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TMI Blog2018 (6) TMI 933X X X X Extracts X X X X X X X X Extracts X X X X ..... edging Corporation of India Ltd., Vishakhapatnam for providing vessel pacifique dated 17.01.2007 5. Gujarat Adani Port Ltd., Mudra Port for Maintenance dredging at Mudra Port access channel, Turning basin and berth area for 3 years period dated 06.06.2006. 6. Gangavaram Port Limited, Hyderabad, Package 2C : Dredging and navigational aids dated 17.03.2006 (Development of port facility at Gangavaram) 7. Haziraport Pvt. Ltd., l-lazira for supply of manpower & equipment for maintenance of Geo-bag Bud and Foreshore Protection Work dated 15.10.2006 8. M/s.Bellsea Investments Limited, Cyrpusc, 'Belsea") for deputing the employees of Bellsea specified in the schedule hereto to be deputed by Bellsea to ISD and any other employee(s), who may be deputed by Bellsea to ISD, at the request of the latter during the term of this Agreement (As Secondees agreement) dated 01.11.04. 9. M/s.Bellsea Rock supply Limited, Nicosia, Cyprus for supplying of manpower to ISD 10. Tideway BV for technical services, Dated 01.04.04 From perusal of the agreements / contracts, it appeared to the Department that the main activity of the appellants is to provide Dredging Services. It further appeared that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age of cables or drain pipes; or (iv) Land reclamation work; or (v) Contaminated top soil stripping work; or (vi) Demolition and wrecking of building, structure or road, but does not include such services provided in relation to agriculture, irrigation, watershed development and drilling, digging, repairing, renovating or restoring of water sources or water bodies; 2.2 Ld. Advocate advanced arguments, referring to each of the clients to whom the appellants rendered services as under : 2.3 Dredging Corporation of India (DCI): (i) Appellant has only provided necessary equipment and / or vessel for dredging to DCI which is under a Charter Hire Agreement.Appellant has not provided any dredging services. (ii) Dredging operations were carried out by DCI. (iii) Control and supervision of the vessels during dredging was also with DCI only. (iv) Vessel leased to DCI was used to carry out dredging for Sethusamudram Ship Canal Project (SSCP) which is beyond 12 nautical miles from sea shore and hence outside the scope of service tax levy. (v) The Charter Hire Agreement entered with DCI, copy of which has been filed with appeal, clearly indicates the "Name of Vessel : Pacifique Cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... illions excluding VAT + INR 3.70 millions excluding service tax was the rate for crew and crew officers of vessel. 2.4 Dharti Dredging & Construction Ltd. (DDCL) (i) The agreement with the appellant was again only a Charter Hire agreement. The appellant had hired Vessel : TSHD Vlaanderen XX, Class: b.v. : 13/3 hopper dredger deep sea AUT-MS, Call sign : ORTO, Flag : Belgium. (ii) This vessel along with control and supervision was given by appellant to DDCL who was liable to pay charges for hire and also liable to compensate them for excessive wear and tear. In terms of clause 7 (C) of the agreement, the vessel shall be delivered by appellant with a Master / Captain, officers and key crew and the rate fixed for charter is inclusive of salary and other costs. (iii) As per the agreement, appellant was nowhere accountable for the dredging volume during operation and the operating permits / approvals and visas required for execution as work for the vessel and all employees and representatives assigned to the project are arranged and paid for by the charterer. (iv) There is nothing in the contract to show that it is a dredging contract or that the appellant is responsible for carryi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment documents show payment for 'dredging and soil stabilisation' and 'dredging and land reclamation works'. The Letter of Intent relied by Commissioner to hold that these three activities form a composite contract. The Letter of Intent is precursor to the separate agreements executed later. For the same reason, the LI has no validity after execution of agreement. In the payment details, by error, it was shown as total amount for dredging and reclamation work. That dredging was not performed in respect of site formation and soil reclamation contracts. Further, the soil stabilization contract and the land reclamation contract do not require any extraction of material from the offshore area. In the reclamation contract specified materials are required to be extracted from the specified area and necessary activities are undertaken to protect the fill area and the appellant was required to develop containment dikes etc. to stop erosion of fill material. (iii) These site formation services are in relation to construction of port under Notification No.17/2005-ST and accordingly they claim exemption under that notification. They also are eligible for exemption under Notification N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es where services were performed in India service tax has been paid. However, in respect of services involving taxable value of Rs. 21 crore paid for maintenance and repair services when the vessel wasnot in India cannot be subjected to service tax levy and tax liability will have to be reworked accordingly. Ld. Advocate prays for a remand in the matter. (b) Man Power Supply Services : (i) Department has taken the view that person claimed to be employees of assessee are actually employees of two foreign service providers. Ld. Advocate submits that appellant had made salary payment to the expatriate employees employed under them, though salary payment had been routed through foreign parties M/s.Bellsea and M/s.Beggerwerkem Decloedt. These foreign companies made payment to the employees on behalf of the appellant on reimbursement basis without any mark up. With each of the expatriates employees a contract for employment was entered into which clearly shows that employee is that of the appellants and was required to perform duties directed by the appellants. Monthly salary was also provided for in the contract. Hence liability to pay salaries rested with the appellant and not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the owner/ appellant based on in and out survey of drag heads, as per report made by the surveyor as specified in 5A. Thus the consideration paid to appellant is closely linked to the quantity dredged and therefore the activities fall under dredging services. 3.4 In case of Hazira Port Ltd., the contract with appellant was for supply of man power and supply of equipment for maintenance of geo-bags, foreshore bund, rear bund etc. which are for preventing soil erosion and therefore rightly falls under site formation services and thus, taxable. The appellants have also rendered dredging services to Hazira port for which they are liable to pay service tax. 3.5 With regard to Dharma Port the appellants were engaged not only for carrying out dredging activities but also for other services like land reclamation / soil stabilization. Though appellants discharged service tax on dredging services they did not pay service tax on income received for land reclamation / soil stabilization works. They claimed exemption under Notification 17/2005-ST dt. 7.6.2005 as also Notification 25/2007 dt. 22.05.2007 contending these are activities relating to port services which are exempted vide Notificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration of India will indicate that it is "Charter Hire Agreement". The said Charter Hire Agreement lays down charter hire per week of operation, period of hire (4 months), place, date and time of delivery as also place, date and time of re-delivery. We also find that although the vessel is hired along with a complement of officers and crew, the decision where to do the dredging work, the hours of operation etc. are totally those of the Dredging Corporation of India and appellants have no role or say in that whatsoever. The positioning of one representative of the appellant on board the vessel may well be for co- ordination purpose, but it is nobody's case that the said representative calls the shots in respect of dredging operations. From the sample of the invoice produced by the Ld. Advocate (page 351 of compilation), it is in fact seen that the billing has been done based on operational hours at 100% and at 85% and even at 0%. The DCI has also been billed towards wear and tear of the dredging equipment at Rs. 3.60 per cubic metre. If the services providedby the appellant indeed was only "dredging service", the appellant would not have been able to bill DCI for such wear and tear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant having no role in the matter of place and hours of operations etc.Only in such a scenario, will the appellants be able to bill the service recipient on a notional basis towards wear and tear caused by such recipient to the dredging equipment in the course of dredging operations conducted by the former. In the event, we hold that the services provided by appellant will not come within the fold of 'dredging service'. Hence that part of the impugned order demanding service tax liability in respect of the impugned services provided to "Dharti Dredging & Construction Ltd. under the category of "Dredging Services" cannot sustain and is therefore set aside. (iii) Hazira Port The adjudicating Authority has held that the services provided by appellant to Hazira Port with their own man power and equipment for maintenance of Geo-bag bund and foreshore protection work is classifiable under 'Site Formation Service' against the contention of the appellants that the activity was only man power supply services and that leasing of equipment can only be taxed under supply of 'Tangible Goods Service' w.e.f. 16.05.2008 with respect to demand of service tax. Adjudicating authority has a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd reclamations and navigational aids. The adjudicating authority has adverted to the agreement between the appellant and the Gangavaram Port and a letter dt. 17.11.2005 of appellants confirming their acceptance to offer reduced scope of work for 'advanced extraction of materials for filling in port back up area' by deployment of Trailer Suction Hopper Dredger or any other suitable equipment. Adjudicating authority has noted that primary activities carried out are Mobilization of Dredging Spread and Execution of advanced extraction of material by Trailer Suction Hopper, hence entire activities revolve around dredging service. Appellants have consistently argued that the object of the agreement at Gangavaram Port was not to carry out dredging activity but only to develop port site for cargo handling and storage and to achieve that objective, it is necessary that the port back up area is filled up; that for the purpose of filling up port back up area it was agreed that respective filling materials shall be dredged and dumped at the designated site for carrying out levelling and reclamations activities ; that dredging in thei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilization of the Dredging Spread(s) and site clearance (d) Based on this adjudicating authority has held that the final activity carried out is demobilization of the dredging spread and site clearance; that it is an admitted fact that appellant dredged the materials using dredger and dumped the extracted materials at designed site; that merely because the materials extracted while carrying out dredging activities are dumped by the assessee at designated place, the scope of the activity which is primarily dredging cannot be construed to be "site formation activities". Based on these premises, the adjudicating authority has held that the activity carried out by appellant is in the nature of dredging service and not site formation and thus appellant provided only dredging services on which service is liable to be paid. (e) On the other hand, appellant has argued that there was only Charter Hire Agreement entered into between Dredging International NV, Belgium for charter of vessel and that the said vessel was used by the latter for carrying out dredging in Gangavaram Port area only for advanced extraction of material for filling up the port back up area. (f) From a copy of Charter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een the appellant and Dhamra Port is for "Reclamation of Land for construction of Dharma Port". The agreed rates for soil stabilization work is found at page 1231 of the compilation. However, the title head of that page is indicated as "Soil Stabilization of Site for construction of Dhamra Port" and the works listed are Preliminaries, mobilization and fixed site overheads, Pre-execution Engineering, Supply of Vertical Drains and Installation of Vertical Drains. While indicating the description of servicein column for total amount, it has been indicated as "Total amount for dredging and reclamation works (Excl. Fuel)" [emphasis added]. However, Ld. Advocate has also submitted that there is no composite service but only site formation service specifically attracting the provisions of Section 65A (2) (a). Notwithstanding these assertions, we however, we find in page 95 of the specimen of dredging contract with Dhamra Port, the sample invoice filed therein indicates amount for "'dredging and reclamation works" [emphasis added]. Appellant contends that there were three separate contracts for dredging works, land reclamation and soil stabilization . It is also contended by the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ind merit in these averments. It is a usual practice to facilitate payment of the salaries of expatriate employees in foreign currency, to be payable in their home country. It is not the case that appellants had engaged services of a manpower service provider from abroad to have the services of these persons. It is also pertinent to note that drafts were drawn up by the appellants directly with their employees and not with any manpower supply provider abroad. (iv) Further, even the foreign agents who had facilitated routing of the salaries to the secondees, were functioning as pure agents and, hence, on this core also, service tax liability under reverse charge basis will not arise. Hence, that part of the impugned order which has confirmed service tax liability in respect of the employment of expatriate persons, cannot sustain and requires to be set aside, which we hereby do. (c) Management Consultancy Services : (i) The Adjudicating Authority has taken a view that the foreign service provider M/s. Pinsent Masons had provided expertise, created and sustained value, resolved issues and fulfilled commercial objectives and, hence, the appellants were required to discharge service ..... X X X X Extracts X X X X X X X X Extracts X X X X
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