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TMI Blog2021 (8) TMI 892X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te. The applicant submits that they have recognized the tank containers and assets in the books of account from the inception of the lease and there is certainty that the same would be purchased later. Therefore the applicant is of the opinion that this transaction is a transaction for supply of goods from the inception of the agreement in terms of SL.No.1(c) of Schedule II to Section 7. The applicant abstracted the said entry' and opined that all the requirements mentioned in the entry in the schedule II are fulfilled by them i.e.,- There shall be transfer of title in goods. Such transfer is at future date as per pre-existing agreement. Such transfer is after payment of full consideration. The applicant contends that the title is transferred at the end of the lease period as evident from the sale invoices raised by the supplier to the applicant. The applicant further contended that the said transfer of title occurred on a future date in pursuance of a pre-existing lease agreement and the supplier transfers title only after payment of full consideration as evident from terms of agreement. The applicant contends that the purpose and objective of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t reach India? As it is finance lease, it is supply of goods and tank containers do not reach the Indian Territory. 6. Personal Hearing: The Authorised representatives of the unit namely Sri. Venkatesh Prasad Charter Accountant and Sri. S. Kishor Kumar Reddy, Consultant, attended the personal hearing held on 11-11-2020. However, orders were not passed due to the retirement of state membered on superannuation. Further Government of Telangana vide G.O. Rt, No, 216, Rev(CT-II) Dept, Dt. 16.06.2021 have nominated Sri S.V. Kasi Visweswara Rao, Additional , Commissioner (ST) ns member to The Authority for Advance Ruling and hence the case wan re posted a fresh on 29.06.2021 Heard the case They reiterated the facts mentioned supra and sought for clarifications in respect of the queries raised in their application which are as under:- 1. That, they have taken certain containers (goods) on hire purchase from a foreign vendor and used them for transporting chemicals on International waters without the containers ever reaching the territories of India 2. That, they seek clarification whether this hire-purchase/lease transaction amounts io taxable supply. 3. That, they s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces under the GST Act which will be discussed below. iii. The applicant argues that the transaction made by him falls under Entry 1(c) of Schedule 11 to Section 7 of the CGST Act. The said Entry declares a specific transaction to be supply of goods. However such transaction shall entail,- a. Transfer of title in goods under an agreement. b. And such agreement shall stipulate that property shall pass at a future date upon payment of full consideration as agreed. iv. 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. v. The Entry employs two phrases in order to emphasize the obligatory' nature of the contract to ensure passing of property from the supplier to the recipient at the completion of the period of the agreement or any such period, viz- a. An agreement which stipulates that b. Property in goods shall pass at a future date Thus the Jaw leaves no scope for uncertainty regarding the transfer of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nership shall pass to lessee (Para C of the agreement). e. Upon expiration of the minimum lease purchase term or expiration of lease purchase term .. where the lessee has not purchased the containers in accordance in Para C or termination due to default of the lease purchase terms, the lessee shall return each container as to which the lease shall have a hired to lessor at the depots to be nominated by the lessor (Para D of the agreement). f. The replacement value for each container damaged beyond economic repair, lost or destroyed shall be U.S $ 25,000/-. g. Rent clause: The rent described in Paragraph C of the Lease shall be due for each Container from and including the day of delivery to the lessee up to and including the day the Container is returned to Lessor pursuant to the terms of the Lease and in accordance with Paragraph 4 below. h. Return clause: The Lessee may return the Containers pursuant to the provisions of the Lease. The Lessee shall be responsible for all shipping and transportation to nominated Lessor depot. Such costs shall be borne by the Lessee. i. In the event of default the agreement stipulates that the lessor shall retake possessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by installment, the property passes as soon as the sale is made even though the price has not been fully paid and may later be paid by installments. The distinguishing feature of a hire purchase agreement is that the property does not pass when the agreement is made but only passes when the option is finally exercised after complying with all the terms of the agreement. 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. Advance Ruling 5. In view of the observations stated above, the following ruling is issued Question Raised Advance Ruling Issued Is GST liable to be paid on leasing of tank containers taken form a supplier i e., lessor wh ..... 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