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TMI Blog2023 (1) TMI 150X X X X Extracts X X X X X X X X Extracts X X X X ..... h were used by the appellant for transportation of refrigerant gases via sea route. The appellant claims that during the lease period, it had effective control and possession over the ISO tankers and so the entire transaction would qualify as a 'deemed sale' under article 366(29A) of the Constitution, as a result of which no service tax liability would arise. 3. However, a show cause notice dated 29.05.2013 was issued to the appellant alleging that the appellant had received services in the nature of STGU from the foreign suppliers, which would be taxable under section 65(105)(zzzzj) of the Finance Act, 1994 [the Finance Act] and leviable to service tax at the hand of the appellant in terms of section 66A of the Finance Act read with rule 2(1)(d)(iv) of the Service Tax Rules, 1994 [1994 Rules] and rule 3(iii)(c) of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 [2006 Service Rules]. 4. The appellant filed a reply to the show cause notice but the Commissioner, by an order dated 29.07.2016, confirmed the demand of service tax. The Commissioner noted the following facts before determining the issues. "11.6 I find that there is no dispute t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " (emphasis supplied) 6. The Commissioner, therefore, confirmed the demand of service tax with interest and penalty. 7. In order to appreciate the controversy raised in this appeal, it would be useful to reproduce the relevant clauses of the agreement executed between the appellant and the Tankspan Leasing Limited and they are as follows: Agreement with Tankspan Leasing Limited "7. INSPECTION AND TESTING (a) At any reasonable and from time to time, the Lessee shall permit the Lessor or it's authorised representatives to inspect any or all of the Containers available to the Lessor at any such address as may be mutually agreed. (b) For the purpose of periodic inspection and testing of the Containers in accordance with the requirements of governmental authorities regulations and agreements concerning the transportation at hazardous materials, upon sixty (60) days prior written notice from Lessor, Lessee shall make any or all of the Containers available to Lessor with a certificate of cleanliness as specified in Clause 4 at a designated depot's as may be mutually agreed. In the event that prior written notice is not received from Lessor, it is still Lessees responsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Lease using parts and workmanship equal to, or greater than, the condition that the Containers were in at the commencement of the Lease. The Lessee shall make no changes or alterations to the Containers except with the written consent of the Lessor. The colour of The Containers, identification marks, the Lessors service mark and name or any other plates, marks or seats or writing applied to the Containers must not be removed, mutilated, obliterated or supplemented In any way without the prior written approval of the Lessor and the Lessee shall take all steps to prevent any other person doing any such act or riling. The Lessee shall keep such marks and colour in good condition and repair throughout the term of the Lease. xxxxxxxxx 13. TAXES Lessee shall pay all taxes, fees, penalties and interest and other liens, charges or encumbrances which exist or which may be imposed during the term of the lease and levied on or in connection with or arising out of the operation, transportation, maintenance, storage, loading or other use or possession or ownership of the Containers until redelivered to Lessor, including, without limitation, withholding, deduction, income (excluding any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an be interpreted that under Sales Tax, there is transfer of possession and effective control in goods, while there is no such transfer of possession and effective control under service tax; iii. Given the terms between the appellant and the foreign suppliers, it can be seen that the ISO Tankers are being used by the appellant to the exclusion of any other party, and that the appellant is not only in possession of the tankers, but also in control, to the extent of usage as also maintenance and upkeep. In this connection reliance has been placed on the decisions of the Tribunal in Petronet LNG Limited vs. Commissioner of Service Tax, New Delhi [2016 (46) STR 513 (Tribunal-Delhi)] and International Seaport Dredging Limited vs. Commissioner of Service Tax, Chennai [2018 (12) GSTL 185 (Tribunal -Chennai)]; iv. The extended period of limitation could not have been invoked in the facts and circumstances of the order; v. The appellant is eligible for cum-tax benefit under section 67(2) of the Finance Act; and vi. No penalty could be imposed and the appellant is also entitled to waiver of penalty under section 80 of the Finance Act. 9. Shri Rakesh Kapoor, learned authorized repres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e present appeal, centers around the third condition, which is as to whether the transaction between the appellant and the foreign buyer would involve the transfer of right of possession and effective control or a transfer of right to use. This is because a transaction where right of possession of the goods together with effective control over such goods is transferred it would tantamount to a deemed sale, which would be beyond the purview of service tax. 17. In this connection, it would be pertinent to refer to Entry 54 of List II of the Seventh Schedule to the Constitution. It empowers State to levy tax on sales and purchase of goods. The relevant Entry is reproduced below: "54. Taxes on the sale or purchase of goods other than newspaper, subject to the provisions of Entry 92 A of List I" 18. The forty-sixth amendment to the Constitution, extended the meaning of "sale or purchase of goods" by giving an inclusive definition of the phrase "tax on the sale or purchase of goods" under article 366(29A) of the Constitution. The same is reproduced below: "366(29A) "tax on the sale or purchase of goods" includes- (a) a tax on transfer, otherwise that in pursuance of a contract, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hile there is no such transfer of possession and effective control under service tax. 22. In the present case, the nature of transaction between the appellant and the foreign supplier for obtaining ISO Tankers on lease/rental basis reveals that: (i) The appellant had received ISO Tankers from its foreign suppliers on payment basis and during the period when the ISO Tankers were in the possession of the appellant, the legal right to use the ISO Tankers lay with the appellant to the exclusion of any other person; (ii) Further, the foreign suppliers could not pass the same right to any other person; (iii) Though the ownership of the containers was with the foreign suppliers but the appellant was not only in possession of the tankers, but also in control, to the extent of usage as also maintenance and upkeep; (iv) As for the payment of sales tax/VAT no tax could be imposed by the State on a transaction involving sales and purchase of goods in the course of imports of goods into India. This is clear from clause 17 of the Agreement. Hence, non-payment of sales tax/VAT was inconsequential; and (v) The responsibilities with respect to maintenance, repair, testing, insurance was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luable imported machinery to the contractors engaged by the petitioner for the purpose of construction of steel project. The machinery like cranes, docers, dumfors, road rollers, compressors, etc., are lent by the petitioner to the contractors for the use in the execution of project wok for which hire charges at specified rate are being collected by it. The machinery is given in the possession of the contractor and he is responsible for any loss or damage to it. The contractor has got every right to use it in his work at his discrection. It is further stated that in view of these clear terms and conditions there is transfer of property in goods for use, for a specific purpose and for a specified period for money consideration. The amounts charges by the petitioner attracts tax liability under section 5-E of the A.P. General Sales Tax Act, 1957. Sri P. Venkatarama Reddy, the learned counsel for the petitioner, submits that under the terms and conditions of the contract, the contractor is provided with the facility of using the machinery if the same is available with the petitioner and there is no transfer of the right to use the machinery and for this purpose he relies on clauses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contractors were not exigible to sales tax. On a careful reading and analysis of the various clauses contained in the agreement and, in particular, looking to clauses 1, 5, 7, 13 and 14, it becomes clear that the transaction did not involve transfer of right to use the machinery in favour of contractors. The High Court was right in arriving at such a conclusion. In the impugned order, it is stated, and rightly so in our opinion, that the effective control of the machinery even while the machinery was in use of the contractor was that of the respondent company; the contractor was not free to make use of the machinery for the works other than the project work of the respondent or move it out during the period the machinery was in his use; the condition that the contractor would be responsible for the custody of the machinery while it was on the site did not militate against respondent's possession and control of the machinery." (emphasis supplied) 26. It transpires from the aforesaid two decisions in Rashtriya Ispat Nigam Ltd. rendered by the Andhra Pradesh High Court and the Supreme Court that it was because of the terms of contract under which there was a transfer of the rig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot identify and negotiate with the transporter for carrying the products every time an order is placed. Therefore, such a clause was included in the agreement to ensure there is no delay in delivering the product to the customers. He also submits that making available the vehicles through out the day or painting them with brand name of Grasim is required keeping in view the possible hurdles in logistics, and to ensure customer satisfaction of getting the required branded RMC. According to him, these clauses by themselves do not warrant an inference of transfer of the right to use Transit Mixers. ******* 42. In addition to the above clauses, we have thoroughly perused and analysed the agreement between the petitioners and Grasim. ******* 45. Reading the recitals and various clauses, indeed there is a transfer of the right to use Transit Mixers. All the tests as indicated hereinabove exist in the contract between the petitioners and Grasim. The vehicles are maintained by the petitioners. They appoint the drivers and fix their roster. The licences, permits and insurances are taken in their names by the petitioners, which they themselves renew. The Transit Mixers go to Grasi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpliant about their misbehaviour lodged by the assessee. On a true and fair analysis of the several clauses of the charter - agreements, considered as a whole, mere employment of the personnel and crew by owners does not derogate from the reality of transfer of possession to and effective control by the assessee over the tankers, for the use of these tangible goods." (emphasis supplied) 29. In Gimmco Ltd. vs. Commissioner of Central Excise and Service Tax, Nagpur [2017 (48) S.T.R. 476 (Tri.-Mum.)], the Tribunal observed as follows: "5.2 Revenue's contention is based on the clauses in the agreement relating to restrictions of use by the lessee, provision of skilled operator by the lessor and maintenance and repairs of the equipment by the lessor. Merely because restrictions are placed on the lessee, it can not be said that there is no right to use by the lessee. Such a view of the revenue does not appear to be tenable when we read carefully the provisions of the agreement. Cl. 13 of the agreement provides for Hirer's Covenants. As per Cl. 13.1, the hirer will use the equipment only for the purpose it is hired and shall not misuse or abuse the equipment. Similarly in Cl. 13.3, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operated by the crew provided by the contractor such crew while operating a crane is under the effective control of the ONGC and its authorities. Therefore, under the contract though the normal operational time is 10 hours in a day, the ONGC is entitled to deploy the cranes, if required, to the entire period of 24 hours to perform duties the kind of which and the locations whereof is to be decided by the ONGC. The mere fact that after the operation of the crane is over on any given day the crane may come back to the owner/contractor will hardly be material to decide as to who has dominion over the crane inasmuch as the crane can be recalled for duty by the ONGC at any time. Under the contract the crane is to be operated for 26 days in a month and the remaining four days are to be treated as maintenance off days. Though the crane is not operational on the maintenance off days, yet, 50% of the operational charges is paid by the ONGC for the maintenance off days and the terms of the contract make it clear that even on the off days the crane can be called for operation by the ONGC at its sole discretion. The above features of the contract, in our considered view, makes it abundantly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e containers was not with the appellant merely because the containers had not been sold to the appellant. The Commissioner fell in error in not appreciating the difference between a 'sale' and 'a deemed sale' contemplated under article 366 (29A) of Constitution. In 'a deemed sale' it is necessary to examine who has the possession and effective control over the goods. Even the Circular dated 29.02.2008, on which reliance has been placed by the Commissioner, emphasises that in the case of 'a deemed sale' under article 366 (29A) of Constitution, transfer of right to use involves both transfer of possession and control over the goods. The Commissioner also fell an error in holding that since sales tax/VAT was not paid by the appellant, it would not amount to 'a deemed sale'. The Commissioner failed to appreciate that since the translation involved sale or purchase of goods in the course of import of goods into India, no sales tax/VAT was required to be paid even if the transaction qualified as 'a deemed sale'. 33. It is more than apparent from the aforesaid discussion that the supply of ISO Tankers on lease/rental basis by foreign suppliers to the appellant would amount to a deemed sa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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