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2021 (8) TMI 892 - AAR - GSTLevy of GST - leasing of tank containers taken form a supplier - lessor located outside India and the tank containers do not reach India - Finance lease - HELD THAT - The constitution has been amended to include Entry 12A in the Article 366 which enables levy of tax on supply of goods services except on alcoholic liquor for human consumption. Further the definition of goods in the Section 2(d) of the CST Act is amended to include only petroleum and liquor and Section 2(g) has to be applied only to the goods enumerated in Section 2(d). Therefore sales tax under CST Act can be levied only on these goods whereas tax on supply of goods and services is levied under CGST/SGST and IGST Acts - Further under Accounting Standard-19 of Accounting Standards of India the Ieased Asset will be shown in the books of lessee and this does not alter the nature of a lease transaction. The law mandates that the transfer of title in goods happens under an agreement before the property in goods passes to the purchaser. Further the law mandates that such agreement shall have a clause which stipulates that goods wall necessarily pass at a future date to the purchaser - The law does not provide for an option to purchase the goods at the end of the lease period but makes it an obligation on the part of contracting parties to necessarily transfer such property on the completion of period of agreement. A plain reading of the relevant terms of the contract clearly indicate the consensus ad idem or the meeting of minds between the parties to the contract that the agreement is prima facie for lease. There is no fixed lease term but the contract only mentions minimum lease period which may extend beyond such minimum period - There is no binding obligation for purchase of the goods at the end of the lease term. The agreement does not confer any title upon the lessee but a mere option to purchase based on fulfilment of certain conditions. The terms of the agreement clearly indicate that the property in goods passes to the applicant only when he exercises the option failing which the property has to be returned back to the lessor at a specific deposed indicated by him. Therefore during the period of lease the transaction remains a service and the moment the option to purchase the goods is exercised by the applicant it becomes the transaction of sale. Hence the transaction made by the applicant does not fall under Entry 1 (c) of Schedule II to the CGST Act. Thus, the applicant is liable to pay IGST on importation of lease services into India.
Issues Involved:
1. Whether GST is liable to be paid on leasing of tank containers from a supplier located outside India when the containers do not reach India. 2. Whether the hire-purchase/lease transaction amounts to a taxable supply under GST law. Detailed Analysis: Issue 1: GST Liability on Leasing of Tank Containers from a Foreign Supplier The applicant, M/s. Deccan Transco Leasing Private Limited (DTLPL), entered into a lease purchase agreement with M/s. Tankspan Leasing Limited (TLL) for leasing tank containers. The applicant argued that this transaction should be considered a supply of goods under Entry 1(c) of Schedule II to Section 7 of the CGST Act, 2017, as the containers are recognized as assets in their books from the lease inception, with a certainty of purchase later. The applicant contended that the transaction is a deemed sale of goods, referring to Entry 29A of Article 366 of the Constitution of India and various case laws. They argued that since the goods never entered the Indian territory, the transaction should not attract GST under CGST/IGST Acts, relying on the case of Mohit Minerals Vs UOI (2020) 33 GSTL 321 (GUJ). Discussion and Findings: The authority examined the lease agreement and found that the transaction does not meet the conditions of Entry 1(c) of Schedule II to the CGST Act, 2017. The agreement provided an option for the lessee to purchase the containers at the end of the lease period, rather than an obligation. Key points from the agreement included: - The agreement is titled as a "Lease Purchase Agreement." - The lessee pays a daily rate for the lease and has an option to purchase the containers at the end of the lease term. - There is no binding obligation for the purchase of goods; the lessee may return the containers to the lessor. - The ownership of the containers remains with the lessor during the lease term. The authority concluded that the transaction remains a service during the lease period and only becomes a sale when the option to purchase is exercised. Therefore, the transaction does not fall under Entry 1(c) of Schedule II to the CGST Act. Issue 2: Taxable Supply Under GST Law The applicant's argument that the transaction is a supply of goods was rejected. The authority emphasized that the transaction remains a lease service until the option to purchase is exercised. The lease agreement did not stipulate an obligatory transfer of property, which is a requirement under Entry 1(c) of Schedule II. The authority referred to the case of K.L. Johar & Co. Vs Dy. Commercial Tax Officer, AIR 1965 SC 1083, which distinguished between a hire purchase agreement and a sale where the price is paid in installments. In a hire purchase agreement, the property in goods passes only when the option to purchase is exercised, not when the agreement is made. Advance Ruling: Question Raised: Is GST liable to be paid on leasing of tank containers taken from a supplier located outside India when the containers do not reach India? Advance Ruling Issued: Yes. The applicant is liable to pay IGST on the importation of lease services into India.
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