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2023 (8) TMI 1237 - AT - Service TaxInterpretation of statute - Supply of tangible goods for use - exclusion clause in tax entry Section 65(105)(zzzzj) of the Finance Act, 1994 - Liability of service tax on appellant - Vehicles and vessels chartered by them to M/s Essar Steel India Ltd., Arkay Holdings Ltd. and Arkay Sea Logistics Ltd. - revenue’s case is that appellant have right of possession and effective control of the vessels/vehicles - HELD THAT:- Wherever transaction involves transfer of possession and effective control of the goods, then it is a ‘sale’ and the activity will not be subjected to Service Tax; and where possession and effective control has not been transferred, then, the transaction will be covered in the category of ‘service of supply of tangible goods for use’. Thus, the subject transactions are to be verified with the relevant contracts/ agreements, then only it can be determined whether there is a ‘service’ or a ‘sale’. The clause 10 of the Charter states that the vessel shall during the charter period be in full possession and at the absolute control for all purposes of the charterers and under their complete control in every respect. The charterers shall maintain the vessel. In view of it is clear that during the charter period of vessels the right of possession of vessels and effective control have been transferred to service recipient, therefore the service does not fall under the “Supply of Tangible Goods Service”. On examining the scope of transfer of right to use, the Hon’ble Karnataka High Court in THE GREAT EASTERN SHIPPING CO. LTD. VERSUS STATE OF KARNATAKA & OTHERS [2019 (12) TMI 225 - SUPREME COURT] held that when the vessel during the charter period was for all purposes at the disposal of the charterer and under their control in every respect including maintenance, spare parts, efficient operation, fulfilment of legal obligations etc., the same should be considered as transfer of right to use. On careful consideration of the terms of the above Bareboat Charter agreement and Agreement with M/s Essar Steel India Ltd. (M/s ESIL), in the present case, vessels/vehicles were transferred to the customers with right of possession and effective control of such vessels/vehicles - In the present matter on the disputed transaction appellant has discharged the VAT liability considering the same as ‘deemed sale’ under the provisions of Gujarat Value Added Tax Act, 2003 , hence no service tax can be demanded on the said transaction. In the present case also since the appellant have admittedly paid the VAT to the state VAT department, following the above observation of the Apex Court, the transaction is not liable to service tax under the category of “Supply of tangible goods for use” service. The impugned orders are not sustainable, accordingly the impugned orders are set aside - Appeal allowed.
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