2024-VIL-467-CESTAT-MUM-ST
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SERVICE TAX CESTAT Cases

Service Tax - Supply of Tangible Goods for Use (STGU) service - Chartering of rigs/vessels from the ship/vessel owners as per standard contract of Baltic and International Maritime Council (BIMCO) for mining purpose - whether the activity of hiring of rigs on charter basis amounts to service of Supply of Tangible Goods for Use (STGU) and consequently appellants liable to pay service tax under Reverse Charge Mechanism basis – HELD - the disputed period covered both pre-negative list regime i.e., prior to 01.07.2012 and post negative list regime i.e. after 01.07.2015 upto 31.03.2015 - the appellants have taken the rig on bareboat hire basis from GGES - the facts of the case and the agreement entered into by the appellants clearly brings out that the appellants are in possession and control of the rigs during the charter period - for the chartering of rigs from the overseas entity-GGES, the appellants had remitted hiring charges/charter fees in foreign exchange. However, by use of such vessels when the appellants had rendered any service to ONGC or other clients in India, they had duly discharged service tax liability thereon, as applicable, by paying service tax under the category of mining service in terms of the agreements entered with the clients, and filed a periodical ST-3 returns. In case of these drilling rigs (owned by foreign vessel owners) when the payment was made in convertible foreign exchange, the appellants had treated the same as not liable to service tax and accordingly did not pay any service tax - levy under STGU is only in respect of transactions of allowing another person to use the goods, without giving legal right of possession and effective control, by treating the same as service. In the present case, the rigs are used to provide the further services to M/s ONGC or other clients of the appellants. Further, in no manner the rigs are used by GGES themselves without taking permission from the appellants, to call the transaction as supply of tangible goods. Hence, on the facts of the case and on examination of the services provided by the appellants, it is not feasible to categorise the same as ‘Supply of Tangible Goods for use’ in order to subject the transaction for levy of service tax under Section 65 (105) (zzzzj) of Finance Act, 1944 - the adjudged demands confirmed by the ld. Commissioner in the impugned order is not sustainable - during the post-negative list period, the activities charter hire of the vessel is nothing but transfer of right to use the goods and does not fall within the ‘declared services’ as alleged by the department - the impugned order with regard to confirmation of adjudged service tax demands on STGU services and on BSS, along with interest and penalties are set aside – the appeal is partly allowed - Whether the appellants are liable to pay service tax on RCM basis, in respect of various services availed from overseas vendors under the taxable category of ‘Business Support Services’ (BSS) and ‘Consultancy Engineering Service’ – HELD – Plain reading of definition of business support service transpires that the activities are divided into two parts i.e. the "means" part and the "includes" part. The "means" part covers any service in relation to business or commerce within its sweep. However, the "includes" part of the definition specifies services such as telemarketing, distribution, logistics etc. - Admittedly, the foreign vendors of the appellants have not undertaken any activity of marketing of the goods belonging to the appellants nor have the foreign vendors undertaken any activity for promotion of sale of the goods belonging to the appellants. Therefore, the services rendered by the foreign vendors cannot be brought under the scope of "business support service” for charging service tax on RCM basis on the appellants – further, the said services are provided and received by the appellants outside India and therefore, the Rule 3(ii) of the Import of Service Rules, 2006 are not attracted. Since the aforesaid services were entirely performed abroad, the same would not qualify as import of service in terms of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006. Thus, confirmation of the service tax demands on the above grounds is not legally sustainable - Service tax demands in respect of payments made to expert engineer under 'Consulting engineers service' – HELD - the services of expert engineer were taken in relation to the rigs, for supervision / monitoring of appellants rigs being constructed at foreign ship yards, either at its construction stage or in ensuring compliance with the requirements of the client i.e., ONGC. Further, collection of income tax on the charges paid for such consulting services as a part of compliance requirement under the Income Tax Act, 1961 does not either enable him as ‘employee’ by that act alone, or absolve from the requirement of payment of service tax on reverse charge basis. Further, even though the services of consulting engineer would have visited physically abroad at the ship building yard site, the said services were actually consumed by the appellants in India and the monitoring or reporting was directly to the appellants in India. Hence, in this case, the liability of the service tax to be paid under Section 65(105) (g) of the Finance Act, 1994 as confirmed by the learned Commissioner is sustained.
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