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2020 (6) TMI 619 - AT - Service TaxTransfer of right to use goods - Hiring of Charter Vessel for dredging activity - Reverse Charge Mechanism - consideration paid to foreign company for hiring the vessel - declared service or not - period November 2015 to January 2016 - HELD 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 - 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 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. 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 VERSUS COMMISSIONER OF SERVICE TAX 2013 (11) TMI 1011 - CESTAT NEW DELHI and also M/S. INTERNATIONAL SEAPORT DREDGING LTD. VERSUS COMMISSIONER OF SERVICE TAX, CHENNAI 2018 (3) TMI 633 - CESTAT CHENNAI . 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 - there exist no hesitation to hold that the appellant enjoys right to use the vessel to the exclusion of the owner. Time Limitation - Revenue Neutrality - HELD THAT - 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 - 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. Appeal allowed - decided in favor of appellant.
Issues Involved:
1. Liability to pay service tax under reverse charge mechanism. 2. Classification of the transaction as "transfer of right to use goods" vs. "declared service." 3. Applicability of extended period of limitation. 4. Revenue-neutrality of the demand. Detailed Analysis: 1. Liability to Pay Service Tax Under Reverse Charge Mechanism: The appellants were awarded a contract for dredging activity by a port trust and entered into a charter agreement with a foreign company to hire a vessel. The department issued a show cause notice proposing to demand service tax under the reverse charge mechanism for the consideration paid to the foreign company, classifying it as a "declared service" under Section 66E(f) of the Finance Act, 1994. The original authority confirmed the demands along with interest and penalties, which led the appellant to approach the Tribunal. 2. Classification of the Transaction: The core issue was whether the transaction constituted a "transfer of right to use goods" or a "declared service." The appellant argued that the transaction was a transfer of right to use goods, satisfying the tests laid down by the Supreme Court in BSNL Vs UOI. The Tribunal examined the clauses of the charter agreement against these tests: - Delivery of goods. - Consensus ad idem as to the identity of the goods. - Legal right to use the goods. - Exclusive legal right during the transfer period. - Owner cannot transfer the same right to others during the period. The Tribunal found that the clauses in the agreement satisfied these conditions, indicating a transfer of right to use goods. The Tribunal also referred to previous decisions, such as International Seaport Dredging Ltd. and Petronet LNG Ltd., which supported the appellant's contention. The Tribunal concluded that the transaction was a transfer of right to use goods and not a declared service. 3. Applicability of Extended Period of Limitation: The appellant argued that the demand was barred by limitation as the issue was interpretational, and there was no suppression of facts with an intent to evade tax. The Tribunal noted that the demand was raised on a reverse charge basis, and the appellant would have been eligible for credit if they had paid the service tax, making it a revenue-neutral situation. The Tribunal cited the Larger Bench decision in Jay Yuhshin Ltd., which held that the extended period could not be invoked in a revenue-neutral situation. The Tribunal found that the department had not established any positive act of suppression by the appellant and thus ruled in favor of the appellant on the issue of limitation. 4. Revenue-Neutrality of the Demand: The Tribunal acknowledged the revenue-neutral nature of the situation, as the appellant would have been eligible for credit of the service tax paid. This further supported the appellant's case against the invocation of the extended period of limitation. Conclusion: The Tribunal set aside the impugned order, concluding that the transaction was a transfer of right to use goods and not a declared service. The demand for service tax was found unsustainable both on merits and on the grounds of limitation. The appeal was allowed with consequential relief, if any, as per law.
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