TMI Blog2024 (3) TMI 458X X X X Extracts X X X X X X X X Extracts X X X X ..... ded to any passenger embarking in India for domestic journey or international journey. The appellants are registered with the Director General of Civil Aviation (DGCA) as an aircraft operator for providing the service of transport of passengers by aircraft. Further, Air transport service is defined in Rule 3(9) of the Aircraft Rules, 1937 as a service for the transport by air of persons, mails or any other thing, animate or inanimate, for any kind of remuneration whatsoever, whether such service consists of a single flight or series of flights - The Civil Aviation Requirements ( CAR ) dated 1-6-2010 also provides a similar definition of Air transport service both for Scheduled and Non-Scheduled services. The charter operation is a sub-category of non-scheduled aircraft operations. The definition of charter operations is contained in that part of the CAR which pertains to Minimum Requirement for grant of permit to operate non-scheduled Air Transport Services. Hence, charter operations do not cease to be aircraft operations by reason of the fact that the entire aircraft is chartered by the client from the aircraft operator - it is seen that the services rendered by the appellants fal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of charter aircrafts by M/s KAPL from Kellet and Singleton Aviation is liable to service tax under the category of Supply of Tangible Goods Service and appellant being recipient of these service is liable pay service tax under reverse charge mechanism as per Rule 2(1)(d)(iv) of Service tax Rules, 1994 read with Section 66A of the Finance Act, 1994? - HELD THAT:- The said hiring of charter aircrafts was of air transport services from Ahmedabad to Moscow and Back. As already discussed, the said service is appropriately classifiable under the category of Transportation of Passengers embarks in India for International Journey by Air Services defined under Section 65(105)(zzzo) and not under the category of Supply of Tangible Goods Services Even if it is assumed that the appellant provided supply of tangiblegoods for use, liability to Service Tax is not attracted since as per the principles set out in, as the goods are not in India during the entire period of use. Reliance is placed on the above decision of this Tribunal in the case of PETRONET LNG LTD VERSUS COMMISSIONER OF SERVICE TAX [ 2013 (11) TMI 1011 - CESTAT NEW DELHI] wherein the phrase during the period of use was interpreted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SITC, etc. Therefore, the services provided by the appellants appeared to be not covered under Transport of Passenger by Air Service. However as per the revenue the service rendered by the appellant was appropriately covered under the supply of tangible goods services. 5. From the copies of Balance Sheet of M/s Karnavati Aviation Pvt. Ltd. (M/s KAPL) it was also found that they had incurred expenditure in foreign currency towards interest charged paid to foreign bank, purchase of navigation data and books periodical, aircraft fuels, airport charges, processing fees, repair and maintenance, payment made for inspection charges, payment made for hiring of aircraft , etc. As these expenditures incurred against the receipts of taxable services from the services providers who have permanent address or usual place of residence, in country other than India but appellant had not paid service tax payable thereon as provided under section 66A of the Finance Act, 1994 read with Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 and Rule 2(1)(d)(iv) of the Service tax Rules, 1994. 6. Accordingly, the appellant was issued show cause notice proposing service tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e service of transportation of passengers, there is no supply of the aircrafts by the Appellant and hence Section 65(105)(zzzzj) has no application. To constitute supply of the aircrafts, there ought to be demise or lease of the aircrafts. A wet lease of the aircraft would be a supply of aircraft, in which the lessor retains the possession and effective control of the aircrafts. In the present case there is no demise of lease of the aircrafts by the Appellant. The agreement relied by the revenue in the impugned matter speaks of operation of flights by the appellant and not of demise, lease or supply of aircraft. The provision for arriving at the tariff by mutual agreement based on destination or number of days or time is entirely irrelevant in view of the categorical finding of the Larger Bench that the manner or mode of fixing the remuneration for such air transport service, whether seat wise, daily or weekly or annual basis is irrelevant and does not detract from the service being air transport service. In any event, the appellant has either charged the remuneration on per seat basis or on the basis of flying time of the flight operated, which clearly shows that what has been cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enlarge the scope of tangible goods and not to restrict the same to machinery, equipment and appliances, the letter part of Section 65(105)(zzzzj) would have referred to tangible goods and not to machinery, equipment and appliances. He placed reliance on the following judgments. (i) South Gujarat Roffing Tiles Manufacturing Association Vs. State of Gujarat (1976) 4SCC 601. (ii) N.D.P. Namboodripad Vs. UOI (2007) 4 SCCC 502 (iii) CC Vs. Caryaire Equipment India Pvt. Ltd. 2012 (278)ELT 30 (SC) 12. He also argued that the demand for the larger period of limitation is not sustainable as there was no fraud, collusion, willfulmis-statement, suppression of facts or contravention with intention to evade payment of service tax. The very fact that prior to 01.07.2010, the appellant was paying service tax under Section 65(105)(zzzo) in respect of international journey establishes that the Appellant s bona fide held the view that service it rendered was non-scheduled air transport of passengers and not of supply of tangible goods and since prior to 01.07.2010 , domestic journey was not taxable, no service tax was paid thereon. Further the appellant had raised invoices for domestic journey and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... side India and received in India) Rules, 2006. Further as held in the case of Petronet LNG Ltd. Vs. CST -2016(946)STR 513, the proviso requires that the goods should be located in India during the entire course of their use. Since the aircraft was used for transport to Moscow and back, it was not within India during the entire course of its use and therefore the requirement of the said Proviso is not satisfied and therefore service tax is not payable. 17. Shri A. K. Mudvel. Learned departmental representative, opposed the arguments of Appellants by reiterating the findings of the impugned order. 18. Heard both the sides and perused the records. 19. The first common issue to be decided in both the appeals is whether the activity of appellants providing chartered aircrafts to their clients/ customers is classifiable under the taxable category of Supply of Tangible Goods Services as defined under Section 65 (105)(zzzj) of Finance Act, 1994 or under the taxable category of Air Transport of Passengers Services as defined under Section 65(105)(zzzo) of the Finance Act, 1944. For convenience, the above two sections are reproduced below : (105) taxable service means any service provided or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me, departure location and arrival locations are specially negotiated with the customer or the customer s representative for entire aircraft. No ticket is sold to individual passenger for such operation. CAR also provides that,- 2.4 The carriage of passengers by a non-scheduled operator s permit holder may be performed on per seat basis or by way of chartering the whole aircraft on per flight basis, or both. There is no bar on the same aircraft being used for either purpose as per the requirement of customers from time to time. The operator is also free to operate a series of flights on any sector within India by selling individual seats but will not be permitted to publish time table for such flights. Operation of revenue charters to points outside India may also be undertaken as per paragraph 9.2. 2.5 A non-Scheduled Operator is also allowed to operate revenue charter flights for a company within its group companies, subsidiary companies, sister concern, associated companies, own employees, including Chairman and members of the Board of Directors of the company and their family members, provided it is operated for remuneration, whether such service consists of a single flight or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransportation of passengers by air by any air craft operator, whether operating scheduled or non-scheduled flights, became taxable, that the appellant are paying service tax w.e.f. 1-7-2010 u/s 65(105)(zzzo), therefore, during the period prior to 1-7-2010, their activity can not be subjected to tax u/s 65(105)(zzzzj) by treating the same as supply of tangible goods. It is well settled law when an activity becomes taxable from a particular date, it is to be treated as non-taxable for the previous period, therefore, for the period prior to 1-7-2010, the appellant s activity can not be treated as supply of tangible goods service covered by Section 65(105)(zzzzj), that since the cost of operation of the Aircrafts such as maintenance, cost of the crew, fuel expenses, parking fee etc. are borne by the appellants, and since the main remuneration received by the appellant is on the basis of flying hours, trips, per seats the appellant s activity can not be treated as supply of tangible goods, but has to be treated service of transportation of passengers in India by air. When there is an entry specifically for taxing transport of passenger by aircraft , the activity cannot be brought under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and certainly not to harass and initiate proceedings against persons who are paying tax with interest for delayed payment. It is high time, the authorities will change their attitude towards these tax payers, understanding the object with which this enactment is passed and also keep in mind the express provision as contained in sub-sec. (3) of Sec. 73. The Parliament has expressly stated that against persons who have paid tax with interest, no notice shall be served. If notices are issued contrary to the said Section, the person to be punished is the person who has issued notice and not the person to whom it is issued. We take that, in ignorance of law, the authorities are indulging in the extravaganza and wasting their precious time and also the time of the Tribunal and this Court. It is high time that the authorities shall issue appropriate directions to see that such tax payers are not harassed. If such instances are noticed by this Court hereafter, certainly it will be a case for taking proper action against those law breakers. 4. In that view of the matter, we do not see any merit in these appeals. The appeals are dismissed. 5. Mark a copy of this order to the Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t are not liable for service tax on said service received from outside India. Further the conditions precedent for Notification of reverse charge in respect of supply of tangible goods from foreign service provider, the expression during the period of use appear under Rule 3(iii) of the Rules has been interpreted by the Tribunal in the case of Petronet LNG (supra) relied upon by the appellant. The Tribunal held that for being tangible goods must be located in India during the entire period of use and it is not so located in India for any part of the period it cannot be said to be located in India and the Service Tax in respect of the same cannot be levied under the reverse charge mechanism. The Tribunal held as under :- 37. Whether there is no liability to pay service tax under the proviso to Rule 3(iii) of the Import of Service Rules : (i) Paragraphs 19 and 34 (sub-paras 54 to 70) of the adjudication order extract contentions of the assessee in this behalf. To summarise, the assessee asserted before the adjudication authority that its liability to the charge of tax under the reverse charge mechanism (Section 66A) must be considered in the context of the 2006 Rules as well. The pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t part of performance of a service in India shall be treated as performance in India), into the proviso to Rule 3(iii). This would lead to a manipulative interpretation; not a permissible interpretation of the statutory provision. (v) The assessee further contended that the interpretative principle of nosciturasociis should be applied to identify the meaning of the expression during occurring in association with the expression location , in the proviso to Rule 3(iii). (vi) Despite the elaborate pleadings by the assessee on this aspect, the adjudicating authority rejected the interpretation proffered by the assessee in a two sentence conclusion set out in para 38.6 of the adjudication order, as follows : 38.6 After going through submissions of Department as well as the noticee I find that there is no reason to interpret the word during any differently from what it accurately means in the given context. As has been given in Rule 3(ii) of the Import of Service Rules that even if a service is partly performed in India, it would be treated as having been performed in India. Hence I hold that as the service is provided at some point of time in India it is enough to be covered in the word ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the Qatar port or during voyage on the high seas towards the destination at the Dahej, Gujarat; and while heading back to Qatar for loading LNG afresh for delivery again to the assessee s LNG terminal at Dahej. (xi) The expression location , on its lexicographic exposition connotes: to set, fix, or establish in a position, situation or locality; to establish in a place; to settle; to place at a certain location, station or situate; to determine or specify the position or limits . In its adjectival context the expression implies situated in a particular spot; situation; place or locality . The expression location therefore connotes a degree of geo-specific permanence, typically implied for physical spaces. (xii) In the circumstances, the phrase in Rule 3(iii); the tangible goods supplied for use are located in India during the period of use of such tangible goods by the recipient, can only mean that the tangible goods must be located during the entirety of the period of use of such tangible goods by the recipient, in India. (xiii) The separate and distinct treatment specified for the taxable STGU service, in the proviso to Rule 3(iii) of the 2006 Rules, in our considered view cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also furnished. (iii) The show cause notices were issued nevertheless. 30. Even if it is assumed that the appellant provided supply of tangiblegoods for use, liability to Service Tax is not attracted since as per the principles set out in, as the goods are not in India during the entire period of use. Reliance is placed on the above decision of this Tribunal in the case of Petronet LNG Ltd. v. Commissioner of Service Tax [2013-TIOL-1700-CESTA-DEL] wherein the phrase during the period of use was interpreted and it was held that to come within the scope of SOTG, the tangible goods must be located in India during the entire period of use. The same ratio was followed in the case of M/s. Reliance Industries Ltd. v. Commissioner of Service Tax vide Final Order No. A/720- 722/14/CSTB/C-I, dated 13-5-2014 [2014 (36) S.T.R. 820 (Tri. - Mumbai)] wherein also it was held that if the tangible goods are used at different points of time at different places and outside the designated place in India, liability under SOTG service would not arise. In the present case since the Aircrafts was used for transport to Moscow and back, it was not within India during the entire course of its use. 31. In vie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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