REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS.3347-3348 OF 2014
COMMISSIONER OF CENTRAL
EXCISE, BHAVNAGAR …APPELLANT
VERSUS
M/S GUJARAT MARITIME BOARD,
JAFRABAD ...RESPONDENT
J U D G M E N T
R.F. Nariman, J.
1. The issue raised in the present civil appeals is with
regard to service tax payable on wharfage charges. The
respondent - M/s Gujarat Maritime Board (hereinafter referred to
as “GMB”) is a statutory body constituted under the Gujarat
Maritime Board Act, 1981 (hereinafter referred to as “GMB Act”).
This authority administers and operates minor ports in the
State of Gujarat. GMB entered into an agreement dated 28.2.2000
with Larsen & Toubro which ultimately became M/s Ultratech
Cement Limited (hereinafter referred to as “UCL”) whereby a
licence was granted to UCL to construct and use a jetty for
landing of goods and raw materials manufactured by UCL in their
cement factory which was situate close to the said jetty at
Pipavav port. As the true construction of this agreement is the
bone of contention between the parties, we will refer to it in a
little detail hereafter.
2. It is alleged that service tax was payable on wharfage
charges by GMB collected by them from their licensee UCL under
the taxable category of “port services”. The revenue
authorities initiated investigation against GMB for under-
valuation and short payment of service tax. Ultimately, a show
cause notice dated 6.3.2009 was issued to collect 80% of service
tax payable on wharfage charges which was not paid by the
assessee. This was for the period 1.10.2003 to 31.3.2006, the
differential amount being a sum of Rs.1,67,45,620/-. A further
amount of Rs.12,53,076/- was also demanded for the period 2003
October upto 2007-2008 on account of the provision of direct
berthing facilities provided for captive cargo of a ship size of
10,000 DWT and above on account of lease rent for use of the
waterfront. By the order in original dated 16.7.2009, the
Commissioner, Central Excise held that it is clear that the
nature of service provided, which is wharfage, is squarely
covered under the head “port services” as defined in the Finance
Act, 1994. The amount of rebate/concession granted in wharfage
charges amounting to 80% allowed to the licensee should,
therefore, be included for purposes of calculation of service
tax. Equally, the amount that was demanded on account of lease
rent for waterfront usage was also confirmed, together with
interest and penalty, which was imposed on the assessee.
3. In appeal from this order, CESTAT by its judgment dated
1.8.2013 reversed the Commissioner’s order holding that no
service at all was rendered by the Gujarat Maritime Board in
relation to any vessel and, therefore, no amount was payable by
way of service tax. Equally, on an analysis of the agreement
between GMB and UCL, it was held that 20% of wharfage charges
which was payable under the agreement was really payable as
licence fee/rental and, therefore, the balance 80% being of the
nature of licence fee/rental and not being of the nature of
payment for services rendered would equally render the payment
bad in law.
4. Shri Yashank Adhyaru, learned senior advocate appearing on
behalf of the revenue has taken us through the Gujarat Maritime
Board Act and the Finance Act, 1994. It is his contention that
on a conjoint reading of the two Acts and in particular Section
37 of the Gujarat Maritime Board Act and Section 65(82) of the
Finance Act, 1994, it is clear on a correct reading of the
agreement between GMB and UCL that service was rendered by GMB
as owner of the jetty, the service being the provision of a
space for landing of goods from vessels which are allowed to
berth there. As an alternative argument, on a correct reading
of the agreement, it was also argued that GMB had authorized UCL
to render the service of wharfage and since what was collected
was actual wharfage charges in accordance with the schedule of
rates prescribed under the Gujarat Maritime Board Act, it was in
relation to goods that were loaded or off-loaded from vessels on
the said jetty. It was further argued by learned counsel that
the reason why only 20% of the wharfage charges was collected
and not the entire amount was a pure internal arrangement
between GMB and UCL with which revenue is not concerned. He
further assailed the findings of the Tribunal stating that the
finding that the ownership of the jetty vests in UCL is contrary
to the agreement between the parties and that 20% of wharfage
levied and collected cannot be said to be rental or licence fee
but is wharfage charges collected under the GMB Act for the
service of allowing goods to be landed at the said jetty.
According to learned counsel, the Gujarat Maritime Board was the
owner and in control of the said jetty throughout the term of
the agreement and all findings to the contrary by the Tribunal
were incorrect.
5. Shri P.P. Tripathi, learned senior advocate appearing for
the respondent countered all the aforesaid submissions and
supported the Tribunal judgment. According to learned counsel,
the very basis for service tax was absent in the present case as
there is no service rendered of any kind by his client the
respondent on the facts of the present case to UCL nor has UCL
been authorized by GMB to render any service mentioned in
Section 37 of the Act and that, therefore, the authority to levy
service tax was absent. He also argued that the 20% of wharfage
charges that was paid under the agreement was really only a
measure to calculate what is in fact payable as licence fee and
that, therefore, the agreement read as a whole would lead to the
conclusion that no service was in fact rendered by the
respondent and, therefore, no service tax could be collected.
6. It is important first to advert to the Finance Act, 1994
under which the charge is laid for service tax. Section 65(82)
defines “port service” as under:-
“Port service” means 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;”
7. Such service tax is leviable under Section 65(105)(zn)
which reads as follows:-
“Taxable service” means any service provided or to be
provided-
“(zn) to any person, by a port or any person authorized by
the port, in relation to port services, in any manner;”
Further, under Section 67 of the said Act, the value of any
taxable service shall be the gross amount charged by the service
provider for such service provided or to be provided by him.
8. The relevant provisions of the Gujarat Maritime Board Act
are as follows:-
“35. Power to permit erection of private wharves, etc.
within a port subject to conditions:
(1) No person shall make, erect or fix within the limits
of a port or port approaches any wharf, dock, quay, stage,
jetty, pier, place of anchorage, erection or mooring or
undertake any reclamation of foreshore within the said
limits except with the previous permission in writing of
the Board and subject to such conditions, if any, as the
Board may specify.
(2) If any person makes, erects or fixes and wharf, dock,
quay, stage jetty, pier place of anchorage, erection or
mooring or undertakes reclamation of foreshore in
contravention of sub-section (1) the Board may, by notice
require such person to remove it within such time as may be
specified in the notice and if the person fails so to
remove it the Board may cause it to be removed at the
expense of that person.
37. Scales of rates for services performed by Board or
other person:-
(1) The Board shall from time to time frame a scale of
rates at which and a statement of the conditions under
which any of the services specified hereunder (except the
State charges) shall be performed by itself or any person
authorized under Section 32 at or in relation to the port
or port approaches-
(a) transshipping of passengers or goods between vessels
in the port or port approaches;
(b) stevedoring, landing and shipping of passengers or
goods from or to such vessels, to or from any wharf, quay
jetty, pier, dock, berth mooring stage, or erection, land
or building in the possession or occupation of the Board or
at any place within the limits of the port or port
approaches;
(c) cranage or porterage of goods on any such place;
(d) wharfage, storage or demurrage of goods on any such
place;
(e) any other service in respect of vessels, passengers
or goods excepting the services in respect of vessels for
which fees are chargeable under the Indian Port Act, 1908
(15 of 1908).
(2) Different scales of rates and conditions may be
framed for different classes of goods and vessels and for
different ports.
32. Performance of services by Board or other person:-
1) The Board shall have power to undertake the following
services:-
(a) stevedoring, landing, shipping or transshipping
passengers and goods between vessels in port and the
wharves, piers, quays, or docks belonging to or in the
possession of the Board;
(b) receiving, removing, shifting, transporting, storing
or delivering goods brought within the Board’s premises;
(c) carrying passengers within the limits of the port
approaches, by such means and subject to such restrictions
and conditions as the State Government may think fit to
impose; and
(d) piloting, hauling, mooring, re-mooring, hooking or
measuring of vessels or any other service in respect of
vessels.
(2) The Board may, if so requested by the owner, take
charge of the goods for the purpose of performing the
service or services and shall give a receipt in such form
as the Board may specify.
(3) Notwithstanding anything contained in this section,
the Board may authorize any person to perform any of the
services mentioned in sub-section (1) on such terms and
conditions as may be agreed upon.
(4) No person authorized under sub-section (3) shall
charge or recover for such service any sum in excess of the
amount leviable according to the scale framed under Section
37, 38 or 40.
(5) Any such person shall, if so required by the owner
perform in respect of the goods any of the services and for
that purpose take charge of the goods and give a receipt in
such form as the Board may specify.
(6) The responsibility of any such person for the loss,
destruction or deterioration of goods of which he has taken
charge shall, subject to the other provisions of this Act,
be that of a bailee under Section 151, 152 and 161 of the
Indian Contract Act, 1872 (IX of 1872).
(7) After any goods have been taken charge of and a
receipt given for them under this section, no liability for
any loss or damage which may occur to them shall attach to
any person to whom a receipt has been given or to the
matter or owner of the vessel from which the goods have
been landed or transshipped.
9. Since a large part of the arguments on both sides revolved
around the agreement dated 28.2.2000, between GMB and UCL, it
would be important to advert to the various provisions of the
agreement. The agreement begins as follows:
“THE ARTICLES OF AGREEMENT made at Gandhinagar on this day
28th February, two thousand between the GUJARAT MARITIME
BOARD, a Board constituted under the Gujarat Maritime Board
Act, 1981 – (Gujarat Act No.XXX of 1981) having its office
at Opp. Air force station, ‘Chh’ Road, Sector No.10-A,
Gandhinagar, hereinafter referred to as the “BOARD” (which
expression shall unless it be repugnant to the context or
meaning thereof mean and include its successors and
assigns) of the one part and Larsen & Toubro Limited having
its Registered Office at L&T House, Ballard Estate, Mumbai
– 21, hereinafter referred to as the “LICENSEE’ (which
expression shall unless it be repugnant to the context or
meaning thereof mean and include its successors and
assigns) of the other part;
WHEREAS the Licensee approached the Board for permission
for construction and use of a Captive Jetty at Port Pipavav
in the State of Gujarat on a license basis for the purpose
of handling, storage and transportation of raw-materials
for manufacturing and finished products that are
manufactured by the Licensee and for the purpose of the
Board as well;
AND WHEREAS the Board and the Licensee have already entered
into License agreement which is modified and this license
Agreement in modification of previous Agreement is entered
into by and between the Board and the Licensee as appearing
hereinafter;
AND WHEREAS in consideration of the Licensee constructing a
Captive jetty as aforesaid at its cost initially to be
adjusted against the Rebate, that may be granted by the
Board, the Board as empowered under Section 35 of the
Gujarat Maritime Board Act, 1981 granted to the Licensee a
license or permission for construction/use of the captive
Jetty on the said port at the place aligned, demarcated,
provided and approved by the Board upon the terms and
conditions specified herein on Build, transfer, Operate and
Maintain basis;
NOW IT IS AGREED BY AND BETWEEN THE PARTIES HERETO AS
FOLLOWS:
(c) ‘PORT CHARGES’ would mean port charges specified in
schedule of port charges, notified by government/Board
under the Indian Ports Act, 1908/Gujarat Maritime Board
Act, 1981 and allied legislations/regulations from time to
time.
(e) ‘CAPTIVE JETTY’ would mean a Jetty constructed for
landing and shipping by a port based industry, located in
Gujarat for landing and shipping of their Captive Industry
Raw Materials for manufacturing or their finished products
that are manufactured by the Licensee, from the constructed
Jetty for that specific industry.
2. The Board has granted permission to the licensee for
continuing with construction and use of the Captive Jetty
at the site demarcated on the plan, a layout of which has
been annexed to this agreement.
3. The Licensee shall pay and continue to pay for the
license granted under this Agreement a license fee of
Rs.10,000/- (Rupees Ten Thousand only) per annum to the
Board regularly on or before the 30th day of April every
year during the currency of this agreement.
12. The ownership of the structure so constructed vests in
the Board and the Licensee shall have no right, title,
interest or other proprietary right in respect of such
structure or in respect of the land on which the structure
is constructed, it being specifically understood that water-
front is the sovereign right of the Government.
13. The Licensee may however obtain a loan at its own risk
and cost, on the basis of rights granted to him under this
agreement and is entitled to create a charge or lien on its
rights or property only on the basis of investment made by
it for construction i.e. to say taking into consideration
the extent of investment made by it in the construction;
PROVIDED that and it is agreed that the cost can be divided
for the purpose of obtaining finance for the Jetty
construction, it being, however, clearly understood that
the water-front is a sovereign right of Government and the
right of the Licensee is limited only for the purpose of
mortgage or hypothecation to the extent of investment made
by it and its right to concur in the event of transfer or
take over of the entire project to which the Jetty is
attached, subject, however, to the prior approval of the
Board for transfer of license. The Licensee shall not be
allowed to transfer the jetty separately as the same is
directly connected to the project to which the Captive
Jetty is allowed to be constructed.
PROVIDED further that whatever rebate and concession is
granted by the Board against the cost of construction, the
equivalent amount at the relevant time shall be utilized by
the Licensee in repayment of loan so that at the end of the
period of this agreement when the Licensee may not have
right of rebate under this agreement, then the construction
is free of any liability in respect of such loan.
PROVIDED further that the Bank or financial institution
granting loan to the licensee shall not have any right
against the Board.
PROVIDED further that in the event of a declaration of War
in the Country or any Emergency or on account of national
security or any other circumstances, the Board is entitled
to exercise all rights in such kinds of situation and
emergency. The Bank or financial institutions shall not be
entitled in such event to exercise any right under loan
documents even in respect of such construction. The
Licensee shall obtain "No Objection Certificate" of the
Board for the loan and for the terms and conditions on
which the loan is sanctioned, and shall be bound to see
that the relevant Clauses in pursuance of this Agreement
are incorporated in loan documents.
15. The Board may, in order to decide the safety of the
structure or for any other purpose, carry out inspection
every six months from the date of issue of the Completion
Certificate. The Licensee shall carry out maintenance and
repairs to the structure at its own cost, whenever so
directed by the Board upon inspection. No alteration or
extension of the Jetty shall be done without prior
permission of the Board in writing PROVIDED that this
clause shall not preclude the Board from carrying out
inspection at any time, instead of every six months.
16. The Licensee shall at its own cost repair and maintain
the jetty in good order and condition to the satisfaction
of the Board during the tenure of this agreement and on the
failure of the Licensee to do so, the Board shall be
entitled, but not bound, to do so at the cost of licensee.
This condition however, does not entitle the Licensee to
refrain from carrying out repair or maintain the Jetty in
good order and condition and it is further agreed that non-
performance by Licensee shall be considered as a breach of
condition of this agreement.
17. In consideration of the Board permitting the Licensee
to construct the Captive Jetty at its own cost initially,
the Board hereby agree that the Jetty to be so constructed
by the Licensee shall mainly and initially as per the terms
of this agreement, allowed to be used for the vessels
belonging to the Licensee or chartered by the Licensee, on
preferential basis, without any ousting priority and
subject to Steamer Working (Priority) Rules as may be
amended from time to time and subject to all other rules
and regulations and the legislations prevailing at the
relevant time and subject also to the further conditions of
this agreement.
18. It is agreed that subject to the priority right of the
Licensee for user of Jetty under the preceding clause, it
is further agreed that the Jetty shall when the same is not
in use by the Licensee, be open to use by the Board for
itself or for the traffic being regulated by the Board for
the purpose of embarking or disembarking their ships,
boats, tugs, etc. and for loading and discharging cargo.
The Licensee or its Agents shall not by any act of
commission or omission, restrict the use of the Jetty and
back up area by the Board except when it is actually used
by the Licensee for the purpose provided for in this
agreement.
PROVIDED that this clause shall not be construed to mean
that Licensee has any ownership or transferable right in
the property and the Licensee is not entitled to levy any
charges or compensation from the Board.
21. It is agreed that subject to what has been stated
herein, the Licensee shall be liable to pay all the port
charges and all other dues payable by the Licensee to the
Board, and the Licensee shall not be eligible to get any
other rebate or concession except that which is mentioned
in Clause 22 and 24.
22. It is agreed that in consideration of the Licensee
constructing the Jetty at its own cost initially, the Board
has agreed to grant rebate, to be adjusted against the cost
of construction, as under:
A. The Licensee shall have to pay landing/shipping fees
(popularly known as wharfage charges) @ 20% of the actual
landing and shipping fees specified in the Schedule of Port
Charges prescribed for Captive Jetty. The landing and
shipping fees shall be calculated for this purpose as per
the schedule of landing and shipping fees, as may be
revised or amended from time to time. This concession shall
be called 'REBATE' and it will be set off as aforesaid
against the Capital Investment (cost of construction as
mentioned in Clause 24) made by the Captive Jetty holder,
and the same shall be calculated in a prescribed format.
Once the Capital Investment is recovered through the
Rebate, the Captive Jetty holder shall have to pay
thereafter, landing and shipping fees at the normal rate as
per the Schedule of Port Charges in force from time to time
prescribed for captive jetty.
B. The Licensee shall also be entitled, as in the normal
case to a concession in payment of landing/shipping fees
for coastal transportation of the cargo from one port under
the Board to another port under the Board @ 25% and from
one port under the Board to another Indian Port or vice-
versa @ 15% or at the rate as may be applicable from time
to time.
C. No Rebate will be given in respect of any other charges
to be levied under Indian Ports Act and under Gujarat
Maritime Board Act. The parties shall have to pay all the
port charges at the rates specified in Schedule of Port
Charges in force from time to time.
?25. In case the direct berthing facilities provided for
captive cargo (ship size calling at jetty of 10,000 DWT and
above) an amount of Rs.25.00 Lakhs (Rupees Twenty Five
Lakhs only) per annum will be charged as lease rent for
waterfront and way leave facility compensation.
28. The Licensee shall provide all the services at or
around the Jetty including dredging, navigation, water
supply, fire fighting equipments, electricity, telephone,
Very High Frequency (VHF) sets of HF sets and such other
services and facilities which may be required at or around
the Jetty and also such other services and facilities which
the Board may require the Licensee to keep available at or
around the Jetty. If the Licensee does not provide all or
any of the aforesaid facilities, the Board may at its own
discretion provide such facilities at the cost and risk of
the Licensee and shall recover such costs from the
Licensee. The decision of the Board regarding the amount of
cost incurred for such services shall be treated as final.
34. If the Licensee commits breach of any of the terms and
conditions of this agreement or of any Rules, Regulations
or Notifications as may be in force from time to time, the
Board shall be entitled to give notice the Licensee to
remove such breach within a period of 15 days from the date
of notice and Port Authorities can temporarily suspend
operation of captive port facility. If the said notice is
not complied with, the Board shall give another Notice to
terminate this agreement if the said breach is not complied
with within a period of further 15 days and that on the
expiry of such period of 15 days, the agreement shall
automatically be deemed to have been terminated without
further notice. Upon such termination of the agreement, the
Board shall be entitled to take control or otherwise
dispose off all or any part of the Jetty that may have been
constructed, as well as the site thereof in such manner and
may give the same to such person or party as may be decided
by the Board and the Licensee shall not be entitled to any
compensation, nor shall the Licensee have then a right in
respect of the superstructure or the land/sea on which the
Jetty was constructed, provided that even if the cost of
construction of the Jetty is not adjusted against the
aggregate of the amount of rebate availed off by the
Licensee, the Licensee shall not be entitled to any refund.
In case of any dispute or difference by and between the
Licensee and the Board, the same shall be referred to the
Arbitration of Secretary of the Government in Ports and
Fisheries Department and it shall be held in accordance
with the provisions of the Indian Arbitration and
Reconciliation Act, 1996 or any statutory modification or
re-enactment thereof for the time being in force.
36. The agreement shall remain in force for a period of
twenty five years or till such time as the aggregate of
‘REBATE’ availed off by the party equals the amount of the
construction of the Jetty whichever is earlier from the
date of commissioning of Jetty.
PROVIDED further that even after aggregate of rebate
availed of by the Licensee equals the amount of
construction of Jetty, the Licensee will be allowed to use
the Jetty for captive purpose subject to full payment of
full wharfage charges so long as the project of the
Licensee for which the permission is granted exists or
continues to exist, i.e., continues to function.
It is agreed and understood by the Licensee that out of the
terms ‘Jetty’ the terms applicable for the purpose of this
Agreement may be retained in this Agreement and other
words/terms not applicable may be deleted.”
10. A reading of the agreement as a whole would lead to the
following conclusions:
A. The agreement is a licence agreement entered into under
Section 35 of the Gujarat Maritime Board Act under which a
licence or permission for construction and use of a captive
jetty in Pipavav Port is entered into on a Build, Transfer,
Operate and Maintain basis on certain conditions.
B. A licence fee of Rs.10,000/- per annum is payable by the
licensee to the Board for the currency of the agreement
unless terminated earlier.
C. The ownership of what is constructed vests in the Board
together with the landing on which it is constructed and
the waterfront.
D. The jetty is constructed for the project to which it is
attached, namely, the cement factory of UCL. The licence
granted to UCL is, therefore, a non-transferable one.
E. The Board is entitled to carry out inspection every six
months so that it can direct the licensee to maintain and
repair the structure at its own cost, maintenance of the
said jetty in good order and condition being that of the
licensee alone, a breach of which is considered as a breach
of the agreement.
F. The jetty is to be used mainly for the goods of the
licensee and when not in use by the licensee can be used by
the Board itself.
G. That in consideration of the licensee constructing the
jetty at its own cost, the Board has agreed to grant rebate
to be adjusted against the cost of construction of the
jetty by paying 20% of wharfage charges specified in the
schedule of charges prescribed for captive jetties. This
concession is to be called a rebate and to be set off
against the cost of construction of the said jetty. Once
the entire cost of construction is recovered through the
rebate, the licensee will have to pay thereafter wharfage
charges at the full rate prescribed in the schedule of port
charges for captive jetties.
H. For direct berthing facilities provided for captive cargo
in ships which call at the jetty of 10,000 DWT and above,
an amount of Rs.25,00,000/- will be charged as lease rent
for waterfront use.
I. It is the licensee UCL that will provide all services at or
around the jetty including dredging, navigation, etc. and
if this is not done then the Board may on its own provide
such facilities at the risk and cost of the licensee UCL.
J. The licence is terminable on breach of the terms and
conditions of the agreement or of any infraction of law.
Upon such termination, the Board shall be entitled to take
control or otherwise dispose of all or any part of the
jetty that may have been constructed.
K. The period of the agreement is to be 25 years from the date
of commissioning of the jetty or such time as the rebate
availed of by the party equals the construction cost of the
jetty whichever date is earlier. However, even after the
rebate and the construction cost square off, the licensee
will be allowed to use the jetty for captive purposes
subject to full payment of wharfage charges so long as the
project of the licensee – i.e. the cement plant of the
licensee continues to function.
11. The question which arises on a reading of the said
agreement is, therefore, whether any service is rendered by GMB
or by any person authorized by GMB in relation to a vessel or
goods. The agreement makes it clear that it is the duty of the
licensee, i.e., UCL to maintain the jetty in good order and
condition during the tenure of the agreement. (See: clauses 15
and 16 set out above). Further, it is UCL that is to provide
all services at or around the jetty including dredging,
navigation, water supply etc. (See: clause 28 of the agreement).
This makes it clear that during the currency of the agreement
it is not the Board but the Licensee who keeps the said jetty in
such condition that it is capable of enabling vessels to berth
alongside it to load and unload goods. This being the
position, we agree with Shri Tripathi, learned senior counsel on
behalf of GMB that no service is rendered by GMB to UCL under
the agreement. The agreement makes it clear that it is an
agreement entered into under Section 35 of the GMB Act allowing
the licensee - UCL to construct a jetty and thereafter maintain
it at its own cost. We may add that the rebate in wharfage
charges of 80% is a condition imposed statutorily under Section
35 of the said Act. To say that it is in the nature of lease
rent or licence fee, would not be correct inasmuch as a separate
licence fee is payable under the agreement. (See: clause 3 of
the agreement). To that extent we agree with Shri Adhyaru,
learned senior advocate appearing on behalf of revenue that the
CESTAT does not seem to be correct in this behalf. But this
would make no difference to the result of this case inasmuch as
the very first condition that must be met under the definition
of “port service” is not met on the facts of the present case.
12. Shri Adhyaru argued relying upon the definition of “wharf”
and “wharfage” in Black’s Law Dictionary, Seventh Edition that
all that is necessary is that a wharf be provided by the Board.
The very provision of such wharf would entitle the Board to levy
a fee which is nothing other than wharfage charges collected
under the Schedule of rates mentioned hereinabove. To
appreciate this argument we set out the definition of ‘wharf’
and ‘wharfage’ from Black’s Law Dictionary as under:-
Wharf. A structure on the shores of navigable waters,
to which a vessel can be brought for loading or unloading.
Private wharf. One that can be used only by its owner
or lessee.
Public wharf. One that can be used by the public.
Wharfage 1. The fee paid for landing, loading, or
unloading goods on a wharf. 2. The accommodation for
loading or unloading goods on a wharf.
We are afraid that we are unable to agree with Shri Adhyaru for
the reason that though GMB is the owner of the jetty under the
said agreement, yet for providing the service of allowing a
vessel to berth at the said jetty, it is necessary for GMB
itself to keep the said jetty in good order. Wharfage charges
are collectible because they are in the nature of fees for
services rendered. The expenses that are defrayed by the Board
for the maintenance of the jetty is sought to be collected as
wharfage charges. This amount would necessarily include all
amounts that are spent for keeping the said jetty in good
condition including dredging so that vessels can berth alongside
the jetty. It is clear that so far as jetties operated by the
Board are concerned, the Board itself defrays such expenses. It
is only in cases like the present where the jetty is primarily
meant for loading and unloading goods belonging to a particular
private party that repair and maintenance expenses are to be
borne by the private party and not by the Board. It is in this
circumstance that we find that there is no service, therefore,
rendered by GMB to UCL.
13. The other limb of Shri Adhyaru’s argument is that in any
case UCL is a person authorized by GMB within the definition of
“port service” and that, therefore, in any case the Section
would be attracted as there is no doubt that wharfage charges
are a payment for services rendered in relation to a vessel or
goods.
14. As can be seen from Section 32 sub-sections (3) and (4),
the Board may authorize any person to perform any of the
services mentioned in sub-section (1) of the said Section which
includes landing of goods at wharves. We asked Shri Adhyaru to
show us where such authority is given and his reply was only
that it was given under the self-same agreement referred to
hereinabove. We are afraid that we are unable to agree with
Shri Adhyaru. The authority given to perform any of the
services must first and foremost be under terms and conditions
as may be agreed upon by the Board and the private person.
Further, under sub-Section (4) of Section 32, it is the private
person who is then authorized to charge or recover any sum in
respect of such service rendered. This is conspicuously absent
in the aforesaid agreement. There is no doubt on a reading of
the agreement that it is the Board itself that charges or
recovers wharfage charges from the licensee - UCL and does not
authorize UCL to recover such charges from other persons. This
being the position, it is clear that no service is rendered by a
port or by any person authorized by such port and, therefore,
the very first condition for levy of service tax is absent on
the facts of the present case. So far as the direct berthing
facilities provided for captive cargo is concerned, the lease
rent charged for use of the waterfront also does not include any
service in relation to a vessel or goods and cannot be described
as “port service”. This being so, it is unnecessary to go into
any of the other contentions raised by both parties. To the
extent that the impugned judgment is in conformity with our
judgment, it is upheld. The appeals of the revenue are,
therefore, dismissed accordingly.
……………………J.
(A.K. Sikri)
……………………J.
(R.F. Nariman)
New Delhi;
July 22, 2015
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS.3347-3348 OF 2014
COMMISSIONER OF CENTRAL
EXCISE, BHAVNAGAR …APPELLANT
VERSUS
M/S GUJARAT MARITIME BOARD,
JAFRABAD ...RESPONDENT
J U D G M E N T
R.F. Nariman, J.
1. The issue raised in the present civil appeals is with
regard to service tax payable on wharfage charges. The
respondent - M/s Gujarat Maritime Board (hereinafter referred to
as “GMB”) is a statutory body constituted under the Gujarat
Maritime Board Act, 1981 (hereinafter referred to as “GMB Act”).
This authority administers and operates minor ports in the
State of Gujarat. GMB entered into an agreement dated 28.2.2000
with Larsen & Toubro which ultimately became M/s Ultratech
Cement Limited (hereinafter referred to as “UCL”) whereby a
licence was granted to UCL to construct and use a jetty for
landing of goods and raw materials manufactured by UCL in their
cement factory which was situate close to the said jetty at
Pipavav port. As the true construction of this agreement is the
bone of contention between the parties, we will refer to it in a
little detail hereafter.
2. It is alleged that service tax was payable on wharfage
charges by GMB collected by them from their licensee UCL under
the taxable category of “port services”. The revenue
authorities initiated investigation against GMB for under-
valuation and short payment of service tax. Ultimately, a show
cause notice dated 6.3.2009 was issued to collect 80% of service
tax payable on wharfage charges which was not paid by the
assessee. This was for the period 1.10.2003 to 31.3.2006, the
differential amount being a sum of Rs.1,67,45,620/-. A further
amount of Rs.12,53,076/- was also demanded for the period 2003
October upto 2007-2008 on account of the provision of direct
berthing facilities provided for captive cargo of a ship size of
10,000 DWT and above on account of lease rent for use of the
waterfront. By the order in original dated 16.7.2009, the
Commissioner, Central Excise held that it is clear that the
nature of service provided, which is wharfage, is squarely
covered under the head “port services” as defined in the Finance
Act, 1994. The amount of rebate/concession granted in wharfage
charges amounting to 80% allowed to the licensee should,
therefore, be included for purposes of calculation of service
tax. Equally, the amount that was demanded on account of lease
rent for waterfront usage was also confirmed, together with
interest and penalty, which was imposed on the assessee.
3. In appeal from this order, CESTAT by its judgment dated
1.8.2013 reversed the Commissioner’s order holding that no
service at all was rendered by the Gujarat Maritime Board in
relation to any vessel and, therefore, no amount was payable by
way of service tax. Equally, on an analysis of the agreement
between GMB and UCL, it was held that 20% of wharfage charges
which was payable under the agreement was really payable as
licence fee/rental and, therefore, the balance 80% being of the
nature of licence fee/rental and not being of the nature of
payment for services rendered would equally render the payment
bad in law.
4. Shri Yashank Adhyaru, learned senior advocate appearing on
behalf of the revenue has taken us through the Gujarat Maritime
Board Act and the Finance Act, 1994. It is his contention that
on a conjoint reading of the two Acts and in particular Section
37 of the Gujarat Maritime Board Act and Section 65(82) of the
Finance Act, 1994, it is clear on a correct reading of the
agreement between GMB and UCL that service was rendered by GMB
as owner of the jetty, the service being the provision of a
space for landing of goods from vessels which are allowed to
berth there. As an alternative argument, on a correct reading
of the agreement, it was also argued that GMB had authorized UCL
to render the service of wharfage and since what was collected
was actual wharfage charges in accordance with the schedule of
rates prescribed under the Gujarat Maritime Board Act, it was in
relation to goods that were loaded or off-loaded from vessels on
the said jetty. It was further argued by learned counsel that
the reason why only 20% of the wharfage charges was collected
and not the entire amount was a pure internal arrangement
between GMB and UCL with which revenue is not concerned. He
further assailed the findings of the Tribunal stating that the
finding that the ownership of the jetty vests in UCL is contrary
to the agreement between the parties and that 20% of wharfage
levied and collected cannot be said to be rental or licence fee
but is wharfage charges collected under the GMB Act for the
service of allowing goods to be landed at the said jetty.
According to learned counsel, the Gujarat Maritime Board was the
owner and in control of the said jetty throughout the term of
the agreement and all findings to the contrary by the Tribunal
were incorrect.
5. Shri P.P. Tripathi, learned senior advocate appearing for
the respondent countered all the aforesaid submissions and
supported the Tribunal judgment. According to learned counsel,
the very basis for service tax was absent in the present case as
there is no service rendered of any kind by his client the
respondent on the facts of the present case to UCL nor has UCL
been authorized by GMB to render any service mentioned in
Section 37 of the Act and that, therefore, the authority to levy
service tax was absent. He also argued that the 20% of wharfage
charges that was paid under the agreement was really only a
measure to calculate what is in fact payable as licence fee and
that, therefore, the agreement read as a whole would lead to the
conclusion that no service was in fact rendered by the
respondent and, therefore, no service tax could be collected.
6. It is important first to advert to the Finance Act, 1994
under which the charge is laid for service tax. Section 65(82)
defines “port service” as under:-
“Port service” means 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;”
7. Such service tax is leviable under Section 65(105)(zn)
which reads as follows:-
“Taxable service” means any service provided or to be
provided-
“(zn) to any person, by a port or any person authorized by
the port, in relation to port services, in any manner;”
Further, under Section 67 of the said Act, the value of any
taxable service shall be the gross amount charged by the service
provider for such service provided or to be provided by him.
8. The relevant provisions of the Gujarat Maritime Board Act
are as follows:-
“35. Power to permit erection of private wharves, etc.
within a port subject to conditions:
(1) No person shall make, erect or fix within the limits
of a port or port approaches any wharf, dock, quay, stage,
jetty, pier, place of anchorage, erection or mooring or
undertake any reclamation of foreshore within the said
limits except with the previous permission in writing of
the Board and subject to such conditions, if any, as the
Board may specify.
(2) If any person makes, erects or fixes and wharf, dock,
quay, stage jetty, pier place of anchorage, erection or
mooring or undertakes reclamation of foreshore in
contravention of sub-section (1) the Board may, by notice
require such person to remove it within such time as may be
specified in the notice and if the person fails so to
remove it the Board may cause it to be removed at the
expense of that person.
37. Scales of rates for services performed by Board or
other person:-
(1) The Board shall from time to time frame a scale of
rates at which and a statement of the conditions under
which any of the services specified hereunder (except the
State charges) shall be performed by itself or any person
authorized under Section 32 at or in relation to the port
or port approaches-
(a) transshipping of passengers or goods between vessels
in the port or port approaches;
(b) stevedoring, landing and shipping of passengers or
goods from or to such vessels, to or from any wharf, quay
jetty, pier, dock, berth mooring stage, or erection, land
or building in the possession or occupation of the Board or
at any place within the limits of the port or port
approaches;
(c) cranage or porterage of goods on any such place;
(d) wharfage, storage or demurrage of goods on any such
place;
(e) any other service in respect of vessels, passengers
or goods excepting the services in respect of vessels for
which fees are chargeable under the Indian Port Act, 1908
(15 of 1908).
(2) Different scales of rates and conditions may be
framed for different classes of goods and vessels and for
different ports.
32. Performance of services by Board or other person:-
1) The Board shall have power to undertake the following
services:-
(a) stevedoring, landing, shipping or transshipping
passengers and goods between vessels in port and the
wharves, piers, quays, or docks belonging to or in the
possession of the Board;
(b) receiving, removing, shifting, transporting, storing
or delivering goods brought within the Board’s premises;
(c) carrying passengers within the limits of the port
approaches, by such means and subject to such restrictions
and conditions as the State Government may think fit to
impose; and
(d) piloting, hauling, mooring, re-mooring, hooking or
measuring of vessels or any other service in respect of
vessels.
(2) The Board may, if so requested by the owner, take
charge of the goods for the purpose of performing the
service or services and shall give a receipt in such form
as the Board may specify.
(3) Notwithstanding anything contained in this section,
the Board may authorize any person to perform any of the
services mentioned in sub-section (1) on such terms and
conditions as may be agreed upon.
(4) No person authorized under sub-section (3) shall
charge or recover for such service any sum in excess of the
amount leviable according to the scale framed under Section
37, 38 or 40.
(5) Any such person shall, if so required by the owner
perform in respect of the goods any of the services and for
that purpose take charge of the goods and give a receipt in
such form as the Board may specify.
(6) The responsibility of any such person for the loss,
destruction or deterioration of goods of which he has taken
charge shall, subject to the other provisions of this Act,
be that of a bailee under Section 151, 152 and 161 of the
Indian Contract Act, 1872 (IX of 1872).
(7) After any goods have been taken charge of and a
receipt given for them under this section, no liability for
any loss or damage which may occur to them shall attach to
any person to whom a receipt has been given or to the
matter or owner of the vessel from which the goods have
been landed or transshipped.
9. Since a large part of the arguments on both sides revolved
around the agreement dated 28.2.2000, between GMB and UCL, it
would be important to advert to the various provisions of the
agreement. The agreement begins as follows:
“THE ARTICLES OF AGREEMENT made at Gandhinagar on this day
28th February, two thousand between the GUJARAT MARITIME
BOARD, a Board constituted under the Gujarat Maritime Board
Act, 1981 – (Gujarat Act No.XXX of 1981) having its office
at Opp. Air force station, ‘Chh’ Road, Sector No.10-A,
Gandhinagar, hereinafter referred to as the “BOARD” (which
expression shall unless it be repugnant to the context or
meaning thereof mean and include its successors and
assigns) of the one part and Larsen & Toubro Limited having
its Registered Office at L&T House, Ballard Estate, Mumbai
– 21, hereinafter referred to as the “LICENSEE’ (which
expression shall unless it be repugnant to the context or
meaning thereof mean and include its successors and
assigns) of the other part;
WHEREAS the Licensee approached the Board for permission
for construction and use of a Captive Jetty at Port Pipavav
in the State of Gujarat on a license basis for the purpose
of handling, storage and transportation of raw-materials
for manufacturing and finished products that are
manufactured by the Licensee and for the purpose of the
Board as well;
AND WHEREAS the Board and the Licensee have already entered
into License agreement which is modified and this license
Agreement in modification of previous Agreement is entered
into by and between the Board and the Licensee as appearing
hereinafter;
AND WHEREAS in consideration of the Licensee constructing a
Captive jetty as aforesaid at its cost initially to be
adjusted against the Rebate, that may be granted by the
Board, the Board as empowered under Section 35 of the
Gujarat Maritime Board Act, 1981 granted to the Licensee a
license or permission for construction/use of the captive
Jetty on the said port at the place aligned, demarcated,
provided and approved by the Board upon the terms and
conditions specified herein on Build, transfer, Operate and
Maintain basis;
NOW IT IS AGREED BY AND BETWEEN THE PARTIES HERETO AS
FOLLOWS:
(c) ‘PORT CHARGES’ would mean port charges specified in
schedule of port charges, notified by government/Board
under the Indian Ports Act, 1908/Gujarat Maritime Board
Act, 1981 and allied legislations/regulations from time to
time.
(e) ‘CAPTIVE JETTY’ would mean a Jetty constructed for
landing and shipping by a port based industry, located in
Gujarat for landing and shipping of their Captive Industry
Raw Materials for manufacturing or their finished products
that are manufactured by the Licensee, from the constructed
Jetty for that specific industry.
2. The Board has granted permission to the licensee for
continuing with construction and use of the Captive Jetty
at the site demarcated on the plan, a layout of which has
been annexed to this agreement.
3. The Licensee shall pay and continue to pay for the
license granted under this Agreement a license fee of
Rs.10,000/- (Rupees Ten Thousand only) per annum to the
Board regularly on or before the 30th day of April every
year during the currency of this agreement.
12. The ownership of the structure so constructed vests in
the Board and the Licensee shall have no right, title,
interest or other proprietary right in respect of such
structure or in respect of the land on which the structure
is constructed, it being specifically understood that water-
front is the sovereign right of the Government.
13. The Licensee may however obtain a loan at its own risk
and cost, on the basis of rights granted to him under this
agreement and is entitled to create a charge or lien on its
rights or property only on the basis of investment made by
it for construction i.e. to say taking into consideration
the extent of investment made by it in the construction;
PROVIDED that and it is agreed that the cost can be divided
for the purpose of obtaining finance for the Jetty
construction, it being, however, clearly understood that
the water-front is a sovereign right of Government and the
right of the Licensee is limited only for the purpose of
mortgage or hypothecation to the extent of investment made
by it and its right to concur in the event of transfer or
take over of the entire project to which the Jetty is
attached, subject, however, to the prior approval of the
Board for transfer of license. The Licensee shall not be
allowed to transfer the jetty separately as the same is
directly connected to the project to which the Captive
Jetty is allowed to be constructed.
PROVIDED further that whatever rebate and concession is
granted by the Board against the cost of construction, the
equivalent amount at the relevant time shall be utilized by
the Licensee in repayment of loan so that at the end of the
period of this agreement when the Licensee may not have
right of rebate under this agreement, then the construction
is free of any liability in respect of such loan.
PROVIDED further that the Bank or financial institution
granting loan to the licensee shall not have any right
against the Board.
PROVIDED further that in the event of a declaration of War
in the Country or any Emergency or on account of national
security or any other circumstances, the Board is entitled
to exercise all rights in such kinds of situation and
emergency. The Bank or financial institutions shall not be
entitled in such event to exercise any right under loan
documents even in respect of such construction. The
Licensee shall obtain "No Objection Certificate" of the
Board for the loan and for the terms and conditions on
which the loan is sanctioned, and shall be bound to see
that the relevant Clauses in pursuance of this Agreement
are incorporated in loan documents.
15. The Board may, in order to decide the safety of the
structure or for any other purpose, carry out inspection
every six months from the date of issue of the Completion
Certificate. The Licensee shall carry out maintenance and
repairs to the structure at its own cost, whenever so
directed by the Board upon inspection. No alteration or
extension of the Jetty shall be done without prior
permission of the Board in writing PROVIDED that this
clause shall not preclude the Board from carrying out
inspection at any time, instead of every six months.
16. The Licensee shall at its own cost repair and maintain
the jetty in good order and condition to the satisfaction
of the Board during the tenure of this agreement and on the
failure of the Licensee to do so, the Board shall be
entitled, but not bound, to do so at the cost of licensee.
This condition however, does not entitle the Licensee to
refrain from carrying out repair or maintain the Jetty in
good order and condition and it is further agreed that non-
performance by Licensee shall be considered as a breach of
condition of this agreement.
17. In consideration of the Board permitting the Licensee
to construct the Captive Jetty at its own cost initially,
the Board hereby agree that the Jetty to be so constructed
by the Licensee shall mainly and initially as per the terms
of this agreement, allowed to be used for the vessels
belonging to the Licensee or chartered by the Licensee, on
preferential basis, without any ousting priority and
subject to Steamer Working (Priority) Rules as may be
amended from time to time and subject to all other rules
and regulations and the legislations prevailing at the
relevant time and subject also to the further conditions of
this agreement.
18. It is agreed that subject to the priority right of the
Licensee for user of Jetty under the preceding clause, it
is further agreed that the Jetty shall when the same is not
in use by the Licensee, be open to use by the Board for
itself or for the traffic being regulated by the Board for
the purpose of embarking or disembarking their ships,
boats, tugs, etc. and for loading and discharging cargo.
The Licensee or its Agents shall not by any act of
commission or omission, restrict the use of the Jetty and
back up area by the Board except when it is actually used
by the Licensee for the purpose provided for in this
agreement.
PROVIDED that this clause shall not be construed to mean
that Licensee has any ownership or transferable right in
the property and the Licensee is not entitled to levy any
charges or compensation from the Board.
21. It is agreed that subject to what has been stated
herein, the Licensee shall be liable to pay all the port
charges and all other dues payable by the Licensee to the
Board, and the Licensee shall not be eligible to get any
other rebate or concession except that which is mentioned
in Clause 22 and 24.
22. It is agreed that in consideration of the Licensee
constructing the Jetty at its own cost initially, the Board
has agreed to grant rebate, to be adjusted against the cost
of construction, as under:
A. The Licensee shall have to pay landing/shipping fees
(popularly known as wharfage charges) @ 20% of the actual
landing and shipping fees specified in the Schedule of Port
Charges prescribed for Captive Jetty. The landing and
shipping fees shall be calculated for this purpose as per
the schedule of landing and shipping fees, as may be
revised or amended from time to time. This concession shall
be called 'REBATE' and it will be set off as aforesaid
against the Capital Investment (cost of construction as
mentioned in Clause 24) made by the Captive Jetty holder,
and the same shall be calculated in a prescribed format.
Once the Capital Investment is recovered through the
Rebate, the Captive Jetty holder shall have to pay
thereafter, landing and shipping fees at the normal rate as
per the Schedule of Port Charges in force from time to time
prescribed for captive jetty.
B. The Licensee shall also be entitled, as in the normal
case to a concession in payment of landing/shipping fees
for coastal transportation of the cargo from one port under
the Board to another port under the Board @ 25% and from
one port under the Board to another Indian Port or vice-
versa @ 15% or at the rate as may be applicable from time
to time.
C. No Rebate will be given in respect of any other charges
to be levied under Indian Ports Act and under Gujarat
Maritime Board Act. The parties shall have to pay all the
port charges at the rates specified in Schedule of Port
Charges in force from time to time.
?25. In case the direct berthing facilities provided for
captive cargo (ship size calling at jetty of 10,000 DWT and
above) an amount of Rs.25.00 Lakhs (Rupees Twenty Five
Lakhs only) per annum will be charged as lease rent for
waterfront and way leave facility compensation.
28. The Licensee shall provide all the services at or
around the Jetty including dredging, navigation, water
supply, fire fighting equipments, electricity, telephone,
Very High Frequency (VHF) sets of HF sets and such other
services and facilities which may be required at or around
the Jetty and also such other services and facilities which
the Board may require the Licensee to keep available at or
around the Jetty. If the Licensee does not provide all or
any of the aforesaid facilities, the Board may at its own
discretion provide such facilities at the cost and risk of
the Licensee and shall recover such costs from the
Licensee. The decision of the Board regarding the amount of
cost incurred for such services shall be treated as final.
34. If the Licensee commits breach of any of the terms and
conditions of this agreement or of any Rules, Regulations
or Notifications as may be in force from time to time, the
Board shall be entitled to give notice the Licensee to
remove such breach within a period of 15 days from the date
of notice and Port Authorities can temporarily suspend
operation of captive port facility. If the said notice is
not complied with, the Board shall give another Notice to
terminate this agreement if the said breach is not complied
with within a period of further 15 days and that on the
expiry of such period of 15 days, the agreement shall
automatically be deemed to have been terminated without
further notice. Upon such termination of the agreement, the
Board shall be entitled to take control or otherwise
dispose off all or any part of the Jetty that may have been
constructed, as well as the site thereof in such manner and
may give the same to such person or party as may be decided
by the Board and the Licensee shall not be entitled to any
compensation, nor shall the Licensee have then a right in
respect of the superstructure or the land/sea on which the
Jetty was constructed, provided that even if the cost of
construction of the Jetty is not adjusted against the
aggregate of the amount of rebate availed off by the
Licensee, the Licensee shall not be entitled to any refund.
In case of any dispute or difference by and between the
Licensee and the Board, the same shall be referred to the
Arbitration of Secretary of the Government in Ports and
Fisheries Department and it shall be held in accordance
with the provisions of the Indian Arbitration and
Reconciliation Act, 1996 or any statutory modification or
re-enactment thereof for the time being in force.
36. The agreement shall remain in force for a period of
twenty five years or till such time as the aggregate of
‘REBATE’ availed off by the party equals the amount of the
construction of the Jetty whichever is earlier from the
date of commissioning of Jetty.
PROVIDED further that even after aggregate of rebate
availed of by the Licensee equals the amount of
construction of Jetty, the Licensee will be allowed to use
the Jetty for captive purpose subject to full payment of
full wharfage charges so long as the project of the
Licensee for which the permission is granted exists or
continues to exist, i.e., continues to function.
It is agreed and understood by the Licensee that out of the
terms ‘Jetty’ the terms applicable for the purpose of this
Agreement may be retained in this Agreement and other
words/terms not applicable may be deleted.”
10. A reading of the agreement as a whole would lead to the
following conclusions:
A. The agreement is a licence agreement entered into under
Section 35 of the Gujarat Maritime Board Act under which a
licence or permission for construction and use of a captive
jetty in Pipavav Port is entered into on a Build, Transfer,
Operate and Maintain basis on certain conditions.
B. A licence fee of Rs.10,000/- per annum is payable by the
licensee to the Board for the currency of the agreement
unless terminated earlier.
C. The ownership of what is constructed vests in the Board
together with the landing on which it is constructed and
the waterfront.
D. The jetty is constructed for the project to which it is
attached, namely, the cement factory of UCL. The licence
granted to UCL is, therefore, a non-transferable one.
E. The Board is entitled to carry out inspection every six
months so that it can direct the licensee to maintain and
repair the structure at its own cost, maintenance of the
said jetty in good order and condition being that of the
licensee alone, a breach of which is considered as a breach
of the agreement.
F. The jetty is to be used mainly for the goods of the
licensee and when not in use by the licensee can be used by
the Board itself.
G. That in consideration of the licensee constructing the
jetty at its own cost, the Board has agreed to grant rebate
to be adjusted against the cost of construction of the
jetty by paying 20% of wharfage charges specified in the
schedule of charges prescribed for captive jetties. This
concession is to be called a rebate and to be set off
against the cost of construction of the said jetty. Once
the entire cost of construction is recovered through the
rebate, the licensee will have to pay thereafter wharfage
charges at the full rate prescribed in the schedule of port
charges for captive jetties.
H. For direct berthing facilities provided for captive cargo
in ships which call at the jetty of 10,000 DWT and above,
an amount of Rs.25,00,000/- will be charged as lease rent
for waterfront use.
I. It is the licensee UCL that will provide all services at or
around the jetty including dredging, navigation, etc. and
if this is not done then the Board may on its own provide
such facilities at the risk and cost of the licensee UCL.
J. The licence is terminable on breach of the terms and
conditions of the agreement or of any infraction of law.
Upon such termination, the Board shall be entitled to take
control or otherwise dispose of all or any part of the
jetty that may have been constructed.
K. The period of the agreement is to be 25 years from the date
of commissioning of the jetty or such time as the rebate
availed of by the party equals the construction cost of the
jetty whichever date is earlier. However, even after the
rebate and the construction cost square off, the licensee
will be allowed to use the jetty for captive purposes
subject to full payment of wharfage charges so long as the
project of the licensee – i.e. the cement plant of the
licensee continues to function.
11. The question which arises on a reading of the said
agreement is, therefore, whether any service is rendered by GMB
or by any person authorized by GMB in relation to a vessel or
goods. The agreement makes it clear that it is the duty of the
licensee, i.e., UCL to maintain the jetty in good order and
condition during the tenure of the agreement. (See: clauses 15
and 16 set out above). Further, it is UCL that is to provide
all services at or around the jetty including dredging,
navigation, water supply etc. (See: clause 28 of the agreement).
This makes it clear that during the currency of the agreement
it is not the Board but the Licensee who keeps the said jetty in
such condition that it is capable of enabling vessels to berth
alongside it to load and unload goods. This being the
position, we agree with Shri Tripathi, learned senior counsel on
behalf of GMB that no service is rendered by GMB to UCL under
the agreement. The agreement makes it clear that it is an
agreement entered into under Section 35 of the GMB Act allowing
the licensee - UCL to construct a jetty and thereafter maintain
it at its own cost. We may add that the rebate in wharfage
charges of 80% is a condition imposed statutorily under Section
35 of the said Act. To say that it is in the nature of lease
rent or licence fee, would not be correct inasmuch as a separate
licence fee is payable under the agreement. (See: clause 3 of
the agreement). To that extent we agree with Shri Adhyaru,
learned senior advocate appearing on behalf of revenue that the
CESTAT does not seem to be correct in this behalf. But this
would make no difference to the result of this case inasmuch as
the very first condition that must be met under the definition
of “port service” is not met on the facts of the present case.
12. Shri Adhyaru argued relying upon the definition of “wharf”
and “wharfage” in Black’s Law Dictionary, Seventh Edition that
all that is necessary is that a wharf be provided by the Board.
The very provision of such wharf would entitle the Board to levy
a fee which is nothing other than wharfage charges collected
under the Schedule of rates mentioned hereinabove. To
appreciate this argument we set out the definition of ‘wharf’
and ‘wharfage’ from Black’s Law Dictionary as under:-
Wharf. A structure on the shores of navigable waters,
to which a vessel can be brought for loading or unloading.
Private wharf. One that can be used only by its owner
or lessee.
Public wharf. One that can be used by the public.
Wharfage 1. The fee paid for landing, loading, or
unloading goods on a wharf. 2. The accommodation for
loading or unloading goods on a wharf.
We are afraid that we are unable to agree with Shri Adhyaru for
the reason that though GMB is the owner of the jetty under the
said agreement, yet for providing the service of allowing a
vessel to berth at the said jetty, it is necessary for GMB
itself to keep the said jetty in good order. Wharfage charges
are collectible because they are in the nature of fees for
services rendered. The expenses that are defrayed by the Board
for the maintenance of the jetty is sought to be collected as
wharfage charges. This amount would necessarily include all
amounts that are spent for keeping the said jetty in good
condition including dredging so that vessels can berth alongside
the jetty. It is clear that so far as jetties operated by the
Board are concerned, the Board itself defrays such expenses. It
is only in cases like the present where the jetty is primarily
meant for loading and unloading goods belonging to a particular
private party that repair and maintenance expenses are to be
borne by the private party and not by the Board. It is in this
circumstance that we find that there is no service, therefore,
rendered by GMB to UCL.
13. The other limb of Shri Adhyaru’s argument is that in any
case UCL is a person authorized by GMB within the definition of
“port service” and that, therefore, in any case the Section
would be attracted as there is no doubt that wharfage charges
are a payment for services rendered in relation to a vessel or
goods.
14. As can be seen from Section 32 sub-sections (3) and (4),
the Board may authorize any person to perform any of the
services mentioned in sub-section (1) of the said Section which
includes landing of goods at wharves. We asked Shri Adhyaru to
show us where such authority is given and his reply was only
that it was given under the self-same agreement referred to
hereinabove. We are afraid that we are unable to agree with
Shri Adhyaru. The authority given to perform any of the
services must first and foremost be under terms and conditions
as may be agreed upon by the Board and the private person.
Further, under sub-Section (4) of Section 32, it is the private
person who is then authorized to charge or recover any sum in
respect of such service rendered. This is conspicuously absent
in the aforesaid agreement. There is no doubt on a reading of
the agreement that it is the Board itself that charges or
recovers wharfage charges from the licensee - UCL and does not
authorize UCL to recover such charges from other persons. This
being the position, it is clear that no service is rendered by a
port or by any person authorized by such port and, therefore,
the very first condition for levy of service tax is absent on
the facts of the present case. So far as the direct berthing
facilities provided for captive cargo is concerned, the lease
rent charged for use of the waterfront also does not include any
service in relation to a vessel or goods and cannot be described
as “port service”. This being so, it is unnecessary to go into
any of the other contentions raised by both parties. To the
extent that the impugned judgment is in conformity with our
judgment, it is upheld. The appeals of the revenue are,
therefore, dismissed accordingly.
……………………J.
(A.K. Sikri)
……………………J.
(R.F. Nariman)
New Delhi;
July 22, 2015
