The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Hyderabad bench, while quashing service tax demand on the Hindustan Shipyard, has held that the assessee is not taxable for certain payments received from the Indian navy.
The appellant is a Government of India owned public sector undertaking, engaged in building of ships and maintenance. They have received a contract from Indian Navy for submarine retrofitting. In terms of the contract they have received some amounts for (i) upgrading their infrastructure at the shipyard, (ii) reimbursement of income tax and VAT and (iii) amount paid to Russian company for procuring Repair Technical Documents (RTDs) on behalf of the Indian Navy.
After hearing both the sides, the CESTAT held that the amounts received by the appellant from the Indian Navy for the purpose of upgrading their facilities at the shipyard are not linked to the present contract and hence can only be termed mobilization advances not linked to any signed contract for rendering services.
“Of course, in future Indian Navy may award the appellant contracts and the amounts now paid will be adjusted against such contracts. At this stage it is not clear as to what contracts will be signed and whether they will be liable to service tax during that period. Therefore, we do not find any ground to charge service tax on the mobilization advance received by the appellant. Respectfully, we follow the decision of the Tribunal in the case of SMS Infrastructure Ltd., (supra) and hold that no service tax is payable on the amount received towards mobilization advance of the contract from the Indian Navy,” the Tribunal said.
“As far as the amounts received towards reimbursement of income tax and VAT paid including the TDS paid by the appellant and reimbursed by the Indian Navy are concerned, these are in the nature of reimbursable expenses and hence cannot be included in the value of taxable services as has been held by the Hon’ble Supreme Court in the case of Intercontinental Consultants & Technocrats Pvt. Ltd., (supra). As far as the amounts received towards RTDs are concerned, these are clearly goods received by the appellant on behalf of Indian Navy and were imported by filing a bill of entry and no service tax can be levied on the goods. In conclusion, we find that the impugned order is liable to be set aside and we do so,” it said.
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