Hon'ble Judges/Coram:
C.L. Mahar, Member (T) and Rachna Gupta ORDER
Rachna Gupta, Member (J)
1. Appeal is filed against the order No. 129 dated 30th April, 2013. The facts relevant for the purpose are that the appellants are having a unit of Maidens Hotels for providing Renting of Immovable Property Services, Mandap Keeper Service, Dry Cleaning Services, Business Auxiliary Services & internet cafe services and they have been accordingly registered. They have also got registered for providing Aircraft operator Services. However, Department in furtherance of an investigation on an intelligence gathered, noticed that appellants were supplying the Aircraft/Helicopter service to different service receivers as per the agreement entered into and as such, it was alleged that they were providing services under the category of supply of tangible goods, for which they neither took any Service Tax Registration nor did they paid any service tax on the said activity. Resultantly, show cause notice dated 21st December, 2010 was served upon them demanding Service Tax under the category of supply of tangible goods for the period w.e.f. May, 2008 to May, 2010, alongwith the interest and the proportionate penalties. The said show cause notice was adjudicated initially vide order dated 24th January, 2012 thereby confirming the said demand. Being aggrieved thereof, an appeal was filed before the Commissioner (Appeals) who has upheld the said order and rejected the appeal. Being aggrieved, the present appeal has been filed.
2. We have heard Mr. Narasimhan, ld. Counsel for the appellant and Mr. Vivek Pandey, ld. D.R. for the Department.
3. It is submitted on behalf of the appellant that the appellant own two Aircrafts/Helicopters, which are being provided by them on chartered hire basis. Hence, in fact they are providing the Aircraft Operator Services and such services for the domestic region came into tax net w. e. f. 1st June, 2010. The service of the appellant falls under the category of transport of passengers by Air service, which was not taxable for the period in dispute. For the Aircraft Operator Services the appellant are duly registered and have been discharging their liability since the services have been taxable. The demand raised alleging the same to be a service as that of supply of tangible goods is unjustified. The case of Global Vectra Helicorp Ltd. v. Commissioner of Service Tax, Mumbai-II - MANU/CM/0719/2015 : 2015 (2) TMI 974 -CESTAT MUMBAI (LB) is conceded with the mention that the issue has already been decided in favour of the department. It is however impressed upon that the SCN is barred by limitation. Appellant was under the impression that the services provided by him are of the category of Aircraft operator service. The moment these services were made taxable, the appellant got himself registered and is discharging his liability since then. No question of intentional tax evasion at all arises. Accordingly, the demand can sustain only for the normal period of limitation of one year. Both the orders below are alleged to be erroneous and hence, are prayed to be set aside. Appeal accordingly is prayed to be allowed.
4. While rebutting these arguments, it is submitted by the ld. D.R. that the appellants actually are in hospitality industry as they are into hotel business. They own two Aircrafts, which they are using on chartered basis. It is alleged that the appellants themselves have assumed to have been providing Aircraft Operator Services, which was made taxable, only in June, 2010. The said self exemption is alleged to have no legal basis. The services provided by them are alleged as the services for supplying of tangible goods for use. While justifying the orders below the appeal is prayed to be rejected.
5. After hearing both the sides, we are of the view as follows:-
5.1 The moot question to be considered is as to whether in the given facts and circumstances of the case, the services provided by the appellant are the Aircraft Operator Service as assumed by the appellant or, are the services for supply of tangible goods for use as alleged by the Department. For the purpose the definitions are relevant. Section 65 (105) (zzzo) of the Finance Act, 1994 (in short "the Act") define the Aircraft Operator Services to mean as follows:-
Section 65 (105) (zzzo):
"To any passenger, by an aircraft operator, in relation to scheduled or non-scheduled air transport of such passenger embarking in India for domestic journey or international journey; "
5.2 Supply of tangible goods for use service is defined under Section 65 (105) (zzzzj) of the Act which reads as follows:-
Section 65 (105) (zzzzj):
"To any person, by any other person in relation to supply of tangible goods including machinery, equipment and appliances for use, without transferring right of possession and effective control of such machinery, equipment and appliances."
5.3 Further the Department vide D.O.F. No. 334/I/2008-TRU dated 29th Feb., 2008, issued clarification regarding the introduction of the levy of supply of tangible goods. The relevant portion of the said clarification is extracted hereunder for ready reference:
4.4. Supply of Tangible Goods for use:
....
4.4.2. Excavators, wheels loaders dump trucks, crawler carriers companion equipment, cranes etc. offshore construction vessels & barges, geo-technical vessels, tug and barges flotillas, ring and high value machineries are supplied for use, with no legal right of possession and effective control. Transaction of allowing another person to use the goods, without giving legal right of possession and effective control, not being treated as sale of goods, is treated as service.
6. From both these definitions, it becomes clear that for an "Aircraft operator service", the activity is regulated under strict observation of Aviation Industry subject to stringent regulatory controls, Director General of Civil Aviation grants permits to the scheduled aircraft transport service. Even a non-scheduled permit can be granted by DGCA and the fact remains is that any person in Aviation has at least to be a non-scheduled operator. As far as supply of tangible goods is concerned, it is apparent from the above definition that it is the transfer of the goods to be used without the transfer of its legal possession and effective control by one person to another. To adjudicate the classification of impugned service, we need to look into the invoice. One such invoice dated 28th December, 2009, perusal thereof shows that the Aircraft of the appellant has been chartered for 23rd December, 2009 for Delhi- Simla Delhi Sector with total flying time of 2 hours to be charged at the rate of Rs. 55,000/- per hour. The invoice makes it clear that the Aircraft was given on hire for use of charterer on the terms and conditions of the permit in favour of the appellant. It is evident that the Aircraft was supplied alongwith the licensed/trained Pilot and necessary Engineering Crew to operate the Aircraft. Thus, the effective control and possession of the Aircraft was still with the appellant, who was charging the charterer on the basis of actual time consumed during the said flight.
7. We note that an identical issue regarding charter hire of helicopter came up before the Tribunal in the case of Global Vectra Helicorp Ltd. v. CC (Import) Mumbai -MANU/CM/0070/2015 : 2016 (42)STR 118 (Tri. Mum.), in that case the appellant therein claimed the classification of their service as Transportation of Passengers by Air Service. But, the Tribunal after very detailed discussion of the facts and various case laws on the subject as well as CBEC Circular No. 20/2009 dt. 09.02.2009 came to the conclusion that the services will be rightly classifiable under the category of "Supply to Tangible Goods Service". The observations of the Tribunal is reproduced below:-
"6. We have carefully considered the submissions made by both the sides. We have also perused the contracts/agreements entered into by the appellants in respect of the transaction which is under dispute.
6.1 From the preamble of the contract entered into by the appellant with M/s. ONGC, it is seen that ONGC was interested in charter hiring of helicopters for offshore operations being carried out by them and the appellant agreed to provide the required services against the Corporation's order in this regard. As per clause 3 of the agreement the appellant undertook to deliver/mobilize the helicopters at chatterer's helibase in Mumbai or at other bases in India as may be designated by the charterer in fully operational condition for the charter service. In clause 4 relating to service, it was provided that the appellant shall ensure that the helicopters are available and fully operational for the exclusive use of the charterer and the persons authorized by the charterer and the daily flight schedule was to be provided by the charterer. The contract also envisaged that the appellant shall provide experienced IFR licensed aircrews for the operation and qualified maintenance crews for servicing of the helicopters as per the prescribed standards. Passengers and/or cargo as required by the charterer was to be carried in the helicopter. All necessary clearances, permission to hold helicopter licence to operate the helicopter, compliance with all laws, rules, regulations, orders, standards and schedules as specified by the Directorate General of Civil Aviation was to be complied with by the appellant, who is the service provider. The appellant was also obligated to provide to the charterer, the helicopters daily in airworthy condition regularly on all 365 days of the year. For the services rendered the appellants were eligible for remuneration on a fixed monthly charge basis for thirty six months plus flying hourly charges. The helicopters were to be operated upon by the crew provided by the appellant and such crew have complete control over the actual flying operations. The agreement with Trans Ocean Offshore Deepwater Drilling Inc. was also for providing charter service to the company by the appellant. The said agreement also envisaged operation of the aircraft for the transportation of the passengers and passenger baggage as per the instructions and requirements of the client, the crew was to be provided by the appellant and all approvals, licences, permits was the responsibility of the appellant. For the services rendered consideration was paid to the appellant in terms of the said agreement. In both these agreements the liability to pay taxes and dues was on the appellant and also the liability to insure the goods. From the tenor of the agreement and the terms and conditions provided therein, especially those specified in clauses - 1.11 relating to "equipment/materials/goods, 1.14 relating to mobilization, 3 relating to delivery, 4 relating to services, 6 relating to availability, maintenance and 8 relating to safety, etc. - it is seen that the appellant was engaged in charter-hiring of helicopters to the clients for a consideration. The possession and control of the helicopters remained with the appellants.
6.2 Section 65(105)(zzzj) defines supply of tangible goods for use service as "any service rendered to any person by any other person in relation to supply of tangible goods including machinery, equipment and appliances for use, without transferring the right of possession and effective control of such machinery, equipment or appliances." There is no dispute that helicopters were mobilized/delivered by the appellant to their clients without transferring the right of possession and effective control for use by the clients. Therefore, the services rendered by the appellant to their clients in respect of charter-hire of helicopters would come under the purview of supply of tangible goods for use as defined in Section 65(105)(zzzj) of the Finance Act, 1994.
6.3 The Hon'ble Apex Court in the case of Super Poly Fabriks Ltd. v. Commissioner - [MANU/SC/1959/2008 : 2008 (10) S.T.R. 545 (S.C.)], laid down the principle of how to read an agreement or contract as under:-
"There cannot be any doubt whatsoever that a document has to be read as a whole. The purport and object with which the parties thereto entered into a contract ought to be ascertained only from the terms and conditions thereof. Neither the nomenclature of the document nor any particular activity undertaken by the parties to the contract would be decisive."
If this principle is applied in reading the contracts entered into by the appellant with their clients, it is seen that the contract is for charter hiring of the helicopters and not for flying of passengers/cargo.
6.4 The Hon'ble High Court of Bombay, in a case of charter hiring of vessel for offshore oil operations, considered an identical issue in Indian National Shipowners Association v. UOI. The question before the Hon'ble High Court was whether the transaction involved in charter hiring of vessels for offshore explorations, is liable to tax under "mining services" or under "supply of tangible goods for use service." Hon'ble High Court in the said case held as follows:-
"37. Entry (zzzzj) is entirely a new entry. Whereas entry (zzzy) covers services provided to any person in relation to mining of mineral, oil or gas, services covered by entry (zzzzj) can be identified by the presence of two characteristics namely (a) supply of tangible goods including machinery, equipment and appliances for use, (b) there is no transfer of right of possession and effective control of such machinery, equipment and appliances. According to the members of the 1st petitioner, they supply offshore support vessels to carry out jobs like anchor handling, towing of vessels, supply to rig or platform, diving support, fire fighting etc. Their marine construction barges support offshore construction, provide accommodation, crane support and stoppage area on main deck or equipment. Their harbour tugs are deployed for piloting big vessels in and out of the harbour and for husbanding main fleet. They give vessels on time charter basis to oil and gas producers to carry out offshore exploration and production activities. The right of possession in and effective control of such machinery, equipment and appliances is not parted with. Therefore, those activities clearly fall in entry (zzzzj) and the services rendered by the members of the 1st petitioner have been specifically brought to the levy of Service Tax only upon the insertion of this new entry.
38. If the Department's contention is accepted that would mean that the activities of the members of the 1st petitioner are covered by entry (zzzy) and entry (zzzzj). Such a result is difficult to comprehend because entry (zzzzj) is not a specie of what is covered by entry (zzzy). Introduction of new entry and inclusion of certain services in that entry would presuppose that there was no earlier entry covering the said services. Therefore, prior to introduction of entry (zzzzj), the services rendered by the members of the 1st petitioner were not taxable. Creation of new entry is not by way of amending the earlier entry. It is not a carve out of the earlier entry. Therefore, the services rendered by the members of the 1st petitioner cannot be brought to tax under that entry.
....
48. Applying the above conclusions to the instant case, we hold that the services rendered by the members of the 1st petitioner are either pre-mining or post-mining activities. They have no direct relation to mining. They were, therefore, rightly not brought to tax till entry (zzzzj) was introduced to cover transport of tangible goods by sea without transferring right of possession and effective control thereof. The services rendered by the members of the 1st petitioner are covered by entry (zzzzj) because they inter alia supply vessels, offshore support vessels, barges, tugs etc. without transferring right of possession and effective control over them. In contrast entry (zzzy) was introduced to comprehensively bring under the service tax net activities having a direct nexus to mining activities. Entry (zzzzj) is not a carve out of entry (zzzy). Both entries are independent. Entry (zzzzj) was not inserted into the Finance Act by amending entry (zzzy). It is not possible to invent a remote connection of the services rendered by the members of the 1st petitioner to mining activities and hold that they fall in entry (zzzy). Entry (zzzzj) is not a specie of what is covered by entry (zzzy). Nature of the services rendered by the members of the 1st petitioner, legislative history of the two entries, various circulars to which, we have made reference and the relevant judgments which we have noted hereinabove lead us to hold that the entry contained in Section 65(105)(zzzy) of the Finance Act, 1994 does not apply to services provided by the members of the 1st petitioner...."
The ratio of the above decision applies equally well to the facts of the present case. The above decision of the Hon'ble High Court was affirmed by the Hon'ble Apex Court also. In that view, supply of helicopters on charter hire basis would merit classification under "supply of tangible goods for use service" and we hold accordingly.
6.5 The appellant's contention that they have undertaken the services of transport of passengers by air and not supply of tangible goods for use is not borne out from the terms and conditions of the agreement entered into with the clients. It is the appellant's contention that they have the licence to fly the aircraft and even "charter hiring of aircraft" is covered under aircraft services as defined in Civil Aviation Rules and therefore, it should be treated that the appellant has undertaken nonscheduled air transport services for their clients and not as supply of tangible goods for use. To be eligible for classification under air transportation of passengers service, the service has to be rendered to a passenger. An identical issue came up for consideration before this Tribunal in the case of King Rotors & Air Charter Pvt. Ltd. v. CC (ACC & Import), Mumbai - MANU/CM/0194/2011 : 2011 (269) E.L.T. 343 (Tri.-Mum.) in the context of Notification No. 21/2002-Cus. The issue before this Tribunal was whether the charter hire services rendered by the appellant therein would amount to non-scheduled passenger services as defined in Rule 3 of the Aircraft Rules, 1937. After considering the rival submissions, this Tribunal, in the said case held as follows:-
"24.6 The question now to be considered is whether the assessee used the imported helicopter for the avowed purpose. It is not in dispute that, under a "charter-hire agreement" dated 14-4- 2008 with Heligo, the assessee allowed the helicopter to be used by Heligo for the purpose of mobilizing and demobilizing of personnel of third party companies and for movement of their freight and/or equipment. Under the agreement, Heligo would reimburse the actual costs incurred by the assessee in sourcing and acquiring spares for maintenance of the helicopter. The necessary infrastructure for maintenance of the helicopter would also be provided by Heligo. The entire cost of insurance to cover all liabilities in respect of passengers, cargo, crew, helicopter and third party would be incurred by the assessee and reimbursed to them by Heligo. Heligo would also pay monthly remuneration to the pilots of the assessee. They would also bear the costs of maintenance of the helicopter and also the costs of fuel and consumables required for its operation. On a perusal of the charter-hire agreement between the assessee and Heligo, we find that Heligo chartered/hired the helicopter for their exclusive use and they incurred the entire costs of operation and maintenance of the helicopter and even the cost of insurance to cover all liabilities. One significant term of the contract was that the "helicopter shall be utilized solely for the purpose of providing the services pursuant to the agreement and the contractor shall not utilize the helicopter for any other purpose without the prior consent of the company." Accordingly, the helicopter could not be used by the assessee (contractor) for any other purpose without the prior consent of Heligo (company). It is evident that the agreement created an exclusive right in Heligo for use of the helicopter during its tenure. That Heligo exercised this right for the benefit of third party companies is, in turn, evident from the written submissions dated 23-3-2011 filed by the appellants" advocates, which read thus: "...even Heligo Charters Pvt. Ltd., in turn, charter the aircraft.... The aircraft is chartered by many offshore and oil companies to ferry their personnel...the aircraft has been used by independent third party offshore oil extraction/drilling companies.... The flights undertaken by aircraft are commercial, revenue flights paid for by third party offshore companies." Obviously the end-users of the helicopter are the so-called third party companies which cannot be called "members of the public". Popular dictionaries of English provide the following meaning of "public" or "the public", as the case may be:-
public = the community or people in general
[Collins Dictionary of the English Language]
public = the people as a whole, community at large [New World Dictionary of the American Language]
public = people collectively
[The New Shorter Oxford English Dictionary]
public = ordinary people in general; the community
[Concise Oxford English Dictionary - Indian Edition] the public = ordinary people in society in general;
[Oxford Advanced Learner's Dictionary of Current English, 7th Edition]
Members of the public are natural persons and cannot be juristic persons like the third party companies which chartered the aircraft from Heligo.
24.7 "Non-scheduled passenger services" has been defined in clause (b) of Explanation to condition No. 104 and the same means "air transport services other than scheduled (passenger) air transport services as defined in Rule 3 of the Aircraft Rules, 1937." [Incidentally, we note that the expression "non-scheduled air transport services (passenger)" is defined in the same way in clause (2) of "Passenger CAR"] "Scheduled air transport service" has been defined under Rule 3(49) of the Aircraft Rules, 1937 and the same reads as under:-
"Scheduled air transport service" means air transport service undertaken between the same two or more places and operated according to a published time table or with flights so regular or frequent that they constitute a recognisably systematic series, each flight being open to use by members of the public,"
[underlining added]
The learned counsel for the appellants has argued that two distinct requirements have to be satisfied by an air transport service to be called "scheduled air transport service". According to him, the two essential requirements are the following: (a) there must be regular or frequent flights or flights operated according to a published time table between the same two or more places; (b) each flight must be open to members of the public. The learned counsel has argued that any air transport service that does not meet the above two requirements will be a non-scheduled (passenger) service. On this basis, it has been claimed that the assessee was providing "non-scheduled (passenger) service" under the permit granted by DGCA and was thereby complying with condition No. 104. This argument is fraught with analytical error. Any such dissection of the definition of "scheduled air transport service" as attempted by the counsel is not warranted to obtain the meaning of "non-scheduled air transport service". This is because requirement (b) mentioned by him is not determinative of whether the air transport service is "scheduled" or "nonscheduled". To our mind, the only difference between the two types of air transport service lies in the simple fact that one is "scheduled" while the other is "non-scheduled", which would mean that "scheduled" air transport services involve flight services operated on the basis of a schedule of time whereas "nonscheduled" air transport services are without any time schedule for the flights. [This view is fortified by clause (9.2) of "Passenger CAR", which deals with non-scheduled operators and their operations and says: In such operations, the operators shall not publish their time schedules as the operations are of non-scheduled nature.] Other features are common for both scheduled and nonscheduled services. It would follow that, like scheduled air transport service (passenger), non-scheduled air transport service (passenger) also should be open to use by members of the public. As the flight operations in this case were not open to the public, the helicopter cannot be held to have been used for "non-scheduled (passenger) services."
24.8 As condition No. 104 itself refers to Rule 3 of the Aircraft Rules, 1937 in the context of defining the expression "nonscheduled (passenger) services", it is permissible to take aid of the said Rule in ascertaining the connotation of the word "passenger" used in the expression "non-scheduled (passenger) services". Rule 3(39) defines "passenger aircraft" as aircraft which effects public transport of passengers. "Public transport" is also seen defined under Rule 3(45). In the instant case, it is not the claim of the appellants that they used the helicopter for public transport of passengers. They only allowed Heligo to hire the aircraft for a remuneration and use it for transporting employees of Oil & Gas/allied companies between Vishakhapatnam airport and offshore oil/gas fields under contracts awarded to Heligo by those companies. The appellants were unable to use the copter (during the tenure of the agreement) for any other purpose without the prior consent of Heligo. They did not have any control over the manner in which the helicopter was used by Heligo (who professedly entered into charter contracts with "third party companies" in respect of the aircraft which was accordingly used for transporting the personnel of these companies) and the copter operations were not open to members of the public. Where the helicopter would not come within the meaning of "passenger aircraft", the flight operations cannot be called "non-scheduled (passenger) services".
The ratio of the above decision would apply squarely to the facts of the case before us. As can be seen, the service provided by the appellant cannot be covered by transport of passengers by air service since in that case, the definition specifically provides that the service is in relation to scheduled or unscheduled air transport of passengers. The thrust in the definition is on transport of passengers. In the case of the appellant, the service is provided to various companies, who chartered the aircraft for specific time or for specific journey. The payment is not based on number of passengers. No tickets are issued to the passengers and no charges are collected from the passengers. Therefore, the service provided cannot be considered as transport of passengers, but has to be considered as charter of aircraft. There is no doubt that the right of possession and effective control while in use by the charterer is not parted with. Thus the charter hire of helicopters to ONGC and other clients for flight operations as per their requirements cannot be said to be "non-scheduled (passenger) services." Therefore, we reject the contention of the appellant in this regard. Consequently, we hold that the services rendered by the appellant in the instant case cannot be treated as air transport services for the transport of passengers.
6.6 The C.B.E. & C. had also occasion to examine the issue and vide Circular No. 20/COMMR.(S.T.)/2009, dated 9-2-2009 the Board clarified, inter alia, as follows:
"It has been brought to the notice of the Board that many nonscheduled operator engaged in the business of giving the right to use the aircraft to its customers (Chartering of Aircrafts) are not paying service tax.
The issue has been examined in the Board. With effect from 16-5-2008, service provided to any person by any other person in relation to supply of tangible goods including machinery, equipment and appliances for use, without transferring right of possession and effective control of such machinery, equipment and appliances is taxable service under section 65(105)(zzzj). Chartering of aircrafts by a client only confers him with the right to use the aircraft and the owner of the aircraft in such case does not transfer right of possession. As to whether effective control over the aircraft is transferred or not would be a question of fact to be determined in each case. Where the crew is also provided by the owners of the aircrafts and in a wet lease of aircraft effective control is not transferred."
Thus as per the C.B.E. & C. Circular also, the services of charter hire of helicopters merits classification under supply of tangible goods for use services."
Similar views have been expressed by the Tribunal in the case of M/s. Mesco Airlines Ltd. v. CST, New Delhi (F.O. No. 51387/2018 dt. 18.04.2018).
8. By following the decision of the Tribunal (supra), we order classification of the service under the category of STGS. Consequently, we uphold the confirmation of demand of service tax on merit.
9. Once the issue of classification is adjudicated the another issue of limitation is yet to be considered, as it being another ground of challenging the impugned order. It is apparent from the show cause notice dated 21.12.2010 that a demand for the period w.e.f. May, 2008 to May, 2010 has been raised. It becomes apparently clear that while issuing the said show cause notice, Department has invoked the longer time limit as mentioned in proviso to Section 73 of the Act. The law for invoking extended period of limitation is stated that the onus heavily rest upon the Department to prove the alleged suppression of facts. Perusal of entire record shows no such discharge on part of the Department, except merely raising the oral allegation of suppression. The Hon'ble Supreme Court in the case of Gopal Zarda Udyog v. CCE, Delhi - MANU/SC/0809/2005 : 2005 (188) ELT 251 SC has held that extended period is applicable only when something positive other than mere inaction or failure on part of the assessee is proved conscious and deliberate with holding of information by the assessee is necessary for invoking the extended period. It was clarified by the Hon'ble Apex Court that if it comes to the knowledge of Department that assessee had reasonable belief that he is not required to give a particular information only normal period of limitation i.e. one year is applicable. In an earlier decision also in Cosmic Dye Chemical v. CCE, Bombay - MANU/SC/0791/1995 : 1995 (75) ELT 721 (SC), it was clarified that for invoking extended period of limitation, there should be an intention to evade duty. The alleged suppression must be wilful and it is for the Department to prove the same as already observed above, that the Department has failed to prove the wilful intention. As a result, we are of the opinion that the Department was not entitled to invoke the extended period of limitation. Accordingly, the demand falling beyond one year period preceding show cause notice dated 21.12.2010 is not sustainable and accordingly is set aside. In view of the entire above discussion, the order under challenge is hereby modified in the above discussed terms confining the demand for a period of one year only. Appeal accordingly stands disposed of.
10. Resultantly, the appeal is hereby allowed.
[Pronounced in the open Court on 14.09.2018]
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