The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), quashed service tax demand on the Concession Agreement for the Development of the Karaikal Port Project to develop the port on a Build, Operate, Transfer (BOT) basis.
The Port Department, Government of Puducherry (‘Port Department’), the appellant, intended to develop a port at Karaikal in the Union Territory of Puducherry in the BOT format with private investments. They entered into an agreement, named ‘Concession Agreement for Development of Karaikal Port Project’, with M/s. Marg Constructions Ltd (MCL) granting them the rights to develop/operate/maintain the Port including project facilities on a BOT basis.
Subsequently, MCL transferred and assigned the project to their wholly-owned subsidiary, namely M/s. Karaikal Port Pvt Ltd. (KPPL) who would be the concessionaire for the Port project. KPPL were given the freedom for the levy, fixing and revising tariffs for various port services on the premises. In consideration for the grant of the said ‘concession’, a ‘concession fee’ was to be paid by KPPL to the Puducherry Port as a percentage of gross revenue generated by the concessionaire each year.
Service tax of Rs.1 crore was confirmed under the proviso to section 73(1) of the Finance Act, 1994 for the period from January 2007 to January 2012 along with appropriate interest. A penalty of Rs.1 crore was also imposed under Section 78 of the Finance Act, 1994.
Raghavan Ramabhadran, counsel appearing for the appellant has stated that they are an arm of the Government of Puducherry and entrusted with the administration and supervision of the Ports and were registered with the Service Tax Department for rendering Port services.
The Counsel further submitted that the service is performed by KPPL and not by the appellant. The fees that were received by the appellant are not in return for the provision of any infrastructural service. Rather, it is merely for leasing vacant port land. If there is any provision of infrastructural support or service, the same flows from Karaikal Port to the appellant.
K. Komathi, counsel for the Revenue submitted that the Government of Puducherry had outsourced the activity, which was to be done by them for which they were receiving a concession fee.
A Two-Member Bench of the Tribunal comprising observed that “The ‘concession fee’ paid by KPPL to the Puducherry Port as a percentage of gross revenue generated by the concessionaire each year is also not a payment for any support services of business or commerce given by the Port Department to KPPL. It is basically a payment for the rights to develop/operate/maintain the Port including project facilities. We are accordingly of the view that the impugned order has erred in classifying the activity of the BOT contract under sec. 65(105)(zzzq) of the Finance Act, 1994 and that the levy must fail.”
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