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CESTAT : Split verdict on 'ship management contract' vivisection, taxing 'repair / maintenance' component pre-2006

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Third Member to decide taxability of services of ‘operation, maintenance and management’ of vessels owned by ONGC prior to May 2006 and consequently, entitlement of refund of service tax paid on total cost reimbursement instead of commission charged on ‘cost plus’ basis; According to Member (Technical), although assessee’s activity aptly covered u/s 65(96a) of Finance Act as ‘ship management service’ w.e.f. May 2006, ‘maintenance’ and ‘repair’ components of contract taxable u/s 65(64) prior thereto; Observes “….Service Tax law does not bar the splitting of a contract into distinct activities each of which has a separate value…” and since neither Adjudicating Authority nor Commissioner (Appeals) went into details of various Contract clauses before arriving at judicious decision, remands matter for re-examination; On the other hand, Member (Judicial) relies on Sec 65A(2) of Finance Act & Larger Bench ruling in Gujarat Chemical Port Trust Co. Ltd. to hold that said activity taxable as ‘ship management service’ only post May 2006 and Revenue cannot vivisect composite contract for taxing component of ‘repair and maintenance’; However, both Members agree that assessee merely worked as pure agent of principal – ONGC thereby charging 5% remuneration / commission on management cost incurred, and accordingly no service tax payable on reimbursable expenditure in light of CBEC Circular No. 5/97-ST  : Mumbai CESTAT

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