By TIOL News Service

HYDERABAD, APR 22, 2019: THE present appeal is one filed by the assessee, contesting duty demand raised under Port Services, on the pilotage charges received by the appellant.

During the relevant period, a joint venture, Ravva Oil and Gas filed had been set up under a production-sharing contract between the Govt of India, the ONGC, Videocon Petroleum Ltd, Cairn Energy India Pvt Ltd and Ravva Oil (Singapore) Pvt Ltd, for prospecting, exploring, developing & producing petroleum from the Ravva Oil & Gas Field area. The appellant-company conducted joint operations, as part of the agreement.

For such period, an SCN was issued raising duty demand with interest u/s 75 of the Finance Act 1994 & Education Cess, under Port Services. Extended limitation had been invoked to impose penalties u/s 76, 77 & 78 of the Finance Act 1994. The Revenue claimed that the appellant had rendered such service for which it had received consideration in the form of pilotage charges. Upon adjudication, the demands were confirmed with interest & penalty u/s 78 of the Act. A further penalty of Rs 100/- per day was imposed till payment of the duty demanded. Besides, penalty u/s 77 was also imposed for failing to register under Port service.

Hence the present appeal was filed by the appellant contesting the demands as well as the cross appeal by the Revenue contesting that the penalty imposed u/s 78 was far too low and that the Commissioner could not have reduced its quantum.

Upon hearing the matter, the Tribunal first considered the definition of Port Services upto 22.06.2010. It considered a catena of decisions and observed -

"10....the settled position till date is that legal provisions of other Acts cannot determine the taxability of the Port Services. Notwithstanding this position, even on merits of this case, the first question to be decided is whether the Port in question is a major port or other port. Ravva Port is not a major port but is a minor port operated by Government of Andhra Pradesh. Therefore it is defined as other port as per Finance Act. Therefore, the question of authorisation if any under Major Ports Act does not apply...."

The Tribunal then set out to determine whether the appellant has received authorisation from the Port authorities and if so whether it can be considered as a valid authorisation. In this regard, it noted that -

"11.... there is nothing on record to show that there is a corresponding law in Andhra Pradesh that applies to this Port. Therefore, the word 'authorisation' has to be understood in its common sense i.e. permitting somebody to do some activity. We have gone through the letter of the Port Officer, Kakinada issued to the appellant (letter No. P3/397/96, dated 05.07.1996) which is clearly, in our view, an authorisation..."

The Tribunal perused through such letter issued to the appellant by the Port Officer, Kakinada and observed that the appellant had been authorised to undertake various activities including pilotage and for this purpose, they need a licenced pilot. Therefore, the requirement under section 65(105)(zzl) that the services must have been rendered at Port or by a person authorised by the Port, is fulfilled.

It then went on to examine whether or not the services in question are in the nature of services which are rendered by the Port. In this regard, the Tribunal noted that -

"12.... The present demand is that pilotage charges. Pilotage is the process of helping the ship come to the berth. It is one of the primary activities undertaken by any Port because it is their responsibility to show the path to the berth to the ship. They are fully familiar with the contours of the under-sea surface and the traffic and accordingly pilot ships into berths. When the ship has to leave the Port, they similarly pilot it back to the main sea. When the ship reaches about a kilometer or so from the Port, the pilot guides it and two tugs push it from behind into the berth. The process is reversed when the ship leaves the Port. This activity has been undertaken by the appellant with authorisation of the Port and they have received charges for the same. They have credited these amounts in their accounts as pilotage charges. It is their contention that they get the job done through somebody else. It is not necessary for any service provider to perform himself all the tasks, he may perform through his employees, through sub contractors of other agents etc. What is important is whether he is the one rendering the services to the client and getting paid for the same. It is a different matter if the services are rendered by somebody else and appellant have paid to that person and has only sought reimbursement from their customers. In this case, the appellants were authorised to undertake pilotage and not somebody else. Therefore, they rendered the services. Even the records of the appellant show that these are in the nature of pilotage charges and not as reimbursement of expenses incurred towards pilotage charges. The mere fact that appellant has outsourced of some of his activities does not extinguish his tax liability. Holding such a view would nullify the entire service tax provisions and anyone can escape tax net by simply outsourcing some of his work...."

Hence the Tribunal found that the appellant was liable to pay service tax on the pilotage charges received by it from the customers and that such duty was payable under the head of Port Services. Nonetheless, it directed that the duty demanded be re-calculated so as to take into account those amounts of taxes which had already been paid by the appellant. Thus it directed that the interest and penalties be re-calculated likewise. With these observations, the case was disposed of.

(See 2019-TIOL-1121-CESTAT-HYD)