Home >      Brief facts of the case : M/s. Adani Enterprises Limited, having their registered office at Adani House

    Brief facts of the case : M/s. Adani Enterprises Limited, having their registered office at Adani House

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Brief facts of the case :  

      M/s. Adani Enterprises Limited, having their registered office at Adani House, Near Mithakhali Six Roads, Navrangpura, Ahmedabad [here-in-after referred as M/s. Adani Enterprises, for the sake of brevity] are engaged in providing various taxable services such as Business Auxiliary Service, Port Service, Commercial Training & Coaching Service, Business Support Service, Transport of Goods by Roads Service, Clearing & Forwarding Agency Service, Cargo Handling Service, Consulting Engineering Service, Manpower Recruitment & Supply Agency Service, Storage & Warehousing Service, Management Consultant Service, Renting of Immovable Property Service, Erection, Commissioning & Installation Service, etc. and are having centralized Service Tax Registration No. AABCA2804LST001 issued by Service Tax Commissionerate, Ahmedabad. 

    2. INTELLIGENCE GATHERED BY DGCEI 

          Directorate General of Central Excise Intelligence, Ahmedabad [DGCEI, for brevity] gathered an intelligence which indicated that M/s. Adani Enterprises have not paid Service Tax on the lighterage charges collected from their clients at Belekeri Port situated in the State of Karnataka, despite the fact that such lighterage services are appropriately covered under Port Services which is a specified taxable service as per Section 65(105)(zzl) of the Finance Act, 1994 and the Rules made thereunder.  

      3. INQUIRY UNDER SUMMONS PROCEEDINGS  

      3.1. On the basis of the aforesaid intelligence, a team of officers from DGCEI visited the business premises of M/s. Adani Enterprises on 21.10.2010 and requisitioned the documents and records which appeared relevant for further investigation. Accordingly, M/s. Adani Enterprises submitted a chart showing the details of amounts collected by them during the period from 2007-08 to 2009-10 towards barging income at Belekeri Port. Thereafter, the same charts were also produced by Shri Manoj Ramchandra Jha, Associate Vice President [Finance] of M/s. Adani Enterprises during the course of recording his statement on 01.11.2010 as discussed later in this notice. On being asked to produce the details of such barging income collected by them during the year 2006-07 and during the period from April, 2010 to October, 2010, Shri Manoj Jha had assured to produce the same within 5 days. However, vide their letter 09.11.2010, M/s. Adani Enterprises had asked for an extension of 15 days for submitting the required information. Thereafter, DGCEI vide letters dated 13.11.2010 and 18.11.2010 again called for the requisite information on priority basis. Accordingly, M/s. Adani Enterprises submitted another chart showing the details of barging income collected by them at Belekeri Port during the year 2006-07 and during the period from April, 2010 to October, 2010. ST-3 Returns filed by M/s. Adani Enterprises during the past period were also obtained from them vide their letter dated 25.10.2010 and 25.11.2010. Vide their letter dated 06.12.2010, they had also produced specimen copies of the Service Invoices raised by them to their clients for charging such barging income.  

      3.2.1. The chart produced by M/s. Adani Enterprises indicated that they had started collecting the aforesaid type of barging income from the month of November, 2006. The total amount collected by them during the period from November, 2006 to March, 2007 was `14,23,59,401/-. However, scrutiny of the ST-3 Returns filed by M/s. Adani Enterprises for the same period revealed that they had not declared the said amount of `14,23,59,401/- even as exempted income. This clearly revealed that they had suppressed material facts while filing their ST-3 returns.  

      3.2.2. The chart produced by them for the year 2007-08 revealed total collection of `41,63,73,443/- towards barging income. Scrutiny of the ST-3 returns filed by them for this period revealed that they had not declared the said amount of `41,63,73,443/- even as exempted income. It was noticed that even the specific column appearing in the ST-3 Return asking whether they provide any exempted or non taxable service, was answered by them in the negative during this period. This further revealed that they had suppressed material facts while filing their ST-3 returns.  

      3.2.3. The chart produced by them for the year 2008-09 revealed that the total barging income collected by them during this period was `11,54,59,039/-. Meanwhile, scrutiny of the ST-3 returns filed by them for this period revealed that they had declared the said barging charges as exempted income received by them under Port Services. Similarly, the ST-3 return filed by them for the year 2009-10 revealed that during the months of April, 2009 and May, 2009, they had declared a total amount of `12,70,70,270/- as exempted income collected towards Port Services. Thereafter, no charges have been collected by them during the months from June, 2009 to September, 2009.  

      3.2.4. The ST-3 return filed by M/s. Adani Enterprises for the period October, 2009 to March, 2010 revealed that they had obtained Service Tax Registration for providing ‘Transport of Goods by Waterways Service’, as provided under Section 65(105)(zzzzl) of the Finance Act, 1994, and started paying Service Tax on the aforesaid type of barging income charged and collected by them. The records indicated that since October, 2009, they had been paying Service Tax on such barging income by classifying the service as ‘Transport of Goods by Waterways Service’.  

      3.3. On the basis of the charts produced by M/s. Adani Enterprises during the course of investigation, as referred supra, the officers of DGCEI prepared a consolidated chart showing the details of amounts collected by them each month starting from November, 2006 to May, 2009 on which no Service Tax was paid by them. The chart, which is attached to this notice as Annexure-A, indicates that during the period from November, 2006 to May, 2009, M/s. Adani Enterprises had charged and collected a total amount of `80,12,62,153/- under the cover of barging income, on which no Service Tax was paid by them.  

        4. STATEMENT OF KEY PERSONS OF M/S. ADANI ENTERPRISES 

                    During the investigation of the case, statement of the key person who was responsible for handling the Service Tax matters of M/s. Adani Enterprises on the subject matter of this notice was recorded under the provisions of Section 14 of the Central Excise Act, 1944, which are discussed in the following paras:- 

        4.1. Statement dated 01.11.2010 of Shri Manoj Ramchandra Jha, Associate Vice President [Finance] of M/s. Adani Enterprises:- 

                    A statement of Shri Manoj Ramchandra Jha, Associate Vice President [Finance] of M/s. Adani Enterprises was recorded on 01.11.2010. He interalia stated that it is the flagship company of Adani Group and he looked after the work relating to coal trading and handling as well as all activities relating to their business at Belekari Port, Karnataka. He further stated that M/s. Adani Exports Ltd. [now known as M/s. Adani Enterprises Ltd.] had entered into a lease agreement with Government of Karnataka during the year 2006 wherein they had been given lease of Belekari Port. They use this port for export of Iron Ore, for their own requirements or for other clients as per contracts. After taking the port on lease, they had developed the port by constructing building, taking land on lease, carrying out dredging activities for removing obstructions, etc. He produced copy of the lease agreement alongwith a statement of capital expenditures incurred by their company for the purpose of developing the said Belekari Port during the period from 2006-07 to 2009-10. He also produced a chart showing the details of Cenvat credit availed by them at Belekari Port during the years 2007-08 and 2008-09 towards Dredging Services. He further stated that they had not taken any Cenvat credit on construction of building or leasing of land, etc. He stated that Belekari Port was made operational by them since the year 2006 and they were paying lease charges as per the terms of lease agreement with the Government of Karnataka. He could not confirm taking of Cenvat credit of Service Tax paid by the lessor on the lease charges. He promised to give details of taxable and exempted income for the period 2006-07 and for the period from April, 2010 till October, 2010 by 05.11.2010. On being shown the chart submitted by M/s Adani Enterprises, he stated that during the period prior to October, 2009, the water transport activity/barging activity was not covered under the service tax purview till 01.09.2009 and  w.e.f. October, 2009 they started paying service tax. He then explained that Belekari port is not having sufficient draft for berthing of vessels. Therefore, the cargo is required to be transported from the jetty to the anchorage point where the mother vessel is anchored. Such transportation of cargo is done in small barges. The activity of transporting such cargo from the jetty to the anchorage point is called by them as water transporting activity or barging activity. He further stated that there is no structure available at the anchorage point. The distance between the anchorage point and the main port depends upon the depth of the water. It could be approx 8-12 nautical miles from the main port. He further stated that they also use the port for exporting cargo on behalf of other parties and the barging income shown in their books of accounts is in respect of the charges they collected from such outside parties. He stated that they have their 

        own barges as well as they also hire them. 

        5. RESULTS OF INVESTIGATION 

        5.1.  From the facts and evidences as discussed supra, it appeared that M/s. Adani Enterprises [which was earlier known as M/s. Adani Exports Ltd.] had signed a lease agreement with the Director of Ports & Inland Water Transport, Government of Karnataka on 03.04.2006 for upgrading Belekeri Port by developing their own infrastructure to handle mineral cargo through the said port. As per the information available on the website of the Director of Ports & Inland Water Transport, Belekeri Port is  located  26 KMs south of  Karwar District in the State of  Karnataka on the bank of  Hattikeri  river  and  is  a  fair  weather  Lighterage  Port  and  is  open to traffic  for about  8  fair  weather  months. As per Page No. 54 of the Letter to Offer dated 12.03.2010 issued by M/s. Adani Enterprises to the Equity Shareholders of the Company, they operate the fair weather, Lighterage Belekeri Port on India’s west coast. The port measures 62,140 square meters and has been taken by them on a 30 years lease. The Belekeri port offers cargo handling services for bulk carriers, has a storage area of 120,000 square meters and a stacking capacity of 500,000 tonnes of iron ore. The Belekeri port has a jetty capacity of over 40,000 tpd and employs six barges with a total capacity of 13,200 dead weight tonnage. These documents clearly revealed that the nature of Belekeri Port is officially recognized as a Lighterage Port, where barges are used for carriage of cargo from the shore to the ship and vice versa.  

        5.2.  The records resumed from M/s. Adani Enterprises revealed that during the period from November, 2006 to May, 2009, they have charged a total amount of `80.12 Crores from their clients against provision of barging/lighterage services at Belekeri Port. As already mentioned in Para 3.2 supra, they had not declared receipt of such income while filing their ST-3 Returns for the year 2006-07 and 2007-08. Even the specific column in the ST-3 Returns asking whether they provide any exempted or non-taxable services, was answered by them in the negative. Thus it was evident that they had suppressed receipt of such income during the financial years 2006-07 and 2007-08. However, while filing ST-3 Returns for the year 2008-09 and for the period from April, 2009 to September, 2009, they had declared such charges collected by them as exempted income received while rendering Port Services. Thereafter, during the period from October, 2009 onwards, they have obtained Service Tax Registration for providing ‘Transport of Goods by Waterways Service’, as provided under Section 65(105)(zzzzl) of the Finance Act, 1994, and started paying Service Tax on the aforesaid type of barging income charged and collected by them. The records thus, indicated that since October, 2009, M/s. Adani Enterprises have been paying Service Tax on such lighterage charges by classifying the service as ‘Transport of Goods by Waterways Service’, whereas during the period from April, 2008 to September, 2009, they were declaring the same receipts as exempted income collected while rendering Port Services. During the period prior to April, 2008, they were not declaring receipt of such income under any categories, and had not even declared receipt of any exempted or non-taxable income. Thus the statutory records maintained by M/s. Adani Enterprises revealed that during the past period, they had not followed any consistent manner and method while declaring the receipt of the aforesaid `80.12 Crores.  

        5.3.  While recording the statement of Shri Manoj Jha, Associate Vice President [Finance] of M/s. Adani Enterprises as referred in Para 4 supra, he had explained the nature of activities carried out by them at Belekeri Port. He had stated that since Belekeri Port is not having sufficient draft for berthing of vessels, the cargo is required to be ferried from jetty to the anchorage point where the mother vessel is anchored. He further explained that such carriage of cargo from the jetty to the anchorage point is considered by them as water transporting activity or barging activity, and that the charges collected for such activities from their clients are considered by them as barging income. As already mentioned above, Belekeri Port is a lighterage port where anchorage depth at the port is 11 to 12.2 meters, and hence barges are at service for carriage of cargo from the shore to the ship and vice versa. As per the statement of Shri Manoj Jha, the distance between the anchorage point and the main jetty depended upon the depth of the water, and could be approx 8-12 nautical miles [equivalent to 14.80 to 22.20 kms] from the jetty. Thus it was noticed that the activity of carrying cargo in lighters/barges from the main jetty to the anchorage point where the mother vessel is anchored is considered by M/s. Adani Enterprises as “Transportation of Coastal Goods and Goods Transported through National Waterways and Inland Water Service” as specified under Section 65(105)(zzzzl) of the Finance Act, 1994. 

        5.4.  “Transportation of Coastal Goods and Goods Transported through National Waterways and Inland Water Service” was brought under Service Tax levy with effect from 01.09.2009 vide Section 65(105)(zzzzl) of the Finance Act, 1994. It is under this pretext that M/s. Adani Enterprises started paying Service Tax on the aforesaid type of lighterage charges with effect from October, 2009. A plain reading of the definitions covered in the respective statutes mentioned under the Explanation given under the aforesaid Section 65(105)(zzzzl) of the Finance Act, 1994 clearly revealed that the aforesaid type of activities carried out by M/s. Adani Enterprises are not covered under the said taxable service. As per the said Explanation, the term ‘Coastal Goods” has the meaning as specified in clause (7) Section 2 of the Customs Act, 1962; ‘national waterway’ has the meaning as per clause (h) of Section 2 of the Inland Waterways Authority of India Act, 1985; and the term ‘Inland Water’ has the meaning as per clause (b) of Section 2 of the Inland Vessels Act, 1917. A careful examination of these definitions given under the respective statutes clearly revealed that the activity of carrying cargo within the port area, by barges/lighters from the quay to the anchorage point and vice versa could not be considered as “Transportation of Coastal Goods and Goods Transported through National Waterways and Inland Water Service”.  

        5.5.  A careful consideration of the aforesaid definitions given under various statutes as mentioned in the Explanation to Section 65(105)(zzzzl) of the Act ibid, further made it abundantly clear that the service of “Transportation of Coastal Goods and Goods Transported through National Waterways and Inland Water” was brought under Service Tax levy with intent to bring parity to other type of goods transport services, viz. Transport of Goods by Air Service, Transport of Goods by Road Service, Transport of Goods by Rail Service, Transport of Goods through Pipeline Service, etc. which are already covered under Service Tax levy. In the aforesaid case of M/s. Adani Enterprises, the service rendered by them was clearly and absolutely in relation to the goods and the vessel which is anchored within the Port area.  

        5.6.1.  “Port Services” [Minor Ports] was brought under Service Tax levy vide Notification No. 7/2003-ST dated 20.06.2003 with effect from 01.07.2003. Prior to the substitution of the definition of ‘Port Service’ under Section 65(82) of the Finance Act, 1994 with effect from 01.07.2010, the same was defined as ‘any service rendered by a port or other port or any person authorized by such port or other port, in any manner, in relation to a vessel or goods’. In the present case, M/s. Adani Enterprises have been authorized by the Director of Ports & Inland Water Transport, Government of Karnataka in pursuance of their aforesaid agreement dated 03.04.2006 to develop their own infrastructure to handle mineral cargo through the said port for a period of 30 years. Further, the Port Officer in charge of Belekeri Port, vide his letters dated 22.11.2010 and 30.11.2010 which are referred later in this notice, has confirmed that M/s. Adani Enterprises are the registered stevedores of Belekeri Port. Thus they are authorized to render port services in relation to the goods and/or vessels as specified in the aforesaid definition.  

        5.6.2.  It was pertinent to note that the services which are required to be provided by the ports are clearly delineated under Chapter-V of the Major Port Trust Act, 1962 which reads as:- 

          “(1) A Board may execute such works within or without the limits of the port and provide such appliances as it may deem necessary or expedient.   

          (2) Such works and appliances may include-  

            (a)  wharves, quays, docks, stages, jetties, piers and other works within the port or port approaches or on the foreshore of the port or port approaches, with all such convenient arches, drains, landing places, stairs, fences, roads, railways, bridges, tunnels and approaches and buildings required for the residence of the employees of the Board as the Board may consider necessary;

            (b)   buses, railways, locomotives, rolling stock, sheds, hotels, warehouses and other accommodation for passengers aid goods and other appliances for carrying passengers and for conveying, receiving and storing goods landed, or to be shipped or otherwise;

            (c)  moorings and cranes, scales and all other necessary means and appliances for loading and unloading vessels;

            (d)   reclaiming, excavating, enclosing and raising any part of the foreshore of the port or port approaches which may be necessary for the execution of the works authorized by this Act, or otherwise for the purposes of this Act;

            (e)     such breakwaters and other works as may be expedient for the protection of the port;

            (f)  dredgers and other machines for cleaning, deepening and improving any portion of the port or port approaches or of the foreshore of the port or port approaches;

            (g)  lighthouses, lightships, beacons, buoys, pilot boats and other appliances necessary for the safe navigation of the port and of the port approaches;

            (h)  vessels, tags or other boats for use within the limits of the port or beyond those limits, whether in territorial waters or otherwise, for the purpose of towing or rendering assistance to any vessel, whether entering or leaving the port or bound elsewhere, and for the purpose of saving or protecting life or property and for the purpose of landing, shipping or transshipping passengers or goods under section 42;

            (i)   sinking of tube-wells, and equipment, maintenance and use of boats, barges and other appliances for the purpose of the supply of water at the port;

            (j)  engines and other appliances necessary for the extinguishing of fires;

              (k)  construction of models and plans for carrying out hydraulic studies;

            (1)  dry docks, slipways, boat basins and workshops to carry out repairs or overhauling of vessels, tugs, boats, machinery or other appliances.” 

            5.6.3.  Notwithstanding the fact that the services rendered by M/s. Adani Enterprises at Belekeri Port are of the type as covered in Section 2(b) and 2(h) of the aforesaid Chapter-V of the Major Port Trust Act, 1962, it is evidently clear that the definition of the ‘Port Services’ and ‘Other Port Services’ given under Section 65(82) of the Finance Act, 1994 does not borrow the same terminology or references for the purpose of specifying the nature of port services for levy of Service Tax. Therefore, it appeared that the definition of the term ‘Port Services’ and ‘Other Port Services’ given under the Finance Act, 1994 is much wider than the ones listed under the aforesaid Chapter-V of the Major Port Trust Act, 1962, As already mentioned supra, Belekeri Port is a Lighterage Port and as per the aforesaid provisions, it is mandatory to provide facilities such as barges/lighters for use within the limits of the port or beyond those limits for the purpose of rendering assistance to any vessel and for the purpose of shipping or transshipping cargo. M/s. Adani Enterprises has been authorized by the Port Authorities for carrying out such activities at Belekeri Port. Accordingly, they provide lighterage of the cargo from the quay to the mother vessel by using barges and collect lighterage charges from their clients. Thus it is conclusively evident that the aforesaid type of lighterage services rendered by M/s. Adani Enterprises at Belekeri Port is nothing but “Other Port Services” as defined in Section 65(82) of the Finance Act, 1994. All the required elements of the said definition are fully and squarely satisfied in their case, viz. (1) M/s. Adani Enterprises are duly authorized by the authorities of Belekeri Port to provide services within the said port; (2) the lighterage services provided by them are in terms with the basic character of Belekeri Lighterage Port and such services are properly delineated under Chapter-V of the Major Port Trust Act, 1962; (3) the services are provided within the Port area of Belekeri Lighterage Port; and (4) the services are provided exclusively and absolutely in relation to both the vessel and goods. 

            5.7.1.  It appeared that the manner and method of carrying out barging/lighterage activities and the nature of charges [lighterage charges] collected in this regard, has been thoroughly examined by the Hon’ble CESTAT in the case of M/s Reliance Industries Ltd. Vs. Commissioner of Customs [Prev], Ahmedabad cited at 2004(174) ELT 344 (Tri-Mumbai) which has been subsequently affirmed by the Hon’ble Supreme Court in 2006(202) ELT 561 and again upheld in 2010(255) ELT A122. Although the said case pertains to valuation of import cargo under Customs Act, 1962, Hon’ble Tribunal has discussed at length as to whether barging activities carried within the port could be considered as a transportation activity or otherwise, and findings on these aspects are squarely applicable in the present case. It was pointed out that barge charges and other charges are incurred in situation where the mother vessel cannot navigate up to the declared place of unloading or does not navigate, requiring a smaller vessel [barge/lighter] to take the goods from the mother vessel and to bring and land the goods ashore, due to the peculiar situation of the port. Tribunal has categorically pointed out that in such situations, the mother vessel is at an anchorage not at another port area, but is in the anchorage of the same port area, and carriage of goods from vessel to the quay cannot be considered as transshipment. It has been clearly distinguished that if the movement of the barges/lighters is pursuant to a ‘transshipment of cargo’ from one Port/anchorage Port in India to an anchorage of another port jetty in India, then the barge/lighterage charges could be considered as transport charges. However, when the barge/lighterage charges incurred on barges/lighter vessels within the same port area for movement of goods from the mother vessel at anchorage to the jetty could not be considered as cost of transport.  

            5.7.2.  Hon’ble Tribunal has further held that the aforesaid movement of goods would be amounting to ‘shifting of the cargo’ by barge to a jetty and from one jetty to another site on Port’s land, within the Port area. Such shifting could be carting of cargo by water and/or on land. It cannot be equated to ‘transport of cargo’, to the port of importation. The word ‘transport’ especially ‘trans’ in the New Shorter Oxford English Dictionary is defined to mean as a prefix in English language in the sense of ‘across beyond in or other side’ and the word ‘transport’ defined to mean “move or carry from one place or person to another convey across”. It has been further held that the activity undertaken in respect of imported goods viz. taking them from onboard the mother vessel to the appointed place by barges would be an activity covered under the term ‘unloading, loading and handling activities’, with consequential support from various authoritative international judgments. After detailed examination, Tribunal has held that in all cases where the mother vessel unloads the cargo at the anchorage of the Port where the jetties are situated, the cost of barging operations would be clearly in the nature of ‘loading, unloading and handling charges’ associated with the delivery of the imported goods. In order to clearly distinguish the issue out of any ambiguity, Tribunal also held that where the mother vessel discharge the cargo at a distant port such as Mumbai and Bhavnagar from where the cargo was carried in barges to jetties situated at Magdalla Port, the question which needs to be determined is whether such movement from one port to another is ‘transshipment’ or not.  

            5.7.3.  The above analysis made by the Hon’ble Tribunal in relation to the import cargo under Customs Act, 1962 appropriately covers the whole issue relating to the actual nature of barging operations conducted within the Port area, to cart the cargo between the quay and mother vessel at its anchorage point. This analysis appeared to be squarely applicable in the present case of M/s. Adani Enterprises. Having obtained registration/authorization from the Port Authorities at Belekeri Port as Registered Stevedores, they were providing barging services for carriage of the cargo from the quay to the mother vessel at its anchorage point within the same port area, which is in the form of ‘loading, unloading and handling’ of the ‘goods’ and carting the same to the anchorage point ‘in relation to the vessel’. This further substantiates the fact that the services rendered by M/s. Adani Enterprises at Belekeri Port is nothing but ‘Other Port Services’ as defined under Section 65(82) of the Finance Act, 1994 and hence Service Tax is leviable on the barging/lighterage charges collected by them from their clients during the period from November, 2006 by considering the same as taxable income under ‘Other Port Services’, as indicated in the enclosed Annexure-A discussed at Para 3.3 supra.    

              6. RESULT OF INQUIRY FROM PORT OFFICER, KARWAR  

                  During the course of investigation, DGCEI inquired about the details of Belekeri Port and the nature of business activities carried out by M/s. Adani Enterprises at the said Port. The Port Officer, Karwar, who is having jurisdiction over Belekeri Port furnished his detailed report vide his letter No. LND/CR050/2010-11 dated 22.11.2010. Various points clarified by the Port Officer, Karwar vide his aforesaid letter are discussed in the following paras:- 

              6.1.1.  The Port Officer has clarified that the approximate distance from the jetty to the anchorage point is around 12 km, and a map showing such anchorage point was also furnished. Shri Manoj Jha, Associate Vice President [Finance], while recording his statement dated 01.11.2010 referred supra, had stated that the approximate distance between the main jetty to the anchorage point is 8 to 12 nautical miles, viz. 14.80 to 22.20 kilometers. However, the aforesaid report received from the Port Officer reveals the actual distance from the jetty to the anchorage point is only 6.479 nautical miles [1 nautical mile = 1.85200 Kilometers]. This indicates that the statement of Shri Manoj Jha was factually wrong and misleading so far as it relates to the actual distance between the jetty and the anchorage point.   

              6.1.2.  The Port Officer has also reported in his aforesaid letter dated 22.11.2010 that as per Schedule-H of the Karnataka Ports [Landing and Shipping Fees] [Amendment] Rules, 2006, Belekeri Port charge Anchorage Fees @ Rs. 0.40 per DWT per day or part thereof from Steamers upto 10000 DWT after the first 3 days of free anchorage, and Rs. 0.50 per DWT per day or part thereof from Steamers above 10000 DWT after the first 3 days of free anchorage. It is also reported that the Anchorage Fees are charged at double the rate from the Steamers for period in excess of 10 days. The very fact of collecting anchorage fees from the vessels which are anchored at the aforesaid anchorage point itself substantiates the fact that the anchorage point is well within the territorial limit of Belekeri Port where the provisions of Indian Ports Act, 1908 as well as Karnataka Ports [Landing and Shipping Fees] [Amendment] Rules, 2006 are in full force. This further validates the fact that the barging/lighterage activities are carried out by M/s. Adani Enterprises within the territorial limit of Belekeri Port and hence would be considered as ‘Other Port Services’ for the purpose of levy of Service Tax.    

              6.1.3.  The aforesaid report dated 22.11.2010 of the Port Officer further stated that M/s. Adani Enterprises are the Registered Stevedores of Belekeri Port. The term ‘stevedore’ means a firm or individual engaged in loading or unloading of a vessel. This further substantiates the fact that they are carrying out their operations of ferrying, loading, unloading and handling of the cargo within the port limit of Belekeri Port.  

              6.1.4.  Meanwhile, the map enclosed by the Port Officer alongwith aforesaid letter dated 22.11.2010 indicated a divergent position. In order to better comprehend the same, a scanned image of the same is shown as under:- 
               
               

              6.1.5.  The map indicates that while the larger marked area is the territorial limit of Belekeri Port, the smaller marked area shows the anchorage point. Thus the map shows that the anchorage point is located outside the territorial limit of Belekeri Port. This appeared to be contradictory, in view of the fact that the provisions of Indian Ports Act, 1908 as well as Karnataka Ports [Landing and Shipping Fees] [Amendment] Rules, 2006 are in full force at the anchorage area, on account of which Belekeri Port is charging anchorage fees from the vessels, besides provided authorization/registration to M/s. Adani Enterprises Ltd. to operate in the said area as Registered Stevedores.  

              6.2.1.  In view of the above position, DGCEI called for further specific clarification from the Port Officer vide letter dated 30.11.2010. Accordingly, the Port Officer, vide his letter No. LAND/CR-50/2010-11 dated 30.11.2010 furnished categorical reply to each of the point raised by DGCEI. The points raised by DGCEI and the clarifications given by the Port Officer vide aforesaid communications are reproduced as under:-

                  “Point-1 : Please confirm whether the Anchorage Area of Belekeri Port is actually situated within or outside the territorial jurisdiction of Belekeri Port?

                  Reply : It is confirmed that the anchorage area of the Belekeri Port is actually situated within port limits of Belekeri Port.  

                  Point-2 : Please confirm whether the provisions of Indian Ports Act, 1908 and the rules made thereunder are in force at the aforesaid Anchorage Area of Belekeri Port or otherwise?

                  Reply : It is confirmed that in Belekeri Port, anchorage operations are being carried out as per the provisions of the Indian Ports Act, 1908 and Karnataka Ports Landing & Shipping Fees Act, 1961 and rules framed thereunder.  

                  Point-3 : Please clarify as to whether Belekeri Port is charging any statutory levy/royalty from M/s. Adani Enterprises for carrying out barging/lighterage operations [i.e. ferrying cargo from the shore to the ship and vice versa in barges/lighters] within the port or otherwise? If yes, what is the rate of such levy?

                  Reply : In Belekeri Port for anchorage loading of the vessels from the barges/lighterage operations [carrying cargo from the jetty to the ships in barges/lighters], shipping fees is collected at `10 per MT from the stevedores on the quantity of the cargo loaded to vessel as per the Schedule-A of the Karnataka Ports Landing & Shipping Fees Amendment Rules, 2006. Accordingly, the said fees have been collected from M/s. Adani Enterprises Limited. On the said amount service tax is collected as per prevailing rules and credited to the account of service tax department.  

                  Point-4 : In case the anchorage area is actually falling within the Port Limit, then   please furnish a revised/correct clearly marking such anchorage area.

                  Reply : Please find enclosed herewith a sketch showing the anchorage area and port limits of the Belekeri Port.”  

                  6.2.2.   A scanned image of the said correct map received from the Port Officer under the aforesaid letter dated 30.11.2010 is shown as under:- 
                   
                   
                   

                  6.2.3.  The above map indicates that the actual distance between the anchorage area and the port is 9 kms, viz. just 4.86 nautical miles, as against the claim made by Shri Manoj Jha that such distance was 12 nautical miles. The aforesaid clarifications and the map received from the Port Officer irrefutably establishes that the anchorage point where the mother vessel is anchored, and the entire route/area where M/s. Adani Enterprises carry out their aforesaid type of barge/lighterage activity is completely falling within the Port limit. Thus the report from Port Officer, Karwar unambiguously revealed that the barging/lighterage activities carried out by M/s. Adani Enterprises are well within the port area/limit of Belekeri Port. This further substantiated the fact that the services rendered by them are within the port area and hence would be considered as ‘Other Port Services’ for the purpose of levy of Service Tax.  

                  6.3.  The aforesaid reports of the Port Officer further stated that M/s. Adani Enterprises are the Registered Stevedores of Belekeri Port. The term ‘stevedore’ means a firm or individual engaged in loading or unloading of a vessel. The letter dated 30.11.2010 of the Port Officer further makes it clear that in the capacity of Registered Stevedores, M/s. Adani Enterprises Ltd. is engaged in the loading of the cargo from the barges into the vessels at the anchorage point, and also carrying out lighterage operations, for which they are paying `10/- per MT to Belekeri Port as shipping fees. This clarification further sets at rest any doubts and ambiguity on the aforesaid fact that the services rendered by M/s. Adani Enterprises Ltd. at Belekeri Port in their capacity of Registered Stevedores, is nothing but ‘loading, unloading and handling of the goods and carting the same to the anchorage point in relation to the vessel’, and hence appropriately covered as ‘Other Port Services’ specified under Section 65(82) of the Finance Act, 1994.  

                  6.4.  The charts produced by M/s. Adani Enterprises on 21.10.2010 included a list of various input services on which Cenvat credit was availed by them at Belekeri Port during the financial years 2007-08 and 2008-09. It was seen from the said chart that during the year 2007-08, they have availed such input credit totaling `40,31,936/- against the service tax paid by Deputy Port Conservator, Belekeri. Similarly, during the year 2008-09, they had availed similar input service credit of `13,97,195/- against the service tax paid by the Deputy Port Conservator, Belekeri. It appeared that these input credits include the service tax paid by Belekeri Port on the fees collected by them at the rate of `10/- per MT from M/s. Adani Enterprises for rendering the aforesaid lighterage operations in the Port, as stated by the Port Officer in his aforesaid letter dated 30.11.2010. This further substantiates that M/s. Adani Enterprises was fully aware that the aforesaid lighterage services rendered by them were in the nature of ‘Port Services’ rendered within the port area of Belekeri Port. Thus, on the one hand, M/s. Adani Enterprises was availing credit of service tax paid on lighterage charges by considering the same as stevedoring charges which form part of ‘Port Services’, whereas on the other hand they declared the same service to be transportation services with deliberate intent to evade payment of service tax.  

                  6.5.  The nature of activities for which M/s. Adani Enterprises had obtained authorization/registration from the Port Authorities further corroborated the analysis made by the Hon’ble Tribunal in the case of M/s. Reliance Industries Ltd. [supra] wherein it was held that barging/lighterage activities carried out within the Port area/limit is actually an activity of loading, unloading and handling of the cargo and carting the same from the quay to the vessel. Thus it was conclusively established that the services rendered by them are nothing but ‘Other Port Services’ as defined under Section 65(82) of the Finance Act, 1994 and M/s. Adani Enterprises are required to pay Service Tax on the entire amount of barging/lighterage charges collected by them during the period from November, 2006 onwards. It was, thus evidently clear that the services rendered by M/s. Adani Enterprises are not covered under the definition of “Transportation of Coastal Goods and Goods Transported through National Waterways and Inland Water Service” specified under Section 65(105)(zzzzl) of the Finance Act, 1994 and therefore, they had wrongly classified such services under the said category of taxable services with effect from October, 2009. Therefore, it appeared that Service Tax not paid on the ‘Other Port Services’ provided by M/s. Adani Enteprises during the period from November, 2006 to September, 2009 is recoverable from them by invoking the appropriate provisions of the Finance Act, 1994 and Rules made thereunder.  

                  7. CONTRAVENTIONS 

                  7.1.  In view of the facts and circumstances as described in the foregoing paras, it appeared that M/s. Adani Enterprises had contravened the provisions of:- 

                  1. Section 65(105)(zn) of the Finance Act, 1994 in as much as they failed to classify all the services rendered at Belekeri Port in relation the goods and vessel as ‘Other Port Services’;
                  1. Section 66 and Section 68 of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994 in as much as they failed to pay Service at the appropriate rates on the gross value of all taxable services provided by them at Belekeri Port;  
                  1. Section 67 of the Finance Act, 1994 in as much as they failed to include the gross amounts charged by them from their clients towards provision of all taxable services, for the purpose of payment of Service Tax;  
                  1. Section 70 of the Finance Act, 1994 read with Rule 7 of the Service Tax Rules, 1994 in as much as they failed to furnish the periodical return by showing the details of all taxable income received by them towards provision of all taxable services in the appropriate manner;  
                   

                  7.2.  The proviso to Sub-Section (1) of Section 73 provides that if service tax has not been levied or paid or has been short levied or short paid or erroneously refunded by reasons of fraud, collusion or any willful mis-statement or suppression of facts or contravention of any provisions of the said Finance Act, 1994 or Rules made thereunder, with intent to evade payment of service tax, the service tax shall be demanded by invoking extended period of five years. As discussed in foregoing paras, M/s Adani Enterprises had deliberately not paid service tax on the value of all taxable services received by them, by way of suppression of facts, willful mis-statement, mis-declaration, and contravention of provisions of said Finance Act, 1994 or Rules made thereunder, with intent to evade Service Tax. They were fully aware that the activities of barging/lighterage carried out by them at Belekeri Port was nothing but a part of stevedoring activity undertaken by them in their capacity as Registered stevedores and that such services are a part of Other Port Services which is taxable under Section 65(82)(zn) of the Act ibid. This is further substantiated from the fact that during the intervening period 2007-08, they had declared such barging/lighterage charges as exempted value under Port Services while filing their half-yearly return in Form ST-3, whereas during the year 2009-10, they started paying Service Tax by classifying the same services as “Transportation of Coastal Goods and Goods Transported through National Waterways and Inland Water Service” under Section 65(105)(zzzzl) of the Act ibid. They are also fully aware of the aforesaid legal provisions which are discussed by the judicial authorities in various cases of the same nature as referred in Para 5.7 supra. Therefore, the Service Tax not paid by them on the gross value charged by them towards providing such ‘Other Port Services’ during the period from November, 2006 to September, 2009 is recoverable from them by invoking extended period of five years under the proviso to sub-section (1) of Section 73 of Finance Act, 1994. M/s. Adani Enterprises is also liable to pay interest as per provisions of Section 75 of the Finance Act, 1994. Further, it appears that M/s Adani Enterprises is liable to penalty under Section 76 and Section 78 of the Finance Act, 1994. 

                  8.  Therefore, M/s. Adani Enrterprises Ltd., Adani House, Near Mithakhali Circle, Navrangpura, Ahmedabad vide Shoe cause notice F.No. DGCEI/AZU/36-182/2010-11 dated 5.1.2011 were called upon to show cause to the Commissioner of Service Tax, Ahmedabad having his office at Central Excise Bhavan, Near Polytechnic, Ambawadi, Ahmedabad as to why:- 

                    1.           Service Tax amounting to total  `9,59,33,573/- [Rupees Nine Crores Fifty Nine Lakhs Thirty Three Thousand Five Hundred Seventy Three only] as worked out in the enclosed Annexure-A, should not be recovered from them under the proviso to sub-section (1) of Section 73 of the Finance Act, 1994;
                    1. Appropriate interest Section 75 of the Finance Act, 1994, should not be charged and recovered from them; and 
                    1. Penalty under Section 76 and Section 78 of the Finance Act, 1994, should not be imposed upon them for their acts of omissions and commissions as discussed supra 
                   

                  Defence Reply & Personal Hearing: 

                  9.  M/s Adani Enterprises vide their letter dated 18.3.2011, filed their written submission to the show cause notice. They denied the charges and allegations levelled in the captioned show cause notice and submitted that they started to pay service tax under the new category viz. “Transport of Coastal Goods and Goods Transported through National Water ways and Inland Water Ways” which was introduced vide Section 65(105)(zzzzl) under Finance Act, 2009 as the activities undertaken by them for transporting exported goods from shore to Mother Vessels are covered by the said entry and therefore, charging of service tax on barging income under the category of “Port Service” is contrary to law. They submitted that before September 2009, there was no specific entry for charging service tax on barging activity as well as transportation of goods by water and therefore, they had not collected the service tax from their customers nor paid the same to the Department.  

                9.1 They submitted that Belekeri Port is not having sufficient draft for berthing of vessels, the cargo is required to be ferried from Jetty to the mother vessel which is anchored in the high seas, near or at or beyond the anchorage point depending upon the draft and availability and allocation of position by the Port authorities (hereinafter also referred to as “the point of anchorage”). During the disputed period, they transported the exported cargo from shore to point of anchorage where the Mother Vessel was anchored and the, exported goods were loaded in the vessels through cranes. They had collected the amount of barging services from their customers for transportation of goods from wharf to the Mother Vessels. At the relevant time, no specific entry existed to tax transportation of goods through marine like it existed in case of transport of goods by road or by air and therefore, service tax is not liable to be taxed on barging activities that means marine transportation of goods through barging.  

                10. They submitted that permission given by the Port Authority is restricted to stevedoring activity. The said permission cannot be considered as “authorization” given by Port in terms of decision of Velji P. Sons (Agencies) Pvt. Ltd Vs C.C.Ex reported in 2007 (8) STR 236 (T). They submitted that the meaning of the expression “authorization of port” appearing in the definition under section 65(82) of the Act is one who has been authorized to operate/handle the Port, operation in terms of the Major Port Trusts Act or the Indian Ports Act. Whereas, they have not been authorized to operate the port nor did they carry out any activity on behalf of the Port which was supposed to be carried out by the Port. 

              10.1 They submitted that whether stevedoring activity per se is liable to be taxed under the category of “Port Service”, has been decided by the Hon’ble Tribunal in the case of Velji P. Sons (Agencies) Pvt. Ltd Vs C.C.Ex reported in 2007 (8) STR 236 (T). The Hon’ble Tribunal observed in para 6 to 9 is as under : 

              After carefully considering the submissions made by both the sides, we find that the issue as to what service would get covered by the port services, scope of the “port service” was examined at length by the Tribunal in the case of Homa Engineering Works referred supra. In para 8 of the said judgment, it has been observed that taxable services under the net of “Port Service” means any service rendered by a port or any person authorized by such port. The services being provided by the appellant are handling, stevedoring, loading, unloading, tug hire and labour arrangement. Admittedly, such services are not required to be provided by the Port under The Major Port Trusts Act, 1963. A perusal of the Section 35 of the said Act, as reproduced in the case of Homa Engineering Works, clearly shows that power of the Board to execute the works and provide appliances do not include the above activities being undertaken by the appellant. As such, it cannot be said that the services being provided by the appellant were covered by the Port services. Further, the Tribunal in the above case has observed that the authorization from the Port must be in respect of the services which the port itself is required to provide as such authorization would make an assessee step into shoes of the Port. Having already observed that such services were not required by the port, any authorization by the Port cannot convert the services into port services. In any case, we find that there is no authorization by the Port to the appellant to conduct the services on his behalf. Licenses issued by the Port authorities cannot be considered as  authorization. Such licenses are issued by the Port authorities to all the persons working in the Port to ensure the safety and security of the Port Area and does not confer any power or authority of the Port on the person so issued with the licence. If the licences issued by the Port are taken as authorization, then such licences issued to Stevedores, ship chandlers, labourers, repairers of the vessels etc. would also become authorized persons by the Port to render services as Port services. 

              We further note that Section 42 of the Major Port Trusts Act provides for authorization by the Board for various services specified by that Port in the Official Gazette. For such authorization if effective, the same should have prior approval of the Central Government and the person so authorized cannot charge any excess payments than the amount specified in the tariff authority for Major Ports, by Notification in the Official Gazette. The licenses issued to the appellant are not governed by the statutory requirement of Section 42 inasmuch as the appellant is free to charge any amount from its customers for the services being provided by it and such collections are not regulated by the Port. In this view of the matter, the licence given to the appellant cannot be held to an authorization. 

              Licence means “a permission given for specific purpose; the licence holder cannot be interpreted as having the powers or authority of the person issuing the licence, unless the licence specifically mentions about it. To take a simple analogy the person issued with driving licence, under no stretch of imagination, can be said to be functioning as Road Transport Authority. Authorization may be issued by way of licence, but not all licences are authorizations. Hence, the licences issued by Ports to various agencies (under Sec. 123 of MPTA) should not be confused with the authorization (may be by way of licence) issued under Section 42 of MPTA”. The difference between authorization under Section 42 of MPTA and a licence issued under Sec. 123 is clearly understood if the functioning of private container terminals (for e.g. P&O) terminal in Navaseva in Mumbai, Visakha Container Terminal at Visakhapatnam etc.) operating in various major ports and some of the berths operated by private persons on BOT basis, is examined. In all these cases where private parties are operating container terminals of berths, the functioning is independent of the ports which has given such authorization and in all such cases they are governed by the scale of rates fixed by TAMP (refer above) under Sec. 48 by way of notifications published in the Official Gazette. Take for instance in Visakhapatnam Port, the Visakha Container Terminal Pvt. Ltd. has been authorized by Visakhapatnam Port Trust to handle the container cargo that is coming to Visakhapatnam Port. Here the TAMP has fixed the scale of rates, under Sec. 48 of MPTA, by way of Notification published in the Gazettes of India (which is mandatory requirement under Sec. 42 of MPTA). The Stevedores and other port service providers, issued with licences by Ports, have not conferred with functional authority as seen in the case of private agencies maintaining container terminal or berths. This difference in functional freedom will bring out clearly the difference between an authorization given under Sec. 42 of MPTA and a licence given under regulations under Sec. 123 of MPTA. 

              In the light of the foregoing discussions and applying the ratio of law declared by the Tribunal in the case of Homa Engineering Works, we are of firm view that activities undertaken by the appellant does not fall under the category of Port Services.” 

                  They submitted that the above decision was affirmed by the Hon’ble Supreme Court reported in 2009 (13) STR J31. 

          11. Without prejudice to the aforesaid, they submitted that if the similar services viz. barging activities were provided or rendered  by an outside agency (who is not having Port authority or person authorized by Port authority), then it will not be liable to be taxed under any of the taxing entry. Intention of the legislature is to levy service tax on nature of service and not on specific person. Since barging services are not authorized by the Port authority, as held in the case of Velji P. Sons (supra), it cannot be said that barging service provided by them is liable to be taxed under the taxing entry port service. 

        12. They further submitted that new entry viz. “Transport of Coastal goods and goods transported through National Water ways and inland water ways” was introduced by Finance Act, 2009. Definition of taxable service as defined in Section 65(105) (zzzl) is as under:-

            “to any person, by any other person, in relation to transport of —

              (i) coastal goods;

              (ii) goods through national waterway; or

              (iii) goods through inland water.

            Explanation. — For the purposes of this sub-clause,—

            (a) “coastal goods” has the meaning assigned to it in clause (7) of section 2 of the Customs Act, 1962 (52 of 1962);

            (b) “national waterway” has the meaning assigned to it in clause (h) of section 2 of the Inland Waterways Authority of India Act, 1985 (82 of 1985);

            (c) “inland water” has the meaning assigned to it in clause (b) of section 2 of the Inland Vessels Act, 1917 (1 of 1917)” 

      As per explanation of section 65 (105) (zzzzl), meaning of “Inland Water” is the same as defined in clause (b) of Section 2 of the Inland Vessel Act 1917 which is as under :

            Inland water means –

          1. Any canal, river, lake or other navigable water within a State;
          2. Any area of any tidal water deemed to be the inland water as defined by the Central Government under section 70
          3. Waters declared by the Central Government to be smooth and partially smooth waters under clause (41) of section 3 of the Merchant Shipping Act, 1958.
       

          Section 3 (ga) of the Inland Vessel Act, 1917 defines the word “tidal waters” as follows:

          “Tidal water” has the meaning assigned to it in clause (49) of Section 3 of the Merchant Shipping Act, 1958.

          Section 3(49) of the Merchant Shipping Act, 1958 defines the word “Tidal Water” as follows:

          “Tidal water” means any part of the sea and any part of a river within the ebb and flow of the tide or ordinary spring tides and not being a harbour.”  

          12.1  They submitted that in view of the above explanation, transporting materials through barges from Balekari port to Mother Vessel is classifiable under the new entry covered by Section 65(105) (zzzzl). In view of the new category introduced by the Finance Act, 2009, they charged service tax on the barging activities and deposited the said amount of service tax with the department. The Department has accepted the classification and payment and not raised any objection.  Hence it is not open to the department to take a different view for the period prior thereto.  

          12.2  They submitted that in view of the introduction of the new entry having been enacted covering the activity of transportation of goods by water, without any change in the entry of Port service, it has to be interpreted that earlier entry did not cover the subsequently created entry. If the subsequent entry was covered by the earlier entry, there is no reason or scope to create the new entry especially when the rate of tax in respect of both the entries remains same. They submitted that creation of new entry is not by way of bifurcation of earlier entries in as much as the earlier entry relating to Port service remains unchanged. As it is held in the case of Jet Airways India Ltd reported in 2008 (11) ELT 645 (T), that once the new entry is introduced with effect from the date without disturbing earlier entry, it has to be interpreted that new entry is not covered by the previous entry. They placed reliance upon the following decisions:

              1. Board of Control for Cricket in India V/s. C.S.T – 2007 (7) STR 384 (T)
              2. Indian National Ship Owners Association V/s. Union of India – 2009 (14) STR 289 (Bom.)
           

          13.  They submitted that their books of accounts were audited by the Audit party from the Service Tax Department from time to time. The Audit party raised objection in past regarding non reversal of Cenvat credit to the extent of common input services used in above exempted barging activities and taxable service in terms of Rule 6 of Cenvat Credit Rules, 2004. On being pointed out by the Department, they had paid the amount of service tax of Rs.9,08,03,596/- alongwith interest for the period 2007-08 to 2009-10. They enclosed a copy of statement showing service tax amount of Rs. 9,08,03,596/- and interest of Rs.3,24,42,432/- deposited by them. 

        13.1  They submitted that on one hand, the Department demanded reversal of Cenvat Credit in terms of Cenvat credit Rules, 2004 for not maintaining separate books of accounts for exempted services and taxable service, it cannot on the other hand, demand service tax on barging activity considering the same as “Port services”. They submitted that Audit party examined the nature of transaction at the time of audit and directed them to pay the amount of service tax in terms of Rules 6 of the Cenvat Credit Rules. Action of the Department alleging that exempted service is a taxable service under the category of “Port Service” and demanding service tax is contrary to the stand of the Department itself. They submitted that vide letter dated 14.12.2009 they had clarified to the Service Tax Audit Department that the service in question was not liable to be taxed under the category of “Port Service”. The said clarification was accepted by the Audit Party as they did not raise any objection. They enclosed copy of letter dated 21.01.2010 addressed to Department. 

        14. They submitted that period covered under the captioned Show Cause Notice is barred by limitation. The captioned SCN has raised a demand for Service tax for the period November 2006 to September 2009. It was submitted that the extended period of limitation can be invoked only where an evasion of tax has been occasioned by the suppression, omission or failure to disclose wholly or truly all material facts required by the assessee with an intention to evade the payment of tax. Extended period of limitation can be invoked only on those grounds which are specifically provided under the Statute. Therefore, invocation of extended period of limitation was bad in law.  

      13.1  They submitted that there was no evidence on record which shows that they were aware that barging activities are part of stevedoring and therefore, it is chargeable to tax under the category of “Port Service”.  

    13.2  They submitted that Audit Party from Service Tax Department audited their books of account whereby the Department raised objection regarding applicability of service tax on barging activity. They, vide letter dated 14.12.2009 clarified to the Department that the service in question was not liable to be taxed under the category of “Port Service”. The Audit Party accepted the clarification and did not raise any objection which proved that there was no intention on our part to evade service tax.  

13.3  They submitted that it was their bonafide belief that barging was not a service covered by the Finance Act.  In any event, non-disclosure of barging income as “exempted service” in ST-3 Returns does not make the income liable to service tax under taxable service of “Port Service” 

13.4  They started to show the amount of barging income in the ST 3 returns under column of “Exempted Service” from 2008-09. As per procedure laid down under Service Tax Rules, 1994, service providers have to file separate return for each of the services, they had shown barging income as exempted income under return of “Port Service”. They submitted that since barging income was shown as exempted income under ST-3 returns filed for Port Services, it does not mean that they had knowledge that barging activity per se was liable to be taxed under the activity of “Port Service”. They submitted that they would not have declared barging income under ST 3 returns if they had any intention of not  paying the service tax.  

13.5

 

 

They submitted that there wa

s no positive act on thei

r part to evade Service tax nor has any proof towards th

is end been adduced by the Revenue. A mere omission will not constitut

e suppression of facts and as they

were of the bona fide belief that transactions in dispute were not liable to be taxed under the said Act. 

13.6  They further submitted that the proviso to Section 73 of the Finance Act, 1994 is in pari materia to Section 11A of the Central Excise Act, 1944 and placed reliance upon the following decisions :

      1. Mahakoshal Beverages Pvt. Ltd. vs. Commissioner of Central Excise, Belgaum reported in 2007 (6) STR.
      2. Pahwa Chemicals Private Limited vs. Commissioner of C. Ex., Delhi reported in 2005 (189) E.L.T. 257 (S.C.),
      3. Anand NishiKawa Co. Ltd. vs. Commissioner of Central Excise Appeal, Meerut reported in 2005(188) E.L.T. 149(SC)
 

13.7  They submitted that here was no deliberate intention on their part not to disclose correct information or to evade payment of Service tax and hence there was no question of willful-misstatement as alleged by the Department in the captioned Show Cause Notice. They submitted that as none of the conditions necessary for invoking the extended period of limitation are satisfied in the present case, the extended period of limitation cannot be invoked and demand is barred by limitation and therefore cannot sustain.  

14.  They submitted that for the reasons set out hereinabove, since the entire demand is unsustainable, imposition of penalty and demanding interest cannot be sustained. They relied on the judgment of the Hon'ble Supreme Court in

CCE vs. HMM Ltd. reported in [1995 (76) ELT

497 (SC)],

Tamil Nadu Housing Board vs. CCE reported in [1994 (74) ELT 9 (SC)] and

Hindustan Steel Ltd v. State of Orissa reported in [1978 (2) ELT 159 (SC)]

. 

15.  Without Prejudice to the above, they submitted that the issue if at all is an interpretational issue and it is a settled principle in law that no penalty can be levied where there is an interpretational issue/ambiguity in the relevant provisions. They relied on the decision of the Hon’ble Tribunal in M/s Hindustan Lever V/s CCE, Lucknow reported in 2009-TIOL-1795-CESTAT-DEL, AEON’S Construction Products Ltd. vs. Commissioner of C.Ex., Chennai reported in 2005 (180) E.L.T. 209 (Tri. Chennai), ETA Engineering Ltd. vs. Commr. Of C.Ex reported in 2006 (3) S.T.R 429. 

16.  They further submitted that Section 80 of the Act provides that "no penalty shall be imposed…" under Sections 76, 77, 78 or 79, if there was a reasonable cause for the failure of the assessee in complying with the relevant provisions. The said provision being constructed by the use of the word 'shall' is mandatory, and the adjudicating authority is bound, in law, to consider the same. 

17.  They submitted that as the demand is legally unsustainable, no interest is payable by them. 

18.  They submitted that the mother vessel generally anchorages beyond port limits. The exact location of the mother vessel can be verified from the port records, but wherever the mother vessel was anchored beyond the port limits, it cannot be said that they have rendered “port service” on account of barging.  The letter dated 30.11.2010 of the Port Officer is not conclusive in as much as it is not necessary that at all times all mother vessels are anchored at the anchorage point.  The point at which the mother vessel is anchored depended upon the size of the vessel, the draft available on that day, availability of space and allocation by the Port authority.  As such even if anchorage point is within the port limit, it is not necessary that barging / lighterage portion were at all times within the port limit. Without prejudice to the hereinabove, they submitted that no service tax can be demanded where mother vessel is anchored outside the port limits. 

19.  In view of their submission, they requested to drop the proceedings initiated under the SCN and also requested for personal hearing.  

20.  In furtherance to their reply dated 18.3.2011, they submitted a written submission dated 12.9.2011 They submitted that activities undertaken by them for handling of exported goods from Shore to Mother Vessels are covered under the “Cargo Handling Services” and therefore, charging of service tax on barging income under the category of “Port Service” is contrary to law and provisions of the Finance Act, 1994.  They submitted that during the disputed period, they transported the exported cargo from shore to point of anchorage where the Mother Vessel was anchored and then, the export goods were loaded in the vessels. They collected the amount of barging services from their customers for transportation of goods from wharf to the Mother Vessels. They submitted that the barge activities were limited to handling of cargo meant for export.  

21.  They submitted that the captioned Show Cause Notice  has placed reliance upon the decision of M/s Reliance Industries Limited v. Commissioner of Customs (Prev.), Ahmedabad  2004 (174)ELT (Tri), which has been affirmed by the Hon`ble Supreme Court but the said decision will not be applicable in view of the facts involved in the present case as the above decision was delivered in the context of computation of value of imported goods for the purpose of charging customs duty.

The definition of Cargo Handling service as defined in Section 65(23) of the Finance Act, 1994 is as under:

    Cargo Handling Service” means loading, unloading, packing or unpacking of cargo and includes cargo handling services provided for freight in special containers or for non-containerised freight, services provided by a container freight terminal or any other freight terminal, for all modes of transport and cargo handling service incidental to freight

    ,

    but does not include handling of export cargo or passenger baggage or mere transportation of goods” 

    21.1 They referred to the CBEC Circular F. No. B11/1/2002-TRU, dated 1-8-2002 whereby, it is clarified as under:

      5).

       

      Cargo handling services are provided in the port also. Whether such service will be covered in the category of port services or cargo handling service. In this context it may be mentioned that port services cover any service provided in relation to goods o

      r vessels by a port or a person authorized by the port. This includes the cargo handling service provided within the port premises. Therefore to this extent there may be an overlap in cargo handling service and the port service. However since port services

      covers all the services in relation to goods and vessels and therefore more specific to port, the service provided in a port in relation to handling of good

      s

      would be appropriately covered under port service and no separate levy will be attracted under th

      e category of cargo handling agency service. Similar would be the case in respect of service provided for storage of goods in the port premises.

        6) 

        All goods meant for export are excluded

        from the scope of this levy. There may be cases where goods may be transhipped at a place other than the place of packing before reaching a place from where it is exported. For example goods are packed say at Agra for transportation to Bhopal where it is transhipped and ultimately reaches Mumbai, from where it is exported. A doubt has been raised as to whether service tax would be leviable on cargo handling service at Agra . It is clarified service provided in relation to any cargo which is meant for export, would not be taxable irrespective of the fact that it reaches the place of export after transshipment. However, the relevant documents should show that the Goods are for export.

            7) A point has been raised by Airports  Authority of India (AAI) as to whether service tax will be leviable in respect of handling of transshipment of export cargo from one international carrier to another international carrier or from a domestic carrier to an international carrier. It is clarified that so long as the cargo is for export, no service tax on handling of such cargo is leviable. For domestic cargo, service tax will be applicable. 

          22.  They submitted that clarification given in the above instruction at its Para 5 and 6 reveal that “Cargo Handling service” is exempted service as far as export cargo is concerned. If the aforesaid clarification is further read in harmony with para 7 of the clarification related to Airport services, it can be convincingly said that “cargo handling service” though falling in “other port service”/ “port service” as the case may be, the same would not attract service tax so far as export cargo is concerned. The above principle was laid down by the Hon`ble High Court of Karnataka in case of Commissioner of C Ex, Managlore v. Konkan Marine Agencies [2009(13)STR 7 (Kar)].  

          23.  They submitted that the taxing entry Cargo Handling Services was inserted in the Act w.e.f. 16.8.2002. This taxing entry is a special entry. The entry relating to Port Services was inserted in the Act w.e.f. 16.7.2001. This taxing entry is a generic entry. Notwithstanding the fact, that Port Services generally covers all services provided by port in relation to goods, in so far as cargo handling services are concerned, the special entry shall prevail and since, under the special entry cargo handling services in relation to export cargo is excluded, the same would also not being covered by the generic entry. Reliance in this regard was placed on the decision of the Hon’ble Supreme Court in the case of Ashoka Marketing Limited Ltd. and Another Vs. Punjab National bank and Others [(1990) 4 SCC 406] and J.K.Cotton Spining & Weaving Mills co. Ltd. V. State of Uttar Pradesh ((1961) 3 SCR 185:) 

    24.

     

     

    The SCN issued by the DGCEI in the matter is on the plank that barge activities are nothing but it is a

    other port services

    .

    They

    submitted that even

    in the

    Other Port Service

    , t

    he character of service of

    Cargo Handling Service

    is not lost and therefore, it can not be said that it

    is

    Other Port Service

    when

    Cargo Handling Service

    has been provided by barging the goods in a port.  

    25.

     

     

    In view

    of the

    above submissions they submitted that

    the entire demand raised by the captioned Show Cause Notice is bad in law and hence the same is required

     

    to be dropped in the interest of justice.  

    26.

     

     

    They further submitted

    that the Port of Belekeri in Karna

    taka was handling only Export Cargo at the relevant time. In other words there was no import and hence handling of cargo relating to import by

    them does not ar

    ise at all. The fact has also

    been

    narrated in statement recorded by office of Director General o

    f Excise Intelligence on 1

    st

    November 2010. 

    27.

     

     

    Personal hearing in the matter was fixed for 15.9.2011 which was not attended by M/s Adani Enterprises.

    Personal hearing was refixed for 19.9.2011 which was attended by Shri Hardik Modh, advocate on behalf

    of M/s Adani Enterprises. He explained the case in detail and relied upon the replies already filed by them vide letters dated 18.3.2011 and 12.9.2011. He also gave copies of relied upon judgments. 

    Discussion & Findings:  

    28.

     

     

    I have carefully gone throu

    gh the records of the case, written submissions made by the said assessee to the show cause notice as well as the submission made by them during the course of personal hearing. 

    29.

     

     

    The facts of the case are that M/s Adani Enterprises

    have been authorized

    by the Director of Port & Inland Water Transport, Government of Karnataka vide agreement dated 3.4.2006 to develop their own infrastructure to handle mineral cargo through Belkeri Port for a period of 30 years. They

    are the registered stevedores of Belker

    i Port

    as confirmed by the Port officer in-charge of Belkeri Port vide letters dated 22.11.2010 and 30.11.2010.

    Belkeri Port does not have sufficient draft for berthing of vessels and the cargo is required to be ferried from jetty to the anchorage point wh

    ere the mother vessel is anchored. M/s Adani Enterprises provides lighterage of the cargo from the quay to the mother vessel by using barges and collects lighterage charges from the clients.

    The barging / lighterage is a part of stevedoring operations. 

    30

    .

     

     

    The issue

    s to be decided in this case are:

     

          1. whether, the above mentioned services provided by M/s Adani Enterprises were within the limits of Belkeri Port and would fall under the ambit of ‘Port Services’ as per Section 65(82) of the Finance Act, 1994.
          2. Whether, the amount of ‘lighterage charges’ collected by M/s Adani Enterprises’ is liable to service tax.
     

    31.

     

    I find that

    M/s Adani Enterprises have relied on the judgment of

    Velji P. Sons (Agencies) Pvt. Ltd Vs C.C.Ex reported in 2007 (8) STR 236 (T) wh

    erein the Hon

    ble Tribunal while applying the ratio of law declared by the Tribunal in the case of Homa Engineering Works, decided that activities of stevedoring undertaken by the appellant did not fall under the category of Port Services. They also submit

    ted that the above decision was affirmed by the Hon

    ble Supreme Court reported in 2009 (13) STR J31.

    31.1

     

    I observe that against the Tribunal

    s decision in Velji P. Sons (Agencies) Pvt. Ltd Vs C.C.Ex reported in 2007 (8) STR 236 (T), the department

    s appea

    l was dismissed by the apex court by judgment dated 24.3.2008, which reads as follows: 

    “The Tribunal relying upon it’s own decision in the case of M/s Homa Engineering Works v. CCE, Mumbai, has allowed the present appeal filed by the assessee. Against the aforesaid case in Homa Engineering Works v. CCE, Mumbai, Revenue has not filed any appeal in this court.

    In view of this, the appeal is dismissed, No costs.” 

    I find that the above judgment of the Hon

    ble Supreme court does n

    ot contain a decision on merit

    s. The department has subsequently filed an appeal in the Hon

    ble Bombay High Court against the Tribunal

    s decision in the case of M/s Homa Engineering Works v. CCE, Mumbai which

    has been admitted and

    is pending.

    In view of the above, I proceed further to

    decide the case.  

    31.2

     

    I

    further

    observe that service tax

    was imposed on the service provided in minor

    ports with

    effect from 01.07.2003. Prior to the substitution of the definition of

    Port Service

    with effect from 01.07.2010,

    ‘port service’

    was define

    d as

    any service rendered by a port or other port or any person authorized by such port or other port, in any manner, in relation to a vessel or goods

    under Section 65(82) of the Finance Act, 1994.

      

       

    31.3

     

    As per the above definition, service under the said category would be taxable if it is provided by a port or other port or any person authoriz

    ed by such port or other port and t

    he service may be provided in any manner but it should be in relation to

    a vessel or goods.

    I find that since the period

    of demand covered

    in the show

    cause notice is

    from November

    2006 to May

    2009

    , there can not be any purpose to examine that for levy of service tax under the above category, the service should be one specified

    under Section 42(1) of the Major Port Trusts Act, 1963

    as since 14.5.2003, there is no discrimination between major and minor ports under the

    Finance Act, 1994 and both are covered under the

    above

    said definitio

    n

    . The above definition

    under Section 65(82)

    of the Finance Act, 1994 is wide enough to cover any service

    provided in any manner by a port or other port or any person authorized by such port or other port

    . Therefore, all services which are otherwise taxable

    would qualify to be

    port services

    when p

    rovided within the limits of a

    port

    or

    other port

    which is also the

    Board

    s view as clarified in Circular F.No.B11/1/2002-TRU dated 1.8.2002. 

    31.4

     

    As detailed in para 29 above,  M/s Adani Enterprises have been authorized by the Director of Port & Inla

    nd Water Transport, Government of Karnataka to develop their own infrastructure to handle mineral cargo through Belkeri Port for a period of 30 years and they are also the registered stevedores of Belkeri Port. Therefore there can not

    and should not

    be

    any

    question with regard to the authorization of M/s Adani

    Enterprises.

    The argument of M/s Adani Enterprises that they have not been authorized to operate the port nor had carried out any activity on behalf of the port which were supposed to be carried out b

    y the port is thus devoid of any merit. M/s Adani Enterprises have contended that they have been only authorized to provide stevedoring services at the said port which is not liable to be taxed under the category of

    Port Services

    as decided in the case o

    f

    Velji P. Sons (Agencies) Pvt. Ltd Vs C.C.Ex reported in 2007 (8) STR 236 (T).

     

    31.5

     

    As per the site

    [http://www.worksafe.vic.gov.au/

    wps/wcm/connect/

    wsinternet/

    WorkSafe/Home/Safety+and+Prevention/Your+Industry/Stevedoring/About+the+sector/What+is+st

    evedoring/]

    Stevedoring is the process of

    loading and unloading ships.

    The

    main sectors of stevedoring

    are:

    • Container terminal operations – the loading and discharge of container vessels at terminal ports, largely using advanced mechanical technology

      • Automotive and General Stevedoring – receiving, storing, loading, discharging and/or delivering general and specialist cargo such as  motor vehicles, specialised containers (‘RoRo’ and ‘LoLo’), steel, paper, forest products and bulk cargo.
       

      Thus Stevedoring means process of loading and unloading of ships. In the instant case, M/s Adani Enterprises used barges for loading and unloading of cargo from the quay to the mother vessel by using barges. In fact, barging/lighterage is a part of stevedoring operation. Thus, I can hardly believe that they are not aware of the fact that barges are used for unloading and loading of goods. 

      31.6 Their reliance on the judgment of Velji P. Sons (Agencies) Pvt. Ltd is to contend that Licenses issued by the Port authorities cannot be considered as authorization and tried to differentiate between the two. They contended that they are not an authorized person but are only licensed by the port authorities to ply their barges in the sea for carriage of goods from quay to mother vessels. I find that the terms ‘Authorization’ as well as ‘License’ are not defined under the Finance Act, 1994. Therefore, I rely on the dictionary meaning of these two terms. 

      Meaning of License  explained in http://www.thefreedictionary.com/licence is as under.

      licence US, license [ˈlaɪsəns]

      n

      1. (Law) a certificate, tag, document, etc., giving official permission to do something

      2. formal permission or exemption

      3. liberty of action or thought; freedom

      4. intentional disregard of or deviation from conventional rules to achieve a certain effect poetic licence

      5. excessive freedom

      6. licentiousness

      [via Old French and Medieval Latin licentia permission, from Latin: freedom, from licet it is allowed] 

      Meaning of authorization explained in http://www.thefreedictionary.com/licence is as under.

      au�thor�i�za�tion  (�thr--zshn)

      n.

      1. The act of authorizing. See Synonyms at permission.

      2. Something that authorizes; a sanction. 

            Thus, from the above I find that license and authorization are on same footing. A license given by the port authorities for specific task is nothing but permission for doing that particular task. It is in other words permission or authorization for that specific task. Accordingly, I hold that license given by the Port authority to M/s Adani Enterprises for stevedoring and plying their barges in the sea is authorization or permission and M/s Adani Enterprises is authorized person for the activities specified in the license.  

      31.7  It is a fact that Belkeri Port does not have sufficient draft for berthing of vessels and the cargo is required to be ferried from jetty to the anchorage point where the mother vessel is anchored. Therefore, it is mandatory to provide facilities such as barges/lighters for use within the limits of the port or beyond those limits for the purpose of rendering assistance to any vessel and for the purpose of shipping or transshipping the cargo. There is no dispute to the fact that M/s. Adani Enterprises has been authorized by the Port Authorities for carrying out such activities at Belekeri Port and on the basis of the said authorization, they provide lighterage of the cargo from the quay to the mother vessel by using barges and collect lighterage charges from their clients. Therefore, I find that the activities carried out by M/s Adani Enterprise are nothing but a part of handling of cargo between two points viz. between quay to mother vessel using Barges. It can not be termed as Inland waterway transport of goods / Cargo as contended by M/s Adani Enterprise and discussed in the later part of my findings.  The distance between quay and mother vessel is a part of Port Area as also confirmed by the Port Officer, Karwar having jurisdiction over the Belekeri Port. Therefore, I find that service of  lighterage rendered by M/s. Adani Enterprises at Belekeri Port falls within the ambit of  “Port Services” as defined in Section 65(82) of the Finance Act, 1994. All the required elements of the said definition are fully and squarely satisfied in the case before me, viz. (1) M/s. Adani Enterprises are duly authorized by the authorities of Belekeri Port to provide services within the said port; (2) the services are provided within the Port area of Belekeri Lighterage Port; and (3) the services are provided exclusively and absolutely in relation to both the vessel and goods. 

      31.8 In view of the above, the service provided by M/s Adani Enterprises is classifiable under ‘Port Service’ as per Section 65(82) of the Finance Act, 1994. 

      31.9 I also place reliance on the judgment in the case of Western Agencies Pvt. Ltd. v/s Commissioner of Service Tax, Chennai cited at 2008 (12) S.T.R. 739 (Tri. - Chennai) and Western Agencies Pvt. Ltd. v/s Commissioner of C.Ex, Chennai cited at 2011 (22) S.T.R. 305 (Tri. - LB). Para 10.3 of the latter judgment is reproduced as under:

      “The term “port service” defined by the 1994 Act bringing any service provided by a “port” or “other port” “in relation to vessels or goods” to the service tax net does not make any difference if such service is also provided through any person authorized by the port or such port. If stevedoring service is accepted to be a service not provided by “port” or “other port”, the term “port service” defined by 1994 Act shall defeat the purpose of the service tax law. The facilities provided by a port to render the stevedoring service performable brings such service to the scope of service tax. The statutory definition suggesting the service provided “in any manner” serves the purpose of serving the clients of stevedore in relation to goods or services indirectly through stevedores. Therefore, the service provided by stevedores fall under the class of port service and taxable following para 7 of Konkan Marine case decided by Hon’ble High Court of Karnataka. Thus answer to question (b) shall also be in favour of the revenue and against assessee.”  

      32. It is further contended by M/s Adani Enterprises that transporting materials through barges from Balekari port to Mother Vessel is classifiable under the new entry covered by Section 65(105) (zzzzl) of the Finance Act, 1994. In view of the new category introduced by the Finance Act, 2009, they charged service tax on the barging activities and deposited the said amount of service tax with the department. The Department has accepted the classification as well as the payment of service tax and no objection has been raised.  Hence it is not open to the department to take a different view for the period prior thereto.  

      32.1 I have gone through the said definition to ascertain the taxability of ‘transport of coastal goods, goods through national waterway or goods through inland water’ introduced vide clause 65(105) (zzzl) of the Finance Act,1994 in the Finance Act, 2009. The said taxable service is defined as under.   

            Taxable service means any service provided or to be provided to any person, by any other person, in relation to transport of —

            (i) coastal goods;

            (ii) goods through national waterway; or

            (iii) goods through inland water.

            Explanation. — For the purposes of this sub-clause,—

        (a) “coastal goods” has the meaning assigned to it in clause (7) of section 2 of the Customs Act, 1962 (52 of 1962);

        (b) “national waterway” has the meaning assigned to it in clause (h) of section 2 of the Inland Waterways Authority of India Act, 1985 (82 of 1985);

        (c) “inland water” has the meaning assigned to it in clause (b) of section 2 of the Inland Vessels Act, 1917 (1 of 1917); 

        As per explanation of section 65 (105) (zzzzl), meaning of “Inland Water” is the same as defined in clause (b) of Section 2 of the Inland Vessel Act 1917 which is as under :

              Inland water means –

            1. Any canal, river, lake or other navigable water within a State;
            2. Any area of any tidal water deemed to be the inland water as defined by the Central Government under section 70
            3. Waters declared by the Central Government to be smooth and partially smooth waters under clause (41) of section 3 of the Merchant Shipping Act, 1958.
         

            Section 3 (ga) of the Inland Vessel Act, 1917 defines the word “tidal waters” as follows:

            “Tidal water” has the meaning assigned to it in clause (49) of Section 3 of the Merchant Shipping Act, 1958.

            Section 3(49) of the Merchant Shipping Act, 1958 defines the word “Tidal Water” as follows:

            “Tidal water” means any part of the sea and any part of a river within the ebb and flow of the tide or ordinary spring tides and not being a harbour.”  

            32.2 I find from the investigation carried out and as discussed in the show cause notice that the area in which barges are used for Lighterage  services by M/s Adani Enterprises falls within the port area of Belekeri Port. This is also confirmed by the Port Offcer, Karwar under whose jurisdiction the said port falls. I have carefully gone through the above definition of the Finance Act, 1994 as well as clause (b) of Section 2 of the Inland Vessel Act 1917 and I find that the port area which also includes the distance between the quay and the anchorage point can not by any stretch of imagination be brought within the definition of ‘inland water’. Therefore, in view of Board’s Circular F.No.B11/1/2002-TRU dated 1.8.2002 the services provided by M/s Adani Enterprises is appropriately classifiable under ‘Port Service’ as per Section 65(82) of the Finance Act, 1994 and not under ‘Transport of Goods through Inland Water Services’ as per Section 65(105) (zzzl) of the Finance Act,1994 introduced in the Finance Act,2009. 

            33. It is also the contention of M/s Adani Enterprises that creation of new entry is not by way of bifurcation of earlier entries in as much as the earlier entry relating to Port service remained unchanged. They relied on the case of Jet Airways India Ltd reported in 2008 (11) ELT 645 (T), wherein it is held that once the new entry is introduced with effect from the date without disturbing earlier entry, it has to be interpreted that new entry is not covered by the previous entry. I observe that service tax was imposed on the service provided in minor ports with effect from 01.07.2003. Hence it was already in existence since then. It is only M/s Adani Enterprises own interpretation that their service is classifiable under clause 65(105(zzzl) of the Finance Act, 1994 introduced in the Finance Act, 2009 when the service provided by them falls under the category of ‘Port Service’. Therefore, I find that their interpretation relying on the decision in the case of Jet Airways India Ltd reported in 2008 (11) ELT 645 (T) is not acceptable.  

            34. It is also the contention of M/s Adani Enterprises that on being pointed out during the course of Audit by the Service Tax Commissionerate they had paid the amount of service tax of Rs.9,08,03,596/- alongwith interest of Rs.3,24,42,432/- in terms of Rule 6 of Cenvat Credit Rules, 2004 for the period 2007-08 to 2009-10. I find that during the course of audit it was the submission of M/s Adani Enterprises that they were collecting charges for  handling of export cargo and in view of Board’s Circular F.No.B11/1/2002-TRU dated 1.8.2002 their service were exempted under the category of ‘Cargo Handling Service’. I find that the  Audit party of the Service Tax Commissionerate was neither supposed to nor it was carrying out any investigation and were not aware of the actual activity.  Since handling of export cargo was excluded from the definition of ‘Cargo Handling Service’ M/s Adani Enterprises had not kept separate account of Cenvat Credit of input and input service used in the taxable and exempted/non-taxable service,  they were entitled to use only 20% of the Cenvat credit for the payment of service tax on the taxable service, where as they have utilized 100% Cenvat Credit involved in the export cargo handling service. Therefore, the amount of Cenvat credit involved in export cargo handling service was paid by them in cash along with interest thereon in terms of Rule 6 of Cenvat Credit Rules, 2004. I observe that auditing of records can not be equated with an investigation, DGCEI had arrived at a conclusion that the services provided by M/s Adani Enterprises appeared taxable under the category of ‘Port Service’ after recording statements of concerned persons, conducting inquiries with the concerned Port officer and obtaining maps etc from him whereas, Audit had to scrutinize  the documents available on record and to ensure that there is no contravention of any of the provision of the Finance Act, 1994 and the rules made thereunder. From the relevant record, I find that though the audit was initiated since 21.07.2009 the Draft/Final Audit report  has been kept in abeyance  by the department as investigation had also been initiated by the DGCEI on 21.10.2010 against the said M/s Adani Enterprise with regard to the Barging /lighterge service. On completion of the investigation the DGCEI had issued present show cause notice on 5.01.2011. Critical scrutiny of the papers revealed that the Board’s Circular of 2002 was mis-constructed and mis-represented by M/s Adani Enterprises before the audit to pay the amount in terms of Rule 6 of Cenvat Credit Rules, 2004 and they even paid some amount on 8.2.2011 even after the issuance of the show cause notice on 5.1.2011 by the DGCEI proposing classification under the category of “port service”. It is evident from the investigation carried out by the DGCEI, that the said M/s Adani Enterprises have rendered service of Barging/lighterage within the port area which clearly falls under “Port Service” and not under “Cargo Handling Service”. I further find that at para 5 of the Board’s Circular F.No.B11/1/2002-TRU dated 1.8.2002 cited by M/s Adani Enterprises it is mentioned that “However since port services covers all the services in relation to goods and vessels and therefore more specific to port, the services provided in a port in relation to handling of goods would be appropriately covered under port service and no separate levy will be attracted under the category of cargo handling agency service”. In view of the above, I find that M/s Adani Enterprises can not take shelter on the basis of the amount paid by them on their own volition during the course of audit to change classification of service as per their own interpretation. M/s Adani Enterprises have relied upon the judgment in the case of Commissioner of C.Ex. Mangalore v/s Konkan Marine Agencies 2009(13)STR 7(Kar). The said order has not been accepted by the department and an appeal has been filed in the Hon’ble Supreme Court as reported by Assistant Commissioner(Legal), C.Ex. Mangalore vide letter C.No.IV/16/08/2011 dated 20.9.2011. Moreover the said judgement has already been considered by the larger bench of Tribunal in the case of Western Agencies Pvt. Ltd supra. The said services are categorized under the ‘Port Service’ as per Section 65(82) of the Finance Act, 1994 as discussed in the foregoing paras. 

            35. As regards the allegation of suppression of facts and invoking the extended period with regard to the short payment of service tax is concerned, the phrase implies that withholding of information is suppression of facts. P. Ramanatha Aiyar’s Concise Law Dictionary [1997 Edition Reprint 2003 – page 822] defines the phrase lucidly and accurately as – Where there is an obligation to speak, a failure to speak will constitute the “suppression of fact” but where there is no obligation to speak, silence cannot be termed “suppression”.  It is manifestly clear from this that intention to evade payment of tax is implied in the suppression of facts. Since the said service provider is liable to self assess the liability to pay service tax, they had an obligation to furnish the correct and complete information and the value of services whether taxable or otherwise. I find that the said M/s Adani Enterprises has contravened the provisions of Section 67 of the Finance, Act, 1994 in as much as, they failed to determine the correct value of taxable services provided by them and Section 68 of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994, in as much as they failed to determine and pay the correct amount of service tax.  

            35.1  I further observe that in the present system of self-assessment documents like invoices and other transaction details are not supplied to the Department. Moreover, M/s Adani Enterprises did not furnish the required details of receipt of amount of taxable value to the Department, and did not even declare the said income as ‘Exempted income’ in their ST-3 returns up to March’2008 and then for the period from April’2008 to March’2009 declared the said income as ‘Exempted income’ under ‘Port Service’, the intention will have to be believed as that of evasion by way of suppression or misedclaration. Once the details are not submitted to the Department, it amounts to mis-declaration or suppression which is rightly invoked in the case before me. I, therefore, conclude that the element of suppression with intent to evade payment of service tax is conspicuous by the peculiar facts and circumstances of the case as discussed above. In view of the above discussion and findings, the ratio of cases relied upon by M/s Adani Enterprises can not be applied in the case before me. 

            35.2  I am convinced that had the investigation not been carried out by the DGCEI, the short payment of service tax would have gone undetected. Therefore, this is a case of improper assessment amounting to deliberate non-declaration and suppression of vital information with a willful intention to evade payment of service tax. Accordingly, the invoking of extended period under proviso to Section 73(1) of the Act in the case before me is fully justified.  

            36. I now take up the issue of imposition of penalty under section 76 and 78 of the Act. 

            36.1 As regards the issue of imposition of penalty under Section 76 of the Finance Act, 1994, I observe that penalty under Section 76 and 78 of the Finance Act, 1994 are mutually exclusive w.e.f. 10.05.2008 and once penalty under Section 78 is imposed, no penalty under Section 76 can be imposed in terms of the proviso inserted in Section 78 w.e.f 10.5.2008 in this regard. Therefore, no penalty under Section 76 is imposable for the period from 10.5.2008 onwards. In the case before me, the demand of service tax is for the period from November’2006 to May’2009, therefore, I hold that penalty under Section 76 of the said Act is not imposable on the said service provider for the period from 10.5.2008 onwards. However, for the period from November’2006to 9.5.2008, as M/s Adani Enterprises have not paid service tax within the stipulated time period as prescribed under Section 68 of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994, I hold them liable to penalty under Section 76 of the Finance Act, 1994.

             

            36.2  As regards imposition of penalty under Section 78, I find that as the said M/s Adani Enterprises suppressed the facts with intention to evade payment of service tax, penalty under Section 78 of the Finance Act, 1994 is mandatorily imposable as has been held by the Apex court in the case of Dharmendra Textile Mills Ltd-2008 (231) ELT 3 (SC) and Rajasthan Spinning & Weaving Mills Ltd-2009 (238) ELT 3 (SC). Therefore, I hold that penalty is imposable on M/s Adani Enterprises under Section 78 of the Finance Act, 1994. 

            36.3  As regards imposition of simultaneous penalty, I place my reliance on the judgment of Hon’ble High Court of Kerala in the case of Assistant Commissioner of Central Excise v. Krishna Poduval as reported at [2006] 3 STT 96 (KER) which is aptly applicable to the present case. I find that the imposition of penalty under sections 76 and 78 of the Act is for non payment of service tax and suppression of value of taxable service respectively which are two distinct and separate offences attracting separate penalties. I find that the said M/s Adani Enterprises have committed both the offences and therefore penalties under section 76 and 78 of the Finance Act, 1994 are imposable on the said service provider for the period upto 9.5.2008. 

            36.4 As regards their contention for invoking Section 80 of the Finance Act, 1994 for waiver of penalty, I find that it is their contention that it was an issue of interpretation and secondly, there was no evidence on record which shows that they were aware that barging activities are part of stevedoring and chargeable to tax under the category of “Port Service”. Therefore, it was their bonafide belief that no service tax was payable on the Barging activities. As already discussed above, stevedoring means process of loading and unloading of ships. In the instant case, M/s Adani Enterprise used barges for loading and unloading of cargo from quay to mother vessel. In fact, barging/lighterage is a part of stevedoring operation. Thus, I hardly believe that they are not aware of the fact that barges are used for unloading and loading of goods and unable to accept their bonafide as claimed. Further, I have already discussed the issue of taxability of the services in the foregoing paras and arrived at the findings that the said services are taxable under the category of ‘Port Services’. I observe that if M/s Adani Enterprises Ltd had any doubt regarding the taxability of the services provided by them or eligibility of the relevant notifications, then being a registered service tax assessee they should have approached the service tax authorities for clarification of doubt to ascertain the taxability of the service provided by them. Therefore, I consider it appropriate to hold M/s Adani Enterprises Ltd liable to penalty under Section 76 and 78 of the Finance Act, 1994. 
             

            37. In view of the foregoing discussion, I pass the following order: 

              O R D E R 

              1. I confirm the demand of service tax of Rs. 9,59,33,573/- (Rupees Nine crore fifty nine lakh thirty three thousand five hundred and seventy three only)  on the taxable value of Rs. 80,12,62,153/- for the period from November’2006 to May’2009 under the category of ‘Port Services’ and order to recover the same from M/s Adani Enterprises Ltd. under proviso to Section 73(1) of the Finance Act,1994;
              1. I order to adjust the amount of Rs. 9,08,03,596/- (Rupees Nine crore eight lakh three thousand five hundred and ninety six only) already paid by M/s Adani Enterprises Ltd against the above confirmed demand subject to verification by the jurisdictional Assistant Commissioner; 
              1. I order to recover interest on the above confirmed demand of Rs. 9,59,33,573/- (Rupees Nine crore fifty nine lakh thirty three thousand five hundred and seventy three only) from M/s Adani Enterprises Ltd. at the prescribed rate under Section 75 of the Finance Act, 1994; 
              1. I order to adjust the amount of Rs. 3,24,42,432/- (Rupees Three crore twenty four lakh forty two thousand four hundred and thirty two only) already paid by M/s Adani Enterprises Ltd against the amount of interest liable to be recovered as per (iii) above subject to verification by the jurisdictional Assistant Commissioner ; 
              1. I impose penalty of Rs.200/- (Rupees Two hundred only) per day for the period during which failure to pay the tax continued, or at the rate of 2% of such tax, per month, whichever is higher, starting with the first day after the due date till the date of actual payment of the outstanding amount of service tax upon M/s Adani Enterprises Ltd. under Section 76 of the Finance Act, 1994, for the period upto 9.5.2008; provided that the amount of penalty payable in terms of this section shall not exceed the service tax payable by the said service provider for the period from November’2006 to 9.5.2008. 
                 
               
               

                vi.  I impose penalty of Rs.9,59,33,573/- (Rupees Nine crore fifty nine lakh thirty three thousand five hundred and seventy three only) on M/s Adani Enterprises Ltd. under section 78 of the Finance Act, 1994.  In the event of M/s Adani Enterprises Ltd opting to pay the amount of service tax along with all other dues as confirmed and ordered to be recovered, within thirty days from the date of communication of this order, the amount of penalty liable to be paid by them under Section 78 of the Finance Act, 1994 shall be 25% of the said amount. However, the benefit of reduced penalty shall be available only if the amount of penalty is also paid within the period of thirty days from the communication of this order, otherwise full penalty shall be paid as imposed in the above order. 

                                                                          

              -SD/- 21.11.11

                   

                 (A.K GUPTA)

                                                                                           Commissioner

                              Service Tax,

                              Ahmedabad 

                              F.No.STC/4-122/DGCEI-O&A/11-12                                                          Date:  21.11.2011

                              By Regd. Post A.D. 

                                     To,

                                M/s Adani Enterprises Limited,

                                Adani House,

                                Near Mithakhali Six Roads,

                                Navrangpura,

                                Ahmedabad 

                                Copy to:

                                (1)  The Chief Commissioner, Central Excise & Service Tax, Ahmedabad Zone, 

                                       Ahmedabad.

                                (2) The Additional Director General, DGCEI, Ahmedabad Zonal Unit, Ahmedabad.

                                (3) The Assistant Commissioner,  Service Tax, Division-II, Ahmedabad.

                                (4) The Superintendent, Service Tax, A.R.-VIII, Division-II, Ahmedabad.

                                (5) Guard File 
                                 
                                 
                                 
                                 
                                 
                                 
                                 
                                 
                                 
                                 
                                 
                                 
                                 
                                 
                                 
                                 
                                 
                                 
                                 
                                 
                                 
                                 
                                 
                                 
                                 

                                

Set Home | Add to Favorites

All Rights Reserved Powered by Free Document Search and Download

Copyright © 2011
This site does not host pdf,doc,ppt,xls,rtf,txt files all document are the property of their respective owners. complaint#downhi.com
TOP