Custom, Excise & Service Tax Tribunal
Carvel Logistics Pvt Ltd vs Cst Ch - I on 11 July, 2024
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
CHENNAI
REGIONAL BENCH - COURT NO. III
Service Tax Appeal No. 40792 of 2015
(Arising out of Order-in-Original Nos. 8,9&10/2015 dated 02.01.2015 passed by Commissioner of
Service Tax, Newry Towers, No. 2054-I, II Avenue, Anna Nagar, Chennai - 600 040)
M/s. Caravel Logistics Pvt. Ltd. ...Appellant
No. 484, Pantheon Plaza,
Pantheon Road, Egmore,
Chennai - 600 008.
Versus
Commissioner of GST and Central Excise ...Respondent
Newry Towers, No. 2054-I,
II Avenue, Anna Nagar,
Chennai - 600 040.
APPEARANCE:
For the Appellant : Mr. Karthick Sundaram, Advocate
For the Respondent : Mr. Harendra Singh Pal, Authorised Representative
CORAM:
HON'BLE MS. SULEKHA BEEVI C.S., MEMBER (JUDICIAL)
HON'BLE MR. VASA SESHAGIRI RAO, MEMBER (TECHNICAL)
FINAL ORDER No. 40844 / 2024
DATE OF HEARING : 02.07.2024
DATE OF DECISION: 11.07.2024
Order :- Per Ms. SULEKHA BEEVI C.S.
Brief facts are that the appellant is engaged in providing services
viz., Custom House Agent Service, Clearing & Forwarding Agency Service,
Transport of Goods through Waterways, Business Auxiliary Service and
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Transport of Goods by Road. They are registered with the Service Tax
Department.
1.2 During the course of audit of accounts by the Internal Audit
Section of the Service Tax Commissionerate, Chennai, it was noted that the
appellant had taken containers on lease from foreign companies which are in
turn used by the appellant to transport cargo for import as well as export.
The appellant paid lease rent charges in foreign currency to the service
providers located abroad. It appeared to the Department that the containers
were leased by the overseas service providers only for use by the appellant
and the appellant has no right of possession or effective control of the
containers. The appellant is thus liable to pay service tax under the
category of 'Supply of Tangible Goods Services' on the lease rent charges
paid by them from 16.05.2008 onwards, on reverse charge basis.
1.3 Show Cause Notice dated 08.01.2013 was issued to the
appellant demanding service tax along with interest on the lease rentals paid
by the appellant during the period from 16.05.2008 to 31.03.2012. The
Statement of Demand No. 113/2014 dated 09.05.2014 was issued for the
period from April 2012 to June 2012, as well as, another Show Cause Notice
No. 214/2014 dated 01.09.2014 was issued for the period July 2012 to
March 2013, on the very same allegations and proposing to demand service
tax under 'Supply of Tangible Goods Services' along with interest and also
for imposing penalties. After due process of law, the Original Authority
adjudicated all the Show Cause Notices together and held that the activity
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would be classifiable under the category of Supply of Tangible Goods
Services. The demand for the period from 16.05.2008 to 31.03.2013, April
2012 to June 2012 and July 2012 to March 2013 was confirmed with interest
and penalties. Aggrieved by such order, the appellant is now before the
Tribunal.
2.1 The Ld. Counsel Shri Karthick Sundaram appeared and argued
for the appellant. It is submitted that the impugned order has held that the
activity of leasing containers by the foreign company to the appellant
amounts to service under Supply of Tangible Goods Service for the period
prior to 01.07.2012 and under Section 65(B)44 for the period w.e.f.
01.07.2012. The Ld. Counsel referred to the definition of 'Supply of Tangible
Goods Services' under Section 65(105)(zzzzj)which reads as under:-
"any services provided or to be provided to any person by any other person in
relation to supply of tangible goods including machinery, equipment and appliances
for use, without transferring right of possession and effective control of such
machinery, equipment and appliances"
2.2 It is submitted that only if the supply is without transferring the
right to possession and effective control of such machinery, equipment and
appliances, the activity would fall under the definition of 'Supply of Tangible
Goods Services'. In the present case, the activity of leasing the containers
would fall under transfer of right to use of goods / deemed sale and
therefore is not chargeable to service tax. The 'transfer of right to use
goods' is leviable to Sales Tax / VAT as deemed sale of goods [Article
366(29A)(d) of the Constitution of India]. Transfer of right to use involves
transfer of both possession and control of the goods to the user of the
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goods. For the period w.e.f. 01.07.2012 also, the definition of 'Service'
excludes deemed sale which falls within the meaning of Article 366 (29A) of
the Constitution of India. As per Section 66E(f) of the Finance Act, 1994,
transfer of goods by leasing without transfer of right to use such goods is a
deemed service. In the present case, the appellant is given right to use the
goods, and therefore, it does not fall under Section 65B(44) or Section
66E(f) of the Finance Act, 1994. Since, the possession as well as effective
control is transferred to the appellant, the activity will not fall under Section
65(105)(zzzzj) of the Finance Act, 1994.
2.3 It is submitted that the Hon'ble Supreme Court in the case of
Bharath Sanchar Nigam Ltd. Vs. Union of India [2006 (3) VST 95] has set
out a five-fold test for examining whether the transaction is a 'transfer of
right to use goods'. On an application of the test laid down to the facts of
the present case, it would be clear that the activity is a transfer of right to
use the containers given to the appellant and is not an activity of Supply of
Tangible Goods or lease falling under Section 66E(f). The Ld. Counsel
compared the points of analysis in the BSNL case (supra) with that of the
present case which is as under:-
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2.4 It is asserted by the Ld. Counsel that in the present case, the
possession is handed over to the appellant and the appellant enjoys right
over the container to the exclusion of the lessor.
2.5 The Agreements entered by the appellant with the lessor
(foreign company) was also furnished. Para 4 of the Agreement stipulates
the delivery locations. It states that the containers shall be delivered from
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any of the lessor depots as and when available. Para 6 states about Cost
and Repairs. It states that cost of repairs if any incurred is on the appellant
subject to any optional arrangement with lessor whereby lessor is
responsible for cost of repair. Para 8 provides for Exclusion and Warranties.
It states that the appellant (lessee) shall have quiet possession as against
any person claiming under or through lessor. This would show that the
appellant is able to use the container during the period of lease to the
exclusion of the lessor. Para 13 talks about the Insurance. It states that
the appellant who is the lessee is to obtain the insurance and incur expenses
for the same. It is submitted that all these conditions would show that the
complete possession and effective control has been handed over to the
appellant.
2.6 The Adjudicating Authority has rejected the plea of the appellant
that the activity amounts to 'transfer of right to use of goods' by relying
upon the conditions in the agreement which says that the container should
not be used for storage or transportation of hazardous substances, etc. It is
thus assumed by the Adjudicating Authority that transport can be only of
cargo which is agreed by the lessor. There is no such condition in the
agreement that the lessor has any right to decide the cargo which is to be
carried in the container. Only for safety and compliance of regional law, the
Agreement stipulates that the appellant should not carry hazardous
substances in the container.
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2.7 The Ld. Counsel relied upon the decision in the case of Lindstrom
Services (P) Ltd. Vs. Commissioner of GST [2020 SCC ONLINE CESTAT
4542] to submit that in the said case, the Tribunal had analysed whether the
transaction of work wear rental would fall under the category of Supply of
Tangible Goods Service. After analysing the conditions of Agreement, the
Tribunal followed the decision passed by the Chandigarh Bench in the
assessee's own case and set aside the demand. The Department filed an
appeal before the Hon'ble Apex Court which was dismissed maintaining the
decision of the Tribunal as reported in [2023 (11) CENTAX (228) SC].
2.8 In the case of Universal Dredging and Reclamation Corporation
Ltd. Vs. Commissioner of CGST & Central Excise [2020 SCC ONLINE CESTAT
110], the Tribunal had occasion to analyse whether the hire of the chartered
vessel for dredging activity would amount to declared service under Section
66E(f) of the Finance Act, 1994 w.e.f. 01.07.2012. In the said case, the
vessels were taken by the assessee therein only on lease basis under a Bare
Boat Charter Agreement. The vessels were imported by assessee as per the
Agreement for use of dredging activity. Post completion of the project, the
vessels / equipment were re-exported. After putting the facts to the five-
fold test laid down by the Hon'ble Apex Court in the case of BSNL (supra),
the Tribunal held that the activity falls under transfer of right to use, and is
not subject to levy service tax.
2.9 In a recent decision, the Delhi Bench of the Tribunal in the case
of SRF Ltd. Vs. Commissioner of LTU, New Delhi [2023 (109) GSTR 379]
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held that no service tax is leviable under reverse charge mechanism when
the transaction is a deemed sale. The assessee therein entered into
contracts with foreign suppliers for obtaining ISO tankers on lease / rental
basis which were used by the assessee for transportation of refrigerant
gases by sea route. After analysing the Agreements, the Tribunal held that
the possession and effective control over the ISO tankers during the entire
period was transferred to the assessee and therefore the activity is not
taxable under Supply of Tangible Goods Services.
2.10 Without prejudice to the above arguments, it is submitted that
the entire transaction took outside India, and therefore no service tax can be
levied. The Ld. Counsel argued on the ground of limitation also. The issue
being interpretational in nature, the extended period cannot be invoked as
the appellant was under bonafide belief that the activity is transfer of right
to use and not subject to levy of service tax. For the same reasons, it is
prayed that the penalties may be set aside. The Ld. Counsel prayed that the
appeal may be allowed.
3.1 The Ld. Authorised Representative Shri Harendra Singh Pal
appeared and argued for the Department. It is submitted that the
arguments of the Ld. Counsel for the appellant that the activity is a transfer
of right to use goods cannot be accepted. The Adjudicating Authority had
analysed the Agreement and discussed as to whether the activity would fall
under Supply of Tangible Goods Service. The basic features of the
Agreement are as under:-
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From the above, it can be seen that on lease,
➢ assessee has to take delivery of the containers from the 'Delivery
locations' stipulated by the lessor and return them at the place
stipulated by the lessor;
➢ use the container for transport of agreeable cargo;
➢ maintain the container during lease period; if lessor estimates any
damage to the container as economically feasible has to undertake
the repair of the same; if beyond repair has to pay the 'replacement
value' agreed upon to the lessor and such payment is not deemed a
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purchase of the relevant container; i.e., replacement of container is
at the discretion of the lessor;
➢ has to maintain a comprehensive general liability insurance which is
to regularly intimated to the lessor;
➢ cannot sub-lease at their will;
➢ cannot make any changes to the container as deemed fit by them
without consent & prior approval of the lessor
3.2.1 It is submitted that the though the appellant takes delivery of
the container, the appellant has to take delivery from the yard of the lessor
as per the instructions given by the lessor. This would show that there is no
transfer of possession.
3.2.2 The appellant is obliged to maintain a comprehensive general
insurance as per clause 11 of the Agreement of which the value is
determined by the lessor. Such insurance policies should be endorsed
noting the interest of the lessor / owner / manager. The policy cannot be
changed without prior notice to the lessor. This shows that obtaining the
insurance and maintaining the insurance is pre-requisite for lease and the
same indicates that the right of possession is not transferred.
3.2.3 During the use of containers in their business, the necessary
permissions in complying with the customs procedures of various countries
is on the appellant. Such compliance is in the course of business of the
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appellant and do not in any way establish that the appellant has effective
control over the containers.
3.2.4 The appellant cannot sub-lease their containers without prior
consent of the lessor or make any changes to the containers. So also, the
containers can be used only for International Trade which all goes to
establish that the lessor holds the possession and effective control even
though the custody of the containers is given to the appellant on payment of
rentals. The Ld. Authorised Representative asserted that the appellant holds
custody of the containers and used them in their business and there is no
transfer of right to use of such goods as there is no transfer of effective
control or possession.
3.3 The decision in the case of Commissioner of Service Tax,
Ahmedabad Vs. Adani Gas Ltd. [Civil Appeal No. 2633 of 2020 dated
28.08.2020] was relied by the Ld. Authorised Representative to argue that
after examining the applicability of the tests rendered in the case of BSNL
(supra), the Hon'ble Apex Court held that the amounts collected for
providing the SKID equipment by the assessee to domestic and commercial
consumers who were using piped natural gas would fall under the category
of Supply of Tangible Goods Services under Section 65(105)(zzzzj) of the
Finance Act, 1994. It is prayed that the appeal may be dismissed.
4. Heard both sides.
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5. The issue that arises for consideration is:-
i. whether the lease rentals paid by the appellant to the foreign company
(Lessor) for hiring the containers is subject to levy of service tax under
Supply of Tangible Goods Services under Section 65(105)(zzzzj) of the
Finance Act, 1994 upto 30.06.2012.
ii. Whether the activity would fall under definition of Service as per
Section 65B(44) for the period w.e.f. 01.07.2012.
6. The definition of Supply of Tangible Goods Services has already
been noticed above. The argument put forward by the appellant is that the
transaction is transfer of right to use goods / deemed sale and therefore is
not subject to levy of service tax under Section 65(105)(zzzzj) upto
30.06.2012 or Section 65B(44) of the Finance Act, 1994 w.e.f. 01.07.2012.
To examine as to whether the transaction constitutes transfer of right to use
goods / deemed sale, the test laid down by the Hon'ble Apex Court in the
case of BSNL (supra) is as under:-
"97. To constitute a transaction for the transfer of the right to use the
goods the transaction must have the following attributes:
a. There must be goods available for delivery;
b. There must be a consensus ad idem as to the identity of the
goods;
c. The transferee should have legal right to use the goods-
consequently all legal consequences of such use including any
permissions or licenses required therefor should be available to the
transferee;
d. For the period during which the transferee has such legal right, it
has to be the exclusion to the transferor-this is the necessary
concomitant of the plain language of the stature-viz. a "transfer of
the right to use", and not merely a licence to use the goods;
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e. Having transferred the right to use the goods during the period for
which it is to be transferred, the owner cannot again transfer the
same rights to others."
7. Our endeavour would be to analyse the Agreement as to
whether the above attributes are present in the transaction. In the present
case, the containers are delivered to the appellant by the lessor. The Ld.
Authorised Representative appearing for the Department has argued that
since the containers have to be taken delivery from the location as
instructed from the lessor, it cannot be said that there is a transfer of
possession of goods. The said argument does not find favour with us. When
the containers are delivered to the appellant it constitutes transfer of
possession of the goods by the lessor.
8. In the present case, there is meeting of minds (consensus ad
idem) with regard to the identity of the goods as each container has
identification number. The lessor and the lessee had agreed to lease a
specific container / containers. The second test is also satisfied.
9. In the present case, the container is used by the appellant for
transportation of cargo. It is for the appellant to take necessary Licenses
from the Customs Authorities and also to register the container before the
Customs. The appellant has legal right to use the container and has all
permissions / licenses in their name for compliance with customs formalities
as well as courier formalities. The agreement stipulates that hazardous
goods should not transported. This condition has been interpreted by the
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Department to hold that the lessor is allowed to decide what type of cargo is
to be transported. This view is erroneous. The said condition is to maintain
the safety of the container by the owner of the container. Since it is not
outright sale and only deemed sale, the title still remains with the owner.
Another condition pointed out by the Ld. Authorised Representative is that
the container is to be used for international transportation. The Ld. Counsel
has explained that the rules for coastal running of the vessel is different and
only if the vessel is for international transportation, the appellant would be
able to get necessary licence / permissions from Customs and other
authorities. We find this explanation to be reasonable. We do not find any
condition in the agreement allowing the lessor to decide the transportation
of cargo.
10. The use of the container during period on lease is to be to the
exclusion of the lessor. The appellant has full right to use the container
during the lease period which is clear from Para 8 reads as under:-
"8. EXCLUSION OF WARRANTIES
ALL CONTAINERS ARE LEASED AS IS, AND LESSOR WARRANTS ONLY
THAT THEY CORRESPOND WITH THE DESCRIPTION SET OUT IN THE
SCHEDULE, AND THAT SO LONG AS NO EVENT OF DEFAULT HAS OCCURRED
LESSEE SHALL HAVE QUIET POSSESSION AS AGAINST ANY PERSON
CLAIMING UNDER OR THROUGH LESSOR, SAVE AS AFORESAID, NO
CONDITION OR WARRANTY WHATSOEVER OF ANY KIND HAS BEEN OR IS
GIVEN BY LESSOR IN RELATION TO THE CONTAINERS, AND ALL
CONDITIONS AND WARRANTIES IN RELATION THERETO, WHETHER
EXPRESSED OR IMPLIED, WHETHER STATUTORY, COLLATERAL HERETO OR
OTHERWISE, WHETHER IN RELATION DO THE FITNESS OF THE CONTAINERS
OR ANY ITEM THEREOF FOR ANY PARTICULAR PURPOSE, OR IN COMPLIANCE
WITH ANY CONVENTION, STATUTE, REGULATION, ORDER OR OTHER
PROVISION OF LAW OR STANDARD, OR WHETHER IN RELATION TO
MERCHANTABILITY OR AS TO DESCRIPTION, STATE, QUALITY OR
CONDITION OF THE CONTAINERS OR ANY TEM THEREOF AT DELIVERY OR
AT ANY OTHER TIME, ARB HEREBY EXCLUDED AND EXTINGUISHED."
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(emphasis supplied)
11. It is stated that the lessee (appellant) shall have quiet
possession as against any person claiming under or through lessor. This
establishes that the appellant has right to use the containers to the exclusion
of the lessor. The fourth test is satisfied.
12. During the lease period, the goods can be used only by the
appellant and the lessor cannot transfer the rights to any other person. On
perusal of the agreement, it is seen that the lessor does not reserve any
right to transfer the right to use to others, during the lease period. The fifth
test is satisfied.
13. From the above, we find that the five-fold test put forward in the
BSNL (supra) case stands satisfied. There is indeed transfer of possession
as well as effective control of the containers to the appellant by the foreign
supplier. In such circumstances, the activity cannot fall under Supply of
Tangible Goods Services as defined under Section 65(105)(zzzzj). As the
above five-fold test for transfer of right to use the goods being satisfied, the
transaction has to be construed as a deemed sale. It cannot be a 'Service'
as defined under 65B(44) of the Finance Act, 1994.
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14. Our view is supported by the decision of the Tribunal in the case
of Lindstrom Services (P) Ltd. (supra). In the case of Taneja Aerospace and
Aviation Ltd. Vs. Commissioner of GST and Central Excise [2024 (17)
CENTAX 335 (Tri. Mad.)], a similar issue was considered. It was held that
the transaction of leasing of an aircraft from entity abroad does not fall
under Supply of Tangible Goods Service as the aircraft is taken as lease
agreement along with entire crew of aircraft by assessee. The relevant
paragraphs of the decision in Taneja Aerospace and Aviation Ltd. (supra)
reads as under:-
"11. The above would specify the nature of transactions to which tax for
sale/purchase of goods would be attracted. Section 66E of the Finance Act,
1994 deals with the concept of declared services. Clause (f) to Section 66E
states that 'transfer of goods by way of hiring, leasing, licensing or in any
such manner without transfer or right to use such goods' is a declared
service. It means a lease agreement 10 Service Tax Appeal No. 41366 of
2014 which does not have the character of transfer of right to use goods is
taxable service. The Hon'ble Apex Court in the case of Bharat Sanchar
Nigam Ltd. Vs UOI 2006 (2) STR 161 (SC) has laid down certain factors to
test whether a transaction is a pure lease or a lease in the nature of right to
use of goods (deemed sale). The Board vide circular dated 17.08.2016 has
issued instructions adopting the same. Relevant part of Board circular reads
as under :-
"2. The matter has been examined. I am directed to draw your attention to the fact
that in any given case involving hiring, leasing or licensing of goods, it is essential to
determine whether, in terms of the contract, there is a transfer of the right to use the
goods. Further, the Supreme Court in the case of Bharat Sanchar Nigam Limited v.
Union of India, reported in 2006 (2) S.T.R. 161 (S.C.), had laid down the following
criteria to determine whether a transaction involves transfer of the right to use goods,
namely, -
a. There must be goods available for delivery;
b. There must be a consensus ad idem as to the identity of the goods;
c. The transferee should have a legal right to use the goods - consequently all legal
consequences of such use, including any permissions or licenses required therefor
should be available to the transferee;
d. For the period during which the transferee has such legal right, it has to be to the
exclusion to the transferor this is the necessary concomitant of the plain language of
the statute - viz. a "transfer of the right" to use and not merely a licence to use the
goods;
e. Having transferred the right to use the goods during the period for which it is to
be transferred, the owner cannot again transfer the same right to others."
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3.1 This criteria must invariably be followed and applied to cases involving hiring,
leasing or licensing of goods. The terms of the contract must be studied carefully vis-a-
vis the criteria laid down by the Supreme Court in order to determine whether service
tax liability will arise in a given case. It is not possible to either give an exhaustive list of
illustrations or judgements on this issue. Cases decided under the Sales Tax/VAT
legislations have to be considered against the background of those particular legislative
provisions and terms of contract in that case."
12. The agreement reveals that the transfer of right to use goods involves
transfer of possession and effective control over such goods. In the present
case, the possession of the aircraft is transferred to the appellant who has
taken delivery of the same. So also, the air craft is operated by the crew
employed by the appellant. Appellant has to undertake maintenance and
repair of the air craft and has to take insurance for the risk of loss etc.
These would go to show that the effective control over such goods is also
transferred to the appellant. On examination of the above, it can be seen
that the transaction before us satisfies all the above criteria. The nature of
the lease is therefore a transaction involving transfer of right to use goods
and is not subject to levy of service tax.
13. The very same issue was decided by the Tribunal in the case of Blue
Dart Aviation (supra). Relevant paragraph of the decision reads as under :
"8.1 Taking into account these aspects and also the other terms of agreement brought
to our attention by the Ld. Sr. Advocate, in particular, the operation of the aircraft with
the personnel of the appellant themselves, requirement of maintenance of aircraft by
the appellants etc., we have no doubt in our mind that the lease agreement between
EAT and the appellant is one wherein the right of possession and control of the aircraft
has been bestowed on the appellant and not retained with the lessor. This being so, the
ingredients of "Supply of Tangible Goods Service" requiring exigibility to service tax by
the Finance Act, 1994 are not present in this transaction. In consequence, the monetary
consideration paid by the appellants to EAT cannot be considered as value of "Supply of
Tangible Goods Service" and tax demanded on the same as has been done in the
impugned orders. "
14. In the above case, the period prior and after 01.07.2012 has been
considered. Similarly, in the case of Heligo Charters Pvt. Ltd. (supra) the
Tribunal had occasion to consider the demand of service tax on lease
agreement of helicopter. In the said case, the assessee was responsible for
maintenance of the helicopter as per the DGCA regulations by qualified
engineers so as to keep the helicopters always in airworthy conditions and
also engage experienced and licensed air crew for operating the helicopters.
The department was of the view that legal right of possession and effective
control over the helicopters during the lease period was not with the
assessee. The demand was under BSS. Department was of the view that
since helicopters are infrastructure for the assessee's business, the demand
was made under 'Business Support Service'. After analysing the agreement,
the Tribunal held that leasing of the helicopters involves transfer of right to
use goods (deemed sale) and the demand of service tax cannot be
sustained. Relevant paragraphs read as under :
"8. The Appellant are engaged in the business of providing helicopters on charter hire
basis to their clients in Oil and Natural Gas industry in India, which, besides providing
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helicopters to the client, also involves (i) maintenance of the helicopters during the
period of charter hire as per the DGCAs regulations by qualified engineers engaged by
them so as to keep the helicopters always in airworthy condition; (ii) employing
qualified and licensed crew for operating the helicopters and (iii) operating the
helicopters for providing air transportation for the clients personnel and cargo as per
their requirement. There is no dispute about the taxability of these services being
provided by the appellant to their clients in India and service tax is being paid by the
Appellant by treating this activity as supply of tangible goods for use without transfer
of right of possession and effective control, which during the period prior to 1.7.2012
was taxable under Section 65 (105) (zzzzj) of the Finance Act, 1994 and during period
w.e.f. 1.7.2012 is taxable as a declared service under Section 66E of the Act. For
providing this service to their clients in India, the Appellant have taken on lease two
helicopters from the two foreign lessors ADA, Abu Dhabi and BLFIL, Ireland. Though in
terms of Appellants lease agreement with ADA, the Appellant had option to hire flight
and maintenance crew also from the lessor (ADA) along with the helicopter, there is no
dispute that the Appellant have not exercised this option and from both the foreign
lessors ADA, Abu Dhabi and BLFIL, Ireland, they have received helicopters without any
operating or maintenance persons. In other words, both the helicopters have been
taken by the Appellant from the foreign lessors on dry lease basis. The main point of
dispute is as to whether this leasing of the helicopters by the Appellant on dry lease
basis from ADA and BLFIL for use in their business is a taxable service (business support
service) under Finance Act, 1994 or is deemed sale under Art 366 (29A)(d) of the
Constitution of India and Section 5(2) read with Section 2(g) of the Central Sales Tax
Act, 1956 and, hence, outside the purview of Service Tax. According to the Department,
from the 'lease agreements', it is evident that this not a mere case of transfer of right
to use, as the helicopters construe infrastructure of the Appellants area of
business/commerce and, hence, the foreign lessors by supplying this infrastructure to
the Appellant, have provided infrastructure support service to the Appellant, which is
taxable as support services of business or commerce under Section 65 (105) (zzzq) read
with sections 65(104c) of the Finance Act, 1994 during period prior to 1.7.2012 and as
taxable service not covered by negative list during period w.e.f. 1.7.2012. It is on this
basis, that the Commissioner, in the impugned order, has confirmed service tax
demands totalling ₹ 18,84,25,686/- against the Appellant under Section 73(1) of the
Act along with interest on it under Section 75 of the Act and imposed penalties totalling
₹ 6,34,01,884 (Rs.4,94,65,906/- + ₹ 1,38,95,978/- + ₹ 40,000/-) under Section 76/78
and 77 of the Act. The Appellants contention, on the other hand, is that since leasing of
helicopters from the two overseas lessors involves transfer of right to use from the
lessors to the Appellant during the period of lease and since this fact stands accepted
by the Department, a fact which is clear from the Commissioners findings in Para 25 of
the impugned order, these transactions are deemed sale under Art 366 (29A)(d) of the
Constitution and Section 5(2) read with Section 2(g) of the Central Sales Tax Act, 1956
and, hence, these transactions, whether during the period prior to 1.7.2012 or
thereafter, are outside the purview of Service Tax under Finance Act, 1994. Before
coming to the question as to which of the two rival contentions is correct, it would be
worthwhile to go through the legal provisions and the judgments of the Tribunal inthis
regard.
...... ....
16. A transaction of supply of some tangible goods by a person to another person for
some consideration which involved transfer of right of possession and effective control
over the goods/transfer of right to use the goods could be subjected to Service Tax
under any of taxable service in the Act during the period prior to 1.7.2012 when there
was no definition of "Service" in the Finance Act, 1994 and only the Services defined in
various clauses of Section 65(105) of the Act could be subjected to Service Tax. The
clause (zzzzj) covered "supply of tangible goods for use without transfer of possession
and effective control over the goods". In this regard, in case of Petronet LNG Ltd. Vs
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Commissioner of Service Tax, New Delhi, decided by the Tribunal vide Final order No.
58076/2013 dated 24.10.2013 reported as 2013-TIOL1700-CESTAC-DEL, and which also
pertains to the period prior to 01.7.2012, the Appellant had chartered three LNG carrier
vessels from a consortium of owners located overseas under three time charter
agreements. The relevant clauses of the time charter agreements were as under:
(i) All applicable licenses, permits, approvals, authorizations including Admiralty
Publications etc., necessary for safe navigation and use of the LNG carrier vessels
were to be provided by the owners to the Appellant (M/s Petronet LNG Ltd.).
(ii) Appointment of the Manager, Master and other crew of the vessels shall be
made by the owners to the satisfaction of M/s Petronet LNG and these personnel on
board the vessel shall work under the instructions of the Appellant.
(iii) Owners of the vessels were to pay the wages of the crew and also bear expenses
for provisions, insurance of the vessel, cost of licenses, maintenance repair and
overhead cost, dry docking cost etc.
(iv) The owners were to obtain and maintain marine and war risk insurance for the
vessels with the Appellants name co-assured.
(v) Master and the crew operating the vessels were required to work under direct
control and instructions of the Appellant and the Appellant was authorized to issue
directions to the Master for transportation of LNG to any part of the World.
(vi) The Appellant would exercise control over the vessel through the Master, other
officers and the crew. The Master shall follow the orders and directions issued by
the Appellant for the purpose of filing bills of lading by signing the same.
(vii) The Appellant would control the Vessels by issuing appropriate instructions and
sailing directions to the Master and the Master is required to maintain a log of the
voyage which the Appellant and their agent may inspect as and when required.
The main point of dispute in this case was whether the Appellants time charter
agreements with the consortium of owners with the above mentioned terms and
conditions, represented supply of tangible goods (LNG Carrier Vessels) by the owners
located abroad to the Appellant without transfer of right of possession and effective
control and hence taxable under Section 65 (105) (zzzzj) of the Finance Act, 1994. The
Department was of the view that these time charter agreements represented supply of
tangible goods from the owners located abroad without transfer of right to use and
hence the Appellant would be liable to pay Service Tax under reverse charge. The
Tribunal in this case, in Para 13 of its judgment, held that supply of tangible goods
involving transfer of right of possession and effective control of the goods is outside the
purview of the taxable service defined under Section 65(105)(zzzzj), that such exclusion
is consistent with the Constitutional limitation upon the legislative field of the
Parliament, that post 46th Amendment to the Constitution and introduction of Article
366 (29A(d), transfer of right to use goods is a deemed sale falling within the purview
of the legislative field of State Governments to tax the deemed sale as Sale and that
power to tax what is adeemed sale as service is outside the legislative field of the
Parliament. Thus the ratio of this judgment is that during period prior to 01.07.2012,
when Service Tax was leviable only on certain services defined in various clauses of
section 65(105) of the finance Act, 1994 and when Clause (zzzzj) of Section 65 (105)
covered supply of tangible goods for use without transfer of right of possession and
effective control a transaction of supply of tangible goods by a person to another
person which involved transfer of right of possession and effective control, being a
deemed sale under Article 366(29A)(d) of the Constitution, could not be taxed as
"Service".
20
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... .... ..
18. Thus, the key question to be decided in this case is as to whether the lease of
helicopters by the Appellant from the two lessors located overseas involves transfer of
right of possession and effective control over the goods/transfer of right to use the
goods from the lessors to the lessee. We find that in this regard in the SCN dated
12.10.2012, Para 3 mentions the relevant terms and conditions of the Appellants lease
agreement with M/s BLFIL, Ireland and Para 4 of the SCN mentions the relevant terms
and conditions of the Appellants lease agreement with M/s ADA, Abu Dhabi. At the
end of Para 4, the SCN states as under:
"It appears that legal right of possession and effective control over the helicopters is
with M/s HCPL in terms of the above agreements"
Thus the SCN dated 12.10.2012 itself on the basis of the terms and conditions of the
agreements, forms the tentative view that the Appellants lease agreements with
foreign lessors involve transfer of right of effective possession and control over the
helicopters to the Appellant during the period of lease. It is this view expressed in Para
4 of the SCN dated 12.10.2012which has been confirmed by the Commissioner in Para
25 of the impugned order giving the following findings:
"It is clear that legal right of possession and effective control over the helicopters is
with M/s HCPL in terms of the above agreement."
15. In the case of SRF Ltd. (supra), the Tribunal considered the issue
whether the contracts entered by the assessee with foreign suppliers for
obtaining ISO tankers on lease would amount to Supply of Tangible Goods
for the period upto 30.06.2012. The conditions of the Agreement noted in
the said decision are almost similar to the Agreement in the present case.
The relevant paragraphs read as under:-
"7. In order to appreciate the controversy raised in this appeal, it would be
useful to reproduce the relevant clauses of the agreement executed between
the appellant and the Tankspan Leasing Limited and they are as follows:
Agreement with Tankspan Leasing Limited
"7. INSPECTION AND TESTING (a) At any reasonable and from time to time, the Lessee shall
permit the Lessor or it's authorised representatives to inspect any or all of the Containers
available to the Lessor at any such address as may be mutually agreed.
(b) For the purpose of periodic inspection and testing of the Containers in accordance with
the requirements of governmental authorities regulations and agreements concerning the
transportation at hazardous materials, upon sixty (60) days prior written notice from Lessor,
Lessee shall make any or all of the Containers available to Lessor with a certificate of
cleanliness as specified in Clause 4 at a designated depot's as may be mutually agreed. In
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ST/40792/2015
the event that prior written notice is not received from Lessor, it is still Lessees responsibility,
at all times, to ensure that the Containers comply with all statutory, national and
international regulations. All costs relating to the cleaning, delivery and preparation of the
Containers in readiness for inspection shall be borne by the Lessee. The Lessor shall be
responsible for the cost of inspection and testing itself. If at such time any Container is found
to be damaged or altered or requires cleaning, the cost of repair and/or cleaning shall be for
the account of the Lessee. Should Lessee and Lessor agree that future periodic testing be
conducted at the lessee's factory, free time per tank for such inspection will be 10 days for
2.5 year test and 15 days for 5 year test.
8. USE OF AND INDEMNIFICATION OF THE CONTAINERS. The Lessee will not use or permit
any Container to be used for any purpose for which it is not designed or suitable and will
ensure that the Containers are operated in a proper and skilful manner, specifically not to be
used for the carriage of radioactive materials. The Lessee shall at its expense, comply with
the International Maritime Dangerous Goods (IMDG) Code and any other relevant national,
international or statutory regulations, laws, directives or conventions, including customs
laws and regulations which affect the Containers, the Lease or their possession, ownership.
transportation or operation; including, but not limited to, the International Convention for
Safe Containers (CSC) and the Customs Convention on Containers 1956 or 1972 as the same
may be In effect from time to time. The Lessee shall be liable for all duties, fees, charges,
liens, encumbrances, fines, penalties or interest charged or Incurred for failure to comply.
9. AREAS OF USE The Lessee shall not use, or allow the use of, the Containers in hostile
countries or in any area of hostilities or conflict (declared or not) or in any area specifically
prohibited in writing by the Lessor to the Lessee or in any area which may load to the
invalidation of the limit of coverage and of the insurance of the Containers.
10. MAINTENANCE, DAMAGE, LOSS OF DESTRUCTION (a) Except as otherwise provided in
this Lease, the Lessee at it's own expense shall maintain the Containers in good condition
and repair and shall be liable for all damage to and loss of any Container and make all
necessary replacements of components and parts during the term of the Lease using parts
and workmanship equal to, or greater than, the condition that the Containers were in at the
commencement of the Lease. The Lessee shall make no changes or alterations to the
Containers except with the written consent of the Lessor. The colour of The Containers,
identification marks, the Lessors service mark and name or any other plates, marks or seats
or writing applied to the Containers must not be removed, mutilated, obliterated or
supplemented In any way without the prior written approval of the Lessor and the Lessee
shall take all steps to prevent any other person doing any such act or riling. The Lessee shall
keep such marks and colour in good condition and repair throughout the term of the Lease.
xxxxxxxxx
xxxxxx
13. TAXES Lessee shall pay all taxes, fees, penalties and interest and other liens, charges or
encumbrances which exist or which may be imposed during the term of the lease and levied
on or in connection with or arising out of the operation, transportation, maintenance,
storage, loading or other use or possession or ownership of the Containers until redelivered
to Lessor, including, without limitation, withholding, deduction, income (excluding any taxes
levied on Lessors net income in its country of domicile), taxes, duties and charges of any
type, so that If, for any reason whatsoever, the Lessee is unable to make any payment
without a deduction or withholding, It will pay such additional amount so that the et
amount received by Lessor will equal the full amount Lessor would have received had such
deduction or withholding not been made. xxxxxxxxxx
16. OWNERSHIP As between the Lessor and the Lessee, ownership of the Containers shall at
all times remain with the Lessor. The Lessee shall have quiet pssession during the term of
the Lease. Some of the containers on case to the Lessee may be owned by a third party and
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ST/40792/2015
leased by it to Lessor or managed on behalf of it by Lessor for subleasing to it's customers,
including the Lessee.
17. CUSTOMS AND EXCISE VAT The Lessee hereby confirms that the Containers leased under
the terms of this Lease Agreement will be used only for the transport of freight outside the
U.K., or to or from a place outside the U.K. On this understanding, rental payments are zero
rated for purposes of VAT. Where appropriate, the Lessee shall keep records to account for
its use, export or other disposal to the satisfaction of the Commissioners of Customs and
Excise.
18. MISCELLANEOUS (a) Lessee may not assign or transfer its rights or responsibilities under
this Lease Agreement to any other party without the prior written consent of Lessor. Lessee
is responsible for complying with all terms and conditions of this lease, and paying all
charges due under this lease, throughout the term of the Lease, even if a Container is used
by a party other than the Lessee, with or without Lessee's or Lessors consent. The Lessor
may grant a security interest in and may assign any or all of it's rights, title or interest in the
Containers or the Lease, including it's right to receive payment hereunder.
Lessee shall not assign, mortgage, charge, pledge or otherwise encumber the Lease or the
Containers in whole or in part."
.
.
.
31. From the decisions referred to above, it clearly transpires that:
(i) Whether there is a transfer of right to use or not is a question of fact which has to determined in each case having regard to the terms of the contract under which there is a transfer of right to use;
(ii) If with the transfer of the right to use, possession and effective control is also transferred, the transaction falls outside the preview of service tax liability. However, when the effective control and possession is not transferred and it continues to remain with the person who has given the machinery on hire, it would not be open to the authority to levy service tax;
(iii) Mere fact that the persons are employed by the owner does not in any manner deter from the fact that the transaction constitutes a transfer of the right to use the tangible goods with possession and effective control;
and
(iv) The fact that after the operation is over on any given day and the tangible goods come back to the owner is not a material fact for deciding who has the dominion over the tangible goods.
32. The impugned order notices that the appellant had taken the ISO containers on lease/rental basis and it had paid an amount of Rs. 4,60,67,566/- to the foreign supplier who did not have any office in India for supply of the containers. Condition No‟s 9 and 18 of the Agreement, which have been reproduced above, have been misinterpreted by the Commissioner. No inference can be drawn from the aforesaid two clauses that the right of possession and effective control of the containers was not with the appellant merely because the containers had not been sold to the appellant. The Commissioner fell in error in not appreciating the difference between a „sale‟ and „a deemed sale‟ contemplated under article 366 (29A) of Constitution. In „a deemed sale‟ it is necessary to examine who has the 23 ST/40792/2015 possession and effective control over the goods. Even the Circular dated 29.02.2008, on which reliance has been placed by the Commissioner, emphasises that in the case of "a deemed sale‟ under article 366 (29A) of Constitution, transfer of right to use involves both transfer of possession and control over the goods. The Commissioner also fell an error in holding that since sales tax/VAT was not paid by the appellant, it would not amount to „a deemed sale‟. The Commissioner failed to appreciate that since the transaction involved sale or purchase of goods in the course of import of goods into India, no sales tax/VAT was required to be paid even if the transaction qualified as „a deemed sale‟.
33. It is more than apparent from the aforesaid discussion that the supply of ISO Tankers on lease/rental basis by foreign suppliers to the appellant would amount to a deemed sale under article 366 (29A) of Constitution as the appellant throughout had effective control and possession over the ISO Tankers. The order dated 29.07.2016 passed by the Commissioner, therefore, cannot be sustained.
34. In this view of the matter it would not be necessary to examine the contention raised by the appellant that the extended period of limitation could not have been invoked.
35. The impugned order dated 29.07.2016 passed by the Commissioner is, accordingly, set aside and Service Tax Appeal No. 52932 of 2016 is allowed."
16. The Tribunal in the case of Universal Dredging and Reclamation Corporation Ltd. (supra) had considered the issue for the period post 01.07.2012 also. After adverting to the declared services listed under Section 66E, the Tribunal observed that if the transfer is in the nature of deemed sale, it would be outside the purview of taxability under Finance Act, 1994. The relevant paragraphs read as under:-
"16. The period involved is from November 2015 to January 2016. For the period prior to 1.7.2012 when the classification of services were in existence, similar issue has been decided by the Tribunal in the case of International Seaport Dredging Ltd. (supra) and Petronet LNG Ltd. (supra). There has been sweeping amendment to the Finance Act,1994 w.e.f. 1.7.2012. Thus our endeavour would be to examine whether the legal analysis of the 'transfer of right to use goods' made in the decisions cited above would be applicable post 2012 after the introduction of the definition of 'service' and also 66E mentioning the 'declared services'.24
ST/40792/2015 "Declared services 66E.The following shall constitute declared services, namely:-
(a) renting of immovable property
(b) construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of completion certificate by the competent authority.
Explanation -- For the purposes of this clause, --
(I) the expression "competent authority" means the Government or any authority authorised to issue completion certificate under any law for the time being in force and in case of non-
requirement of such certificate from such authority, from any of the following, namely:-
(A)arthitech registered with the Council of Architecture constituted under Architects Act, 1972 (20 of 1972); or (B)chartered engineer registered with the Institution of Engineers (India); or (C)licensed surveyor of the respective local body of the city or town or village or development or planning authority;
(II)the expression "construction" includes additions, alterations, replacements or remodelling of any existing civil structure;
(c) temporary transferor permitting the use or enjoyment of any intellectual property right;
(d) development, design, programming, customisation, adaptation, upgradation, enhancement, implement of information technology software;
(e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation or to do an act
(f) transfer of goods by way of hiring, leasing, licensing or in any such manner without transfer of right to use such goods;"
(g) activities in relation to delivery of goods on hire purchase or any system of payment by instalments;
(h)service portion in the execution of a works contract;
(i)service portion in an activity wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity;
17. From the above, it can be seen that as per sub-clause (f) transfer of goods by way of hiring, leasing or licensing or in any similar manner would be a taxable service. However, if the transfer involves right to use the goods, it would be outside the purview of taxability. The definition of "services" introduced w.e.f. 1.7.2012 in Section 65B (44) is also worth of reproducing which is as under :-
"service" means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include___ 25 ST/40792/2015
(a) an activity which constitutes merely,____
(i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or
(ii) Such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A)of article 366 of the Constitution; or
(iii) A transaction in money or actionable claim;
(b) A provision of service by an employee to the employer in the course of or in relation to his employment;
(c) fees taken in any Court or tribunal established under any law for the time being in force.
18. In the present case, the question is whether the transfer of goods is by way of hiring of the vessel simplicitor or whether it involves transfer of right to use the vessel. For a transaction to be transfer of right to use the goods, there should be transfer of possession as well as transfer of effective control. In the present case, the department has mainly relied upon clause (6) of the agreement, to contend that there is no transfer of possession as well as effective control. Clause (6) and its various sub clauses is reproduced as under :
"6. Maintenance and operations A. The Lessee shall maintain the Vessel, her machinery, appurtenances and spare parts in a good state of repair, in efficient operating condition and in accordance with good maintenance practice and shall keep the Vessel with unexpired classification of its class and with other required certificates in force at all times. Owner shall be responsible for delivering the necessary spares till boarder of India.
The Lessee shall take immediate steps to have the necessary repairs done with a reasonable time failing which the Lessor shall have the right of withdrawing the Vessel from the service of the Lessee without noting any protest and without prejudice to any claim the Lessor may otherwise have on the Lessee under this Charter.
B. During the Charter period as indicated in box [6], the Vessel shall retain her present name and flag as indicated in box [4]. The Lessee will make no structural changes to the vessel.
C. The Vessel shall be delivered by the Lessor without any crew.
D. Except as otherwise provided in this Charter Party, the Lessee shall pay all charges and expenses of every kind and nature whatsoever incidental to the use and operation of the Vessel under this Charter Party.
E. The lessee shall be responsible for the importation and exportation of the Vessel in India in the name of the Lessee.26
ST/40792/2015 F. The Lessee will be responsible for all applicable and relevant permits and/or licenses necessary to deploy the vessel and its activities in India."
19. The above clause which relates to maintenance and operation states that, it is the responsibility of the appellant to maintain the vessel in proper condition. Undisputedly the operations are fully under the control of the appellant. The appellant has obtained necessary license to use the vessel for dredging. This license is location specific. During the charter period the vessel can be used only in this location (port). The entire crew and staff is of the appellant. All this would go to show that the appellant has entire control for operating the vessel during charter period.
20. It is stated in this clause that if the appellant does not maintain the vessel by doing necessary repairs, the owner / lessor will have the right to withdraw the vessel from the service of the appellant. The question is whether such restriction is an indication that there is no transfer of effective control of the vessel. The Ld. Consultant has explained that such a clause giving right to the owner / lessor to withdraw the vessel is only to protect the interest of the owner on the vessel. It also has to be noted that such right to withdraw the vessel comes into play only when there is a breach in the clause of the agreement to do the necessary repairs of the vessel. During the charter period, the appellant has full fledged right to use the vessel by abiding to the conditions in the agreement to the exclusion of the lessor /owner of the vessel. It goes without saying that when there right is given to operate the vessel it also casts a responsibility to maintain the vessel in proper and good condition. Similar conditions were analyzed by the Tribunal in the case of Petronet LNG Ltd. Vs CST New Delhi- 2016 (46)STR 513 (Tri- Del) and also International Seaport Dredging Ltd. - 2018 (3) TMI 633- CESTAT CHENNAI = 2018 (12) G.S.T.L 185 (Tri.-Chennai). In International Seaport Dredging (supra), the Tribunal in the said case after analysing the clause stipulating for repair and maintenance of the vessel and other relevant clauses observed as under :
"17. We note that the analysis and reasoning adopted by the Tribunal in Petronet LNG are squarely applicable to the present dispute. In fact, in the present case, Manager, Master and crew of the vessel and are actually under control and employment of the appellants. The maintenance of the vessel for wear and tear and also expenses for lubricating, spare parts, water etc. are in fact met by the appellant only. This is not the case in the case of Petronet LNG (supra). Even then the Tribunal in the said case held that reading the charter agreement as a whole, it is clear that there is a transfer of right of possession and effective control of the vessel with the assessee.
18. We note that the adjudicating authority observed that there is no legal transfer of right of possession or effective control of the vessels by the appellant. We note that such observation is contrary to the facts as revealed from the terms of charter agreement. It is relevant to note here that the transaction is not a sale simplicitor. But a transaction where there is transfer of right of possession and effective control of the goods transferred are considered as deemed sale. The clarification issued by the Board on 29-10-2008 explaining the scope of the present tax entry is relevant in this regard. It is clarified that transaction of allowing another person to use the goods without giving the legal right 27 ST/40792/2015 of possession and effective control, not being treated as sale of goods, is treated as service. As elaborately analysed above, in the present case, there is a transfer of possession and effective control of the vessels to the appellant under the various clauses of the charter agreement which clearly brings out that the appellant is having legal right of possession and effective control of the vessel."
21. In the above decision, the Tribunal had referred to the decision of Hon'ble High Court of Karnataka in Great Eastern Shipping Co. Ltd. Vs State of Karnataka- 2004(136) STC 519 (Kara). The Hon'ble High Court held that the transaction was a deemed sale and is subject to levy of sales tax. Against this decision, an appeal was preferred by the assessee before the Hon'ble Apex Court as Civil Appeal No.3383 of 2004. It is noticed that the same was disposed vide decision dt.04.12.2019 wherein the decision of the Hon'ble High Court of Karnataka was upheld. Merely because there is a right given to the owner / lessor to withdraw the vessel in case they cause breach of the condition to do repairs of the vessel, cannot be a ground to infer that there is no transfer of effective control of the vessel. Even though discussions in these decisions pertain to the period prior to 1.7.2012, the facts being identical the legal principles for understanding whether a transaction is transfer of right to use goods are the same. This is evident from the TRU Circular dt. 16.3.2012 and the Service Tax Education Guide dated 20.6.2012 issued by CBEC. The Board has relied on the decision rendered by Apex Court in BSNL ltd. Vs UOI 2006 (20 STR 16 (SC). The meaning and scope of the phrase 'transfer of right to use goods' is clarified as a transaction which involves transfer of possession and effective control over such goods. A fleeting look on the definition of "Supply of Tangible Goods Service" under Section 65 (105) (zzzzj) of the Finance Act,1994 as it stood then clarifies why these decisions can also be made applicable for the period after 1.7.2012. The definition of "Supply of Tangible Goods Service" is as under :
"any services provided or to be provided to any person by any other person in relation to supply of tangible goods including machinery, equipment and appliances for use,without transferring of possession and effective control of such machinery, equipment and appliances"
22. Prior to1.7.2012 when the transaction did not involve transfer of possession and effective control, the activity would be taxable under 'Supply of Tangible Goods Services'. The test for determining whether a transaction is a transfer of right to use goods has always remained the same.
23. The department in their Education Guide has followed the decision of the Hon'ble Supreme Court in BSNL (supra) to lay down the test to determine as to whether the activity is transfer of right to use the goods. The Ld.Consultant has put forward submissions in tabular column (para 2.7 above) to substantiate that the agreement satisfies all the conditions laid down by the Apex Court decision. The issue mainly revolves around conditions 3, 4 & 5 elaborated in para 2.7 above. In the present case, as per clause 6F, the appellant has taken license for carrying out dredging. During the stay of the vessel in India the vessel can be used only as per the license which is to carry out dredging activity at the port. As per Clause 6F of the agreement, the third testthus stands satisfied. The fourth test is that the transfer of such right has to be to the exclusion of the transferor. As already discussed, except for a mere condition that the lessor would be able to 28 ST/40792/2015 withdraw the vessel in case of breach of agreement to do necessary repairs and maintenance, there is nothing to show in the agreement that the lessor retains the control over the vessel. The appellant has absolute discretion to use the vessel for dredging during the charter period. Such enjoyment of the vessel cannot be interrupted by the lessor unless there is a breach to do the repairs of the vessel. Further, this condition is subject to condition No.16 which is the clause for pretermination of the agreement. If there is breach on the side of the appellant to do periodical maintenance which may give rise to a right to the lessor to withdraw the vessel, then lessor has to abide by Clause 16 (Pre-termination notice) to put an end to agreement and then withdraw the vessel. Appellant thus enjoys full right to exclusion of others. During the period, neither the owner can use the vessel nor can the owner transfer the right to use of the vessel to another person. We have no hesitation to hold that the appellant enjoys right to use the vessel to the exclusion of the owner.
24. Another finding in the impugned order is that since the appellant retained the registration and the flag of the vessel, there is no transfer of effective control over the vessel. The vessel is registered in Luxemberg. It may not be practical to change the registration of the vessel in each case of charter agreement. In the present case, there is no change in ownership. If that be the case, it would be a sales simplicitor. Change of Registration and change of flag is necessary only when there is change in ownership.
25. From the discussions made above, we are of the considered opinion that the transaction in the present case is identical to the transaction analysed by the Tribunal in the case of International Seaport Dredging (supra) as well as Petronet LNG Ltd.(supra). The transaction is nothing but transfer of right to use the goods and does not fall within the 'declared services' as alleged by department. The Demand therefore cannot sustain. The issue on merits is found in favour of appellant.
26. The Ld. Consultant has also advanced arguments on the ground of limitation. Show cause notice is dated 07.12.2017 and issued for the period November 2015 to January 2016. Undisputedly, the demand has been raised on reverse charge basis and the appellant would be eligible for credit, if they paid the service tax. Thus it is a revenue-neutral situation. The Larger Bench of the Tribunal in the case of Jay Yuhshin Ltd. Vs CCE New Delhi (supra) has held that extended period cannot be invoked when the situation is of revenue-neutral one. Further the issue is also interpretational one. Moreover, the department has not been able to establish any positive act on the part of the appellant that they have suppressed facts with intention to evade payment of service tax. Taking note of these facts, we are of the considered opinion that the demand raised for the extended period cannot sustain. Appellant succeeds on the issue of limitation also. Impugned order is set aside. Appeal is allowed with consequential relief, if any, as per law."
17. The Department has relied on the decision rendered in the case of Adani Gas Ltd. (supra). In the case of Adani Gas Ltd., the Hon'ble Apex Court found that the fourth clause is not satisfied. The use of SKID was not 29 ST/40792/2015 to the exclusion of the assessee. The facts of this case being different as discussed above, the said case is distinguishable.
18. On appreciation of facts and following the decisions above, we are of the considered opinion that as there is a transfer of possession and effective control of the goods, and the activity being transfer of right to use goods, the demand of service tax cannot sustain for the period upto 30.06.2012 and post 01.07.2012 also.
19. In the result, the impugned order is set aside. The appeal is allowed with consequential reliefs, if any, as per law.
(Order pronounced in open court on 11.07.2024)
Sd/- Sd/-
(VASA SESHAGIRI RAO) (SULEKHA BEEVI C.S.)
MEMBER (TECHNICAL) MEMBER (JUDICIAL)
MK