9911796707
TMI Blog2016 (11) TMI 520X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) I demand interest at the appropriate rate under Section 75 of the Finance Act, 1994. iii) I am not imposing any penalty under Section 76, 77 and 78, of the Finance Act, 1994 in terms of Section 80 of the Finance Act, 1984." 2. The facts of the case as recorded in the Show Cause Notice are that the Appellant, M/s. Mormugao Port Trust is rendering Port Services and is duly registered for this purpose with the service tax authorities. The Notice contends that, the Assessee had entered into an agreement with M/s South West Port Ltd, Mormugao, (SWPL) under which it had leased out/rented out pieces or parcels of land which were situated in the operational area of the harbour to SWPL on which the latter had constructed a jetty which was used for loading and unloading of cargo from ocean going vessels, in lieu of which it received license fee and royalty from SWPL. As per the Notice, while the Assessee had discharged service tax on the license fee, however no tax has been paid on the amount recovered towards royalty, on which according to the Notice, tax was leviable under the head of Renting of Immoveable Property services. 3. The Assessee replied to the Notice submitting that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ship firm and that any activity undertaken by the partner for the joint enterprise cannot be considered as a transaction between a service provider and the service recipient inasmuch as whatever the partner does in a partnership, is done by him for his own benefit and not as a service to anybody. Further the element of consideration i.e. quid pro quo, which is a necessary ingredient of any service is missing. The partner contributes into a common pool of resources required for running the joint enterprise and that if the venture is successful the returns that he gets from the same is his profits and not a consideration for any specific service rendered. Likewise a co-venturer does not render any service to the joint venture for a consideration, so as to attract any service tax liability. It was submitted for the same reason Explanation 3 to the definition of service in Section 65(B)(44) also could not be invoked. e) That the CBEC in its Circular No.179/5/2014 dated 24.9.2014 has clarified in unequivocal terms that capital contribution made by the members of the joint venture to the joint venture are mere transaction in money and cannot be taxed, by the same logic the return of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Service Tax reported in 2015 (39) STR 35 does not assist the Revenue's case as in that case existence of any joint control by the Airport Authority of India over the businesses run by retail business establishments from the airport premises was not even a contention urged or pleaded by the Assesse. The facts as set out in that decision seem to suggest that the Airport Authority of India had only let out its premises to the shops and was charging a fixed amount as licence fees or royalties. The arrangement between the Airport Authority of India and the business establishment was clearly not one of joint venture. In any case no pleadings to this effect were made. The view taken by the Tribunal in that case was therefore was in the context of facts prevailing in that case which are materially different from the present case where two parties are jointly conducting a business under the PPP route. The judgment of the Delhi High Court in the case of Airport Retail Pvt Ltd vs UOI is also not relevant as that was the case of a challenge by way of a Writ Petition against proposed levy of service tax on rentals earned by Delhi International Authority Ltd (DIAL) from duty free shops. The Writ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cargo handling charges was an earning from a revenue sharing arrangement has been rejected by the Commissioner mainly on the ground that since the Assessee Trust had done nothing more than leasing the land and the water front area to SWPL, it was only logical to conclude that all the amounts recovered by it from SWPL whether described as licence fees or as royalty were in fact a consideration for the activity of leasing the land and water area to SWPL. 10. After going through the licence agreement dated 11.4.1999 between the two parties, we find that the Commissioner was wrong in holding that the Assessee had merely leased out the land and water area to SWPL, and had done nothing else besides that. The agreement shows that besides leasing out the land and water area to SWPL for which a specific consideration by way of licence fees is charged by the Assessee (this licence fee is not subject matter of dispute in this appeal), the Assessee had also granted a permission to SWPL to conduct port operations at Mormugao. This permission was necessary for SWPL to obtain as the right to exploit the water front by operating a port at Mormugao was by law vesting only with the Appellant. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nture between them and SWPL. The contributions of the Assesseecomprised of the grant of a permission to conduct port business using the water front at Mormugao, a right which otherwise vested exclusively with the Trust, as also rendering of several services, which the Assessee was obliged to provide to SWPL and to the Port users as set out in clauses 5.10, 5.11 and 6.1 of the agreement. Supreme Court has held in the case of Mahindra and Mahindra reported in 1995 (76) ELT 481 that unless the revenue is able to demonstrate otherwise, in agreement between two parties must be assumed to be reflecting the true state of affairs. 12. The arrangement between the Assessee and SWPL is the public-private partnership. In our view this arrangement in the nature of the joint venture where two parties have got together to carry out a specific economic venture on a revenue sharing model. Such PPP arrangement are common nowadays not only in the port sector but also in various other sectors such as road construction, airport construction, oil and gas exploration where the Government has exclusive privilege of conducting businesses. In all such models, the public entity brings in the resource over w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... skill, and knowledge, without creating a partnership, a corporation or other business entity, pursuant to an agreement that there shall be a community of interest among the parties as to the purpose of the undertaking, and that each joint venture must stand in the relation of principal, as well as agent, as to each of the other coventurers within the general scope of the enterprise. Joint ventures are, in general, governed by the same rules as partnerships. The relations of the parties to a joint venture and the nature of their association are so similar and closely akin to a partnership that their rights, duties, and liabilities are generally tested by rules which are closely analogous to and substantially the same, if not exactly the same as those which govern partnerships. Since the legal consequences of a joint venture are equivalent to those of a partnership, the courts freely apply partnership law to joint ventures when appropriate. In fact, it has been said that the trend in the law has been to blur the distinctions between a partnership and a joint venture, very little law being found applicable to one that does not apply to the other. Thus, the liability for torts of par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unctionality, etc of the bulk cargo handling jetty and its subsequent upgradation, upkeep, modifications, repair, maintenance, dredging, installations, etc. are to be unanimously agreed upon by the two co-venturers. We are therefore of the view that the agreement between the Assessee and SWPL is joint venture between the two, where the two co-venture are jointly controlling a common activity and sharing the revenue therefrom. 17. The question that arises for consideration is whether the activity undertaken by a co-venture (partner) for the furtherance of the joint venture (partnership) can be said to be a service rendered by such co-venturer (partner) to the Joint Venture (Partnership). In our view, the answer to this question has to be in the negative inasmuch as whatever the partner does for the furtherance of the business of the partnership, he does so only for advancing his own interest as he has a stake in the success of the venture. There is neither an intention to render a service to the other partners nor is there any consideration fixed as a quid pro quo for any particular service of a partner. All the resources and contribution of a partner enter into a common pool of re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r can monetary contribution of the individuals that is not attributable to an identifiable activity be deemed to be a consideration that is liable to be taxed merely because a "club or association" is the recipient of that contribution. 14. ... To the extent that any of these collections are directly attributable to an identified activity, such fees or charges will conform to the charging section for taxability and, to the extent that they are not so attributable, provision of a taxable service cannot be imagined or presumed. Recovery of service tax should hang on that very nail. Each category of fee or charge, therefore, needs to be examined severally to determine whether the payments are indeed recompense for a service before ascertaining whether that identified service is taxable." 19. We are accordingly of the view that activities undertaken by a partner /co-venturer for the mutual benefit of the partnership/joint venture cannot be regarded as a service rendered by one person to another for consideration and therefore cannot be taxed. 20. We may mention here that there are situations where a co-venturer or a partner may render a taxable service to the joint venture or the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be totally irrelevant for deciding the Appellant's liability for the past period. In any case, we find that under the negative list regime the most significant change having a bearing on the issue in hand is the insertion of explanation (iii) in the definition of service in Section 65B(44). The said explanation (iii) reads as u: Explanation 3. - For the purposes of this Chapter,- (a) an unincorporated association or a body of persons, as the case may be, and a member thereof shall be treated as distinct persons; (b) an establishment of a person in the taxable territory and any of his other establishment in a non-taxable territory shall be treated as establishments of distinct persons. In our view all that the explanation stipulates is that an unincorporated association or a body of persons and members thereof, shall be treated as distinct persons. This explanation in our view does not have the effect of rendering the activities undertaken by the partner/co-venturer, which are actually for his own benefit, as being a service rendered by it to the partnership (joint venture). What the partner/co-venturer does is for his own benefit cannot ipso facto be considered as a service r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtook was to pump water from the wells in question and not to supply any electrical energy. Hence we are in agreement with the learned Judges of the High Court that the plaintiff's case in this regard should fail." 11. In Bay Berry Apartments (P) Ltd. and Another v. Shobha and others, the Court has observed that in construing a document, the Court cannot assign any other meaning; and a document as is well known must be construed in its entirety. In any case, the said clause exists to sort out any interse dispute between the two parties. Third party including tax administrators are not bound by what the parties themselves choose to call themselves in the agreement. If the agreement is read as a whole, it clearly comes out that the Assesseeand SWPL were jointly undertaking a common enterprise, the revenue of which was shared between the two. Insofar as the other argument of the revenue that non-sharing of losses militates against the principle of partnership being canvassed by the Assessee is concerned, firstly the broad principle of partnership of law applies to a transaction between co-venturer and joint venture and not the entire Partnership act perse. Secondly, even under t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
