2023 (11) TMI 218 - AT - Service Tax

Levy of Service tax - Supply of tangible goods service (STGS) on both voyage charter and time charter and the security deposit - Invocation of extended period of limitation under Section 73(1) of the Finance Act, 1994 - HELD THAT - The following ingredients are required to be satisfied for fastening any liability to Service Tax under the head STGS - i. there should be transfer of right to use; and ii. such transfer of right should be without transfer of right of possession and control. Voyage Charter - HELD THAT - There is nothing to suggest from the above agreements / Fixture Notes that transfer of right to use the vessel was granted by the appellant to M/s. Archean Granites Pvt. Ltd. and hence, we notice that it is an arrangement for carriage of goods for freight simpliciter though it is mentioned as voyage charter - In the case of M/s. Great Eastern Shipping Company Ltd. 2019 (12) TMI 225 - SUPREME COURT , the Hon ble Supreme Court had an occasion to deal with various modes of charterparty of vessels and had observed that the time charterparty involved in the said case was absolute transfer of right to use along with transfer of possession and control, and levy of sales tax was applicable in terms of Article 366(29A)(d) of the Constitution of India. It is clear that the charterparty may operate as a demise of the ship herself or it may confer on the charterer nothing more than the right to have his goods conveyed. In the case on hand, what is conveyed under the above Fixture Notes is only the right to convey the goods in a particular ship on a particular voyage and nothing more - From the contracts / Fixture Notes, intention of the parties is clear, to transport cobblestone from one place to another and incidentally using voyage charter and hence, there is nothing mentioned in the Fixture Notes about the otherwise usage of the charter. It is held that what is provided for in the Fixture Notes is only a contract for carriage of cobblestone from Chennai to Newark for a freight and though the contract is said to be on a voyage charter basis, we do not find any clauses to the effect that it involves transfer of right to use of the vessel. Therefore, when the contract itself is not for transfer of right to use the vessels, there cannot be any levy of Service Tax under the head supply of tangible goods for use . Accordingly, the demand of Service Tax with interest, confirmed in this regard, deserves to be set aside and consequently, the impugned order to this extent stands set aside. Time Charter - HELD THAT - Regarding time charterparty, that there is no dispute that the appellant had paid Service Tax for the period from May 2008 to September 2008, in October 2008 which is much before the investigation, which happened only in June 2009. That being so, the finding of the learned adjudicating authority that the services had not been brought to the notice of the Department, lacks merit insofar as time charterparty is concerned. What the officers appear to have pointed out was that the appellant was required to pay Service Tax for the subsequent period as well, which apparently was honoured by the appellant immediately, by remitting the Service Tax of Rs.2,11,85,231/- for the subsequent period from October 2008 to June 2009 - there are no other allegation in the Show Cause Notice to propose the demand of Service Tax in this regard and hence, under these circumstances, the allegation that the appellant did not disclose or that but for the investigation, the non- payment would not have come to light, lacks merit - also there are no justifiable reasons to sustain penalty under Section 78 ibid. Security deposit - appellant did not produce any evidence in support of its claim that the amount represented the refundable security deposit and the same was not towards advance rent - HELD THAT - The lease deed clearly identifies the lessor and the lessee and hence, the lessor-lessee relationship between the appellant and M/s. Good Earth Maritime Ltd. is undisputed. The above document requires payment of monthly rental apart from a one-time security deposit which is refundable. If it is to be treated as advance rent, that becomes non-refundable, which is not the intention of the parties as carried out in the said document. The duty of the authority is only to go by the language of the document which reflects the true intention between the parties and hence, nothing can be added by the authority since what is relevant is to only check if the contents of such document yields to the taxing statute. It is, therefore, not possible to interpret the intention of the parties reduced into writing to suit the requirements of the statute - the demand of Service Tax with interest cannot sustain on the security deposit and consequently, the same is set aside. To this extent, therefore, even the penalty imposed under Section 78 is set aside. Invocation of extended period of limitation under Section 73(1) of the Finance Act, 1994 - HELD THAT - It is clear that the entire activity of the appellant was available with the Revenue in black and white; it is the appellant who, in good faith, requested as to the taxability as early as in 2009 from the Department - Though the allegation in the Show Cause Notice is only as to suppression of facts, but the intent to evade tax is conspicuously missing, which by itself makes it clear that even the Revenue did not have any justifiable reason to allege suppression of facts with an intent to evade tax. There cannot be any demand other than for the normal period, but there can never be any penalty under Section 78 ibid - Appeal allowed in part.

Summary

Issues Involved:
1. Liability to pay Service Tax under Supply of Tangible Goods Service (STGS) on voyage charter and time charter.
2. Demand of Service Tax on security deposit received.
3. Invocation of the extended period of limitation under Section 73(1) of the Finance Act, 1994.

Summary:

1. Liability to pay Service Tax under STGS on Voyage Charter and Time Charter:

Voyage Charter:
The appellant entered into agreements for obtaining vessels on voyage charter basis for the carriage of cobblestone from Chennai to Newark. The agreements were in the form of "Fixture Notes" and were for the carriage of goods for a specified amount of freight. The Tribunal held that these agreements did not involve the transfer of right to use the vessel, but were merely contracts for carriage of goods. It was noted that the agreements lacked clauses indicating the transfer of right to use the vessel. Therefore, the demand of Service Tax under STGS for voyage charter was set aside.

Time Charter:
The appellant owned two vessels, MV GOOD PURPOSE and MV GOOD SEASON, which were given to M/s. Good Earth Maritime Ltd. on a time charter basis. The Tribunal analyzed the nature of the time charter agreements and found that they involved the transfer of right to use the vessels with full possession and complete control, thus constituting a deemed sale. The demand of Service Tax on time charter was upheld, but the penalty under Section 78 was set aside as there was no intention to evade tax.

2. Demand of Service Tax on Security Deposit:
The appellant received a security deposit of Rs. 42,00,000/- under a lease agreement. The adjudicating authority had confirmed the demand of Service Tax on this amount, treating it as advance rent. However, the Tribunal found that the lease deed clearly indicated the amount as a refundable security deposit and not as advance rent. Therefore, the demand of Service Tax on the security deposit was set aside.

3. Invocation of Extended Period of Limitation:
The Show Cause Notice alleged suppression of facts with an intention to evade payment of Service Tax. The appellant countered this by stating that they had disclosed their activities to the Department and had sought clarification on taxability. The Tribunal found that the Revenue had not provided any justifiable reason to allege suppression of facts with an intent to evade tax. Therefore, the invocation of the extended period of limitation was not justified, and penalties under Section 78 were not sustainable.

Conclusion:
The appeal was partly allowed. The demand of Service Tax on voyage charter and security deposit was set aside, while the demand on time charter was upheld but without the imposition of penalties. The invocation of the extended period of limitation was not justified.