[Finance Act, 1994, (as amended from time to time) ‘Act’]
(a) Port Services :
S. 65(82) of the Act :
‘Port Service’ means any service rendered within a port or other port in any manner.
Taxable services means any service provided or to be provided :
(zn) to any person by any other person in relation to port services in a port in any manner :
Provided that the Provisions of S. 65A shall not apply to any services when the same is rendered wholly within the port :
. . . . . . . . .
(zzl) to any person, by any other person, in relation to port services in other port in any manner :
Provided that the provision of S. 65A shall not apply to any service when the same is rendered wholly within other port :
(b) Airport Services :
Taxable services mean any service provided or to be provided :
(zzm) to any person, by airports authority or by any other person, in any airport or a civil enclave.
Provided that the provision of S. 65A shall not apply to any service when the same is rendered wholly within the airport or civil enclave.
2. Departmental clarifications :
(a) Extracts from Department Circular DOF No. 334/1/2010-TRU, dated 26-2-2010) —(Annexure B) :
1. Service provided in an airport or port :
1.1 Two services, namely, Port Services and the Airport Services were introduced in Budget 2001 and 2004, respectively. The services provided by minor ports covered under other port became taxable from 2003. The purpose behind creating these was that since a number of activities are undertaken within the premises of port and airports, it would be easier to consolidate all such services under one head.
1.2 It was reported that divergent practices are being followed regarding classification of services being performed within port/airport area. In some places all services performed in these areas (even those falling within the definition of other taxable services) are being classified under the port/airport services. Elsewhere, individual services are classified according to their individual description on the ground that the provisions S. 65A of Finance Act, 1994 prescribes adoption of a specific description over a general one.
1.3 Further both the definitions use the phrase ‘any person authorised by port/airports’. In many ports/airports there is no procedure of specifically authorising a service provider to undertake a particular activity. While there may be restriction on entry into such areas and the authorities often issue entry passes or identity cards, airports/port authorities seldom issue authority permission letter to a service provider authorising him to undertake a particular task. Many taxpayers have claimed waiver of tax under these services on the ground that the port/airport authority has not specifically authorised them to provide a particular service.
1.4 In order to remove these difficulties, the definition of the relevant taxable services are being amended to clarify that all services provided entirely within the port/airport’s premises would fall under these services. Further specific authorisation from port/air port authority would not be a pre-condition for the levy.
(b) Extracts from Dept. Circular No. 334/03/2010-TRU, dated 1-7-2010 :
Para 4.1 :
In the Finance Bill, 2010, with intent to ease the classification disputes, the definitions of port, other port and airport services were amended to comprehensively cover under their ambit, all services provided within an airport or a port or other port, irrespective of whether or not such activities are authorised by the authorities or whether or not they are otherwise classifiable as distinct taxable services. In effect, all services that are wholly rendered within the prescribed area of the port or other port or an airport, are to be classified within the ambit of ‘port services’ or ‘airport services’.
Para 4.2 :
During the post-budget interactions with the stakeholders, apprehensions were expressed that the change may have certain unintended effects and certain services (including certain essential services) hitherto exempted, may attract service tax unintentionally. Further, it was also pointed that the abatements and exemptions presently available under individually defined taxable services would get denied when provided within airport or port, merely as they would now be taxable under newly introduced taxable services.
Para 4.3(v) :
Currently abatements are available to certain services such as ‘Renting of a cab’, ‘Erection, Commissioning & Installation Service’, ‘Goods Transport Agency service’ and ‘Construction Services’. Similar abatements would be available to such services, when provided wholly within an airport or a port or other port, under the new definition of airport or port or other port services. (Notification No. 40/2010-ST, dated 28th June, 2010 as corrected by corrigendum dated 30th June, 2010 and Notification No. 43/2010-ST, dated 28th June, 2010.)
Para 4.4 :
All other services carried out within a port or other port or an airport would be subjected to service tax under the category of port/other port/airport services.
3. Background & Amendment :
a) Under the existing provisions for a service to be considered as ‘port services,’ two conditions were required to be satisfied?:
i) the service must be provided by a port or a person authorised by that port, and
ii) the service must be in relation to vessel or goods
In Homa Engineering Works v. CCE, (2007) 7 STR 546 (Tri-Mum.), where the appellant provided dry-dock repairs to its client within the port premises, it was held that such services would not be liable to service tax under ‘Port Services’ due to the following reasons?:
The appellant was not a port or a person specifically authorised by that port under the Major Port Trust Act, 1963 (MPTA 63) to provide a particular service on its behalf;
The service such as dry-dock repairs were not in the nature of ‘Port Services’ since the port itself was not statutorily allowed to undertake such service under the MPTA 63; and
On an application of S. 65A of the Act, such services were more appropriately classifiable under ‘Maintenance or Repairs’ service.
This decision of the Tribunal was followed in several cases both in the context of major ports as well as other ports. In CCE v. Kokan Marine Agencies, (2009) 13 STR 79 (KAR) the Karnataka High Court upheld the Tribunal’s view which was based on Homa Engineering (supra) case.
In order to overcome the judicial pronouncements, definition of ‘Port Services’ is amended w.e.f. 1-7-2010, to the following effect:
- Service need not be provided by the port or a person authorised by the port;
- Service need not be in relation to vessel or goods, and
- Service need not also be one which the port can undertake under the MPTA 63 or the Indian Ports Act, 1908.
In terms of the amended definition of taxable service, all services rendered wholly within the port would be classified as port services and not under any other category of service, irrespective of the principles of classification laid down u/s.65A of the Act.
b) Amendments on lines similar to ‘Port Services’ have been made in respect of Airport Services. Under the existing provisions, in order to fall within ‘airport services, the following was essential:
- the service should be provided by an ‘airport’ or a ‘person authorised by the airport’; and
- the service should be provided in an airport or civil enclave.
The definition of ‘taxable service’ in the context of airport services is amended w.e.f. 1-7-2010 to the effect that all the services rendered by an airport authority or by ‘any person’ in an airport or civil enclave would be covered under the category of ‘airport services’ and specific authorisation from the airport authority would not be a pre-condition for the levy.
Further, all services rendered wholly within the airport would be classified as airport services and not under any other category of services, irrespective of the principles of classification laid down u/s.65A of the Act.
4. Exemptions in regard to amended Port/ Airport Services:
a) Notification No. 31/10-ST, dated 22-6-2010:
The following services provided within a port or an airport have been exempted from payment of service tax:
i) repair of ships or boats or vessels belonging to the Government of India including Navy or Coast Guard or Customs, but does not include Government-owned Public Sector Undertakings;
ii) repair of ships or boats or vessels where such process of repair amounts to ‘manufacture’ and has the meaning assigned to it in clause(f) of S. 2 of the Central Excise Act, 1944;
iii) supply of water;
iv) supply of electricity;
v) treatment of persons by a dispensary, hospital, nursing home or multi-specialty clinic (except cosmetic or plastic surgery service);
vi) services provided by a school or centre to provide formal education other than those services provided by commercial coaching or training centre;
vii) services provided by fire service agencies;
viii) pollution control services.
b) Notification No. 38/10-ST and Notification No. 42/10-ST, both dated 28-6-2010:
Commercial or Industrial Construction Services [Clause 65(105)(zzq)] provided wholly within the port/other port for construction, repair, alteration and renovation of wharves, quays, docks, stages, jetties, piers and railways has been exempted from payment of service tax. Similarly, services provided wholly within airport also are exempted.
c) Notification No. 41/10-ST, dated 28-6-2000:
The following services provided wholly within the port or other port or airport; have been exempted from payment of service tax:
i) taxable service provided by a cargo handling agency in relation to agricultural produce or goods intended to be stored in a cold storage;
ii)taxable service provided by storage or ware-house keeper in relation to storage and warehousing of agricultural produce or any service provided for storage of or any service provided by a cold storage;
iii) taxable service in relation to transport of export goods in an aircraft by an aircraft operator;
iv) taxable service of site formation and clearance, excavation and earthmoving and demolition and such other similar activities.
Notification No. 40/2010-ST, dated 28-6-2010 and Notification No. 43/2010-ST, dated 1-3-2010:
These Notifications have amended Notification No. 1/2006-ST, dated 1-3- 2006 (read with corrigendum dated 1-3-2010) and Notification No. 13/2008-ST, dated 1-3- 2008, respectively, whereby abatement available under the following existing taxable categories would continue to be available even if these services would now be classified as port services/other port or airport services:
- Commissioning and installation agency
- Commercial or industrial construction
- Transportation of goods by rail
- Transport of goods by road.
5.Some issues:
The basic objective of the amendment, as stated in the Department Circular, is to overcome the judicial view [Homa Engineering case and Konkan Marine Agencies (supra)] whereby the service providers escaped taxation. A close reading of the amended provisions indicates that the amendments in Port/ Airport Services have resulted in large number of issues, legal as well as procedural and administrative. Some of the important issues are discussed hereafter.
5.1 Whether services rendered wholly within port/ airport would cover service categories which were otherwise not taxable:
Attention is drawn to Notification No. 31/10-ST dated 20- 6-2010 [Para 4 (a) above], under which specified list of services rendered within port/ airport, have been exempted from payment of service tax. These services include supply of water, supply of electricity and some other services which are not liable to service tax. Does this mean that these services provided within port/airport premises would have been liable to service tax if the exemption Notification had not been issued?? There is no ready answer to this. However it appears that Govt.’s intention is to tax all services rendered wholly within port/airport even if the relevant service does not fall under the taxable service categories specified u/s.65(105) of the Act or is specifically excluded in certain cases.
This poses a very significant legal issue inasmuch as under the statutory provisions of the Act, the term ‘service’ is not defined. However, taxable services which are liable to service tax have been specified u/s.65(105) of the Act.
Under Central Excise, it has been held that powers have been granted u/s.5A (1) of Central Excise Act, 1944 to grant exemption. It has been held in Bata India v. ACCE, 2 ELT J211 (PAT) that if a product is not excisable under any Tariff Entry, an exemption Notification issued u/s.5A cannot have the effect of making such a product excisable. The principle laid down is relevant. However, under the law relating to service tax, there is no exhaustive list of taxable services like Central Excise Tariff.
It would appear that whether a service not otherwise specified u/s.65(105) of the Act, can be taxed under port/airport services, is a highly contentious issue.
5.2 Services rendered wholly within port/airport —Practical aspects:
It is pertinent to note that in order to be taxed under the amended port/airport service, it is essential that services are wholly rendered within a port/airport. Hence, if a service is partly rendered outside the port/airport, it would not be taxable under port/airport services but would continue to be taxable under the respective service category.
This condition it likely to create substantial practical difficulties/hardships. As it is well known, the services are categorised for the purpose of export/ import into 3 categories viz.:
- Location of Immovable property
- Location of service recipient
The emphasis in the amendment is on services that can be rendered through physical action/ performance. This may pose substantial practical difficulties. In case of services under criteria of location of service recipient, where a service provider may not necessarily be located at the location of the service recipient.
It would appear that if it can be established that a service is not wholly rendered within a port/airport, the amended provisions would not apply.
Let us consider some illustrations.
a) A practising CA renders consultation services to a client based within port premises. If the services are provided by the CA through physical presence within the port, it would be taxable under port service. However, if the same service is rendered by the CA through a meeting in his office outside port premises, it would be taxable as practising CA service.
Take the case of auditing services. Audit is conducted by a CA for the above-referred client in his office located within port premises. However, finalising of balance sheet and issue of audit report is done at the CA’s office outside the port premises. In such a scenario, the question arises as to whether such services would be taxable as ‘Port Services’ or Practising CA Services. It is possible to contend that services are not rendered wholly within ‘Port Premises’.
b) A Goods Transport Agency (GTA) provides services within port/airport as well as outside. If a GTA, provides services wholly within the port/ airport premises, such service would be taxable under port/airport service.
With regard to GTA services, liability in case of certain specified entities to pay service tax is cast on the persons making the payment to GTA. However, as yet, no consequential amendment has been made in regard to GTA service. Hence, in regard to GTA services wholly rendered within port/airport premises, it appears that GTA would be liable to discharge the service tax liability and not the person making the payment, as was the case before 1-7-2010. Further, a GTA providing services where the freight for a whole consignment does not exceed `1,500 for an individual consignment, the freight does not exceed `750, it is exempt from service tax under Notification No. 34/2004-ST, dated 3-12-2004. Now when a GTA provides transportation service wholly within the port premises and even if each trip is invoiced for less than `1,500, he will be required to register himself under port service and charge service tax to the client, however after availing abatement of 75% thereon.
5.3 Exemptions issued are ad hoc and inconsistent: A perusal of list of exemptions issued as stated in para 4 above reveals that there are inconsis-tencies and omissions which are likely to cause hardships. To illustrate:
a) Commercial or industrial construction service rendered wholly within port/airport has been exempted. However, the following have not been exempted:
- Residential construction (say, officers/staff quarters)
The above inconsistencies/omissions need to be speedily addressed.
b) Cargo handling services in relation to agricultural produce and goods stored in a cold storage have been rightly exempted. However, it needs to be noted that u/s.65(23) of the Act, handling of export cargo is excluded from the purview of Cargo Handling Service liable to service tax. If such services are rendered wholly within a port/ airport it would appear that in the absence of exemption, such services would be taxable under Port/Airport Service.
5.4 Implications in terms of CENVAT Credit Rules, 2004:
Under Rule 6(5) of CENVAT Credit Rules, 2004 service tax paid on 16 specified services is fully available as CENVAT Credit, unless such services are provided exclusively for exempted service.
Management, Maintenance or Repairs is one of the specified services under Rule 6(5). If such service is rendered wholly within port/airport premises, the same would be classifiable, w.e.f. 1-7-2010, under port/airport service. The list of specified services under Rule 6(5) does not include port /airport services. Hence, in such a case, benefit hitherto available under Rule 6 (5) would now not be available. This is an unintended consequence of the amendment.
