TMI Blog2020 (6) TMI 619X X X X Extracts X X X X X X X X Extracts X X X X ..... Clause 6 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 that the appellant has entire control for operating the vessel during charter period. 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 condition. Similar conditions were analyzed by the Tribunal in the case of PETRONET LNG LTD VERSUS COMMISSIONER OF SERVICE TAX [ 2013 (11) TMI 1011 - CESTAT NEW DELHI] and also M/S. INTERNATIONAL SEAPORT DREDGING LTD. VERSUS COMMISSIONER OF SERVICE TAX, CHENNAI [ 2018 (3) TMI 633 - CESTAT CHENNAI] . 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 (unmanned vessels). In shipping industry, bare boat charter represents an arran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Charter Agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the SPL. Thus, it clearly demonstrates that the legal right vests with UDRC as specific legal permissions have been obtained by UDRC. 4) For the period during which the transferee has such legal right, it has to be the exclusion to the transferor Clause 6A 6C; Maintenance and Operation Clause 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transaction would be that of transfer of right to use goods and not an activity falling under Supply of Tangible Goods Service . Though the said decision was rendered prior to 2012, the definition of service which has been introduced w.e.f. 01.07.2012 excludes deemed sale. To further support his argument, the Ld. Consultant relied upon the decision in the case of Heligo Charters Pvt. Ltd. Vs CST Mumbai - 2017-TIOL-2831-CESTAT-MUM and the case of Petronet LNG Ltd. Vs CST - 2013-TIOL-1700-CESTAT-DEL. 3.0 Clause 6B in the agreement 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f goods are permitted to the appellant while control remained with the owner of the goods. There is no transfer of ownership. It is evident from Clause 6A that the effective control has not been transferred to the appellant. Clause 6A gives lessor all rights to withdraw the vessel from the service of the appellant in case appellant does not do necessary repairs and maintenance of the vessel. This right to withdraw the vessel during the charter period clearly indicates that effective control has not been transferred to the appellant. Further, 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 tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... completion certificate by the competent authority. Explanation - For the purposes of this clause, - (I) the expression competent authority means the Government or any authority authorised to issue completion certificate under any law for the time being in force and in case of non-requirement of such certificate from such authority, from any of the following, namely:- (A) arthitech registered with the Council of Architecture constituted under Architects Act, 1972 (20 of 1972); or (B) chartered engineer registered with the Institution of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall keep the Vessel with unexpired classification of its class and with other required certificates in force at all times. Owner shall be responsible for delivering the necessary spares till boarder of India. The Lessee shall take immediate steps to have the necessary repairs done with a reasonable time failing which the Lessor shall have the right of withdrawing the Vessel from the service of the Lessee without noting any protest and without prejudice to any claim the Lessor may otherwise have on the Lessee under this Charter. B. 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. 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 applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd employment of the appellants. The maintenance of the vessel for wear and tear and also expenses for lubricating, spare parts, water etc. are in fact met by the appellant only. This is not the case in the case of Petronet LNG (supra). Even then the Tribunal in the said case held that reading the charter agreement as a whole, it is clear that there is a transfer of right of possession and effective control of the vessel with the assessee. 18. We note that the adjudicating authority observed that there is no legal transfer of right of possession or effective control of the vessels by the appellant. We 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 contro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction did not involve transfer of possession and effective control, the activity would be taxable under Supply of Tangible Goods Services . The test for determining whether a transaction is a transfer of right to use goods has always remained the same. 10. The department in their Education Guide has followed the decision of the Hon ble Supreme Court in BSNL (supra) to lay down the test to determine as to whether the activity is transfer of right to use the goods. The Ld.Consultant has put forward submissions in tabular column (para 2.7 above) to substantiate that the agreement satisfies all the conditions 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 conditio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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