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We have come a long way from the ancient days of Lothal cargo ports. But be it Kandla or Mundra, Pipavav or Dahej, Porbandar, Sikka or upcoming Dholera, ports have always played a major role in the glory and success story of Gujarat. In the next decade, Gujarat ports are going to handle more cargo than any other place in this part of the world. Government is committed to ensure that the effective cost to an importer or exporter is kept under control, so that the ports of Gujarat can attract international trade and have an edge over other ports. 

But, it seems that Budget 2010 does not align with this philosophy. Since the inception of the thought that port services are to be subjected to Service Tax, this particular service has faced major problems. The activities carried out in and around ports are of various natures. Cargo handling, stevedoring, loading, unloading, tug hire, and labour arrangement, custom house agent services, shipping services, transportation, crane services and so on .

The list is unending. Litigations relating to classification of these services have been on the rise. The root cause of this is valuation principles underlying various services. Various tribunals and courts have held divergent views.

In the landmark judgment of Velji P. & Sons (Agencies) P. Ltd (STO 2007 CESTAT 542), it was held that 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 ports under the Major Port Trusts Act, 1963, hence they are not covered under port services. The said judgment was based on the interpretation of the clause "services authorised by the port". 
 
As the Revenue department lost the battle in the tribunal, it approached the Supreme Court. The apex court decided the matter against the government. Now, the only remedy was to have legislative amendment and thus Budget 2010 proposes to win the war as they lost the battle, by changing the rules of the game this time by doing away with the said terminology and conditions. Henceforth, port authorisation will not be the criteria for these services. 

Another area was the application of Section 65(A) for classifying the services. It is a cardinal principle of statutory interpretation that, when the language of a statute is capable of two interpretations, one of which is reasonable and the other unreasonable, the court should hold that the former must prevail. An interpretation leading to results which are unreasonable cannot be resorted to. Taxable services are classified under Section 65 of the Act.

Where, in a given case, the question arises under which head (under Section 65) the service under consideration has to be classified, aid shall be taken of the provisions of Section 65A of the Act.
 
When for any reason a taxable service is prima facie classifiable under two or more clauses, classification shall be effected as follows:- The sub-clause which provides the most specific description shall be preferred to sub-clauses providing a more general description:- Composite services consisting of a combination of different services which cannot be classified in the manner specified in clause (a), shall be classified as if they consisted of a service which gives them their essential character, in so far as this criterion is applicable ;• When a service cannot be classified in the manner specified in clause (a) or clause (b), it shall be classified under the sub-clause which occurs first among the sub-clauses which equally merit consideration. 

It means that if a service was introduced in 2001, it will prevail over that introduced in 2008 for the purpose of classification. Budget 2010 found a novel way of tackling this problem. It proposes to insert a clause in the definition of port services, whereby Section 65(A) governing the principles of classification in case of any dispute, will no more be applicable to port services. In other words, Budget 2010 has different sets of rules for different services.
 
This controversial clause opens the lid of another Pandora's Box and may give rise to many unseen and unheard litigations, lying dormant, which many suddenly surface.
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Category Service Tax, Other Articles by - MONISH BHALLA 



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