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TMI Blog2024 (7) TMI 1582X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal in the case of Universal Dredging and Reclamation Corporation Ltd. [ 2020 (6) TMI 619 - CESTAT CHENNAI] had considered the issue for the period post 01.07.2012 also. After adverting to the declared services listed under Section 66E, the Tribunal observed that if the transfer is in the nature of deemed sale, it would be outside the purview of taxability under Finance Act, 1994. There is a transfer of possession and effective control of the goods, and the activity being transfer of right to use goods, the demand of service tax cannot sustain for the period upto 30.06.2012 and post 01.07.2012 also. Conclusion - The five-fold test put forward in the BSNL case stands satisfied. There is indeed transfer of possession as well as effective control of the containers to the appellant by the foreign supplier. The lease of containers was a deemed sale, not subject to service tax under either the 'Supply of Tangible Goods Services' category or the definition of 'service' post-01.07.2012. The impugned order is set aside. The appeal is allowed. - HON BLE MS. SULEKHA BEEVI C.S., MEMBER (JUDICIAL) AND HON BLE MR. VASA SESHAGIRI RAO, MEMBER (TECHNICAL) For the Appellant : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of leasing containers by the foreign company to the appellant amounts to service under Supply of Tangible Goods Service for the period prior to 01.07.2012 and under Section 65(B)44 for the period w.e.f. 01.07.2012. The Ld. Counsel referred to the definition of 'Supply of Tangible Goods Services' under Section 65(105)(zzzzj)which reads as under:- any services provided or to be provided 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 2.2. It is submitted that only if the supply is without transferring the right to possession and effective control of such machinery, equipment and appliances, the activity would fall under the definition of 'Supply of Tangible Goods Services'. In the present case, the activity of leasing the containers would fall under transfer of right to use of goods / deemed sale and therefore is not chargeable to service tax. The 'transfer of right to use goods' is leviable to Sales Tax / VAT as deemed sale of goods [Article 366(29A)(d) of the Constitutio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ners to the exclusion of the transferor. No other person can use such containers. Having transferred the right to use the goods during the period for which it is to be transferred, the owner cannot again transfer the same rights to others. Having transferred the right to use the containers during the period, the lessor cannot transfer the same rights to others. The containers can be used only by the lessee/Appellant during the lease period. 2.4. It is asserted by the Ld. Counsel that in the present case, the possession is handed over to the appellant and the appellant enjoys right over the container to the exclusion of the lessor. 2.5. The Agreements entered by the appellant with the lessor (foreign company) was also furnished. Para 4 of the Agreement stipulates the delivery locations. It states that the containers shall be delivered from any of the lessor depots as and when available. Para 6 states about Cost and Repairs. It states that cost of repairs if any incurred is on the appellant subject to any optional arrangement with lessor whereby lessor is responsible for cost of repair. Para 8 provides for Exclusion and Warranties. It states that the appellant (lessee) shall have qui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he project, the vessels / equipment were re-exported. After putting the facts to the five- fold test laid down by the Hon'ble Apex Court in the case of BSNL (supra), the Tribunal held that the activity falls under transfer of right to use, and is not subject to levy service tax. 2.9. In a recent decision, the Delhi Bench of the Tribunal in the case of SRF Ltd. Vs. Commissioner of LTU, New Delhi [2023 (109) GSTR 379] held that no service tax is leviable under reverse charge mechanism when the transaction is a deemed sale. The assessee therein entered into contracts with foreign suppliers for obtaining ISO tankers on lease / rental basis which were used by the assessee for transportation of refrigerant gases by sea route. After analysing the Agreements, the Tribunal held that the possession and effective control over the ISO tankers during the entire period was transferred to the assessee and therefore the activity is not taxable under Supply of Tangible Goods Services. 2.10. Without prejudice to the above arguments, it is submitted that the entire transaction took outside India, and therefore no service tax can be levied. The Ld. Counsel argued on the ground of limitation also. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e containers are to be intimated to the lessor The containers are to be used for a minimum compulsory period and if returned early assessee is liable to pay increased rent From the above, it can be seen that on lease, assessee has to take delivery of the containers from the 'Delivery locations' stipulated by the lessor and return them at the place stipulated by the lessor; use the container for transport of agreeable cargo; maintain the container during lease period; if lessor estimates any damage to the container as economically feasible has to undertake the repair of the same; if beyond repair has to pay the 'replacement value' agreed upon to the lessor and such payment is not deemed a purchase of the relevant container; i.e., replacement of container is at the discretion of the lessor; has to maintain a comprehensive general liability insurance which is to regularly intimated to the lessor; cannot sub-lease at their will; cannot make any changes to the container as deemed fit by them without consent prior approval of the lessor 3.2.1. It is submitted that the though the appellant takes delivery of the container, the appellant has to take delivery from the yard of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tangible Goods Services under Section 65(105)(zzzzj) of the Finance Act, 1994 upto 30.06.2012. ii. Whether the activity would fall under definition of Service as per Section 65B(44) for the period w.e.f. 01.07.2012. 6. The definition of Supply of Tangible Goods Services has already been noticed above. The argument put forward by the appellant is that the transaction is transfer of right to use goods / deemed sale and therefore is not subject to levy of service tax under Section 65(105)(zzzzj) upto 30.06.2012 or Section 65B(44) of the Finance Act, 1994 w.e.f. 01.07.2012. To examine as to whether the transaction constitutes transfer of right to use goods / deemed sale, the test laid down by the Hon'ble Apex Court in the case of BSNL (supra) is as under:- 97. To constitute a transaction for the transfer of the right to use the goods the transaction must have the following attributes: a. There must be goods available for delivery; b. There must be a consensus ad idem as to the identity of the goods; c. The transferee should have legal right to use the goods- consequently all legal consequences of such use including any permissions or licenses required therefor should be available t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... international transportation, the appellant would be able to get necessary licence / permissions from Customs and other authorities. We find this explanation to be reasonable. We do not find any condition in the agreement allowing the lessor to decide the transportation of cargo. 10. The use of the container during period on lease is to be to the exclusion of the lessor. The appellant has full right to use the container during the lease period which is clear from Para 8 reads as under:- 8. EXCLUSION OF WARRANTIES ALL CONTAINERS ARE LEASED AS IS, AND LESSOR WARRANTS ONLY THAT THEY CORRESPOND WITH THE DESCRIPTION SET OUT IN THE SCHEDULE, AND THAT SO LONG AS NO EVENT OF DEFAULT HAS OCCURRED LESSEE SHALL HAVE QUIET POSSESSION AS AGAINST ANY PERSON CLAIMING UNDER OR THROUGH LESSOR, SAVE AS AFORESAID, NO CONDITION OR WARRANTY WHATSOEVER OF ANY KIND HAS BEEN OR IS GIVEN BY LESSOR IN RELATION TO THE CONTAINERS, AND ALL CONDITIONS AND WARRANTIES IN RELATION THERETO, WHETHER EXPRESSED OR IMPLIED, WHETHER STATUTORY, COLLATERAL HERETO OR OTHERWISE, WHETHER IN RELATION DO THE FITNESS OF THE CONTAINERS OR ANY ITEM THEREOF FOR ANY PARTICULAR PURPOSE, OR IN COMPLIANCE WITH ANY CONVENTION, STATUTE, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a declared service. It means a lease agreement 10 Service Tax Appeal No. 41366 of 2014 which does not have the character of transfer of right to use goods is taxable service. The Hon'ble Apex Court in the case of Bharat Sanchar Nigam Ltd. vs. UOI 2006 (2) STR 161 (SC) has laid down certain factors to test whether a transaction is a pure lease or a lease in the nature of right to use of goods (deemed sale). The Board vide circular dated 17.08.2016 has issued instructions adopting the same. Relevant part of Board circular reads as under :- 2. The matter has been examined. I am directed to draw your attention to the fact that in any given case involving hiring, leasing or licensing of goods, it is essential to determine whether, in terms of the contract, there is a transfer of the right to use the goods. Further, the Supreme Court in the case of Bharat Sanchar Nigam Limited v. Union of India, reported in 2006 (2) S.T.R. 161 (S.C.), had laid down the following criteria to determine whether a transaction involves transfer of the right to use goods, namely, - a. There must be goods available for delivery; b. There must be a consensus ad idem as to the identity of the goods; c. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aircraft by the appellants etc., we have no doubt in our mind that the lease agreement between EAT and the appellant is one wherein the right of possession and control of the aircraft has been bestowed on the appellant and not retained with the lessor. This being so, the ingredients of Supply of Tangible Goods Service requiring exigibility to service tax by the Finance Act, 1994 are not present in this transaction. In consequence, the monetary consideration paid by the appellants to EAT cannot be considered as value of Supply of Tangible Goods Service and tax demanded on the same as has been done in the impugned orders. 14. In the above case, the period prior and after 01.07.2012 has been considered. Similarly, in the case of Heligo Charters Pvt. Ltd. (supra) the Tribunal had occasion to consider the demand of service tax on lease agreement of helicopter. In the said case, the assessee was responsible for maintenance of the helicopter as per the DGCA regulations by qualified engineers so as to keep the helicopters always in airworthy conditions and also engage experienced and licensed air crew for operating the helicopters. The department was of the view that legal right of possess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis from ADA and BLFIL for use in their business is a taxable service (business support service) under Finance Act, 1994 or is deemed sale under Art 366 (29A)(d) of the Constitution of India and Section 5(2) read with Section 2(g) of the Central Sales Tax Act, 1956 and, hence, outside the purview of Service Tax. According to the Department, from the 'lease agreements', it is evident that this not a mere case of transfer of right to use, as the helicopters construe infrastructure of the Appellants area of business/commerce and, hence, the foreign lessors by supplying this infrastructure to the Appellant, have provided infrastructure support service to the Appellant, which is taxable as support services of business or commerce under Section 65 (105) (zzzq) read with sections 65(104c) of the Finance Act, 1994 during period prior to 1.7.2012 and as taxable service not covered by negative list during period w.e.f. 1.7.2012. It is on this basis, that the Commissioner, in the impugned order, has confirmed service tax demands totalling Rs. 18,84,25,686/- against the Appellant under Section 73(1) of the Act along with interest on it under Section 75 of the Act and imposed penaltie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be made by the owners to the satisfaction of M/s. Petronet LNG and these personnel on board the vessel shall work under the instructions of the Appellant. (iii) Owners of the vessels were to pay the wages of the crew and also bear expenses for provisions, insurance of the vessel, cost of licenses, maintenance repair and overhead cost, dry docking cost etc. (iv) The owners were to obtain and maintain marine and war risk insurance for the vessels with the Appellants name co-assured. (v) Master and the crew operating the vessels were required to work under direct control and instructions of the Appellant and the Appellant was authorized to issue directions to the Master for transportation of LNG to any part of the World. (vi) The Appellant would exercise control over the vessel through the Master, other officers and the crew. The Master shall follow the orders and directions issued by the Appellant for the purpose of filing bills of lading by signing the same. (vii) The Appellant would control the Vessels by issuing appropriate instructions and sailing directions to the Master and the Master is required to maintain a log of the voyage which the Appellant and their agent may ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Appellants lease agreement with M/s. BLFIL, Ireland and Para 4 of the SCN mentions the relevant terms and conditions of the Appellants lease agreement with M/s. ADA, Abu Dhabi. At the end of Para 4, the SCN states as under: It appears that legal right of possession and effective control over the helicopters is with M/s. HCPL in terms of the above agreements Thus the SCN dated 12.10.2012 itself on the basis of the terms and conditions of the agreements, forms the tentative view that the Appellants lease agreements with foreign lessors involve transfer of right of effective possession and control over the helicopters to the Appellant during the period of lease. It is this view expressed in Para 4 of the SCN dated 12.10.2012 which has been confirmed by the Commissioner in Para 25 of the impugned order giving the following findings: It is clear that legal right of possession and effective control over the helicopters is with M/s. HCPL in terms of the above agreement. 15. In the case of SRF Ltd. (supra), the Tribunal considered the issue whether the contracts entered by the assessee with foreign suppliers for obtaining ISO tankers on lease would amount to Supply of Tangible Goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional, international or statutory regulations, laws, directives or conventions, including customs laws and regulations which affect the Containers, the Lease or their possession, ownership. transportation or operation; including, but not limited to, the International Convention for Safe Containers (CSC) and the Customs Convention on Containers 1956 or 1972 as the same may be In effect from time to time. The Lessee shall be liable for all duties, fees, charges, liens, encumbrances, fines, penalties or interest charged or Incurred for failure to comply. 9. AREAS OF USE The Lessee shall not use, or allow the use of, the Containers in hostile countries or in any area of hostilities or conflict (declared or not) or in any area specifically prohibited in writing by the Lessor to the Lessee or in any area which may load to the invalidation of the limit of coverage and of the insurance of the Containers. 10. MAINTENANCE, DAMAGE, LOSS OF DESTRUCTION (a) Except as otherwise provided in this Lease, the Lessee at it's own expense shall maintain the Containers in good condition and repair and shall be liable for all damage to and loss of any Container and make all necessary replacements of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt for its use, export or other disposal to the satisfaction of the Commissioners of Customs and Excise. 18. MISCELLANEOUS (a) Lessee may not assign or transfer its rights or responsibilities under this Lease Agreement to any other party without the prior written consent of Lessor. Lessee is responsible for complying with all terms and conditions of this lease, and paying all charges due under this lease, throughout the term of the Lease, even if a Container is used by a party other than the Lessee, with or without Lessee's or Lessors consent. The Lessor may grant a security interest in and may assign any or all of it's rights, title or interest in the Containers or the Lease, including it's right to receive payment hereunder. Lessee shall not assign, mortgage, charge, pledge or otherwise encumber the Lease or the Containers in whole or in part. . . . 31. From the decisions referred to above, it clearly transpires that: (i) Whether there is a transfer of right to use or not is a question of fact which has to determined in each case having regard to the terms of the contract under which there is a transfer of right to use; (ii) If with the transfer of the right to use, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oreign 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. 16. The Tribunal in the case of Universal Dredging and Reclamation Corporation Ltd. (supra) had considered the issue for the period post 01.07.2012 also. After adverting to the declared services listed under Section 66E, the Tribunal observed that if the transfer is in the nature of deemed sale, it would be outside the purview of taxability under Finance Act, 1994. The relevant paragraphs read as under:- 16. The period involved is from November 2015 to January 2016. For the period prior to 1.7.2012 when the classification of services were in existence, similar issue has been decided by the Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supplied in any manner as a part of the activity; 17. From the above, it can be seen that as per sub-clause (f) transfer of goods by way of hiring, leasing or licensing or in any similar manner would be a taxable service. However, if the transfer involves right to use the goods, it would be outside the purview of taxability. The definition of services introduced w.e.f. 1.7.2012 in Section 65B (44) is also worth of reproducing which is as under :- service means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include_____ (a) an activity which constitutes merely,____ (i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or (ii) Such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A)of article 366 of the Constitution; or (iii) A transaction in money or actionable claim; (b) A provision of service by an employee to the employer in the course of or in relation to his employment; (c) fees taken in any Court or tribunal established under any law for the time being in force. 18. In the present case, the question is whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only in this location (port). The entire crew and staff is of the appellant. All this would go to show that the appellant has entire control for operating the vessel during charter period. 20. It is stated in this clause that if the appellant does not maintain the vessel by doing necessary repairs, the owner / lessor will have the right to withdraw the vessel from the service of the appellant. The question is whether such restriction is an indication that there is no transfer of effective control of the vessel. The Ld. Consultant has explained that such a clause giving right to the owner / lessor to withdraw the vessel is only to protect the interest of the owner on the vessel. It also has to be noted that such right to withdraw the vessel comes into play only when there is a breach in the clause of the agreement to do the necessary repairs of the vessel. During the charter period, the appellant has full fledged right to use the vessel by abiding to the conditions in the agreement to the exclusion of the lessor/owner of the vessel. It goes without saying that when there right is given to operate the vessel it also casts a responsibility to maintain the vessel in proper and good co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . vs. State of Karnataka- 2004(136) STC 519 (Kara). The Hon'ble High Court held that the transaction was a deemed sale and is subject to levy of sales tax. Against this decision, an appeal was preferred by the assessee before the Hon'ble Apex Court as Civil Appeal No. 3383 of 2004. It is noticed that the same was disposed vide decision dt. 04.12.2019 wherein the decision of the Hon'ble High Court of Karnataka was upheld. Merely because there is a right given to the owner / lessor to withdraw the vessel in case they cause breach of the condition to do repairs of the vessel, cannot be a ground to infer that there is no transfer of effective control of the vessel. Even though discussions in these decisions pertain to the period prior to 1.7.2012, the facts being identical the legal principles for understanding whether a transaction is transfer of right to use goods are the same. This is evident from the TRU Circular dt. 16.3.2012 and the Service Tax Education Guide dated 20.6.2012 issued by CBEC. The Board has relied on the decision rendered by Apex Court in BSNL ltd. vs. UOI 2006 (20 STR 16 (SC). The meaning and scope of the phrase 'transfer of right to use goods' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n No. 16 which is the clause for pretermination of the agreement. If there is breach on the side of the appellant to do periodical maintenance which may give rise to a right to the lessor to withdraw the vessel, then lessor has to abide by Clause 16 (Pre-termination notice) to put an end to agreement and then withdraw the vessel. Appellant thus enjoys full right to exclusion of others. During the period, neither the owner can use the vessel nor can the owner transfer the right to use of the vessel to another person. We have no hesitation to hold that the appellant enjoys right to use the vessel to the exclusion of the owner. 24. Another finding in the impugned order is that since the appellant retained the registration and the flag of the vessel, there is no transfer of effective control over the vessel. The vessel is registered in Luxemburg . It may not be practical to change the registration of the vessel in each case of charter agreement. In the present case, there is no change in ownership. If that be the case, it would be a sales simplicitor. Change of Registration and change of flag is necessary only when there is change in ownership. 25. From the discussions made above, we a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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