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TMI Blog2020 (6) TMI 619X X X X Extracts X X X X X X X X Extracts X X X X ..... on 66E (f) of the Finance Act, 1994 w.e.f. 1.7.2012. Show cause notice dated 07.12.2017 was issued proposing to demand the service tax for the period November 2015 to January 2016. After due process of law, the original authority confirmed the demands along with interest and also imposed penalties. Aggrieved by such order, the appellant is now before the Tribunal. 2.1 The Ld. Consultant, Shri K. Sivarajan appeared and argued on behalf of the appellant. His arguments are summarized as under : 2.2 The appellant was awarded a contract for dredging the dock basin in front of North Cargo Berth-II of Tuticorin Port by M/s.VOC Port Trust, Tuticorin. The appellant then set up project office in Tuticorin for the limited purpose of undertaking the contract with the port. To carry out the activities as per the contract of doing dredging, the appellant entered into charter agreement dt. 17.07.2015 with M/s. M/s.Codralux S.A., Luxemberg (LESSOR) for vessel i.e. J.F.J. DeNul - Cutter Suction Dredger. The appellant also hired other equipments / vessels for the completion of the project. 2.3 The vessels were taken by the appellant only on lease basis under a Bare Boat Charter Agreement (unmanne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very; 2. There must be a consensus ad idem as to the identity of the goods; 3. The transferee should have legal right to use the goods -consequently all legal consequences of such use including any permissions or licenses required therefore should be available to the transferee; 4. For the period during which the transferee has such legal right, it has to be the exclusion to the transferor - this is the necessary concomitant of the plain language of the statute, viz., a 'transfer of the right to use' and not merely a license to use the goods; 5. Having transferred the owner cannot again transfer the same right to others. 2.7 The Ld.Consultant adverted to the various clauses in the charter agreement and compared the same with the test laid down in the BSNL judgment / Education Guide issued by department to explain that clauses in the agreement would satisfy the conditions laid down in BSNL judgment to hold that transaction is nothing but a transfer of right to use goods and not transfer of goods by way of hiring, leasing, licensing or any such manner. His submissions in regard to clause in the charter agreement is as under : Sl.No. Test in BSNL case Relevant Clause in Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6A "The lessee shall maintain the vessel, her machinery, appurtenances and spare parts in a good state of repair, in efficient operating condition and in accordance with good maintenance practice and shall keep the Vessel with unexpired classification of its class with other required certificates in force at all times." Clause 6C "The vessel shall be delivered by the lessor without any crew" With regard to Charter of the vessels, the said clause clearly provides that the legal right (or control) of goods has been transferred to lessee (UDRC); The goods have been delivered by lessor to UDRC The goods have been delivered without any crew- i.e. it has to be manned by UDRC. The said clause demonstrates that the effective custody and control is transferred to UDRC. During the lease period, the vessels have to be maintained by UDRC- the said clausealso demonstrates that the control over vessel has been passed over to UDRC during the lease period. 5) Having transferred, the owner cannot again transfer the same right to others. No clause in agreement which provides the rights/option of lessor to transfer the rights to any other person. Considering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement is another clause relied by the department to hold that the transaction is not a transfer of right to use goods and is discussed in para 8.10.4 of the impugned order. Clause 6B, reads as follows : "During the charter period, as indicated in Box (6), the vessel shall retain her present name and flag as indicated in Box (4). The Lessee will make no structural changes to the vessel" Department is of the view that this indicates the lessor's dominance over the vessel which proves that effective control over the vessel during the period of lease is with the lessor. It is submitted by the Ld. Consultant that merely because certain restrictions are placed, it cannot be said that the appellant does not have effective control over the vessel. The vessel is registered in Luxemberg and retains the said flag. Not being a sale there is no transfer of ownership. 3.1 The Ld. Consultant countered the discussions made in the impugned order as stated above with regard to relevant clauses in the agreement. Arguments were also advanced on the ground of revenue-neutrality as well as the invocation of extended period of limitation. It is submitted by him that the demand has been made under rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, during the charter period, the vessel has to retain her present name and flag. Thus the lessee does not get any right to change the name or flag of the vessel. This stipulation in the agreement also shows that there is no sale of the vehicle and it is merely supply to use the vehicle. Ld.A.R however fairly conceded that although the stipulations in Clause (9) of the agreement with regard to insurance was alleged to be one of the reasons in the SCN to observe that effective control has not been transferred to the appellant, in the impugned order, the said ground has not been considered by the Commissioner to hold that the transaction is not transfer of right to use the goods. But Clause 6A to F would clearly prove that possession and effective control has not been transferred. The decisions relied by the consultant for the appellants are relating to the period prior to 2012. After 1.7.2012, 'service' has been defined under Section 65B (44) of the Finance Act, 1994. The classification of services have been given away with and unless the activity falls outside the purview of Negative list it would be taxable. Section 66E enumerates the 'declared services'. Sub-clause (f) of 66E st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Engineers (India); or (C) licensed surveyor of the respective local body of the city or town or village or development or planning authority; (II) the expression "construction" includes additions, alterations, replacements or remodelling of any existing civil structure; (c) temporary transferor permitting the use or enjoyment of any intellectual property right; (d) development, design, programming, customisation, adaptation, upgradation, enhancement, implement of information technology software; (e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation or to do an act (f) transfer of goods by way of hiring, leasing, licensing or in any such manner without transfer of right to use such goods;" (g) activities in relation to delivery of goods on hire purchase or any system of payment by instalments; (h) service portion in the execution of a works contract; (i) service portion in an activity wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity; From the above, it can be seen that as per sub-clause (f) transfer of goods by wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... box [6], the Vessel shall retain her present name and flag as indicated in box [4]. The Lessee will make no structural changes to the vessel. C. The Vessel shall be delivered by the Lessor without any crew. D. Except as otherwise provided in this Charter Party, the Lessee shall pay all charges and expenses of every kind and nature whatsoever incidental to the use and operation of the Vessel under this Charter Party. E. The lessee shall be responsible for the importation and exportation of the Vessel in India in the name of the Lessee. F. The Lessee will be responsible for all applicable and relevant permits and/or licenses necessary to deploy the vessel and its activities in India." The above clause which relates to maintenance and operation states that, it is the responsibility of the appellant to maintain the vessel in proper condition. Undisputedly the operations are fully under the control of the appellant. The appellant has obtained necessary license to use the vessel for dredging. This license is location specific. During the charter period the vessel can be used only in this location (port). The entire crew and staff is of the appellant. All this would go to show t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e note that such observation is contrary to the facts as revealed from the terms of charter agreement. It is relevant to note here that the transaction is not a sale simplicitor. But a transaction where there is transfer of right of possession and effective control of the goods transferred are considered as deemed sale. The clarification issued by the Board on 29-10-2008 explaining the scope of the present tax entry is relevant in this regard. It is clarified that transaction of allowing another person to use the goods without giving the legal right of possession and effective control, not being treated as sale of goods, is treated as service. As elaborately analysed above, in the present case, there is a transfer of possession and effective control of the vessels to the appellant under the various clauses of the charter agreement which clearly brings out that the appellant is having legal right of possession and effective control of the vessel." In the above decision, the Tribunal had referred to the decision of Hon'ble High Court of Karnataka in Great Eastern Shipping Co. Ltd. Vs State of Karnataka - 2004 (136) STC 519 (Kara). The Hon'ble High Court held that the transaction was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itions laid down by the Apex Court decision. The issue mainly revolves around conditions 3, 4 & 5 elaborated in para 2.7 above. In the present case, as per clause 6F, the appellant has taken license for carrying out dredging. During the stay of the vessel in India the vessel can be used only as per the license which is to carry out dredging activity at the port. As per Clause 6F of the agreement, the third test thus stands satisfied. The fourth test is that the transfer of such right has to be to the exclusion of the transferor. As already discussed, except for a mere condition that the lessor would be able to withdraw the vessel in case of breach of agreement to do necessary repairs and maintenance, there is nothing to show in the agreement that the lessor retains the control over the vessel. The appellant has absolute discretion to use the vessel for dredging during the charter period. Such enjoyment of the vessel cannot be interrupted by the lessor unless there is a breach to do the repairs of the vessel. Further, this condition is subject to condition No.16 which is the clause for pretermination of the agreement. If there is breach on the side of the appellant to do periodical ..... X X X X Extracts X X X X X X X X Extracts X X X X
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