TMI Blog2022 (9) TMI 393X X X X Extracts X X X X X X X X Extracts X X X X ..... t Wadi Bunder on the Elphinstone Estate . Admittedly as provided in the agreement, Respondents have been charging only an annual fixed fee from the time the agreement was entered into as late as upto 2001. Copies of the bills annexed to the Petition also indicate that these are fixed charges irrespective of whether any oil cargo passes through the pipe lines and irrespective of the quantity of the oil cargo that passes. The agreement also clearly indicates that pipe line laid was to be used for only Petitioners cargo and not for any third party - the Respondents were only charging a licence fee for giving permissions to Petitioners to carry out construction/laying down of pipe line work on the port land and nothing else. Elaboration was particularly necessary since the Way Leave Agreements provide for laying of pipe lines at the cost of Petitioners and maintenance by Petitioners of the pipelines. Even annual compensation payable was called licence fees. Further, the services provided for under Section 42 of the Major Port Trusts Act, 1963, Respondents levy and collect charges based on the Port-Scale of Rates, that later came to be approved by Tariff Authority for Major Ports ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... os.1 2. Mr. Naushad Engineer, Amicus Curiae a/w Ms. Shreya Jha present. ORAL JUDGMENT (PER K. R. SHRIRAM, J.) : 1. Petitioner No.1 is a Government of India company engaged in storing, refining and distribution of oil. Petitioner No.2 is Territory Manager and one of the Principal Officers of Petitioner No.1. Petitioner No.1 and Petitioner No.2 are collectively referred to as Petitioners . 2. Respondent No.1 is the Board of Trustees of the Mumbai Port Trust, constituted under the Major Port Trusts Act, 1963. Respondent No.2 is an officer of Respondent No.1 and is responsible for the collection of statutory charges and taxes due to Respondent No.1. Respondent No.1 and Respondent No.2 are collectively referred to as Respondents. Respondent No.3 is the Union of India. 3. This Petition is filed to challenge a demand of Respondents in levying Service Tax on the gross amount billed towards Special Way Leave Charges/Storage Charges with effect from 1st July, 2001. 4. By way of an indenture of lease dated 28th August, 1951 Respondents granted permission to Petitioners to use a portion of a land at Wadala Estate for the purpose of bulk oil installation along with a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to C-19 to the Petition. The primary ground of challenge is that no service has been provided by Respondents under the Way Leave Agreements. 10. Affidavit in reply dated 1st December, 2003 has been filed by Respondents justifying their demand/stand that service tax was leviable for payments made under the Way Leave Agreements by Petitioners. Respondents have also filed another Affidavit dated 15th December, 2003 on the directions of this Court to place on record a list of companies which have made the payment of service tax for the period between 16th July, 2001 and 30th November, 2003. Respondents have also relied upon various Way Leave Agreements entered into with different parties but those are not part of the record in this matter. 11. An Affidavit-in-Reply has been filed on behalf of Respondent No.3 (incorrectly mentioned as Respondent No.2) affirmed on 24th March, 2005 in effect supporting Respondents case. 12. With the assistance of Mr. Naushad Engineer, learned amicus curiae, Ms. John for Petitioners and Mr. Bhalwal for Respondents, we have considered the Petition and the documents annexed thereto as also the Affidavits in reply. We must express our appreciation f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carry out construction/laying down of pipe line work on the Mumbai Port Trust s land and, the compensation that Petitioners are paying to Respondents is also defined in the Way Leave Agreements as licence fee; (d) Respondents have not undertaken any of the services referred to in Section 42 of the Major Port Trusts Act. 16. Learned amicus curiae Mr. Engineer, in effect, submitted that the stand of Petitioners is correct. The licence fees that Petitioners pay Respondents cannot attract any service tax because Respondents are not rendering any port service to Petitioners. 17. Ms. John for Petitioners adopted the submissions of Mr. Engineer. Ms. John further stated that after the Finance Act, 2010 came into force and as it provided for renting of any immovable property would also be a taxable service, and the Act provided for retrospective effect from 1st June, 2007, Petitioners have been, without prejudice to their rights and contentions, paying service tax from 1st June, 2007. Ms. John states that even that has been challenged in another Petition which is not before us. 18. Mr. Bhalwal appearing for Respondents submitted that : (a) The demand for service tax is in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... line (e) one overhead 4 steam pipe line .. AND WHEREAS the Trustees have agreed to permit the said oil and steam pipe lines to be constructed and maintained subject to the payment of the Licence fee hereinafter reserved and the observance and performance by the Company of the terms and conditions hereinafter contained AND WHEREAS the company has constructed at its own costs in all respects the said pipe lines (hereinafter called the said said Pipe Lines ) accordingly accordingly to the plans approved on behalf of the Trustees and in the positions as shown on the said plan . 1. The Company shall and will as from the first day of September One Thousand Nine Hundred and Fifty Five and during the continuance of this Agreement pay in advance to the Trustees at the office of the Estate Manager the Licence fee of Rupees One Thousand Four Hundred and Four only per annum clear of all deductions on the first day of September of every year the first of such payments having become payable on the First day of September One Thousand Nine Hundred and Fifty Five in respect of the the year ending on the 31st day of August One Thousand Nine Hundred and Fifty Six provided that d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all costs, expenses and charges incurred thereby or in relation thereto AND PROVIDED FURTHER that in any event the Trustees may if they so desire carry out the work of such removal and restoration so far as it relates to the removal of such part of any of the pipe lines as may then be lying under or in the immediate vicinity of roads and rail-tracks or underground services and the restoration of such land works and in that event the Company shall and will on demand pay to the Trustees all costs expenses and charges incurred thereby or in relation thereto. The Company shall not be entitled to any compensation or damage in the event of the Trustees requiring it to remove the pipe lines or any of them and any trench as hereinbefore provided. 9. The user of the pipe lines shall be at the sole risk and at the sole responsibility of the Company and if at any time owing directly or indirectly to the existence of the pipe lines or the user thereof or of any negligence on the part of the Company any claim for damage or loss or otherwise shall be substantiated by any persons against the Trustees the Company (anything herein contained or done under the terms of these presents notwithsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are fixed charges irrespective of whether any oil cargo passes through the pipe lines and irrespective of the quantity of the oil cargo that passes. The agreement also clearly indicates that pipe line laid was to be used for only Petitioners cargo and not for any third party. It is also not anybody s case that Petitioners were charging any fee from any third party. Petitioners were using the pipe lines for passage of only its own cargo. 22. The above makes it clear that Respondents were only charging a licence fee for giving permissions to Petitioners to carry out construction/laying down of pipe line work on the port land and nothing else. 23. The concept of imposition of tax on services was introduced by Finance Act, 1994. By the Finance Act, 2001 that came into force on 11th May, 2001, service tax was introduced on 15 new services. Section 65(72) of Finance Act, 2001 defines taxable service. Clause (zn) of Section 65(72) provides for port services. Section 65(72)(zn) of the Finance Act, 2001 reads as under:- (72) taxable service means any service provided:- ... (zn) to any person, by a port or any person authorised by the port, in relation to port servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce by Petitioners of the pipelines. Even annual compensation payable was called licence fees. Further, the services provided for under Section 42 of the Major Port Trusts Act, 1963, Respondents levy and collect charges based on the Port-Scale of Rates, that later came to be approved by Tariff Authority for Major Ports (TAMP). The License Fees paid by Petitioners was not as per the Port Scale of Rates. Therefore, the nature of the Way Leave Agreements cannot be stated to be for Port Services under Section 42 of the Major Port Trusts Act, 1963. 25. Now let us examine whether the fee payable to Respondents under the Way Leave Agreements for granting permission to Petitioners to lay/construct and maintain its own pipe lines was for a port service defined under the Finance Act, 2001. The Hon ble Apex Court in All India Federation of Tax Practitioners Vs. Union of India (2007) 7 SCC 527 held service tax is a value added tax. For Respondents to be entitled to levy service tax or become liable to pay any service tax to the Government of India, Respondents must render a service and to render a service it must do some activity which amounts to value addition. In our view, merely grant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is liable to pay service tax on the labour charges recovered by them. However, estate rentals of the port which is charged for renting of accommodation provided to outsiders and port users, lease rental for land, etc. will not be liable to service tax as these are not services rendered in relation to goods or vessels. For any other charge not mentioned above, the Commissioner may decide the inclusion/exclusion in the value of taxable service on merits. (Emphasis supplied) 26. The Government of India has itself clarified that estate rentals of the port which is charged for renting of accommodation provided to outsiders and port users, lease rental for land, etc. will not be liable to service tax as these are not services rendered in relation to goods or vessels. From the definition of port services it is clear that only a service rendered in relation to a vessel or goods can fall under the category of taxable service. By this notification, the Government of India itself has clarified that lease rental for land will not be liable to service tax because those are not services rendered in relation to goods or vessels. As stated earlier the amounts being collected under the Way ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rat Maritime Board to UCL under the agreement, and therefore the very first condition that must be met under the definition of port service was not met. The Court observed that though Gujarat Maritime Board was 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 was necessary for Gujarat Maritime Board itself to keep the said jetty in good order. Wharfage charges were collectible because they were in the nature of fees for services rendered. The expenses that were defrayed by the Board for the maintenance of the jetty was sought to be collected as wharfage charges. This amount would necessarily include all amounts that are spent for keeping the said jetty in good condition including dredging so that vessels can berth alongside the jetty. As far as jetties operated by the Board were concerned, the Board itself defrays such expenses. It was only in cases where the jetty was primarily meant for loading and unloading goods belonging to a particular private party that repair and maintenance expenses were to be borne by the private party and not by the Board. In this circumstance, the Court observed that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cost of construction of the jetty by paying 20% of wharfage charges specified in the schedule of charges prescribed for captive jetties. This concession is to be called a rebate and to be set off against the cost of construction of the said jetty. Once the 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 Rs.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 dredging, navigation, etc. and if this is not done then the Board may on its own provide such facilities at the risk and cost of the licensee UCL. J. The licence is terminable on breach of the terms and conditions of the agreement or of any infraction of law. Upon such termination, the Board shall be entitled to take control or otherwise dispose of all or any part of the jetty that may have been constructed. K. The period of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 collected under the Schedule of rates mentioned hereinabove. To appreciate this argument we set out the definition of wharf and wharfage from Black s Law Dictionary as under:- Wharf. A structure on the shores of navigable waters, to which a vessel can be brought for loading or unloading. Private wharf. One that can be used only by its owner or lessee. Public wharf. One that can be used by the public. Wharfage. 1 The fee paid for landing, loading, or unloading goods on a wharf. 2 The accommodation for loading 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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