Vessel Hires Not Subject to Service Tax: CESTAT

Vessel Hires Not Subject to Service Tax: CESTAT

The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) in Chennai has quashed a service tax demand on the amount received by the Dredging Corporation of India (DCI) for the charter or hire of vessels.

The tribunal ruled that the charter or hire of vessels does not fall under the definition of dredging services, and therefore, is not subject to service tax.

The bench, comprising Sulekha Beevi C.S. (Judicial Member) and Vasa Seshagiri Rao (Technical Member), observed that the charter or hire of vessels is at best a supply of tangible goods service and not a dredging service. Therefore, the demand for service tax on the amount received by the assessee or appellant upon the charter-hire agreement cannot be sustained and must be set aside.

The appellant, a dredging services provider, was audited by the Department. The audit revealed that the appellant had not paid service tax on dredging services provided to the Dredging Corporation of India (DCI) for the Sethu Samudram Project and the Dhamra Port Company Ltd., as well as on certain imported services.

The appellant leased dredgers and equipment to the DCI for the Sethu Samudram Canal Project. The appellant's responsibility was limited to providing the dredger or equipment to DCI on lease. The appellant has been paying service tax on the charter hire charges under the category of "Supply of Tangible Goods for Use" under Section 65(105)(zzzzj) of the Finance Act, 1944, since May 16, 2008, when the taxable category of "Supply of Tangible Goods for Use" was introduced.

The matter at issue was the demand for service tax on the charter, hire, or lease of dredgers provided to the DCI for the Sethu Samudram Canal Project, under the category of dredging services.

The appellant argued that they had been paying service tax on charter hire charges under the category of supply of tangible goods under Section 65(105)(zzzj) since May 16, 2008. They contended that the chartering of dredgers cannot be considered to be dredging services. The Tribunal had previously considered the same issue in a previous case and held that it was not taxable as dredging services.

The appellant argued that Rule 2(1)(d)(iv) of the Service Tax Rules 1994, read with Sections 68(2) and 66A of the Service Tax Act and Rule 3 of the Import Rules, provides that where services are provided from outside India and received in India, the recipient of the services is liable to pay service tax, subject to the fulfilment of certain conditions.

The CESTAT bench found that the demand for service tax on soil stabilisation and land reclamation services, which the appellant had received, could not be upheld under the category of dredging services.