9911796707
TMI Blog2024 (3) TMI 1341X X X X Extracts X X X X X X X X Extracts X X X X ..... ANDHRA PRADESH [ 2011 (1) TMI 1196 - ANDHRA PRADESH HIGH COURT] , 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 to use Transit Mixers and it was held that '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 leads to the only conclusion that the petitioners had transferred the right to use goods to Grasim.' A conjoint reading of all the relevant terms of the lease Agreement dated 12.06.2009 leaves no manner of doubt that the wagons have been leased out by the appellant to the Railways with transfer of right of possession and effective control and the essential requirements of a deemed sale having taken place stand satisfied. On an analysis of the terms of the Agreement between MSPL and the Railways, the Tribunal recorded a categorical finding that the right of possession and effective control of the wagons was with the Railways and not with MSPL. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent for Own Your Wagon Scheme (Category-B) dated 12.06.2009 was entered into between the appellant (the lessor) and the Railways (the lessee) under which the Railways took on lease from the appellant 416 wagons. The Agreement was to remain in force for a period of 20 years and the Railways had to pay to the appellant lease charges on the current cost of wagons @ 16% per annum for the primary period of 10 years and @ 1% per annum for the secondary period of 10 years. The Railways, however, had to provide guaranteed clearance of 98,618 MT of fertilizer per month for the Thal Unit and 60,159 MT of fertilizer for the Trombay Unit per month for a period of 20 years, for which the Railways would charge freight at the normal tariff rate in force to be paid by the appellant in the prescribed manner. The Agreement also provides that the Railways shall not require the appellant to pay maintenance charges undertaken by the Railways. However, the Railways would be at liberty to make necessary modifications/changes on the leased wagons at the cost of the appellant, but this additional cost would also qualify for the lease charges for the remaining period of the contract. The cost of minor modif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State of Andhra Pradesh and another vs. Rashtriya Ispat Nigam Ltd. [2013 (31) S.T.R. 513 (S.C.)] and contented that the appellant had not provided supply of tangible goods service to the Railways. The appellant also pointed out that it had paid VAT under the State Act treating the transaction to be a deemed sale. 7. The Commissioner did not accept the contention of the appellant and confirmed the demand. The relevant findings of the Commissioner are reproduced below: 4.3 The lease agreement dated 12.06.2009 entered by the noticee in this regard clearly mentions the noticee as the lessor and railways as the lessee which points to the fact that the noticee has not transferred the right of possession and effective control of the wagons. Thereby the noticee has supplied the tangible goods to railways and is liable to pay service tax on lease rent received from railways. 4.4 The lease agreement dated 12.06.2009 entered by the noticee in this regard clearly mention the noticee as the lessor of 416 wagons to railways as also lease rent for a period of 20 years has been fixed as (a) At the rate of 16% of the cost of wagons for the primary period of 10 years. (b) At the rate of 1% of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears of initial period of lease), that the ownership in the wagon will be transferred to Railways . Further as per the details of the scheme maintenance of the wagon etc during the period of lease is responsibility of the Appellants and railway undertake them as per the agreement on the behalf of Appellants. In our view the purpose of the cheme was to make available to railways the wagon by the captains of industry to augment the rolling stock of railways. In our view such supply of wagons either on long term or short term will fall under the taxable category of Supply of Tangible Goods as per Section 65(105)(zzzj) of Finance Act, 1994. ***** (emphasis supplied) 10. To support the aforesaid view, the Division Bench placed reliance upon a decision of the Tribunal in EIH Ltd. vs. Commissioner of Central Excise, Delhi-I [2019 (24) G.S.T.L. 592 (Tri.-Del.)] 11. The Division Bench ultimately in paragraph 4.10 of the referring order concluded: 4.10 In view of discussions as above we are not in position to agree with the decision rendered by the Delhi Bench of CESTAT, in case of Century Cement, supra, relied upon by the counsel for Appellant. In view of the decision of Hon ble Apex Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id by the appellant on accrual basis on the invoice raised by the appellant on Railways for lease rent. 14. Shri Pramod Kumar Maurya, learned authorized representative for the department, however, submitted that effective control and possession of the wagons remained with the appellant and, therefore, the service rendered by the appellant would be supply of tangible goods leviable to service tax under section 65(105)(zzzzj) of the Finance Act. In support of this contention, learned authorized representative placed reliance upon the decision of the Supreme Court in Idea Mobile Communication as also to the decision of the Chhattisgarh High Court in M/s. Ultratech Cement Ltd. vs. State of Chhattisgarh, through Secretary, Department of Commercial Taxes, Mantralaya Bhavan, Raipur (C.G.) and another [Writ Petition (T) No. 128 of 2015 decided on 07.12.2022] 15. The submissions advanced by the learned counsel for the appellant and the learned authorized representative of the department have been considered. 16. The period of dispute in the present appeal is from 2008-09 to December 2011. 17. According to the department, the appellant provided a service taxable under section 65(105)(zzzzj) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose of lease charge. ***** 3. VALIDITY OF AGREEMENT OF LEASE: This agreement shall remain in force for a period of TWENTY years from the commencement date(s). ***** 5. LEASE CHAREGES: The Lessee shall pay to the Lessor, lease charges on the current cost of wagons from the commencement date as under: 5.1 At the rate of 16% p.a. for the primary period of 10 years w.e.f. 10th day of receipt of last wagon of a particular rake by the Lessee. 5.2 At the rate of 1% p.a. for the secondary period of following 10 years. ***** 6.0 FREIGHT CHARGES: The freight will be levied at normal tariff rate in force and will be paid by the Lessor in the prescribed manner. 7.0 GUARANTEED CLEARANCE OF TRAFFIC: The Railways will provide guaranteed clearance of 98618 MT for THal and 60159 MTs for Trombay of fertilizer (commodity) per month for a period of 20 years from the commencement date. The scheduling of demand and supply of wagons will be decided between the Lessor and Lessee. 7.1 The above guarantee shall be subject to the following: 1. Rationalization Scheme 2. Condition of Booking of Goods Traffic 3. Central Govt., State Govt. Bans and restrictions. 4. Force majeure such as natural calamities like b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pay lease charges @ 16% per annum of the current cost of wagons for the initial period of 10 years and @ 1% per annum of the cost of wagons for the subsequent period of 10 years. The Railways, however, will have to provide a guarantee clearance of 98,618 MT per month of fertilizer for the Thal Unit for a period of 20 years from the date of commencement of the Agreement and the appellant has to pay freight at the normal tariff rate of the Railways. If the Railways fail to provide the guaranteed clearance in a month, the shortfall will have to be made good in the following month and if the shortfall is not made good, the Railways will have to reimburse the appellant by making payment of a penalty of Rs. 4 per ton in addition to the lease charge. If, however, the appellant is not able to use the guaranteed specified number of wagons, lease charges will not be paid by the Railways for the number of days the wagons remained unutilized. 22. The aforesaid terms of the Agreement leave no manner of doubt that the appellant does not retain possession and effective control over the wagons, once the wagons have been leased out to the Railways. It is to be noted that during the lease period, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered by the Commissioner to arrive at a conclusion that the appellant provided supply of tangible goods service to the Railways. 24. Learned counsel for the appellant also contended that the transaction undertaken in terms of the Agreement dated 12.06.2009 is a deemed sale contemplated under article 366(29A) of the Constitution and the appellant also paid the applicable VAT on such sale under the State Act. 25. 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 26. 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 v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the Finance Act for levy of service tax. 30. In the present case, as noticed above, the transaction between appellant and the Railways would qualify as transfer of right to use the wagons with the Railways having possession and effective control over the wagons leased by the appellant. It would, therefore, result in a deemed sale having taken place. 31. It would now be useful to examine decisions which deal with this aspect. 32. In M/s. G S Lamba Sons Mr Gurusharan Singh Lamba and others vs. State of Andhra Pradesh [2015 (324) E.L.T. 316 (A.P.)] , 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 to use Transit Mixers and the following principles were summarized: 40. That brings us to the construction of the agreement between the parties which indisputably came into force on 01.10.2002. The intention of the parties as noticed supra has to be understood by reading the entire agreement; reading a word here or a clause there is not sufficient. Grasim was looking for a transporter to take care of the transporting need of their RMC plants in Hyder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces 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 leads to the only conclusion that the petitioners had transferred the right to use goods to Grasim. For these reasons, we are not able to countenance any of the submissions made by the petitioners counsel. (emphasis supplied) 33. In Petronet LNG Ltd. vs. Commissioner of Service Tax, New Delhi [2016 (46) S.T.R 513 (Tri. - Del.)] , the Tribunal observed as follows: 25. The issue that therefore falls for our consideration is whether the transactions involving the two lon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rer 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 to the equipment during the period of use. These responsibilities cast on the hirer clearly show that the right of possession and effective control of the equipment rest with the hirer; otherwise the hirer cannot be held responsible for misuse/abuse, safe custody/security, liability to settle disputes with third parties in relation to use etc. Further Cl. 4.3 of the agreement provides for charging of VAT at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ays 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 event, as already indicated on the authority of the decision of the Apex Court in 20th Century Finance Corpn. Ltd. (supra), constitutes the taxable event under article 366(29A)(d) of the Constitution. (emphasis supplied) 36. In this connection, reference can also be made to paragraph 47 of the judgment of the Supreme Court in Commissioner of Service Tax, Delhi vs. Quick Heal Technologies Limited [2022 (63) G.S.T.L. 385 (S. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relation to goods would also be available to the user of goods, even if such licences or permits are in the name of owner (transferor) of the goods; and (vi) during the period of contract exclusive right to use goods along with permits, licenses, etc., vests in the lessee. (emphasis supplied) 38. What follows from the aforesaid decisions is: (i) The intention of the parties has to be understood by reading the entire clauses of the Agreement; (ii) What has to be deciphered from the Agreement is whether the supply of tangible goods is with or without transfer of right of possession and effective control; (iii) The movement of the tangible goods at the instance and directions of the lessee is an important factor to determine whether right to use the goods has been transferred with effective control; (iv) Whether the lessee can provide the tangible goods to others during the subsistence of the lease is also an important factor to be considered; (v) Merely because the maintenance and repairs charges of the tangible goods is to be borne by the lessor would not mean that the right to use the tangible goods is not with the lessee; (vi) Whether during the subsistence of the lease the trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asis supplied) 41. Reference also needs to be made to another Circular dated 23.08.2007 issued by the department that clarifies that the payment of VAT/Sales Tax on a transaction has to be treated as sales of goods and levy of service tax on such transaction would not arise. The relevant portion of the Circular reproduced below: Reference Code Issue Clarification (1) (2) (3) 036.03/ 23-8-07 Whether spare parts sold by a service station during the servicing of vehicles is liable to payment of service tax? Whether exemption can be claimed on the cost of consumables that get consumed during the course of providing service? Service station during the servicing of vehicles is liable to payment of service tax? Whether exemption can be claimed on the cost of consumables that get consumed during the course of providing service? Service tax is not leviable on a transaction treated as sale of goods and subjected to levy of sales tax/VAT. Whether a given transaction between the service station and the customer is a sale or not, is to be determined taking into account the real nature and material facts of the transaction. Payment of VAT/sales tax on a transaction indicates that the said transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned counsel for the appellant, is a complete answer to the issue that has been raised in the appeal as the Tribunal after examining similar terms of the Agreement concluded that though the wagons had been purchased by the appellant, but the right of possession and effective control of the wagons was with the Railways. The relevant portion of the decision of the Tribunal is reproduced below: 3. Heard both sides and perused the records of the case. In order to appreciate the true nature of the agreement between the appellants and the railways authorities, it would be beneficial to go through the relevant clauses of the agreement. 1.0 General Agreement : Whereas the Lessee desires to take on lease from Lessor and Lessor desires to lease to Lessee 60 (number) of BOXNHS (type) wagons procured through either the Ministry of Railways or builders approved by them subject to the terms and conditions herein after appearing. 2.2 Rolling Stock Rolling stock shall mean BOXNHS, (BOXN/BCN/BTAP/BOY/BTP/ BFKI/BTPN etc.) leased to the Lessee for his use and shall include any individual item comprised in the rolling stock including all alterations, replacements and/or additions thereto during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for maintenance undertaken by IR as per standard norms. 10.2 Modifications of Wagons : The Lessee will be at liberty to make the necessary modifications/changes on the leased wagons which they would carry out on their own wagons of similar design. The changes would be made at the Lessor s cost. This additional cost will also qualify for lease charges for the remaining period of contract. However, minor modification charged to the Revenue expenditure of Railways which are part of the Revenue maintenance will be carried out at the Lessee s cost. 10.3 If the Lessor requires/owns a private siding, he will be governed by the relevant siding agreement in respect of the infrastructure facilities including maintenance of the wagons within the siding premises. 12.0 Termination of Arrangement : 12.1 In the event of termination of the arrangement by the lessor/owner on account of liquidation/merger with other company or due to any alteration/deletion in the scheme, the ownership of the leased wagons would remain with the Lessor. However, the lessor shall have the option to sell the wagons to the Lessee at a mutually agreed price. On the perusal of the above, it appears that though the wago ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the South Western Railways. The appellants have also discharged applicable VAT/Sales Tax on such transaction, therefore, the activity undertaken by the appellants does not constitute a taxable service of Supply of Tangible Goods . In view of the same, all the impugned orders are liable to be set aside and appeals are allowed with consequential relief, if any, as per law. We order so. (emphasis supplied) 45. The basic terms and conditions contained in the Agreement in the matter of MSPL and in a matter of the appellant are almost identical. As in the case of the Agreement executed between the appellant and the Railways, the Agreement entered into between MSPL and the Railways also mentions that the Railways took on lease 60 wagons from MSPL subject to the terms and conditions stipulated in the Agreement; the lease charges under the Agreement which was for a period of 20 years were required to be paid by the Railways to the appellant at the rate of Rs. 40/- per thousand per quarter for the primary period of 10 years and at the rate of Rs. 10/- per year for the secondary lease period of 10 years; the freight charges were required to be paid by MSPL to the Railways at the normal ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his manner. 49. The inevitable conclusion that flows from the aforesaid discussion is that the wagons which were given on lease by the appellant to the Railways on terms and conditions set out in the Agreement dated 12.06.2009 were in the possession and effective control of the Railways. 50. As noticed above, the show cause notice dated 02.04.2012 calls upon the appellant to show cause as to why service tax should not be demanded from the appellant with interest and penalty in view of the terms and the conditions contained in the Agreement dated 12.06.2009 entered into between the appellant and the Railways. The Schemes referred to in the reference order have not been relied upon in the show cause notice nor the order passed by the Commissioner makes any reference to them. The show cause notice and the order of the Commissioner refer to the aforesaid Agreement dated 12.06.2009 entered into between the appellant and the Railways only. Thus, what has to be determined is whether the appellant had transferred the right of possession and effective control to the Railways in terms of the conditions set out in the Agreement dated 12.06.2009 when providing wagons on lease to the Railways. ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
