Port service" don't cover services of "chipping, painting & repairs of ships"HC

Facts in Brief:

1. This appeal is filed against Order-in-Appeal No. BR(25)25/STC/2005 dated 9.9.2005, vide which the learned Commissioner (Appeals) has upheld the order of the adjudicating authority that the appellant is covered under the service of "Port Services" and upheld the confirmation of demand and imposition of penalties.

2. The relevant facts that arise for consideration are that the appellant herein was providing services of chipping, painting and repairing of ships and vessels under authorization of Mumbai Port Trust under Dry Dock Licence No. 336 dated 1.7.2004, which appeared to fall within the meaning and definition of 'Port Services' under Section 65(67) of the Service Tax Act. These activities were carried out in the premises of the appellants and in the case of inadequacy of facility in their premises, they carried out these activities in the premises of Mumbai Port Trust. The premises of the appellant are situated in the jurisdiction of Mumbai Port Trust and are leased out to the appellant by the Trustees of Board of Mumbai Port Trust.

3. After investigation, the authorities below came to the conclusion that the appellant had erred in not taking out the licence and registration of the Service Tax and did not discharge the Service Tex liability. Show cause notices were issued to the appellant to show cause as to why Service Tax amounting to Rs. 617,97,695/- should not be demanded and recovered under the various provisions of Finance Act, 1994 and to show cause as to why penalty be not imposed and recovery of interest at the applicable rate.

4. The appellant contested the show cause notice mainly on the ground that they are not covered under the category of service "Port Services", basically on the ground that their services are covered under repairs and maintenance and they did not render any other service other than repairs and maintenance. The adjudicating authority did not accept the contention and confirmed the demand and also imposed penalty and sought to recover interest from the appellant. On an appeal, the learned Commissioner (Appeals) also came to the conclusion that the activities, which are carried out by the appellant as regards chipping, painting and repairing of ships and vessels will be considered as "Port Services" as the appellants are working under authorization of Trustees of Mumbai Port Trust. After coming to such conclusion, he upheld the impugned order on all counts. The appellants are in appeal against the said order.

HC held as under,

5. In the present case, the expressions 'bleaching, mercerizing, dyeing, printing, water-proofing, rubberizing, shrink-proofing, orandie processing' which precede the expression 'or any other process' contemplate processes which impart a change of a lasting character to the fabric by either the addition of some chemical into the fabric or otherwise. "Any other process' in the section must share one or the other of these incidents. The expression 'any other process" is used in the context of what constitutes manufacture is its extended meaning and the express on "unprocessed" in the exempting notification draws its meaning from that context. The principle of construction considered appropriate by the Tribunal in this case appears to us to be unsupportable in the context in which the expression "or any other process" has to be understood.

6. In the light of above declaration of law of Hon'ble Supreme Court, It has to be held that expression "or any other services in respect of vessels" has to be extended to the services which are connected with the movement of the vessel. It is nobody's case that repairing of vessel in the dry docks is connected with the movement of vessel. As such, the Revenue's reliance on the above provisions do not advance the case.

7. We also find a force in the appellant's argument that sub-section of Section 42 provides for authorization by the Board for the various services at the rate specified by that port in the Official Gazette. This has reflected upon the fact that various services, which can be authorized by the Board to any other person are routine services for which various rates can be fixed in advance. As far as the repairing of vessel is concerned, the charges would definitely depend upon the extent of work required to be done. We are informed that such consideration depends upon the contract arrived at after much negotiations. This fact leads us to hold that such contract services of repair of vessel cannot be held to be "port services".

8. During the course of arguments, it was also contended by Revenue that the appellant are given a licence and registration to carry out the services, which port is required to do. We have seen the by-laws governing grant of licence to carry out the work of vessels in the trustees dry docks. The same require the contractor/agent to submit an application for obtaining a licence for carrying out the work in dry dock. Such contractors must have facility such as enough number of painting gears and other necessary tools etc. The said contractor shall be bound to employ foreman and tindals of experience to supervise the work, who shall be bound to use reasonable means for preventing accidents to the men employed under them.

9. It is further part of the said by-law that contractor desired to carry out the repairing to hull shall have a workshop of their own which shall be equipped with the accessories and appliances enumerated therein. The other clauses of the said by-laws are also to the effect that the contractor would be liable for any mis-hap or for any damage to the gear used by him and supplied by the Board. The said facts leads us to belief that contractor / sub contractor is an independent person, hired by the port to provide services to its customers, which may be ship owner or their agent.

10. We note that the category of maintenance and repair services was made leviable to service tax w.e.f. 1.7.03. The appellant had taken registration for the said services and had started paying duty thereafter. Revenue has not raised any objection to the said registration of the appellant and payment of duty by them under the category 01 maintenance and repair services.

11. If the services being rendered by them were already covered by the above services, there was no justification on the part of Revenue to accept their registration under the category of maintenance and repair of services. The said category having been created w.e.f. 1.7.03, we agree with the appellant that the said activity for the past period cannot be held to be covered under the category of port services.

12. Lower authorities also relied upon the Board's Circular No. 67/16/2003-ST, dt. 10.11.03, clarifying that ship repair activities at the dry docks would be taxable under the port services. The said clarification, though may be binding on the department officers, is not binding on the assessee. Having held, after examination of the relevant provisions of law that such activity would not be included under the expression 'port services', we hold that above circular issued by Board, is not in accordance with the law.

13. It can be noticed from the above reproduced portion of the Tribunal's decision that the very same definitions and the very same issue as to whether the services as rendered by one of the sub-contractor of the appellant would get covered under the "port services" or not was being agitated before the Bench. The above said judgment and order of the Tribunal very categorically held that it would not be.

14. We find the very same judgment and order has considered the all issues as pointed out by the learned Jt. CDR. We also find that the Tribunal in the case of Velji P & Sons (supra) was considering whether the services of CHA would get covered under the category of "port services". Relying upon the decisions of the Homa Engineering Works (supra), coordinate Bench has held very clearly that CHA services would not get classified under the category of "port service". This decision of the Tribunal (in the case of Velji P & Sons) was taken up in appeal by the Revenue to Apex Court Hon'ble Supreme Court while dismissing the Civil appeal on 24th March, 2008, held as under:

Delay condoned The Tribunal, relying upon its own decision in the case of Home Engineering Works v. CCE, Mumbai, has allowed the present appeal filed by the assessee. Against the aforesaid case in Home Engineering Works v. CCE, Mumbai, Revenue has not filed any appeal in this Court.

15. In view of this, the appeal is dismissed.

16. It is seen that the Apex Court has upheld the decision of the Tribunal in the case of Velji P & Sons. Hence, the issue is no more res-integra.

17. We find that two coordinate Benches of this Tribunal in an identical set of facts had allowed the appeal of the appellants and very clearly and categorically held that "port service" as defined under Section 65(67) would not cover the services of "chipping, painting and repairs of vessels/ships" undertaken by the current appellant.

18. Accordingly, respectfully following the judgment of the coordinate Bench of the Tribunal as has been upheld by the Apex Court, we hold that the impugned order is not sustainable and is liable to be set aside and we do so. Accordingly, the appeal is allowed. 

Case Reference - Mazgaon Dock Ltd. vs Commissioner Of Service Tax.