"CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL MUMBAI WEST ZONAL BENCH SERVICE TAX APPEAL NO: 85421 OF 2017 WITH CROSS-OBJECTION NO: 91029 OF 2017 (on behalf of respondent) [Arising out of Order-in-Original No: 61-62/COMMR/(RS)/LTU-M/S.TAX/ 2016 dated 30th September 2016 passed by the Commissioner of Central Excise & Service Tax (LTU), Mumbai.] Commissioner of Central Excise & Service Tax LTU 29th Floor, World Trade Centre-I, Cuffe Parade Mumbai - 400005 … Appellant versus Shipping Corporation of India Ltd 245 Madame Cama Road, Nariman Point Mumbai – 400021 …Respondent APPEARANCE: Shri C S Pavan, Deputy Commissioner (AR) for the appellant Shri Bharat Raichandani, Advocate for the respondent CORAM: HON’BLE MR C J MATHEW, MEMBER (TECHNICAL) HON’BLE MR AJAY SHARMA, MEMBER (JUDICIAL) FINAL ORDER NO: 86241/2025 DATE OF HEARING: 13/02/2025 DATE OF DECISION: 12/08/2025 PER: C J MATHEW M/s Shipping Corporation of India, the principal respondent in 2 ST/85421/2017 appeal filed on directions of reviewing Committee of Chief Commissioners and, also before us, as secondary appellant in cross- appeal, are in the business of fleet operations for transportation of goods by sea; as the ‘national carrier’, they are also privileged with vested right to provide logistics in certain transactions. The dispute herein pertains to contract with M/s Hindustan Petroleum Corporation Ltd (HPCL) and to income reported as ‘demurrage’ for July 2012 to September 2014 and for October 2014 to September 2015 on which service tax of ₹ 32,91,15,764 and ₹ 16,53,37,886 respectively had allegedly not been discharged. The second of the notices was merely statement of demand relying on the proposition advanced in the first that demurrage fitted one of the ‘declared services’ in section 66E of Finance Act, 1994 as arising from detention of vessel in port by not adhering to the timelines for loading or discharge of cargo. The order1 of Commissioner of Central Excise & Service Tax (LTU), Mumbai dropped the proceedings on the finding that the impugned consideration was for activity that could not be disaggregated from ‘transport of goods’ which was, admittedly, exempted from taxation under Finance Act, 1994 owing to ‘(p) services by way of transportation of goods – (i) xxxxx 1 [order-in-original no. 61-62/COMMR/(RS)/LTU-M/S.TAX/ 2016 dated 30th September 2016] 3 ST/85421/2017 (ii) by an aircraft or vessel from place outside India to the customs station of clearance in India; (iii) xxxxx’ in section 66D of Finance Act, 1994 enumerating ‘negative list of services’ till 31st May 2016, when omitted by amending2 law, as far as ‘inward freight’ was concerned and the applicability of Place of Provision of Service Rules, 2012 to outward freight. For arriving at that conclusion of non-taxability, the adjudicating authority relied upon section 66F(3) of Finance Act, 1994 that determined taxability of ‘bundled service’ as amplified in Explanation thereto. 2. The Committee of Chief Commissioners did not find the approach in the impugned order, on the proposition that bundling consideration arising either before or after, as the case may be, of service of transportation of goods with that excepted activity, to be legal and proper as also from being billed separately. The finding of the adjudicating authority that activity occurred abroad and, in terms of Place of Provision of Service Rules, 2012, exempted thereby was assailed with applicability of rule 8 therein with precedence accorded thereto from rule 14 therein. 3. We have heard Learned Authorised Representative and Learned Counsel for M/s Shipping Corporation of India (SCI) at length. As the 2 [Finance Act, 2016] 4 ST/85421/2017 appeal of latter is mere affirmation of the impugned order, we do not dwell on it any further. 4. It is not in dispute that ‘demurrage’ is not expressly enumerated as ‘declared service’ and has been fitted within ‘(e) agreeing to the obligation to refrain from an act, or to tolerate an act or situation, or to do an act;’ as set out in section 66E of Finance Act, 1994 among activities that extended the scope of coverage of ‘service’ beyond ‘(44) ….. any activity carried out by a person for another for consideration…’ in section 65B of Finance Act, 1994. It, therefore, behoves us to ascertain the activity appended to the consideration that is impugned in this dispute before subjecting the grounds of appeal to the appropriate tests. 5. In the ‘vanilla’ variant of ‘transport of goods by sea’, failure to deliver cargo during stay of vessel at port has the outcome of losing space booked for it which devolves on the shipper and it is the responsibility of the vessel operator to discharge cargo with risk of overstay befalling them. In charters, voyage or time, it is normal for the charterer to be responsible for loading and, possibly, unloading of cargo. The essence of vessel operations is plying the waters with berthing being tantamount to idling and overstay being charged at 5 ST/85421/2017 higher rates on the vessel owner by port authorities ; in ‘charter parties’, it is common practice to mitigate risk thereof by stipulating ‘laytime’ and ‘demurrage’ for non-adherence thereof. ‘Laytime’ is the agreed upon window of time during which a vessel is expected to complete loading or discharge, as the case may be, with ‘demurrage’ being that chargeable from the charterer for any stay beyond the stipulated ‘laytime’ not attributable to the vessel operator. The ‘demurrage’ is disincentive to delay retention of vessel in port which has cost implication to vessel operator. It is, thus, a contractual arrangement that has everything to do with transport. 6. Moreover, the ‘declared service’ deployed in the show cause notice and harped upon in the grounds of appeal is a conceptual expression not amenable to easy comprehension of intent of coverage. Contextually, ‘declared service’ is legal fiction and, particularly, when so described is hardly clarificatory. It is well-settled law that taxing statutes are to be literally construed and that legal fiction is not to be stretched beyond intent. This is evident from the exposition on that aspect by the Hon’ble High Court of Gujarat thus ‘11. But it is equally well-settled and that is a principle which should not be lost sight of that legal fictions are created only for a definite purpose and they are limited to the purpose for which they are created and should not be extended beyond their legitimate field. The legal fiction is of course to be carried to its logical conclusion but that must be within the framework 6 ST/85421/2017 of the purpose for which it is created. \"When a statute enacts that something shall be deemed to have been done, which in fact and truth was not done, the court is entitled and bound to ascertain for what purposes and between what persons the statutory fiction is to be resorted to and full effect must be given to the statutory fiction and it should be carried to its logical conclusion : vide State of Bombay v. Pandurang Vinayak Chaphalkar. The principle that a legal fiction must be limited to the purpose for which it is created was also applied by N. H. Bhagwati J. in Bengal Immunity Company Limited v. State of Bihar where the learned judge observed : \"A legal fiction presupposes the correctness of the state of facts on which it is based and all the consequences which flow from that state of facts have got to be worked out to their logical extent. But due regard must be had in this behalf to the purpose for which the legal fiction has been created. If the purpose of this legal fiction contained in the Explanation to article 286(1)(a) is solely for the purpose of sub-clause (a) as expressly stated it would not be legitimate to travel beyond the scope of that purpose and read into the provision any other purpose howsoever attractive it may be. The legal fiction which was created here was only for the purpose of determining whether a particular sale was an outside sale or one which could be deemed to have taken place inside the State and that was the only scope of the provision. It would be an illegitimate extension of the purpose of the legal fiction to say that it was also created for the purpose of converting the inter-State character of the transaction into an intra-State one. This type of conversion could have been in the contemplation of the Constitution makers and is contrary to the express purpose for which the legal fiction was created as set out in the Explanation to article 286(1)(a).\" 12. The Supreme Court applied the same principle also in the case of Commissioner of Income-tax v. Elphinstone Spinning and Weaving Mills Co., and this is what they said in regard to the fiction created by the proviso to paragraph B of Part I of the First Schedule to the Finance Act, 195 : \"All that the fiction does is to bring profits of back years into the immediately preceding previous years, so that the requirements of the income-tax law may be complied with. As we have already stated, this fiction cannot be carried further than what it is intended for; it cannot be used to make these 7 ST/85421/2017 profits take the place of total income, which did not exist in the previous year and to which the rate is to be applied under the terms of the proviso.\" 13. It would, therefore, be seen that when the court is called upon to construe the effect of a legal fiction the court must first ascertain what is the purpose for which the legal fiction is enacted and then in the field of that purpose the court must give full effect to the legal fiction by carrying it to its logical conclusion.’ in Commissioner of Income-Tax, Gujarat v. Bai Vina [(1965) 0 GLR 583]. 7. The enumeration in section 66E of Finance Act, 1994 that was invoked in the show cause notice as well as in the grounds of appeal portrays a situation in which one gets recompense for refraining from an act or tolerating an act; there is neither elaboration of the act nor the manner in which M/s Shipping Corporation of India could have acted but did not in the impugned situation for which consideration was received from M/s Hindustan Petroleum Corporation Ltd (HPCL). The ‘negative list’ regime introduced ‘declared service’ and taxability of the impugned ‘declared service’ in July 2012. The said expression was rarely resorted to with lack of determination on the situations intended to be taxed. Though the specificity of, and confines implicit in, ‘legal fiction’ precluded resort to ‘principal activity’ for determination of exclusion from tax, the taxability itself was hung by the show cause notice on assumed fitment with such unfamiliar description. In such a 8 ST/85421/2017 stand off, balance of convenience must rest with the assessee and the adjudicating authority attempted to do so within the limited circle of illumination. The reviewing authority was also handicapped by that very circumscribing. Indeed, had they been possessed of a subsequent clarification on the scope of this very declared service, the fairness in approach of the adjudicating authority may have been perceived in that light. 8. We refer to circular3 of Central Board of Indirect Tax & Customs (CBIC) that had had to examine the scope of the impugned ‘declared service’ in the context of ‘liquidated damages’ and decisions of the Tribunal in which it was observed that ‘3. The description of the declared service in question, namely, agreeing to the obligation to refrain from an act or to tolerate an act or a situation, or to do an act is similar in GST. \"Agreeing to the obligation to refrain from an act or to tolerate an act or a situation, or to do an act\" has been specifically declared to be a supply of service in para 5 (e) of Schedule II of the CGST Act, 2017. 4. As can be seen, the said expression has three limbs: — (i) Agreeing to the obligation to refrain from an act, (ii) Agreeing to the obligation to tolerate an act or a situation, 3 [circular no. 214/1/2023-ST dated 28th February 2023] 9 ST/85421/2017 (iii) Agreeing to the obligation to do an act. Service of agreeing to the obligation to refrain from an act or to tolerate an act or a situation, or to do an act is nothing but a contractual agreement. A contract to do something or to abstain from doing something cannot be said to have taken place unless there are two parties, one of which expressly or impliedly agrees to do or abstain from doing something and the other agrees to pay consideration to the first party for doing or abstaining from such an act. Such contractual arrangement must be an independent arrangement in its own right. There must be a necessary and sufficient nexus between the supply (i.e. agreement to do or to abstain from doing something) and the consideration. 5. The issue also came up in the CESTAT in Appeal No. ST/ 50080 of 2019 in the case of M/s Dy. GM (Finance) Bharat Heavy Electricals Ltd in which the hon'ble Tribunal relied on the judgement of divisional bench in case of M/s South Eastern Coal Fields Ltd Vs. CCE Raipur {2021(55) G.S.T.L 549(Tri-Del)}. Board has decided not to file appeal against the CESTAT order ST/A/50879/2022-CU[DB], dated 20.09.2022 in this case and also against Order A/85713/2022, dated 12-8-2022 in case of M/s Western Coalfields Ltd. Further, Board has decided not to pursue the Civil Appeals filed before the Apex Court in M/s South Eastern Coalfields Ltd. supra (CA No. 2372/2021), M/s Paradip Port Trust (Dy. No. 24419/2022 dated 8-8-2022), and M/s Neyveli Lignite Corporation Ltd (CA No. 0051-0053/2022) on this ground. 6. In view of above, it is clarified that the activities contemplated under section 66E(e), i.e. when one party agrees to refrain from an act, or to tolerate an act or a situation, or to do an act, are the activities where the agreement specifically refers to 10 ST/85421/2017 such an activity and there is a flow of consideration for this activity. Field formations are advised that while taxability in each case shall depend on facts of the case, the guidelines discussed above and jurisprudence that has evolved over time, may be followed in determining whether service tax on an activity or transaction needs to be levied treating it as service by way of agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act. Contents of Circular No. 178/10/2022-GST, dated 3rd August, 2022, may also be referred to in this regard.’ 9. It is clear that the scope of taxability of the particular ‘declared service’ is restricted to ‘standalone agreements’ and not to contingent liabilities crystallising as part and parcel of another ‘service’ – taxable or exempted – which, in effect, was the reason adduced by the adjudicating authority in dropping of proceedings. It is clear that the impugned ‘declared service’ did not extend to ‘demurrage’; it is equally clear that ‘demurrage’ is linked to ‘transportation of goods by sea’ that was, admittedly, not chargeable to tax. There is, thus, no support for the grounds of appeal to fasten tax liability on ‘demurrage’ charged. 10. Consequently, the appeal of jurisdictional Commissioner of Customs is dismissed. Cross-objection is disposed off. (Order pronounced in the open court on 12/08/2025) (AJAY SHARMA) Member (Judicial) (C J MATHEW) Member (Technical) */as "