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TMI Blog2022 (12) TMI 808X X X X Extracts X X X X X X X X Extracts X X X X ..... WARI [ 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 (int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s supporting the original Advance Ruling have changed. 4. Under Section 104 (1) of the Act, where the Appellate Authority finds that Advance Ruling pronounced by it under sub-Section (1) of Section 101 has been obtained by the appellant by fraud or suppression of material facts or misrepresentation of facts, it may, by order, declare such ruling to be void ab-initio and thereupon all the provisions of this Act or the rules made thereunder shall apply to the appellant as if such Advance Ruling has never been made. Subject: GST - Appeal filed by M/s. Deccan Transcon Leasing Private Limited, Block -2 (DG-6) Flat No. :103, Raintree Park, Spinal Road, Kukatpally, Hyderabad - 500 072, Telangana State under Section 100 (1) of TGST Act, 2017 Against Advance Ruling TSAAR Order No.08/2021 dated 17.08.2021 passed by the Telangana State Authority for Advance Ruling - Order-in-Appeal passed - Regarding. 1. The subject appeal has been filed under Section 100 (1) of the Telangana Goods and Services Tax Act, 2017 (hereinafter referred to as "TGST Act, 2017" or "the Act", in short) by M/s. Deccan Transco Leasing Private Limited, Block -2 (DG-6) Flat No. :103, Raintree Park, Spinal Road, Kukatpal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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 the entry 1(c) of Schedule II is to declare that the transaction involving future title transfers as per the pre-existing agreements is to treat such transaction as supply of goods from the commencement of the agreement though the owner retains title to those goods until the happening of the ultimate event at the option of the hirer. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntinue the deeming fiction to treat the transaction as 'supply of goods' under GST law also. This is exactly done by the Sl. No. 1(c) of the Schedule II to the section 7, ibid by declaring the future title transfers with pre-existing agreement construes to be 'supply of goods' from the beginning of the transaction. Accordingly, the GST liability shall be determined. The transaction is 'supply of goods from the inception of the agreement: 2. Appellant contends that "the transaction of purchasing the containers during/end of the lease period is 'supply' under section 7 of CGST Act, 2017 and would be classified as 'supply of goods in terms of Sl. No. 1(c) of Schedule II to section 7, ibid. The relevant extract is given below: "Any transfer of title in goods under an agreement which stipulates that property in goods shall pass at a future date upon payment of full consideration as agreed is a supply of goods". 3. As seen from the above, the following are the ingredients required to fall under sl.no. 1(c) of Schedule II- a. There shall be a transfer of title in goods b. Such transfer is at future date as per the pre-existing agreement c. Such tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Thus, for a transaction to qualify under this entry it should be backed by an agreement which does not leave any option for return of the goods at the end of such agreement." 6. Further Appellant contends that the impugned order vide para (vi) has stated that "The above Entry in the Schedule II employs the word "Stipulation" to be enshrined in the agreement and also the word "Shall" to make it obligatory on the supplier to sell the goods at a future date when the full consideration is received Both the words "Stipulation" and "Shall in the Entry do not leave any option to either the purchaser or the seller in this matter." 7. In this regard, Appellant contends that it becomes of utmost importance to understand the meaning of the word stipulation. Appellant contends that the word Stipulation is defined as under- a. As per the Normal parlance "Stipulation is a condition or a requirement that is specified or demanded as part of an agreement." b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any time before the property so passes." 12. Appellant contends that though the Hire Purchase Act has been repealed but it can be said that in a hire purchase agreement, the possession of goods is delivered by owner to hirer on condition of payment of agreed number of instalments. Hirer has option to purchase the goods as per terms of agreement (usually, a nominal payment is provided at the end of hire period or property passes on payment of last instalment). Property in goods is passed on to the hirer after all terms of agreement are fulfilled. If the hirer does not fulfil the conditions of hire purchase (e.g., does not pay instalments on due dates) possession of goods can be taken back by owner giving goods on hire purchase. Generally, the period of hire purchase is such that hirer becomes owner when economic life of asset is almost over. 13. In this regard, Appellant wishes to rely on the judgement of Charanjit Singh Chadha v. Sudhir Mehra 2001 AIR SCW 3487 (2001) 7 SCC 417, wherein it was observed, 'Hire purchase agreements are executory contracts under which goods are let on hire and hirer has option to purchase in accordance with terms of the agreement. -- Under hire p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , even though the title to the goods has remained with the owner and shall not pass to the hirer until a certain event has happened, namely, that all the stipulated instalments have been paid, or that the hirer has exercised his option to finalise the purchase on payment of a sum, nominal or otherwise." 17. Further Appellant wishes to rely on the international judgement in the case of the Commissioners for Her Majesty's Revenue & Customs v Mercedes-Benz Financial Services UK Ltd - decision dated 04th October 2017 in Case C 164/16 wherein it was held that "The Court held that, the words 'contract for hire which provides that in the normal course of events ownership is to pass at the latest upon payment of the final instalment', used in Article 14(2)(b) of Council Directive 2006/112/EC must be interpreted as applying to a leasing contract with an option to purchase if it can be inferred from the financial terms of the contract that exercising the option appears to be the only economically rational choice that the lessee will be able to make at the appropriate time if the contract is performed for its full term.- a) An agreement may be considered to contain an express o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , CST Act, 1956 and state sales tax laws is enclosed as annexure VII. 20. Appellant contends that the purpose & objective of the sl. 1(c) of Schedule II is to declare that the transaction involving future title transfers as per the pre-existing agreements shall be treated as 'supply of goods' from the commencement of the agreement even though there may be a stipulation to the effect that in spite of the transfer of goods to the hirer, the owner retains title to those goods until the happening of the ultimate event, namely, completion of title at the option of the hirer. If the entry is read to include only that transfer taking place at the time of exercising purchase option and splitting the pre-transfer as 'separate transaction', then it violates the language of the Sl. No. 1(c) of Schedule II as it would not have been necessary to include future title transfers separately. The whole objective of the Sl. No. 1(c) is to provide that wherever the pre-existing agreement stipulates that the title transfers take place in future would be treated as 'supply of goods' even before the actual title transfer event. Any different interpretation violates the language o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontends that the initial lease rentals paid till the exercise of the purchase option would be adjusted for sale price of the tank containers and the suppliers would be issuing the credit note to nullify the previous transaction and raise the sale invoice for agreed sale price. The sample copies of the credit notes are enclosed as Annexure-V hence, the whole transaction is concluded as 'sale of tank containers' only. 25. It is further submitted that the Appellant recognizes 'tank containers' as an asset from the inception of 'lease' following the certainty that acquisition in future date. The relevant extracts of the financial statements are enclosed as Annexure-VIII. 26. Appellant contends that the transaction of purchasing the containers during/end of the lease period is 'supply' under section 7 of CGST Act, 2017 and would be classified as 'Finance Lease' in terms of Accounting Standard - 19 "Leases". 27. Appellant contends that the impugned order vide para 7(ii) has stated that "Further under Accounting Standard - 19 of Accounting Standards of India the leased asset will be shown in the books of the lessee and this does not alter the nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 of the MOU, it shows that the appellant was not at all an agent or an employee or a sub-contractor of NIIT. Therefore, appellant cannot claim benefit under any other clause under Section 65(19) of the Finance Act, 1994. 4. Heard both sides on the submissions above. This does not appeal to common sense that the appellant was in the status of client and consultant relation. Reading of the memorandum of understanding shows that the appellant was to carry out the object of the appellant which is computer education. The doctrine of substance prevails over the firm for which Revenue cannot make the plea that the contract is to be read in literal sense. So also, when the object of the notification cited by appellant is examined the appellant having provided computer education is exempt from liability to service tax. Therefore, the appeal is allowed. b. M/s. M.P. Power Generating Co. Pvt. Ltd. Versus CCE, Bhopal (2017 (4) TMI 952 - CESTAT New Delhi) wherein it was held that "7. Admittedly, the residential quarters of the appellants have been given on rent for occupation of the employees of the contractors. The Revenue contends that the employees of the contractors staying in such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n attract in the context of the Agreements, it is essential to determine the intention of the contracting parties and the true nature of the transaction as per the law declared by the Hon'ble Supreme Court in various judgment." Therefore, Appellant contends that the Substance of the transaction must prevail over his legal form and AS-19 follows the substance over the form hence the transaction is a finance lease and is the purchase of goods and not services. The transaction falls outside the jurisdiction of GST law in India: 30. Without prejudice to the above, Appellant contends as the impugned order has completely ignored this submission the Appellant wishes to reiterate the submissions made before the Advance Authority. 31. Appellant contends that the Indian GST has adopted the dual levy concept wherein the IGST would be levied on the inter-state transaction and CGST + SGST would be levied on the intra-state transaction. For this, the charging sections i.e., Section 5 of IGST Act, 2017 provides for the levy of GST on the inter-state supplies of goods/services and Section 9 of CGST Act, 2017 & state SGST laws provides for levy of GST on the intrastate supplies. Section 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat are not connected with manufacture or with the transport of goods till the customs frontier of the country can be disassociated from use within the country and hence would not lie within the ambit of the legal fiction of import of services. Services that are undeniably rendered by a foreign 'service provider' in relation to the goods sold abroad cannot be presumed to be covered by the legislative intent to tax. To tax a service using the legal fiction of import and then reimburse that tax because the service was not required for any activity within the country is an exercise in futility and is contrary to the objectives of and means devised for export promotion by the State." 36. Appellant contends that transaction happened outside India is not liable for indirect taxes in India as the Indirect taxes including the GST is the destination and consumption-based tax. In this regard, reliance is placed on the following decisions:- a. All India Federation of Tax Practitioners vs UOI 2007 (7) STR 625 S.C; b. Indian Association of Tour Operators Vs. UOI 2017 (5) G.S.T.L. 4 (Del.); c. Paul Merchants Ltd. v. Commissioner 2013 (29) S.T.R. 257 (Tribunal); d. Cox & Kings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imported goods. The council has decided that IGST on high sea sale (s) transactions of imported goods, whether one or multiple, shall be levied and collected only at the time of importation i.e., when the import declarations are filed before the Customs authorities for the customs clearance purposes for the first time. Further, value addition accruing in each such high sea sale shall form part of the value on which IGST is collected at the time of clearance. 5. The above decision of the GST council is already envisioned in the provisions of sub-section (12) of section 3 of Customs Tariff Act, 1975 inasmuch as in respect of imported goods, all duties, taxes, cesses etc shall be collected at the time of importation i.e., when the import declarations are filed before the customs authorities for the customs clearance purposes. The importer (last buyer in the chain) would be required to furnish the entire chain of documents, such as original Invoice, high-seas-sales-contract, details of service charges/ commission paid etc, to establish a link between the first contracted price of the goods and the last transaction. In case of a doubt regarding the truth or accuracy of the declared va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se purchase to the lessee and the lessee agrees to hire from the lessor 100 New IMO Type 1 (T11) 25,000 Litre Tank containers to the specification provided by lessor to lessee, to be taken on lease ex CIMC factory and identified by the serial numbers TASU 665261 to TASU 665360 listed in the then current invoice, to be provided after delivery and incorporated herein (hereinafter called the "containers") b. Term-The term of lease purchase shall commence as to each container on the date of delivery to the lessee of such container to TASU and shall continue for each of the containers for a maximum period of five(5) years counting from their respective dates of delivery and thereupon the lease shall terminate as to each container, respectively. c. Lease purchase terms - For each of the container delivered to the lessee hereunder, the lessee shall pay an amount at a daily rate of US Dollars 10.20 per container At the expiry of the term of the lease purchase, as described in paragraph B hereof, the lessee shall, provided that all payments for the full five (5) year term of lease purchase is received by lessor and that no event of default has occurred, purchase all such containers on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ership 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. 4) Hon'ble Supreme court of India in case of M/s Magma fincorp Limited Vs Rajesh Kumar Tiwari (Civil appeal No 5622 of 2019) in judgment dated 01-10-2020 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. "63. The District Forum, as also the State Commission and the National Commission, did not consider the law relating to hire purchases as enunciated by this Court in a plethora of judgments. 64. In Charanjit Singh Chandha & Ors. V. Sudhir Mehra (2001) 7 SCC 417 relied upon by the Financier, this Court held:- "5. Hire-purchase agreements are executory contracts under which the goods are let on hire and the hirer has an option to purchase in accordance with the terms of the agreement. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irer, until the conditions for transfer of the property to him have been fulfilled. The Financier continues to be the owner of the goods under a hire purchase agreement. The hirer simply pays for use of the goods and for the option to purchase them. The finance charge, representing the difference between the price and the hire purchase price represents the sum which the hirer has to pay for the privilege of being allowed to pay the purchase price in instalments. Where the hirer had defaulted in payment of instalments and the agreement specifically provided that the Financier was entitled to repossess the vehicle in case of default, no case was made out against the Financier. 66. In K.L. Johar & Co. v. Deputy Commercial Taxes Officer, Coimbatore AIR 1965 SC 1082 this Court took the view that a hire-purchase agreement has two elements: (1) element of bailment; and (2) element of sale, in the sense that it contemplates an eventual sale. The element of sale fructifies when the option is exercised by the intending purchaser after fulfilling the terms of the agreement. When all the terms of the agreement are satisfied, and the option is exercised, a sale takes place of the goods, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of right in goods or of undivided share in goods without the transfer of title thereof, is a supply of services; (c) any transfer of title in goods under an agreement which stipulates that property in goods shall pass at a future date upon payment of full consideration as agreed, is a supply of goods. 8) Upon a plain interpretation of the entry, for a supply to be categorized under entry 1(c) a. prima facie there shall be transfer of title in goods and b. The agreement should not leave any option regarding passing of property in goods, upon payment of full consideration. 9) Taxation statutes should be interpreted strictly, For supplies falling under Entry 1(c) there should be immediate transfer of title in goods as per the agreement and property should be passed automatically on payment of full consideration at a future date. Thereby, where there is a future title transfer, the supply cannot be classified under entry 1(c) of Schedule -II. 10) As discussed above as there is no transfer of title in goods i.e., containers from the lessor to the lessee until purchased by the lessee, the supply doesn't fall under Entry 1 C of Schedule II. 11) Further, as seen from the clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntry may be interpreted to include such type of transactions where the title transfer is done immediately but the physical possession of the goods is passed on at a future date, upon payment of full consideration. 18) The appellant has furnished the approval letters from RBI for making remittances in foreign exchange for the purchase of tankers without a bill of entry. One of the approvals accorded by the Reserve Bank of India recognizes the transaction as operating lease rentals for hiring tank container on operating lease basis which is in contrast to the submissions made by the appellant. 19) 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. 20) The intentions were evident as seen from the agreement; the monies arising out of the claim of insurance shall be transferred to the Less ..... X X X X Extracts X X X X X X X X Extracts X X X X
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