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TMI Blog2018 (3) TMI 633X X X X Extracts X X X X X X X X Extracts X X X X ..... ement, both long term and short term, conform to all substantive ingredients as would constitute the transactions as transfer of right to use goods. Therefore, the transactions fall within the exclusionary clause of section 65(105)(zzzzj) of the Act, consequently outside the purview of taxable service. In the present case, there is a transfer of right of possession and effective control of the vessel / dredger to the appellant. This arrangement is outside the purview of service tax liability under a 'supply of tangible goods services'. Demand of the service tax on customs duty and entry tax paid on imported equipment, which were reimbursed by the recipient of service - Held that: - the appellant have discharged service tax on the considerations received for such services. These reimbursable expenses are considered as expenditure to provide such services and are accordingly sought to be included in terms of Rule 5(1). Appeal allowed - decided in favor of appellant. X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant with the owners of the vessel/dredgers transferred their right to use of the vessels to the appellant and hence the transaction cannot be taxed as service. The requirement that there should be no transfer of right of possession and effective control is not fulfilled for tax liability. c. The dredgers and vessels are in fact in possession and effective control as per a Bareboat Charter / demise charter. d. He referred to various clauses of the Charter Party Agreement now under consideration, to emphasis the above point. e. The agreement specifically provides for standard Bare Boat Charter. The delivery and redelivery of the vessels involving inventory of all goods include samples and stores, control and possession of the vessels during the period of charter; maintenance and full responsibilities for completion of all legal obligations are with the appellant only. The Master, officers and crew of the vessels shall be the services of the charterer (appellant) for all purposes. f. Specifically referring to clauses 9, 12, 14, 20 and 21 of the Charter Agreement, the Id. Counsel submitted that there is a transfer of right of possession and effective control of such vessel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hinery etc, In the present case, there is no transfer of legal right / possession to the appellants. Mere custody of the goods supplied by the foreign company will not exclude the appellant from tax liability. b. The appellant have no unrestricted right to used, right to enjoy the supplied goods. There were effective restrictions regarding place of usage of the vessels and also for sub-leasing the same. c. The case laws referred to by the original authority brings out the fact that delivery of goods cannot constitute the basis for the levy of sales tax as held by the Hon'ble Supreme Court in 20th Century Finance Corporation Ltd. - [2000] 119 STC 182. d. The 'right to possession' and 'effective control' together are the key elements in understanding the tax liability in the present case. The vessels and dredgers have been supplied to the appellant but the effective control is with the owner. Accordingly, the service tax liability is correctly attracted. e. Regarding valuation of dredging services, it is submitted that all the expenditure incurred by the appellant either by way of tax or duties on the goods used for dredging should form part of the gross value. 7. We have he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rter Period and they shall pay all charges and expenses of every account and nature whatsoever incidental to their usage and operation of the vessel under this charter, including foreign general municipality and /or taxes. It is the responsibility of the charterer to comply with all the regulations regarding officers and crew of the vessel as per the applicable law. 11. Clause 10(a) stipulates payment terms for charter. The appellants are to pay an agreed lump sum amount per calendar month till the vessel is redelivered by them to the owners. Clause 12(a) stipulates that the vessel shall be kept by the charterers at their expense against marine, war and protection and indemnity risks in such form as the owner shall in writing approve. Clause 14 talks about redelivery of the chartered vessel. On expiry of charter period, charterer shall redeliver the vessel at safe and ice-free port or place as per the approval. 12. On careful consideration of the terms of the above Bareboat Charter, we are of the considered view that in the present case, vessels / dredgers were transferred to the appellant with right of possession and effective control of such vessels / dredgers. The exclusion fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 05)(zzzzj) of the Act, consequently outside the purview of taxable service. The Tribunal extensively referred to the following decisions: a. Avatar Singh and Others (2002) 7 SCC 419 b. H.L. Asiad (2003) 132 STC 217 (Guwahati) c. Bharat Sanchar Nigam Ltd. - 2006-TIOL-15-SC-CT-LB d. Rashtriya Ispat Nigam Ltd. Vs. Commercial Tax Officer - [1990] 77 STC 182 AP e. G.S. Lamba & Co. Vs. State of Andhra Pradesh - 2012-TIOL-49-HC-AP f. Great Eastern Shipping Company Ltd. Vs. State of Karnataka - [2004] 136 STC 519 (Kara) 16. We note that the analysis of the Tribunal in the above said decisions in Petronet LNG (supra) is focussed on the terms "transferring right of possession and effective control". In the said case, the Revenue submitted that the Manager, Master and crew of the bunkers are employees of the owner and were paid overtime etc. by the owner. This owner is required to maintain the tanker for wear and tear and also expenses of stores, spares, water, survey, overhauling etc. Examining the said contention of the Revenue, the Tribunal held that the said activities on the part of the owner does not take away the right of possession and effective control of the hirer. Agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s noted already, there is no sale of vessel in the present transaction. The owner of the vessel continues to be the owner. It is necessary and legally permissible for the owner to put certain restrictions and obligations on the part of the appellant who uses the supplied vessel for the intended purposes. This by itself will not make the exclusion clause for tax inapplicable. 20. Examining the scope of transfer of right to use, the Hon'ble Karnataka High Court in Great Eastern Shipping Company Ltd. (supra) held that when the vessel during the charter period was for all purposes at the disposal of the charterer and under their control in every respect including maintenance, spare parts, efficient operation, fulfillment of legal clarification etc., the same should be considered as transfer of right to use. 21. The Tribunal in Reliance Industries Ltd. - 2016 (45) STR 341 (Tri. Mum.) examined this issue as one of the disputes. Relying on the Circular dated 29.22008 of the Board and the decision of the Tribunal in Petronet LNG (supra), the Tribunal held that there is no supply of tangible goods in the said arrangement, which is under Bareboat Charter, Reference was made to section ..... X X X X Extracts X X X X X X X X Extracts X X X X
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