TMI Blog2018 (6) TMI 933X X X X Extracts X X X X X X X X Extracts X X X X ..... Service” cannot sustain and will therefore have to be set aside. Dredging Service - supply of vessel and equipment to Dharti Dredging & Construction Ltd. (DDCL) - Held that:- Appellant merely supplies the charter vessel on charter hire to DDCL. We are also unable to fathom how the adjudicating authority has reached a conclusion that “compensation for excessive wear & tear is nothing but additional consideration for dredging services……” - The very fact that wear and tear charges are billed to the service recipient will only serve to indicate that the nature and scope of dredging operations are decided by the said recipient, 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 - the services provided by appellant will not come within the fold of ‘dredging service’ - demand set aside. Classification of services - Services provided by appellant to Hazira Port with their own man power and equipment for maintenance of Geo- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing sufficient opportunity to the appellant to produce supporting evidence. Manpower Supply Services - salary payments paid to the “expatriate” employees employed - Held that:- 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 - the 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. Management Consultancy Services - service charge liability on the professional services under business consultancy charges - Held that:- Both during the adjudication proceedings as also during the course of hearing, Ld. Advocate has produced invoices which point out that M/s. Pinsent Masons are a law firm registered with “Solicitor’s Regulation Authority”. Thus, they are not business consultants and is a leg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sea 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 appellants had vivisected total value received into various heads of equipment leasing, man power supply etc., and had not discharged the service tax liability along with interest on the following services : (a) Dredging Services for 2005-06 to 2006-07 (b) Site Formation Services, in respect of contract covering Geo Bund bags for fore shore areas during the period 2006-07 (c) Scientific and Technical Consultancy Services for the period 2004-05 to 2006-07 under reverse charge mechanism (d) Management, Maintenance and Repair Services for the period 2006-07 under reverse charge basis. (e) Consultancy Insurance Servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 Class: IRS/BV Call Sign: ASUGO Flag: India. Period of hire is shown as 4 months with extension at owner s option, if requested for by Charterer. The area of operation was Sethusamudram Shipping Channel. As per para-7 of the agreement , the appellant was responsible for maintaining the vessel, machinery appurtenances and spare parts in good state of repair. As per para 7(C) of agreement, the DCI would be paying ₹ 3.60 per Cum of the material dredged and measured on hopper volume basis towards wear and tear and repairs of soil touching parts o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 carrying on dredging at respective location or that payment is linked to the quantity dredged etc. (v) There is no clause of retention money for ensuring performance by the appellant as in the case of a dredging contract. (vi) Ld. Advocate drew our attention to Charter Hire Agreement entered into with DDCL on 19.07.2006 to point out that particulars of agreement included charter hire per day, place, date and time of delivery of vessel and redelivery etc. (vii) The charter hire of the vessel would therefore fall only in the category of supply of tangible goods service which became taxable only w.e.f. 16.5.2008. (viii) The activities wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clamation 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 No.25/2002- ST for income earned on account of soil stabilization under works contract services. 2.7 Gangavaram Port : (i) The object of agreement of Gangavaram Port was not to carry out dredging activity but only to develop port site for cargo handling and storage and to achieve the object it was necessary that port back up area is filled up. They had entered into charter hire agreement with Dredging International NV and the vessel was used by the latter for advance extraction of the material for filling up of port back up area. As per the contract with Dredging International NV, the charter hire per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment 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 with the foreign companies. (ii) Appellants only provided facility to these employees that their net salary would be credited in their bank accounts at their home country. For this purpose, the payments were routed through foreign parties and who in turn remitted the same amount to the account of the employees. (iii) At the end of employment, these employees gave resignation letters to the appellant only. (iv) Ld. Advocate adverted to the contract with M/s.Bellsea to point out that latter is not providing any services to the appellant by deputing secondees to appellants and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... endered 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 Notification 17/2005. He pointed out that though there separate contracts were entered by appellants with Dharma Port for dredging, soil stabilization and land reclamation the letter of intent and payment manner revealed that the predominant activity was dredging. Therefore as per Section 65A, the appellants are liable to discharge service tax on the entire amount. 3.6 The activities in relation to Gangavaram Port is contested by appellants stating that these are not dredging activities. The appellants vide letter dt. 17.11.2005 accepted the offer of work which included a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntative 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 ₹ 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 charges. In our considered opinion, the activity of the appellants may possibly fall under supply of Tangible Goods Service , but surely not under Dredging Service . It is interesting to note that appellants have paid service tax amount of ₹ 57,03,661/- towards the services provided to DCI under the category of Supply of Tangible Goods Services. In these circumstances, that part of the impugned order confirming demand of service tax in respect of the services provided by the appellants to Dredging Corporation of India under the categor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ging 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 also held that the appellants have provided dredging service to the Hazira Port during March and April 2005. Adjudicating authority has observed that there is only a single Letter of Intent for Dredging Land Reclamation work and the total amount is shown against dredging reclamation as per schedule of payment procedure. Hence the services provided are only Dredging Services and not Site Formation Services. From the arguments of the Ld. Advocate, it comes to the fore that while appellants had commenced maintenance and dredging work on 30.09.2004, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... volve 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 their case was incidental or ancillary to Site Formation Services. (b) Ld. Advocate has also contended that appellants have entered into Charter Hire Agreement with Gangavaram Port and that as per the contract Charter Hire per week charges hire payment, place, date and time of delivery / redelivery to the area of port etc. was involved. But there was no obligation to carry out any dredging on the part of the appellants under the contract. Ld. Advocate also informed us that for carrying out the dredging service a separate contract was executed with the port and that appellant has discharged service tax liability on that contract. We find merit in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dging 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 Hire Agreement filed at page 1324 of the compilation, we find that there indeed is such a Charter Hire Agreement dt. 14.12.2006 between the appellant and Dredging International NV for hiring the vessel CSD Vlaanderen 11 with details of charter hire, period of hire, place, date and time of delivery and redelivery etc. for area of operation Gangavaram Port. Thus there was no dredging contract entered into by appellant. By implication, there was no obligation to carry out dredging on the part of the appellant under the contract either for Dredging International NV or of Gangavaram Port. For the same reasons that we have discussed in respect of Charter Hire Agreement with DCI and DDCL, we hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at 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 that they have discharged service tax liability on dredging services. In these circumstances, it is not clear as to whether there were indeed three separate contracts for dredging, reclamation and soil stabilization or on the other hand, whether appellants were entrusted with a composite work for all the three related works . We do not find any clarity from the SCN or from the findings of the adjudicating authority or even from the documents submitted by the Ld. Advocate. Viewed in this context, we are of the considered opinion that the dispute concerning the activities done by the appellant in respect of Dhamra Port should be remanded to the adjudicating authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 charge liability on the professional services under business consultancy charges, however, from 18.04.2006 onwards. (ii) We find that both during the adjudication proceedings as also during the course of hearing, Ld. Advocate has produced invoices which point out that M/s. Pinsent Masons are a law firm registered with Solicitor s Regulation Authority . Thus, they are not business consultants and is a legal firm. Legal services have become taxable only with effect from 01.09.2009. Thus, the demand raised in respect of services received from M/s. Pinsent Masons, U.K., cannot sustain under the reverse charge mechanism also and requires to be set aside, which we hereby do. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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