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TMI Blog2023 (11) TMI 218X X X X Extracts X X X X X X X X Extracts X X X X ..... ame of the customer Type of contra ct 1 2008- 2009 MV Ozgy Aksoy Cargil SA Archean Granites P. Ltd. Voyage 2 MV Ikan Selangat Pacnav SA Voyage 3 MV Good Providence GML, India. Voyage 4 2009- 2010 MV Bainco Zealand Sea Priority Archean Granites P. Ltd. Voyage 1.2 It appears that the above said vessels were provisioned to the group company, M/s Archean Granites Private Limited on back-to-back basis and on actual cost basis. It appears that agreements entered into by the appellant with the above foreign vessel owners as well as that with M/s. Archean Granites Pvt. Ltd. were in form of "Fixture Notes", as per which, the same was for the carriage of cobblestone from Chennai to Newark on voyage charter basis, for a specified amount of freight. 1.3 It is a fact borne on record that the following vessels, admittedly owned by the appellant, were lent to their group company, viz., M/s. Good Earth Maritime Ltd. on time charter basis. The first agreement entered into appears to be in respect of vessel, by name, MV GOOD PURPOSE, which was a standard bareboat charter and the other agreement entered into in respect of vessel, by name, MV GOOD SEASON, ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken up for hearing Shri M. Karthikeyan, learned Advocate, appeared for the appellant and Smt. Sridevi Taritla, learned Additional Commissioner, argued for the Revenue. 6. The submissions of the learned Advocate are summarized below: - * Levy of service tax on the taxable service of "supply of tangible goods" was introduced in effect from 01.06.2008 by insertion of clause (zzzzj) to Section 65(105) of the Finance Act. * TRU letter DOF No. 334/1/2008-TRU dated 29.02.2008 clarified that transfer of right to use any goods is leviable to sales tax/VAT as deemed sale of goods in terms of Article 366(29A)(d) of the Constitution of India and such transfer of right to use involves transfer of both possession and control of the goods to the user of the goods. * Transaction of allowing another person to use the goods without giving legal right of possession and effective control, not being treated as sale of goods, is treated as service under STGS. * In order to attract levy under STGS, two ingredients must be satisfied. i.e., i) there should be transfer of right to use and ii) such transfer of right to use should be without transfer of legal right of possession and control. * F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uded in the CIF value of the imported goods for the purpose of levy of import duties and the totality of charges paid for hire of vessels on time charter basis need not be added to determine the assessable value. He would further contend that the Revenue's appeal against the said order of the Mumbai Bench was dismissed by the Hon'ble Supreme Court by relying upon the decision in M/s. Gosalia Shipping Pvt. Ltd. (supra). * Thus, the transactions by Fixture Notes in question were contracts for transportation of goods for freight and it did not involve any transfer of right to use the vessel and hence, the demand of Service Tax under STGS was not sustainable. * With regard to own vessels of the appellant given to M/s. Good Earth Maritime Ltd., it was submitted that in respect of the said vessels, it was a bareboat charterparty, and in terms of the said bareboat charterparty clauses, it involved a transfer of right to use and as such the first ingredient for levy of Service Tax on STGS stood satisfied. The second ingredient requires that such transfer of right to use should be without transfer of legal right of possession and control, which is not satisfied in this case, and hence, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng as to the fact that the appellant had acted with an intention to evade payment of tax. Therefore, the invocation of extended period of limitation and consequently, the imposition of penalty under Section 78 of the Finance Act, 1994, is not sustainable. In this regard, he drew our attention to page 10, paragraph 7(k) of the Order-in-Original. 7.1 Per contra, learned Additional Commissioner submitted that according to Blacks' law dictionary, a 'voyage charter' is a charter under which the ship owner provides a ship and crew, and places them at the disposal of the charterer for the carriage of cargo to a designated port; the voyage charterer may lease the entire vessel for a voyage or series of voyages or may lease only a part of the vessel; that under a voyage charter, the vessel is let out to the charterer for a specific voyage and the ship owner will be paid freight which will cover its costs, including fuel and crew, as well as its profit. 7.2 It was submitted that 'time charter' is a contract for the hire of a ship or charterparty for a specified period of time; the charterer pays for the bunker fuel, fresh water, port charges, etc., in addition to the charter hire, a charte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... offshore construction vessels & barges, geo-technical vessels, tug and barge flotillas, rigs and high value machineries are supplied for use, with no legal right of possession and effective control. Transaction of allowing another person to use the goods, without giving legal right of possession and effective control, not being treated as sale of goods, is treated as service." 10.2 Levy of service tax on "supply of tangible goods for use" ('STGU' for short) was introduced with effect from 16.05.2008 by insertion of clause (zzzzj) of section 65(105) of the Finance Act, 1994, which reads as under: - "to any person, by any other person, in relation to supply of tangible goods, including machinery, equipment and appliances for use, without transferring right of possession and effective control of such machinery, equipment and appliances." 10.3 From the above, it is clear that the "transfer of right to use any goods" is leviable to sales tax / VAT as 'deemed sale of goods' in terms of Article 366(29A)(d) of the Constitution of India and transfer of right to use involves transfer of both possession and control of the goods to the user of the goods, but transfer of right to use of any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on to the above vessel by the shipper M/s. Archean Granites Pvt. Ltd. for movement from Chennai to Port Newark, USA. The appellant has charged freight of Rs.11,88,36,199/- on M/s. Archean Granites Pvt. Ltd. for the above [actual quantity of 44041.300 MT] shipped at the agreed rate of 63 USD per MT (conversion rate @42.83). 11.5.1 Further, there is nothing to suggest from the above agreements / Fixture Notes that transfer of right to use the vessel was granted by the appellant to M/s. Archean Granites Pvt. Ltd. and hence, we notice that it is an arrangement for carriage of goods for freight simpliciter though it is mentioned as 'voyage charter'. In the case of M/s. Great Eastern Shipping Company Ltd. (supra), the Hon'ble Supreme Court had an occasion to deal with various modes of charterparty of vessels and had observed that the time charterparty involved in the said case was absolute transfer of right to use along with transfer of possession and control, and levy of sales tax was applicable in terms of Article 366(29A)(d) of the Constitution of India. Reference has also been made to Halsbury's Laws of England, 4th Edition, Vol. 43, which is reproduced below for the sake of conve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a contract to carry specified goods on a defined voyage on a remuneration or freight usually calculated according to the quantity of the cargo carried." 11.6.2 Even as per the above observation of the Hon'ble Supreme Court, it emerges that a voyage charter is a contract to carry specified goods on a defined voyage for freight. 11.6.3 The Hon'ble Apex Court in the above said decision has also relied on the discussion contained in Carver's Carriage by Sea (Eleventh Ed., 1963, page 263) as per which "all charterparties are not contracts of carriage. Sometimes the ship itself, and the control over her working and navigation, are transferred, for the time being, to the persons who use her. In such cases, the contract is one of letting the ship, and subject to the express terms of the charterparty, the liabilities of the ship owner and the charterer to one another are to be determined by the law which relates to the hiring of chattels and not by reference to the liabilities of carriers and shippers." 11.6.4 Thus, where the ship and the control over her working and navigation are transferred for the time being to the persons who use her, then such charterparties are not contracts of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel is chartered and hence the claim of the appellant that voyage charter was nothing but a contract for carriage of goods, is not correct. But this will not hold any water in view of our discussions above. Moreover, the above contentions are not arising out of the SCN, wherein it has been put forth that the general terms and conditions enumerated in the Fixture Notes in respect of voyage charter vessels and the time charter vessels are identical, and since appellant is paying Service Tax on time charter vessels, they are liable to pay Service Tax even on the Fixture Note agreements in the case of voyage charter. We find that agreements in the form of Fixture Notes were entered into only in the case of voyage charter vessels and the agreements in respect of owned vessels which were let out on time charter basis were in different formats and clauses of the agreement are also different. We find that apart from the above allegation in the SCN, there is no other valid reason put forth to support that there is transfer of right to use in such Fixture Note agreements entered into with M/s. Archean Granites Pvt. Ltd. 11.8.1 The other allegation in the Show Cause Notice is that the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order to this extent stands set aside. Time charter: 12.1 We analyse this in the light of decisions of the Hon'ble Apex Court, in the case of M/s. Gosalia Shipping Pvt. Ltd. (supra) and M/s. Great Eastern Shipping Company (supra). In the case of a time charter, there is transfer of right to use the vessels involved. However, to attract the levy of Service Tax under STGS in such time charters, the transfer of right to use the vessels should not be absolute and it should not involve the transfer of right of possession and control. In the case of M/s. Great Eastern Shipping Company (supra), it was held that the time charterparty involved the transfer of possession and control and hence, there was a transfer of right to use the vessel within the meaning of Article 366(29A)(d) of the Constitution of India and that the same tantamounts to deemed sale. 12.2 The appellant admittedly owned two vessels namely, MV GOOD PURPOSE and MV GOOD SEASON and they have given the same to M/s. Good Earth Maritime Ltd. on a time charter basis. Learned Advocate contended that the time charterparty was in the form of bareboat charter in the case of vessel MV GOOD PURPOSE and the time charterparty in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of the above bareboat charter. In support, he drew our reference to paragraph 36 of the order in M/s. Petronet LNG Ltd. (supra). 12.5.1 Learned Departmental Representative on the other hand submitted in this regard that the appellant had not taken the above plea regarding time charter before the adjudicating authority and moreover, it had accepted the tax liability in this regard, had also paid the tax on being pointed out and therefore, the demand was rightly made. 12.5.2 She further drew support from the following decisions / orders to buttress her case that the supply of vessels on charter hire basis would merit classification under STGS with effect from 16.05.2008: - a) Shipping Corporation of India Ltd. v. C.C.E. & S.T. (LTU), Mumbai [2014 (33) S.T.R. 552 (Tri. - Mum.)] b) Commissioner of Service Tax, Ahmedabad v. Adani Gas Ltd. [2020 (40) G.S.T.L. 145 (S.C.)] c) EIH Ltd. v. Commissioner of Central Excise, Delhi-I [2019 (24) G.S.T.L. 592 (Tri. - Del.)] d) Global Vectra Helicorp Ltd. v. Commissioner of Service Tax, Mumbai-II [2016 (42) S.T.R. 118 (Tri. - Mum.)] 12.6 We find that the appellant did not dispute, as contended by the learned Departmental Representat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arty, that there is no dispute that the appellant had paid Service Tax for the period from May 2008 to September 2008, in October 2008 which is much before the investigation, which happened only in June 2009. That being so, the finding of the learned adjudicating authority that the services had not been brought to the notice of the Department, lacks merit insofar as time charterparty is concerned. What the officers appear to have pointed out was that the appellant was required to pay Service Tax for the subsequent period as well, which apparently was honoured by the appellant immediately, by remitting the Service Tax of Rs.2,11,85,231/- for the subsequent period from October 2008 to June 2009. Other than this, we do not see any other allegation in the Show Cause Notice to propose the demand of Service Tax in this regard and hence, under these circumstances, the allegation that the appellant did not disclose or that but for the investigation, the non- payment would not have come to light, lacks merit. Nor do we find any merit in the allegation about the appellant having any intention to evade payment of tax. Thus, we do not find any justifiable reasons to sustain penalty under Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent reflecting mutual rights and obligations between the seller and the purchaser. Both have a vital interest in ensuring the correct recording of the quantity of gas supplied..." 13.4 In view of the above, the Hon'ble Court holds that Section 65(105)(zzzzj) applies precisely in a situation where the use of the goods by a person is not accompanied by control and possession. 'Use' in the context of SKID equipment, postulates the utilization of the equipment for fulfilling the purpose of the contract. Section 65(105)(zzzzj) does not require exclusivity of use. The SKID equipment is an intrinsic element of the service which is provided by the respondent therein, acting pursuant to the GSA, as a supplier of natural gas to its buyers. In other words, the 'gas' supply is intrinsically connected with the SKID equipment and that it may not be possible to sell gas without SKID equipment. 13.5 In the case on hand, what is available is a 'Fixture Note', which is for transportation / supply of cobblestones from Chennai to Newark. Further, unlike in the case of supply of gas along with SKID equipment, which is continuous in nature, here, once the cobblestones reach the destination, that per s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Notice dated 11.04.2011, it is alleged at paragraph 5.1 as under: - "5.1 Whereas it also appears that the assessee suppressed the facts of providing taxable services and the collection of taxable value by not disclosing the same in the ST-3 returns filed by them with an intention to evade payment of service tax or in any other manner. It also appears that the non payment of service tax would not have come to light but for the investigation conducted by the SIR Branch. In view of the above it appears that the assessee contravened the provisions of Chapter V of Finance Act, 1994 and the Rules made thereunder as detailed above with an intention to evade payment of service tax and the same warrants invocation of proviso to Section 73(1) of the Finance Act, 1994 for demand of service tax......" 15.2.1 The above allegation has been countered by the appellant in its reply to the Show Cause Notice filed on 30.05.2011 with the office of the Commissioner of Service Tax and the relevant portion has also been extracted in the impugned Order-in-Original at page 10 of 22 at paragraph 7(k). For the sake of convenience, a part of the above reply is reproduced hereunder: - (The above emphasis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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