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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 &

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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

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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

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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

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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.   

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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:-

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“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

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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

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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

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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).

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(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

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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:

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(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.  

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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.  

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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

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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.  

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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

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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

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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

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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.   

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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

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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

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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

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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).

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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.  

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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

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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

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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

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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

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