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2022 (12) TMI 808 - AAAR - GSTPlace of supply - Finance Lease - leasing of tank containers taken form a supplier i.e., lessor who is located outside India and the tank containers do not reach India - supply of goods and tank containers do not reach the Indian Territory - HELD THAT - From the terms of the Lease purchase agreement it is evident that the appellant is obtaining the containers on lease for a period of 5 years and after expiry of 5 years or prior to five years the appellant has an option to purchase the container on payment of certain amount as per the contract. On exercising the option to purchase and payment of corresponding amount the ownership of the container passes on to the appellant from the lessor. If the appellant fails to purchase the containers he shall return back the same to lessor. Hon'ble Supreme court of India in case of M/S MAGMA FINCORP LTD. VERSUS RAJESH KUMAR TIWARI 2020 (10) TMI 1347 - SUPREME COURT held that the financier/Lessee continues to remain the owner of a vehicle, covered by a hire purchase agreement till all the hire installments are paid and the hirer/lesee exercises the option to purchase. Till such time the option is exercised the hirer remains only as the trustee or bailee of goods covered by such agreement. The same is applicable to lease purchase agreements also. From the Conditions of the Lease purchase agreements and Judgment of Hon'ble Supreme court of India M/s Magma fincorp Limited Vs Rajesh Kumar Tiwari, the ownership of the containers lies with M/s Tankspan Leasing Ltd until the appellant exercises option to purchase the container as per the agreement - there is no transfer of title in goods until the appellant purchases the container and this fact wasn't disputed either. The appellant while bringing to fore the discussion on Accounting Standards has rightly contended that the substance of an agreement prevails over its form. However, substance prevails over form when Substance of an agreement doesn't align with its form. Here in this case, form of the agreement (leasing agreement) aligns with the substance (intention to lease). The intention of the parties was to lease the containers with an option to purchase - the intentions were evident as seen from the agreement; the monies arising out of the claim of insurance shall be transferred to the Lessor (the owner of the goods). As per the terms of agreement the lessee cannot even alter the color, identification marks or undertake Buffing(polishing) without the written approval from the lessor. Hence, the claim of the appellant that the intention of the parties is to transfer the title from the inception cannot be accepted. The transaction attracts IGST and is exigible to tax under the provisions of Sub-section(1) and Sub-section (3) of Section 5 of IGST Act and Notification No 10/2017 -IGST(R) - Further as per the Provisions of Section 13 of IGST Act,2017 where the location of the supplier of services or recipient of services is located outside India, the place of supply is the location of recipient of services. Therefore, the transaction is taxable under reverse charge basis, with tax to be paid by the recipient of services, i.e. M/s Deccan Transco Leasing Private Limited with Place of Supply as 'Telangana'.
Issues Involved:
1. Classification of the transaction as supply of goods or services. 2. Applicability of GST on leasing of tank containers from a supplier located outside India. 3. Jurisdiction of GST law in India on transactions occurring outside India. 4. Timeliness of the appeal filing. 5. Interpretation of relevant legal provisions and agreements. Detailed Analysis: 1. Classification of the Transaction as Supply of Goods or Services: The appellant, M/s. Deccan Transcon Leasing Private Limited, entered into a lease purchase agreement with M/s. Tankspan Leasing Limited for leasing tank containers with an option to purchase. The appellant argued that the transaction should be classified as a supply of goods from the inception of the agreement based on Entry 1(c) of Schedule II to Section 7 of the CGST Act, 2017. They contended that the transaction met all the requirements of a transfer of title in goods under a pre-existing agreement upon payment of full consideration. However, the appellate authority concluded that the transaction does not fall under Entry 1(c) as there is no immediate transfer of title in goods, and the agreement leaves an option for the lessee to purchase the containers, making it a supply of services under Entry 1(b) of Schedule II. 2. Applicability of GST on Leasing of Tank Containers from a Supplier Located Outside India: The appellate authority upheld the lower authority's ruling that the appellant is liable to pay IGST on the importation of lease services into India. The transaction is classified as a supply of services, and as per Section 7(4) of the IGST Act, 2017, supply of services imported into India is treated as inter-State trade or commerce, attracting IGST under Section 5(1) and Section 5(3) of the IGST Act. The tax is payable on a reverse charge basis by the recipient of the service, i.e., the appellant. 3. Jurisdiction of GST Law in India on Transactions Occurring Outside India: The appellant argued that the transaction occurred outside India and should not be liable for GST in India, citing Section 1(2) of the IGST Act, 2017, and relevant case laws. However, the appellate authority rejected this argument, stating that the transaction involves the importation of services into India, making it subject to IGST. The authority also referred to Section 13 of the IGST Act, which specifies that the place of supply for services where the supplier or recipient is located outside India is the location of the recipient, i.e., Telangana, India. 4. Timeliness of the Appeal Filing: The appeal was filed within the prescribed time limit as per Section 100(2) of the TGST Act, 2017. The impugned order dated 17.08.2021 was received by the appellant on 31.08.2021, and the appeal was filed on 02.11.2021, which is within the 30-day period allowed for filing an appeal. 5. Interpretation of Relevant Legal Provisions and Agreements: The appellate authority examined the lease purchase agreement and relevant legal provisions, including Article 366(29A) of the Constitution of India and Schedule II of the CGST Act, 2017. The authority concluded that the transaction does not meet the criteria for a supply of goods under Entry 1(c) of Schedule II, as the transfer of title is not automatic and depends on the lessee exercising the option to purchase. The transaction is therefore classified as a supply of services under Entry 1(b) of Schedule II. Conclusion: The appellate authority upheld the lower authority's ruling that the appellant is liable to pay IGST on the importation of lease services into India. The transaction is classified as a supply of services, and the tax is payable on a reverse charge basis by the recipient of the service. The appeal was filed within the prescribed time limit, and the interpretation of relevant legal provisions and agreements supports the classification of the transaction as a supply of services. The ruling of the lower authority is upheld, and the appeal is disposed of accordingly. Order: Question: Is GST liable to be paid on leasing of Tank Containers taken from a supplier located outside India and the tank containers do not reach India? Ruling: Yes, the applicant is liable to pay IGST on importation of lease services into India.
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