GUJARAT AUTHORITY FOR ADVANCE RULING

GOODS AND SERVICES TAX

D/5, RAJYA KAR BHAVAN, ASHRAM ROAD,

AHMEDABAD - 380 009.

(IN APPLICATION NO. Advance Ruling/SGST&CGST/2021/AR/27)

BRIEF FACTS

M/s. Sikka Ports & Terminal Ltd., hereinafter referred to as M/s Sikka/ applicant for the sake of brevity, has submitted as follows:

2. M/s Sikka runs and operates a port and terminal handling facility at Sikka Port, Gujarat for receipt of crude oil and other feedstock as well as for evacuation of various finished products of the crude oil refinery set up by Reliance Industries Limited ('RIL') at Jamnagar. Sikka Port, was developed by the Applicant company in 1990s as a captive port for RIL's refinery project. Apart from the usual port infrastructure, SPMs (Single Point Moorings) are also available to enable loading, unloading of various goods. In 2007, with a new refinery being set up by Reliance Petroleum Limited (which has since merged with RIL), the Applicant expanded its port and terminal handling facilities, by incurring substantial capital cost for setting up additional facilities such as three SPMs, sub-sea pipelines, crude and product pipelines, marine tank farms, sea water outfall system and support vessels comprising of marine support vessels, diving support vessel, three tugs and two pilot boats, all with a view to handle the increase in the quantity of the crude and products that was likely to transit through the port for the new refinery. For this purpose, the Applicant (then known as Reliance Ports and Terminals Ltd. - 'RPTL' for short) entered into a long term contract with RIL on 26-3-2007 titled "Agreement for the Receipt Handling Storage and Evacuation of Crude, Petroleum and Petrochemical Products'', vide which the Applicant was obliged to set up new facilities as described in Schedule 1 thereto, for enabling it to provide services described in Schedule 2 of the said long term contract. Part A of Schedule 1 to the said long term contract gives a brief description of facilities that the Applicant was required to set up on ownership basis. The relevant portion of the same is extracted as follows:-

A. Brief description of the Facilities

(i) One Single Point Mooring (''SPM3'') for crude movements with two 48-inch sub-sea pipelines. SPM3 shall have a crude flow rate of 12,500 T/Hr and a ship berthing capacity of 350,000 DWT.

(ii) Two Single Point Moorings (''SPM4 and SPM5'') for product exports with two 30-inch sub-sea pipelines. These SPMs shall have a product flow rate of 8000 T/Hr and a ship berthing capacity of 150000 DWT

(iii) Sub-sea pipelines for crude oil and product movements

(iv) Crude and product pipelines from the Marine Tank Farm, on existing trestles, where possible, to the new riser platform.

(v) 34 marine tanks comprising of 8 floating roof tanks for crude oil with an aggregate storage capacity of 768 kilo tonnes, 22 floating roof tanks for petroleum products with an aggregate capacity of 834 kilo tonnes and 4 conical roof tanks (Marine Tank Farm) for handling draw-off water and potable water. This shall be supported by a complete set of dedicated product pipelines to transfer products from/ to RPL's tank farm.

(vi) Sea water outfall system

(vii) Support vessels comprising of six marine support vessels, one diving support vessel, three tugs and two pilot boats."

3. The scope of services that the Applicant was required to provide to RIL was set out in para 3.1 of the said long term contract which read as follows:

Scope of Services

Subject to and in accordance with the terms of this Agreement, RPTL shall:-

1. Develop, procure, finance, construct, own, maintain and operate the Facilities so as to enable RPTL on an uninterrupted basis to receive, handle, store and evacuate the Products for RPL;

2. Maintain and operate the Existing Facilities to the extent required to enable it to perform its obligations under this Agreement

3. Provide the Services

4. Allow representatives of RPL such access to the Facilities as it may reasonably require after receiving reasonable notice in writing from RPL, provided that RPL's representatives on the Site shall comply with the safety and security procedures established by RPTL; and

5. Procure all clearances and wayleaves required for the construction, operation and maintenance of the Facilities and performance of the Services including and without limitation, entering into the necessary agreements with GMB.''

4. Schedule 2 of the long-term contract described the services that the Applicant was required to provide to RIL and relevant Para 3.2 of the contract required the Applicant to (i) ensure availability of adequate facilities of the desired specifications, and (ii) perform all services and obligations inter-alia in accordance with good industry practices.

5. Under the long-term contract, the Applicant represented and warranted to RIL that the facilities will be fit for provision of services in all material respects and further warranted that it can comply with all applicable material environmental laws and regulations (clause 6.2 and 6.3 of the long-term contract).

6. Since the Applicant provides port and terminal handling services which includes loading and unloading of cargo, transportation of cargo from the vessels berthed in the sea to the port, providing berthing facilities to the vessel, providing storage facilities etc., the same are treated as a composite supply of 'Port and waterway operation services (excl. cargo handling) such as operation services of ports, docks, light houses, light ships etc.' and classified under heading 996751. The Applicant recover throughput charges from RIL and discharges applicable GST on the invoices issued to RIL. Throughput charges comprises of service charges, wharfage charges, and other applicable levies and expenses. In case of the service charges as well as wharfage charges, certain rates specific to the nature of goods dealt with are predetermined in the Applicant's long-term contract with RIL and are accordingly levied.

7. To better explain the nature of operations that the Applicant is carrying out at the Sikka Port, the Applicant attached a map of the port area indicating the location of the SPMs, sub-sea pipelines, MTFs, jetties and other facilities.

8. In addition to setting up the main facilities of SPMs, sub-sea pipelines, MTFs and jetties, the Applicant was also required as per Schedule 2 of the long-term contract, to provide the following essential services for berthing of RIL vessels at the SPM/jetty:-

7. Infrastructure facilities including service jetty, tugs, mooring tenders and other floating craft like fighting and pollution control barges, line boats etc. including crew and supporting craft as may be required from time to time for pilotage, berthing and unberthing and pullback operations of tankers of RPL;

8. Navigational aids/facilities including vessel traffic management systems and all necessary facilities for night navigation/ night berthing/ night unberthing of RPL's tankers; and

9. Adequate measures for marine and environment pollution prevention and abatement conforming to all statutory requirement or regulations of Indian Law

....................

12. RPTL shall ensure that the Facilities perform at the specified levels of efficiencies."

9. The applicant submitted that SPMs are located mid-sea for the reason that Very Large Crude Carriers ('VLCCs') which bring in crude oil and other feedstock at Sikka Port need a very deep draught to drop anchor as a result of which it is not possible for these VLCCs to berth alongside Sikka jetty for discharge of cargo. It is for this reason that SPMs are erected mid-sea so that the VLCCs can berth alongside such SPMs and discharge their liquid cargo. Sub-sea pipelines are laid out to transport the discharged cargo from SPMs to MTFs located near the shore. When a VLCC arrives at an SPM, its tanks are required to be connected to the sub-sea pipelines for which purpose expert divers have to be employed to connect the discharge pipes of the vessel to the sub-sea pipelines. These divers and their diving equipment are stationed on the Diving Support Vessel ('DSV') which are required to be manned, operated and maintained by third party contractors who are specialists in this field.

10. With a view to guard the port facilities, particularly the SPMs, MTFs and subsea pipelines which are all located mid-sea, the Applicant is also required to have a robust security and patrolling mechanism for which purpose it employs Security Patrol Vessels ('SPVs') which not only perform the function of providing security but also enables the Applicant company to comply with its obligations under the environmental laws by checking for any oil spillage/leak. The SPVs that are so employed by the Applicant are also required to be manned, operated and maintained by experts for which separate contractors are engaged.

11. The applicant submitted that the input services in question related to hiring and/or operations of two different kinds of vessels used by them for providing its output supply of taxable services, it is necessary to set out the detailed specifications and features of the two vessels.

Diving Support Vessel (DSV)

1. DSV is a vessel provided with diving equipment and used for underwater work such as the operations and maintenance of SPMs, undersea pipelines and their connections, well-heads and other offshore installations. The DSV is also used at the time of connecting the underwater pipelines at the time of evacuation of the liquid bulk and gas cargo from/ to tankers as well as vessels. In fact, DSVs are so integral to the operations that even the long-term contract with RIL specifically provides for the operation and maintenance of the DSVs. As per the long-term contract with RIL, the Applicant is specifically obligated to operate and maintain the DSV. The Applicant has appointed a contractor for the operation and maintenance of the DSV. The services of operation and maintenance of DSV inter-alia include efficient operation of DSV, manning of DSV by qualified crew, preventive and corrective maintenance of DSV, maintaining the hull, superstructure, accommodation, gallery, stores and various spaces onboard, etc. as per best maritime practices. The detailed scope of work undertaken by contractors in respect of operation and maintenance service of DSV and sample invoices raised by the contractors on the Applicant are submitted with Advance Ruling Application. Further, a photograph of the DSV along with its specifications was submitted.

Security Patrol Vessel (SPV)

2. The Applicant utilizes SPVs (also called Security cum Pollution Control Boats or Security Patrolling Boats) which are used for guarding SPMs located in mid-sea and to check, monitor and control pollution due to oil spills or leaks. The SPVs so employed by the Applicant are integral for discharge of its obligations under the long-term contract, which include ensuring the safety and security of all its facilities to ensure seamless and uninterrupted operations, to take adequate measures to prevent environment and marine pollution as well as comply with all environmental laws and regulations. To enable the Applicant to discharge these obligations under its long-term contract with RIL, the Applicant utilizes these SPVs to patrol the limits of Sikka Port at all times, safeguard the facilities including SPMs and pipelines and also detect oil spills, leakages, etc. A photograph of an SPV was submitted with the application.

3. The Applicant has also appointed various contractors for operation and maintenance of the SPVs (both owned and hired). These contractors provide specialized and technically trained crew to operate and maintain the SPVs in accordance with sound ship management practices. The detailed scope of work undertaken by contractors in respect of operation and maintenance of SPVs and sample invoices raised by such contractors was submitted. In respect of SPVs which are hired by the Applicant, sample copies of related work orders for such hiring are submitted.

12. Further the Applicant submits as follows :

It receives services of hiring of the SPVs as well as for operating and maintaining DSVs and SPVs and that these services are eligible input services for availment of ITC, especially for the following reasons:-

(a) they are essential for providing output services of supplying port and terminal handling services and are used in the course or furtherance of the applicant's business; and

(b) they are not specifically blocked under any other provision of Section 17 of the CGST Act.

13. The Applicant submitted that the provisions of Section 17(5) of the CGST Act, particularly clauses (aa) and (b) thereof could, in the absence of any authoritative ruling or precedent, be misread by the field formations as blocking the Applicant's entitlement to avail ITC on the services referred to above.

14. The Applicant submits that it is of the view that they are eligible to take ITC in respect of services of operation and maintenance of DSVs and hiring and operation and maintenance of SPVs received and used by it in the provision of port and terminal handling services. The Applicant submits that both DSVs and SPVs are integral and absolutely essential to enable the Applicant to discharge its obligations under the long-term contract with RIL.

15. The Applicant submits that Section 16(1) of the CGST Act inter-alia provides that every registered person shall be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of business. Under Section 17(5), there are certain restrictions to availment of ITC otherwise entitled by Section 16(1). Section 17(5) was amended with effect from 01.02.2019 vide the CGST Amendment Act, 2018 and the amended provisions of Section 17(5)(aa) inter-alia provide that ITC in respect of vessels shall not be available except when used for purposes specified therein. The relevant portion of the amended Section 17(5) is extracted below for reference:-

"(5) Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section 18, input tax credit shall not be available in respect of the following, namely: -

(aa) vessels and aircraft except when they are used,-

(i) for making the following taxable supplies, namely:-

(A) further supply of such vessels or aircraft; or

(B) transportation of passengers; or

(C) imparting training on navigating such vessels; or

(D) imparting training on flying such aircraft;

(ii) for transportation of goods;"

16. The Applicant submits that the amendment to Section 17(5)(a) and (aa) has been made only with the objective to widen the scope of credit. This is evident from the Press-Note dated 21.07.2018 detailing the recommendations made by GST Council in its 28th Meeting held in New Delhi, which clearly elucidates that the amendment to the CGST Act is being made so as to widen the scope of ITC, and that it would now be made available in respect of Motor vehicles for transportation of persons having seating capacity of more than thirteen (including driver), vessels and aircrafts. Further, the context and rationale behind the amendment to Section 17(5)(a) and (aa) has been outlined in Serial No. 17 of Annexure 1 to the Agenda Item 6(i): 'Proposals for amendments in the CGST Act, 2017, IGST Act, 2017, UTGST Act, 2017 and GST (Compensation to States) Act, 2017'' under Agenda Item 6: Issues recommended by the Law Committee for consideration of the GST Council to the 28th GST Council Meeting. The relevant extract is reproduced for ready reference:-

"The amendment is sought to make it clear that input tax credit would now be available in respect of dumpers, work-trucks, fork-lift trucks and other special purpose motor vehicles. After the amendment is carried out, input tax credit would be denied only in respect of motor vehicles for transport of persons having approved seating capacity of not more than 13 persons (including the driver), vessels and aircraft when these are used for personal purposes.''

17. The Applicant submits that a combined reading of the above amendment to Section 17(5)(aa) of the CGST Act along with the Press-Note dated 21.07.2018 and Serial No. 17 of the Annexure to the Agenda makes it evident that the said amendment seeks only to restrict credit in respect of vessels for personal use such as yachts, sailboats etc. In fact, the whole intent and purpose of the amendment to Section 17(5)(a) is only to widen the ambit of the credit available. This being so, the clear intention of the law is to allow the ITC in respect of vessels which are used in the course or furtherance of business.

18. The Applicant submit that it is eligible to avail ITC on the services received in relation to operation and maintenance and/or hiring of the two vessels as the use of these services is to enable transportation of goods and therefore the bar under Section 17(5)(aa) is not applicable. The Applicant further submits that in order to ensure the legislative objective behind amendment of Section 17, it is necessary to interpret the expression 'for transportation of goods' as 'for the purpose of transportation of goods' so as to give it the meaning as was intended by the Legislature. In this context it may be relevant to note that Courts have held that the term 'for' is to be given a wide meaning and should be interpreted as "for the purpose of'.

18.1 Reliance is placed on the following amongst other judgements:-

i. The Hon'ble Supreme Court in Indian Chambers of Commerce vs. CIT [(1975) 101 ITR 796 (SC)] held that the expression 'for' has to be interpreted as 'for the purpose of' when used with an active participle of a verb. The relevant extract of the judgement is reproduced as follows:

"Further, what is an activity for profit depends on the correct connotation of the preposition. For used with the active participle of a verb means 'for the purpose of '(See judgment of Westbury C, 1127). 'For' has many shades of meaning. It connotes the end with reference to which anything is done. It also bears the sense of appropriate' or 'adapted to'; 'suitable to purpose'- vide Black's Legal Dictionary. An activity which yields a profit or gain in the ordinary course must be presumed to have been done for profit or gain. Of course, an extreme case could be imagined where without intent or purpose an activity may yield profit. Even so, it may legitimately be said that the activity is, 'appropriate or adopted to such profit'.

ii. In case of ACIT vs. Surat Art Silk Cloth Manufacturers Association [(1979) 2 TAXMAN 501 (SC)], the Hon'ble Apex court also interpreted the word 'for' as 'for the purpose of'. The relevant portion of the judgement is reproduced as follows:

"The activity must, however, be for profit in order to attract the exclusionary clause and the question therefore is when can an activity be said to be one for profit? The answer to the question obviously depends on the correct connotation of the preposition 'for'. This preposition has many shades of meaning but when used with the active participle of a verb it means for the purpose of and connotes the end with reference to which something is done."

iii. The Hon'ble Tribunal in Kedar Constructions vs. CCE [2014-TIOL-2138-CESTAT-MUM] has also followed the ratio laid down by the Hon'ble Supreme Court in case of Indian Chambers of Commerce (supra).

19. The Applicant submits that the DSVs as also the SPVs are essential to enable efficient transportation of goods from SPM to storage tanks located at the jetty. These services are integral to the provision of composite supply of port and terminal handling services that the Applicant provides to RIL. These vessels are crucial in ensuring the uninterrupted and efficient functioning of the SPMs and their absence will adversely impact the activities and services envisaged in the long-term contract. The Applicant therefore submits that the input services pertaining to operation and maintenance of DSV and hiring, operation and maintenance of SPV are required for transportation of goods and thus are eligible credits which are not blocked by provisions of Section 17(5)(aa) of the CGST Act.

19.1 The Applicant further states that Section 17(5)(aa) does not require that the vessels are to be used directly for transportation of goods for credit in respect of vessels to be eligible. Without there being any such explicit conditionality, the word directly cannot be read into Section 17(5)(aa) so as to cast an additional burden on the tax-payer.

19.2 Further, in terms of amended Section 17(5)(b)(i), the ITC in respect of services of renting or hiring of vessels is not available except when such vessels are used for the purposes specified in Section 17(5)(aa). However, the proviso thereof provides that ITC restricted under Section 17(5)(b)(i) shall be available where an inward supply is used for making an outward taxable supply of the same category or as an element of a taxable composite or mixed supply. The relevant portion of Section 17(5)(b)(i) is extracted, as follows, for reference:-

"(b) the following supply of goods or services or both,-

(i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health insurance:

Provided that the input tax credit in respect of such goods or services or both shall be available where an inward supply of such goods or services or both is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply".

19.3 The Applicant submits that, proviso to the Section 17(5)(b)(i) provides that ITC would be available on leasing, renting or hiring of vessels if such vessels are further used for making taxable supplies of same category or as an element of a taxable composite or mixed supply. Thus, insofar as input service of hiring of SPV is concerned, the Applicant is even otherwise eligible to avail ITC as SPV is clearly used by the Applicant to provide its output services. The port and terminal handling services provided by the Applicant to its customer RIL is nothing but a composite supply comprising of various services such as loading and unloading of cargo, transportation of cargo from the vessels berthed in the sea to the port, providing berthing facilities to the vessel, providing storage facilities etc. The service of hiring of SPV is used by the Applicant for providing such composite supply.

19.4 In view of the foregoing, the Applicant thus submits and prays that We answer the questions raised by the Applicant in the affirmative by holding that the Applicant is eligible to avail ITC in respect of the services received by it, viz. operation and maintenance services in respect of DSV and hiring, operation and maintenance services in respect of SPV.

20. The applicant has submitted copies of revised work order of Diving Support Vessel (DSV) and Security Patrol Vessel (SPV) and copies of Invoices issued by the Contractor in respect of work orders.

21. The applicant vide letter dated 26-10-21 has submitted: i. the signed copies of Work Orders No.560000119, 560000972, 560000968,530001650,560001285; ii. sample copy of an auto-generated email confirmation from the vendor management portal in respect of Contract Order No. CCS/560000968.

Revenue's Submission:

22. The Revenue submitted that the applicant is not eligible for the subject ITC availment. The submission is as follows:-

i. The applicant sought advance ruling for availment of Input Tax Credit (ITC) of GST paid in respect of Diving Support vessel & Security Patrol Vessel. In the said application, the applicant argued that they are eligible to avail the ITC of GST paid on Diving Support vessel & Security Patrol Vessel as they are using said vessels for furtherance of their business and Section 16(1) of the CGST Act, 2017 allows Input Tax Credit on any supply of goods and services or both to the recipient which are used or intended to be used in course or furtherance of business. In this regard the legal provisions are as follows:

a. Section 16. Eligibility and conditions for taking input tax credit.

Sub-Section (1):- Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.

Therefore, it is clear that entitlements to avail ITC are subject to conditions/restrictions.-

b. Section 17 : Apportionment of credit and blocked credits.

Sub-Section (5): Notwithstanding anything contained in subsection (1) of section 16 and subsection (1) of section 18, input tax credit shall not be available in respect of the following, namely:-

Sub-Section (aa): vessels and aircrafts except when they are used :-

for making the following taxable supplies, namely :-

(A) further supply of such vessels or aircraft; or

(B) transportation of passengers; or

(C) imparting training on navigating such vessels; or

(D) imparting training on flying such aircraft;

(ii) for transportation of goods;

Sub-Section (b): the following supply of goods or services or both

i. food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or renting of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health insurance:

Provided that the input tax credit in respect of such goods or services or both shall be available where an inward supply of such goods or services or both is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply;

From the above, it is clear that the provisions of Section 17(5) (aa) of the Act are not only overriding provisions with respect to Section 16(1) of the Act, but are also exhaustive in nature and limits the scope of Input tax credit with respect to vessel. The use of the words "Notwithstanding anything contained in sub-section (1) of Section 16" emphasizes that the Input Tax Credit can be availed on vessels only if the conditions prescribed under Section 17(5)(aa) are satisfied. So, even if, the Diving Support vessel & Security Patrol Vessel are used or intended to be used in the course or furtherance of business, the Input Tax Credit with respect to those vessels may not be availed by the recipient.

Further, Section 17(5)(b) of the CGST Act, 2017 also states that input tax credit shall not be available in respect of supply of renting or hiring of vessels. Input tax credit in respect of supply of renting or hiring of vessels shall be available only in those cases where an outward taxable supply is made of the same category of services. In the present case, Outward supply of the applicant is not similar to inward supply.

(ii) As far as the issue of availing of Input Tax Credit on the ancillary input services such as repair & maintenance in respect of above- mentioned vessels is concerned, Section 17(5)(ab) of the Act is reproduced as follows:-

Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, Input Tax Credit shall not be available in respect of "services of general insurance, servicing, repair and maintenance in so for as they relate to motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) of the Act.

Provided that the input tax credit in respect of such services shall be available -

i. where the motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) are used for the purposes specified therein;

ii. where received by a taxable person engaged -

I. in the manufacture of such motor vehicles, vessels or aircraft; or

II. in the supply of general insurance services in respect of such motor vehicles, vessels or aircraft insured by him.

22.1 It is observed that, in the present case, the subject vessels are not used for the purposes specified under Section 17(5)(a) of the Act and are, therefore, not also covered under exception provided under Section 17(5)(ab)(i) of the Act.

22.2 In view of the above, it is opined that the applicant is not eligible for Input Tax Credit of GST paid on the subject vessels.

23. Question on which Advance Ruling sought

1. Whether the Applicant is entitled to avail Input Tax Credit ('ITC') on services procured for the operation and maintenance of Diving Support Vehicle owned by them and used by it for supplying port and terminal handling services?

2. Whether the Applicant is entitled to avail Input Tax Credit ('ITC') on services procured for hiring, and for operation and maintenance of Security Patrol Vessel used by it for supplying port and terminal handling services?

Personal Hearing:

24.1 Shri Vipin Jain, Shri Aqueel Shiraji, Ms. Parnasi Singla appeared for the hearing (virtual mode) and reiterated the contents of the application. In the hearing, Shri Vipin Jain submitted to place before us the Correct Contracts entered between M/s Sikka and the Contractors for providing subject services within a weeks time. Further, Shri Jain requested for one more hearing.

24.2 The next hearing was attended by the said three representatives and the contents of additional submissions were reiterated.

Discussion and Findings

25. At the outset, we would like to state that the provisions of both the CGST Act and the GGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provisions under the GGST Act.

26. We have carefully considered the Revenue's and applicant's submissions.

27. We have carefully examined the following contracts entered by M/s Sikka with the following Contractors:-

i. Contract with M/s Samson Maritime Limited.

ii. Contract with M/s Ocean Sparkle.

iii. Contract with M/s Lilly Maritime.

iv. Contract with M/s I Marine.

v. Contract with M/s Ismail Ibrahim Hundada.

28. On careful examination of the following contracts, we have deduced and summarised the following facts, as follows:-

1. Contract with M/s Samson Maritime Limited.-

i. M/s Sikka entered into Contract with M/s Samson Maritime Limited, to inter alia, man, operate and maintain the DSV Relsagar. It is also a fact that this DSV is the property of M/s Sikka.

ii. The Scope of Contract is for supply of other services also such as, Operation and Maintenance of SPM 1 & 2.

iii. With reference to this contract, the question of ITC credit admissibility before us pertains to the portion on Operation and Maintenance of DSV.

iv. The fact forthcoming is that divers and their diving equipment are stationed on this DSV, who are specialised to connect discharge pipes of VLCC to the sub sea pipelines for discharge of cargo.

v. We note that the Schedule of Rate for Operation and maintenance of Delsager is mentioned separately in the Contract and same reflected in the invoice raised by M/s Samson.

vi. The SAC code mentioned in the Invoic No. MHRG202008R0018 dated 17-820 submitted before us is SAC 998717 which pertains to the Maintenance and Repair of Commercial and Industrial Machinery. On reading the Contract in toto, we are of the opinion to give credence to the substance of the Contract and thereby do not limit the scope of services supplied by M/s Samson to M/s Sikka covered within the ambit of SAC 998717. We hold that the SAC quoted by M/s Samson in its invoice shall not alter the factual scope of service supply to M/s Sikka. We hold that the subject manning, operation and maintenance of DSV is essential to enable transportation of goods from SPM to storage tanks located at the jetty. These services are integral to the outward supply of M/s Sikka. For the issue raised before us, regarding DSV manning, operation and maintenance, we find this an input service requisite for outward supply of service by M/s Sikka.

vii. The services by way of operation of DSV is used for underwater work such as the operations and maintenance of SPMs, under sea pipelines and their connections, well-heads and other off shore installations; used at the time of connecting the underwater pipelines at the time of evacuation of the liquid bulk cargo from/to tankers as well as vessels. M/s Samson supplies qualified crew for operation and maintenance of DSV.

2. Contract with Ocean Sparkle Ltd:-

i. The rationale we had employed from examining the Contract with M/s Samson, applies to this Contract also. This Contract is, inter alia, for the Operation and Maintenance of DSV Reldarshan, along with the operation and maintenance of SPM 3,4 & 5.

ii. The SAC quoted in the invoice raised by Ocean Sparkle is SAC 996751 which pertains to 'Port & Waterway operation Services (excluding Cargo Handling) such as operation services of Ports, Docks, Light houses, Light ships etc. In light of the substance of the contract before us, We hold that the SAC quoted by M/s Ocean in its invoice shall not alter the factual scope of service supply to M/s Sikka. We hold that this supply of service is a requisite service procured by M/s Sikka and utilised for its outward supply.

iii. With reference to this contract, the question of ITC credit admissibility before us pertains to the portion of Operation and Maintenance of DSV Reldarshan. We note that the Schedule of Rate for Operation and maintenance of DSV is mentioned separately in the Contract and same reflected in the invoice raised by M/s Ocean .

3. Contract with Lilly maritime Pvt Ltd.-

i. M/s Sikka entered into Contract with M/s Lilly to inter alia, man, operate and maintain the SPV Eagle & Chetak. In this Contract, M/s Sikka is before us for the ITC admissibility pertaining to SPV Eagle & Chetak only. (M/s Sikka is not before us for the services provided with the Pilot Boats- Anjali, Apsara, Apurva and Poonam, also specified in this contract).

ii. The invoices raised by Lilly Maritime reflects as follows:-

a. Operation and Maintenance of security boat Eagle; SAC 998717.

b. Operation and Maintenance of Security Boar Chetak; SAC 998717.

iii. We find that Security and Patrolling Services are received by M/s Sikka with the operation of these two SPVs, with an additional feature of enabling M/s Sikka to comply with its obligations under the environmental laws by checking for any oil spillage/leak.

iv. We hold that the SAC quoted by M/s Lilly in its invoice shall not alter the factual scope of service supply to M/s Sikka. We give credence to the substance of the contract and hold that these services are requisite input services for M/s Sikka to supply its outward supply.

v. These security and patrolling services are used for guarding SPMs located in the mid sea and to check, monitor and control pollution due to oil spills/leaks. These services ensure safety and security of M/s Sikka's facilities, ensuring uninterrupted operations, to take adequate measures to prevent environment and marine pollution as well as comply with environmental regulations.

4. Contract with I Marine Infratech India Pvt Ltd.-

i. This Contract reads that it is for hiring of security patrolling boat 'calypso fortune'. The SAC quoted in the invoice by the contractor is SAC 996602 which is the SAC for Rental Services of Water vessels.

ii. However, on reading the Contract, we find that this contract's scope is not limited to the Hiring/ Rental services of the Boat but the scope of work is for supply of Security and Patrolling services to M/s Sikka. As we read this Contract, we find that the Contractor is responsible for supplying this Boat with its crew along with their insurance.

iii. We find the rationale employed for the Security and Patrolling services provided by Lilly Maritime is applicable in subject supply by I Marine Infratech too.

5. Contract with Ismail Ibrahim Hundada.-

i. This Contract begins with the wordings that it is for hiring of security boat 'ML Noorani' for patrolling of SPIL port waters of JMD. The SAC quoted in the invoice by the contractor is SAC 996609 which is the SAC for Rental Services of Transport Vehicles (nec) with or without operator.

ii. However, on further reading the Contract, it specifies that the contractor shall provide competent crew as per certification of survey issued by MMB/GMB. We find that this contract's scope is not limited to the Hiring/ Rental services of the Boat but the scope of work is for supply of the Security and Patrolling services to M/s Sikka.

iii. We find the rationale employed for the Security and Patrolling services provided by Contractors Lilly Maritime and I Marine is applicable in subject supply supplied by Ismail Ibrahim to M/s Sikka.

From the emerging facts on record, we hold that the subject Services, namely,-

i. supply of service by operation and maintenance of DSV Relsagar by M/s Samson to M/s Sikka;

ii. supply of service by operation and maintenance of DSV Reldarshan by M/s Ocean to M/s SIkka

iii. supply of security and patrolling service by operation of Eagle and Chetak by M/s Lilly to M/s Sikka

iv. supply of security and patrolling service by operation of Calypso Fortune by M/s I Marine to M/s Sikka

v. supply of security and patrolling service by operation of ML Noorani by M/s Ismail to M/s Sikka are essential and requisite input services received by M/s Sikka to perform its outward supply. These services are used by M/s Sikka in the course of furtherance of its business.

29. One reason M/s Sikka is before us is their apprehension that Revenue may treat this ITC on subject input services as Blocked credit.

29.1 Revenue vide its submission, aforementioned, has opined subject Credit inadmissible as Blocked credit covered under Section 17(5) CGST Act.

30. We refer to the provisions of Section 17(5) CGST Act.

31. We find that Section 17(5)(aa) CGST Act pertains to Blocked Credit for Vessels. This is blocked credit on vessels which are 'goods'.

31.1 This is not the case before us that M/s Sikka bought vessels and seeks ruling on the ITC on vessels (goods), but it is pertaining to the credit admissibility of Services supplied by Contractors.

32. We note that Section 17(5)(ab) CGST Act pertains to Blocked credit on services of repair and maintenance in so far as they relate to Vessels. Even this is not the case before us. The services supplied by the said Contractors to M/s Sikka is not limited merely to 'Repair and Maintenance' to Vessels but the essence and substance of the Contracts reads that the Services supplied by the said Contractors pertain to enabling discharge of liquid cargo into the sub sea pipelines and also the Services of Security Patrolling cum Pollution checks by way of operation and manning and maintenance of DSVs and SPVs respectively, by qualified crew.

32.1 The Scope of Contract entered with the said Contractors cannot fall merely under the Repair and Maintenance category on these vessels. Thus Section 17(5)(ab) CGST Act does not come into picture in present case.

33. Further, Section 17(5)(b)(i) CGST Act pertains to blocked credit on renting or hiring of vessels. As already discussed in the aforementioned paragraphs of this Ruling, we find no merit to term and limit the services supplied by the Contractors to M/s Sikka as merely hiring/ renting of vessels, for the services are for the Operation and Maintenance of Vessels to perform and enable, inter alia, i. Transportation/ discharge of cargo; ii. security patrolling services.

34. We find that the bar of blocked credit raised vide Section 17(5)(aa); Section 17(5)(ab); section 17(5)(b)(i) CGST Act is not applicable in subject case. We therefore dismiss Revenue's submission in this regard.

35. In Conspectus of our aforementioned Discussions and Findings, we pass the Ruling:

Ruling

i. M/s Sikka is entitled to avail ITC on the services procured for the Operation and maintenance of DSVs: Relsagar & Reldarshan.

ii. M/s Sikka is entitled to avail ITC on the services procured for the Operation and maintenance of SPVs: Eagle, Chetak, Calypso fortune & ML Noorani.