Service Tax Payable on Supply of Water which is part of Port Service: CESTAT Decides on Pure Agent Service [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Ahmedabad Bench, held that there was no mens rea to evade tax payment but the appellant, Sea Shipping Services, would be liable to pay service tax on supply of water as it is a part of Port Service. The CESTAT decided on the applicability of pure agent service in the present matter.

During audit of the appellant’s records, the officers observed that the appellant had issued debit notes to their customers for reimbursement charges of supply of water and recovered payment of INR 66,25,250/- on which they did not pay requisite service tax.

The above services are alleged tobe covered under “Port service” as defined under Section 65(82) of the Finance Act, 1994 and therefore, SCN dated 24.09.2014 was issued to them proposing recovery of service tax along with interest and penalty.

The Additional Commissioner adjudicated on the SCN and confirmed the charges. On appeal, the Commissioner (Appeals) upheld the order and rejected the appeal. Hence, the issue was appealed before the CESTAT.

The counsel for the appellant highlighted provisions of the Finance Act and stated that the amount recovered by them is for supply of water which was exempted from Port Services vide Notification No. 31/2010. It was also claimed that since the appellant is a pure agent, he is not liable to service tax on the income from supply of fresh water.

The authorised representative for the Revenue mentioned that it is not the cost of water alone as it includes the cost of other elements like procurement and transportation. Further, it was argued that the Central Board of Excise and Customs in its Circular F No. B.11/1/2001-TRU explained that water supply is taxable under the category of “Port Services”.

The tribunal agreed with the argument that prior to July, 2010, supply of water when provided within a port area is covered under the category of port services and is leviable to service tax.

However, CESTAT notes that the claim that the transaction involves pure agent service is not correct and thus was rejected. The two member bench also considered the cost of charges of other elements to hold that the appellant is liable to service tax on supply of water which is a part of port service rendered by them.

Dr. Ajaya Krishna Vishvesha (Judicial Member) and Satendra Vikram Singh (Technical Member) found that there was no mens rea to evade payment of service tax and therefore set aside the penalty of INR 6,82,400/- while upholding the service tax demand confirmed by invoking the extended period.

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