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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 ..... to use goods with the control and possession over the ISO Tanker passing on to the appellant. The Andhra Pradesh High Court in RRASHTRIYA ISPAT NIGAM LTD. VERSUS COMMERCIAL TAX OFFICER, COMPANY CIRCLE, VISAKHAPATNAM [ 1989 (12) TMI 325 - ANDHRA PRADESH HIGH COURT ] observed that the transaction does not involve transfer of the right to use the machinery in favour of the contractor. As the fundamental requirement of section 5-E is absent, the hire charges collected by the petitioner from the contractor are not exigible to sales tax. The impugned order notices that the appellant had taken the ISO containers on lease/rental basis and it had paid an amount of Rs. 4,60,67,566/- to the foreign supplier who did not have any office in India for supply of the containers - 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 Const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 to the fact that the noticee has taken the ISO Container on lease/rental basis and amount of Rs.4,60,67,566/- has been paid by them to foreign based supplier, who is not having office in India for supply of containers. I have perused the copies of sample contract supplied by the noticee. Noticee has emphasized on various condition laid down in the Lessor Contract related to maintenance of the containers, transportation of goods, use of containers by the lessee and the noticee's responsibility for the declaration and payment of duties and taxes concerning the circulation of merchandise." (emphasis supplied) 5. After referring to clauses 9 and 18 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. (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 responsibility, at all times, to ensure that the Containers comply with all statutory, national and international regulations. All costs relating to the cleaning, delivery and preparation of the Containers in readiness for inspection shall be borne by the Lessee. The Lessor shall be responsible for the cost of inspection and testing itself. If at such time any Container is found to be damaged or altered or requires cleaning, the cost of repair and/or cleaning shall be for the account of the Lessee. Should Lessee and Lessor agree that future periodic testing be conducted at the lessee's factory, free time per tank for such inspection will be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eep 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 taxes levied on Lessors net income in its country of domicile), taxes, duties and charges of any type, so that If, for any reason whatsoever, the Lessee is unable to make any payment without a deduction or withholding, It will pay such additional amount so that the et amount received by Lessor will equal the full amount Lessor would have received had such deduction or withholding not been made. xxxxxxxxxx 16. OWNERSHIP As between the Lessor and the Lessee, ownership of the Containers shall at all times remain with the Lessor. The Lessee shall have quiet pssession during the term of the Lease. Some of the containers on case to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w 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 representative for the Department, however, supported the impugned order and submitted that since effective control and possession over goods had not been passed to the appellant and no sales tax/VAT was discharged on the ISO Tankers, the transaction would amount to import of STGU service. 10. The submissions advanced by the learned counsel for the appellant and the learned authorized representative appearing for the Department have been considered. 11. The issue that arises for consideration is as to whether the supply ISO Tankers on lease to the appellant by foreign suppliers would amount to STGU service. 12. The demand has been confirmed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, of property in any goods for cash, deferred payment or other valuable consideration; (b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of works contract; (c) a tax on the delivery of goods on hire purchase or any system of payment of installments; (d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (e) ……… (f) ………" (emphasis supplied) 19. It would be seen from the aforesaid that the Constitution empower ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh 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 on the appellant. The appellant has to make all necessary replacements of components and parts during the term of the lease. 23. Thus, the transaction between the appellant and the foreign buyer would qualify as a transfer of right to use goods with the control and possession over the ISO Tanker passing on to the appellant. 24. The Andhra Pradesh High Court in Rashtriya Ispat Nigam Ltd. vs. Commercial Tax Officer, Company Circle, Vishakhapatnam [1989 (12) TMI 325-Andhra Pradesh High Court] observed that whether there is a transfer of right to use or not is a question of fact which has to be determined in each ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 1, 5, 7, 13, and 14 of the contract to show that there is no transfer; while the learned Government Pleader submits that clauses 10 and 12 clearly show that there is a transfer of right and, therefore, tax is validity levied. In our view, whether the transaction amounts to transfer of right or not cannot be determined with reference to a particular word or clause in the agreement. The agreement has to be read as a whole, to determine the nature of the transaction. From a close reading of all the clauses in the agreement, it appears to us that the contractor in entitled to make use of the machinery for purposes of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry 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 right to use that it was held that since the effective control of the machinery, even while the machinery was in the use of the contractor, was that of the company that had given the machinery on hire, Sales Tax could not have been charged from the appellant therein under the provisions of the State Sales Tax Act. 27. In G.S. Lamba & Sons Mr. Gurushanran Singh Lamba and others vs. State of Andhra Pradesh [2012-TIOL-49-HC-AP-CT], the issue that arose before the Andhra Pradesh High Court was whether the contract with M/s. Grasim Industries Limited for transporting the Ready Mix Concrete was for transfer of the right t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Grasim's batching plants in Miyapur and Nacharam, where they are loaded with RMC and then proceed to the construction sites of customers. The product carried is manufactured by Grasim, which is delivered to the customers and the customers pay the cost of the RMC to Grasim and the petitioners nowhere figure in the process of putting the property in Transit Mixers to economic use. The entire use in the property in goods is to be exclusively utilised for a period of 42 months by Grasim. The existence of goods is identified and the Transit Mixers operate and are used for the business of Grasim. Therefore, conclusively it l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 is provided that the hirer will ensure the safe custody of the equipment by providing necessary security, parking bay, etc., and will be responsible for any loss or damage or destruction. Cl. 13.5 provides that the hirer shall be solely responsible and liable to handle any dispute entered with any third party in relation to the use and operation of the equipment. Further Cl. 14 dealing with title and ownership specifically provides that "equipment is offered by GIMMCO Ltd. only on 'rights to use' basis". Cl. 15 relating to damages provides for compensation to be paid by the hirer to the assessee in case of damage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 clear that it is the ONGC and not the contractor who has exclusive control and dominion over the crane during the subsistence of the contract, though, during the aforesaid period, at times, physical possession of the crane may come back to the contractor. Such temporary physical possession of the contractor, according to us, would hardly be relevant as under the contract the ONGC is vested with the authority to requisition the crane for operational purposes at any time. Besides, such temporary possession of the crane by the contractor does not mitigate against the transfer of the right to use the crane which even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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 sale under article 366 (29A) of Constitution as the appellant throughout had effective control and possession over the ISO Tankers. The order dated 29.07.2016 passed by the Commissioner, therefore, cannot be sustained.
34. In this view of the matter it would not be necessary to examine the contention raised by the appellant that the extended period of limitation could not have been invoked.
35. The impugned order dated 29.07.2016 passed by the Commissioner is, accordingly, set aside and Service Tax Appeal No. 52932 of 2016 is allowed.
(Order pronounced in the open Court on 03.01.2023) X X X X Extracts X X X X X X X X Extracts X X X X
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