may not have right of rebate under this agreement, then the construction is free of any liability in respect of such loan. PROVIDED further that the Bank or financial institution granting loan to the licensee shall not have any right against the Board. PROVIDED further that in the event of a declaration of War in the C .....

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to see that the relevant Clauses in pursuance of this Agreement are incorporated in loan documents. 15. The Board may, in order to decide the safety of the structure or for any other purpose, carry out inspection every six months from the date of issue of the Completion Certificate. The Licensee shall carry out maintenance and repairs to the structure at its own cost, whenever so directed by the Board upon inspection. No alteration or extension of the Jetty shall be done without prior permission .....

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rain from carrying out repair or maintain the Jetty in good order and condition and it is further agreed that non-performance by Licensee shall be considered as a breach of condition of this agreement. 17. In consideration of the Board permitting the Licensee to construct the Captive Jetty at its own cost initially, the Board hereby agree that the Jetty to be so constructed by the Licensee shall mainly and initially as per the terms of this agreement, allowed to be used for the vessels belonging .....

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when the same is not in use by the Licensee, be open to use by the Board for itself or for the traffic being regulated by the Board for the purpose of embarking or disembarking their ships, boats, tugs, etc. and for loading and discharging cargo. The Licensee or its Agents shall not by any act of commission or omission, restrict the use of the Jetty and back up area by the Board except when it is actually used by the Licensee for the purpose provided for in this agreement. PROVIDED that this cl .....

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It is agreed that in consideration of the Licensee constructing the Jetty at its own cost initially, the Board has agreed to grant rebate, to be adjusted against the cost of construction, as under: A. The Licensee shall have to pay landing/shipping fees (popularly known as wharfage charges) @ 20% of the actual landing and shipping fees specified in the Schedule of Port Charges prescribed for Captive Jetty. The landing and shipping fees shall be calculated for this purpose as per the schedule of .....

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he Schedule of Port Charges in force from time to time prescribed for captive jetty. B. The Licensee shall also be entitled, as in the normal case to a concession in payment of landing/shipping fees for coastal transportation of the cargo from one port under the Board to another port under the Board @ 25% and from one port under the Board to another Indian Port or vice-versa @ 15% or at the rate as may be applicable from time to time. C. No Rebate will be given in respect of any other charges to .....

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hall provide all the services at or around the Jetty including dredging, navigation, water supply, fire fighting equipments, electricity, telephone, Very High Frequency (VHF) sets of HF sets and such other services and facilities which may be required at or around the Jetty and also such other services and facilities which the Board may require the Licensee to keep available at or around the Jetty. If the Licensee does not provide all or any of the aforesaid facilities, the Board may at its own .....

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days from the date of notice and Port Authorities can temporarily suspend operation of captive port facility. If the said notice is not complied with, the Board shall give another Notice to terminate this agreement if the said breach is not complied with within a period of further 15 days and that on the expiry of such period of 15 days, the agreement shall automatically be deemed to have been terminated without further notice. Upon such termination of the agreement, the Board shall be entitled .....

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regate of the amount of rebate availed off by the Licensee, the Licensee shall not be entitled to any refund. In case of any dispute or difference by and between the Licensee and the Board, the same shall be referred to the Arbitration of Secretary of the Government in Ports and Fisheries Department and it shall be held in accordance with the provisions of the Indian Arbitration and Reconciliation Act, 1996 or any statutory modification or re-enactment thereof for the time being in force. 36. Th .....

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the project of the Licensee for which the permission is granted exists or continues to exist, i.e., continues to function. It is agreed and understood by the Licensee that out of the terms Jetty the terms applicable for the purpose of this Agreement may be retained in this Agreement and other words/terms not applicable may be deleted. 10. A reading of the agreement as a whole would lead to the following conclusions: A. The agreement is a licence agreement entered into under Section 35 of the Gu .....

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y is constructed for the project to which it is attached, namely, the cement factory of UCL. The licence granted to UCL is, therefore, a non-transferable one. E. The Board is entitled to carry out inspection every six months so that it can direct the licensee to maintain and repair the structure at its own cost, maintenance of the said jetty in good order and condition being that of the licensee alone, a breach of which is considered as a breach of the agreement. F. The jetty is to be used mainl .....

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he entire cost of construction is recovered through the rebate, the licensee will have to pay thereafter wharfage charges at the full rate prescribed in the schedule of port charges for captive jetties. H. For direct berthing facilities provided for captive cargo in ships which call at the jetty of 10,000 DWT and above, an amount of ₹ 25,00,000/- will be charged as lease rent for waterfront use. I. It is the licensee UCL that will provide all services at or around the jetty including dredg .....

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or such time as the rebate availed of by the party equals the construction cost of the jetty whichever date is earlier. However, even after the rebate and the construction cost square off, the licensee will be allowed to use the jetty for captive purposes subject to full payment of wharfage charges so long as the project of the licensee - i.e. the cement plant of the licensee continues to function. 11. The question which arises on a reading of the said agreement is, therefore, whether any servic .....

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he agreement it is not the Board but the Licensee who keeps the said jetty in such condition that it is capable of enabling vessels to berth alongside it to load and unload goods. This being the position, we agree with Shri Tripathi, learned senior counsel on behalf of GMB that no service is rendered by GMB to UCL under the agreement. The agreement makes it clear that it is an agreement entered into under Section 35 of the GMB Act allowing the licensee - UCL to construct a jetty and thereafter m .....

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s would make no difference to the result of this case inasmuch as the very first condition that must be met under the definition of port service is not met on the facts of the present case. 12. Shri Adhyaru argued relying upon the definition of wharf and wharfage in Black s Law Dictionary, Seventh Edition that all that is necessary is that a wharf be provided by the Board. The very provision of such wharf would entitle the Board to levy a fee which is nothing other than wharfage charges collecte .....

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oading or unloading goods on a wharf. We are afraid that we are unable to agree with Shri Adhyaru for the reason that though GMB is the owner of the jetty under the said agreement, yet for providing the service of allowing a vessel to berth at the said jetty, it is necessary for GMB itself to keep the said jetty in good order. Wharfage charges are collectible because they are in the nature of fees for services rendered. The expenses that are defrayed by the Board for the maintenance of the jetty .....

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tenance expenses are to be borne by the private party and not by the Board. It is in this circumstance that we find that there is no service, therefore, rendered by GMB to UCL. 13. The other limb of Shri Adhyaru s argument is that in any case UCL is a person authorized by GMB within the definition of port service and that, therefore, in any case the Section would be attracted as there is no doubt that wharfage charges are a payment for services rendered in relation to a vessel or goods. 14. As c .....

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