TMI Blog2022 (12) TMI 808X X X X Extracts X X X X X X X X Extracts X X X X ..... AR TIWARI [ 2020 (10) TMI 1347 - SUPREME COURT] held that the financier/Lessee continues to remain the owner of a vehicle, covered by a hire purchase agreement till all the hire installments are paid and the hirer/lesee exercises the option to purchase. Till such time the option is exercised the hirer remains only as the trustee or bailee of goods covered by such agreement. The same is applicable to lease purchase agreements also. From the Conditions of the Lease purchase agreements and Judgment of Hon'ble Supreme court of India M/s Magma fincorp Limited Vs Rajesh Kumar Tiwari, the ownership of the containers lies with M/s Tankspan Leasing Ltd until the appellant exercises option to purchase the container as per the agreement - there is no transfer of title in goods until the appellant purchases the container and this fact wasn't disputed either. The appellant while bringing to fore the discussion on Accounting Standards has rightly contended that the substance of an agreement prevails over its form. However, substance prevails over form when Substance of an agreement doesn't align with its form. Here in this case, form of the agreement (leasing agreement) aligns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing shall be binding unless the law, facts or circumstances supporting the original Advance Ruling have changed. 4. Under Section 104 (1) of the Act, where the Appellate Authority finds that Advance Ruling pronounced by it under sub-Section (1) of Section 101 has been obtained by the appellant by fraud or suppression of material facts or misrepresentation of facts, it may, by order, declare such ruling to be void ab-initio and thereupon all the provisions of this Act or the rules made thereunder shall apply to the appellant as if such Advance Ruling has never been made. Subject: GST - Appeal filed by M/s. Deccan Transcon Leasing Private Limited, Block -2 (DG-6) Flat No. :103, Raintree Park, Spinal Road, Kukatpally, Hyderabad - 500 072, Telangana State under Section 100 (1) of TGST Act, 2017 Against Advance Ruling TSAAR Order No.08/2021 dated 17.08.2021 passed by the Telangana State Authority for Advance Ruling - Order-in-Appeal passed - Regarding. 1. The subject appeal has been filed under Section 100 (1) of the Telangana Goods and Services Tax Act, 2017 (hereinafter referred to as TGST Act, 2017 or the Act , in short) by M/s. Deccan Transco Leasing Private Limited, B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is of the opinion that this transaction is a transaction for supply of goods from the inception of the agreement in terms of Sl.No.1(c) of Schedule II to Section 7. The applicant abstracted the said entry and opined that all the requirements mentioned in the entry in the schedule II are fulfilled by them i.e., - - There shall be transfer of title in goods. - Such transfer is at future date as per pre-existing agreement. - Such transfer is after payment of full consideration. The applicant contends that the title is transferred at the end of the lease period as evident from the sale invoices raised by the supplier to the applicant. The applicant further contended that the said transfer of title occurred on a future date in pursuance of a pre-existing lease agreement and the supplier transfers title only after payment of full consideration as evident from terms of agreement. The applicant contends that the purpose and objective of the entry 1(c) of Schedule II is to declare that the transaction involving future title transfers as per the pre-existing agreements is to treat such transaction as supply of goods from the commencement of the agreement though the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en under CST Act, 1956 vide Section 2(g) remain untouched even after introduction of GST thereby making the lawmakers intention to continue the deeming fiction to treat the transaction as 'supply of goods' under GST law also. This is exactly done by the Sl. No. 1(c) of the Schedule II to the section 7, ibid by declaring the future title transfers with pre-existing agreement construes to be 'supply of goods' from the beginning of the transaction. Accordingly, the GST liability shall be determined. The transaction is 'supply of goods from the inception of the agreement: 2. Appellant contends that the transaction of purchasing the containers during/end of the lease period is 'supply' under section 7 of CGST Act, 2017 and would be classified as 'supply of goods in terms of Sl. No. 1(c) of Schedule II to section 7, ibid. The relevant extract is given below: Any transfer of title in goods under an agreement which stipulates that property in goods shall pass at a future date upon payment of full consideration as agreed is a supply of goods . 3. As seen from the above, the following are the ingredients required to fall under sl.no. 1(c) of Sched ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich stipulates that b. Property in goods shall pass at a future date Thus, the law leaves no scope for uncertainty regarding the transfer of property. The law does not provide for an option to purchase the goods at the end of the lease period but makes it an obligation on the part of contracting parties to necessarily transfer such property on the completion of period of agreement. Thus, for a transaction to qualify under this entry it should be backed by an agreement which does not leave any option for return of the goods at the end of such agreement. 6. Further Appellant contends that the impugned order vide para (vi) has stated that The above Entry in the Schedule II employs the word Stipulation to be enshrined in the agreement and also the word Shall to make it obligatory on the supplier to sell the goods at a future date when the full consideration is received Both the words Stipulation and Shall in the Entry do not leave any option to either the purchaser or the seller in this matter. 7. In this regard, Appellant contends that it becomes of utmost importance to understand the meaning of the word stipulation. Appellant contends that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eed amount in periodical instalments and (ii) the property in the goods is to pass to such person on the payment of last of such instalments and (iii) such person has a right to terminate at any time before the property so passes. 12. Appellant contends that though the Hire Purchase Act has been repealed but it can be said that in a hire purchase agreement, the possession of goods is delivered by owner to hirer on condition of payment of agreed number of instalments. Hirer has option to purchase the goods as per terms of agreement (usually, a nominal payment is provided at the end of hire period or property passes on payment of last instalment). Property in goods is passed on to the hirer after all terms of agreement are fulfilled. If the hirer does not fulfil the conditions of hire purchase (e.g., does not pay instalments on due dates) possession of goods can be taken back by owner giving goods on hire purchase. Generally, the period of hire purchase is such that hirer becomes owner when economic life of asset is almost over. 13. In this regard, Appellant wishes to rely on the judgement of Charanjit Singh Chadha v. Sudhir Mehra 2001 AIR SCW 3487 (2001) 7 SCC 41 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irer by the owner on the terms that the hirer, on payment of a premium as also of a number of instalments, shall enjoy the use of the goods, which ultimately may become his property, the transaction amounts to one of hire-purchase, even though the title to the goods has remained with the owner and shall not pass to the hirer until a certain event has happened, namely, that all the stipulated instalments have been paid, or that the hirer has exercised his option to finalise the purchase on payment of a sum, nominal or otherwise. 17. Further Appellant wishes to rely on the international judgement in the case of the Commissioners for Her Majesty's Revenue Customs v Mercedes-Benz Financial Services UK Ltd - decision dated 04th October 2017 in Case C 164/16 wherein it was held that The Court held that, the words 'contract for hire which provides that in the normal course of events ownership is to pass at the latest upon payment of the final instalment', used in Article 14(2)(b) of Council Directive 2006/112/EC must be interpreted as applying to a leasing contract with an option to purchase if it can be inferred from the financial terms of the contract that exercising ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mended to deem 'hire purchase' as 'sale of goods' at the time of entering into the agreement itself. The relevant extracts of the 61st law commission report, the amended definitions of 'sale of goods' under the Constitution of India, CST Act, 1956 and state sales tax laws is enclosed as annexure VII. 20. Appellant contends that the purpose objective of the sl. 1(c) of Schedule II is to declare that the transaction involving future title transfers as per the pre-existing agreements shall be treated as 'supply of goods' from the commencement of the agreement even though there may be a stipulation to the effect that in spite of the transfer of goods to the hirer, the owner retains title to those goods until the happening of the ultimate event, namely, completion of title at the option of the hirer. If the entry is read to include only that transfer taking place at the time of exercising purchase option and splitting the pre-transfer as 'separate transaction', then it violates the language of the Sl. No. 1(c) of Schedule II as it would not have been necessary to include future title transfers separately. The whole objective of the Sl. No. 1( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is responsible for the repairs, maintenance, damages, replacement and insurance of the tank containers which also fortifies the fact that the transaction is 'sale' and intention of the parties is to transfer the title from the inception of the agreement. 24. Appellant further contends that the initial lease rentals paid till the exercise of the purchase option would be adjusted for sale price of the tank containers and the suppliers would be issuing the credit note to nullify the previous transaction and raise the sale invoice for agreed sale price. The sample copies of the credit notes are enclosed as Annexure-V hence, the whole transaction is concluded as 'sale of tank containers' only. 25. It is further submitted that the Appellant recognizes 'tank containers' as an asset from the inception of 'lease' following the certainty that acquisition in future date. The relevant extracts of the financial statements are enclosed as Annexure-VIII. 26. Appellant contends that the transaction of purchasing the containers during/end of the lease period is 'supply' under section 7 of CGST Act, 2017 and would be classified as 'Finance Lease&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the agreements. Hence, the transaction would be treated as a 'supply of goods.' In this regard, reliance is placed on a. Avadhi Computers Pvt Ltd Vs CCE, Mangalore 2016 (46) STR 429 (Tri-Bang) wherein it was held as follows 3. Revenue's grievance is that if the MOU is read and most particularly Article 4 of the MOU, it shows that the appellant was not at all an agent or an employee or a sub-contractor of NIIT. Therefore, appellant cannot claim benefit under any other clause under Section 65(19) of the Finance Act, 1994. 4. Heard both sides on the submissions above. This does not appeal to common sense that the appellant was in the status of client and consultant relation. Reading of the memorandum of understanding shows that the appellant was to carry out the object of the appellant which is computer education. The doctrine of substance prevails over the firm for which Revenue cannot make the plea that the contract is to be read in literal sense. So also, when the object of the notification cited by appellant is examined the appellant having provided computer education is exempt from liability to service tax. Therefore, the appeal is allowed. b. M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t held that the substance of the contract is determinative and not its form. Thus, the essence of the contract is crucial and to be seen, keeping in mind the intention of the parties. e. In Bharat Sanchar Nigam Ltd. v. Union of India (2006) 2 STR 161; (2006) 3 STT 245 (SC), it was held that before determining the nature of the taxes which can attract in the context of the Agreements, it is essential to determine the intention of the contracting parties and the true nature of the transaction as per the law declared by the Hon'ble Supreme Court in various judgment. Therefore, Appellant contends that the Substance of the transaction must prevail over his legal form and AS-19 follows the substance over the form hence the transaction is a finance lease and is the purchase of goods and not services. The transaction falls outside the jurisdiction of GST law in India: 30. Without prejudice to the above, Appellant contends as the impugned order has completely ignored this submission the Appellant wishes to reiterate the submissions made before the Advance Authority. 31. Appellant contends that the Indian GST has adopted the dual levy concept wherein the IGST woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant further contends that the tank containers are totally used for export business outside India and hence, the transaction remains totally consumed outside the territory of India. In this regard, Applicant wishes to rely on the decision in case of Genom Biotech Pvt. Ltd. v. C.C.Ex. Cus., Nashik [2016 (42) S.T.R. 918 (Tri-Mumbai) wherein it was held that Services that are not connected with manufacture or with the transport of goods till the customs frontier of the country can be disassociated from use within the country and hence would not lie within the ambit of the legal fiction of import of services. Services that are undeniably rendered by a foreign 'service provider' in relation to the goods sold abroad cannot be presumed to be covered by the legislative intent to tax. To tax a service using the legal fiction of import and then reimburse that tax because the service was not required for any activity within the country is an exercise in futility and is contrary to the objectives of and means devised for export promotion by the State. 36. Appellant contends that transaction happened outside India is not liable for indirect taxes in India as the Indirect ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Customs Act and Section 3 of the Customs Tariff Act, ibid. 40. The CBIC vide Circular No. 33/2017-Customs dated 01.08.2017 has also clarified that GST is not leviable on the High seas' sales transaction referring to the above provisions. The relevant extract of the clarification is given below:- 4. GST council has deliberated the levy of Integrated Goods and Services Tax on high sea sales in the case of imported goods. The council has decided that IGST on high sea sale (s) transactions of imported goods, whether one or multiple, shall be levied and collected only at the time of importation i.e., when the import declarations are filed before the Customs authorities for the customs clearance purposes for the first time. Further, value addition accruing in each such high sea sale shall form part of the value on which IGST is collected at the time of clearance. 5. The above decision of the GST council is already envisioned in the provisions of sub-section (12) of section 3 of Customs Tariff Act, 1975 inasmuch as in respect of imported goods, all duties, taxes, cesses etc shall be collected at the time of importation i.e., when the import declarations are filed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Tankspan leasing Ltd, Surrey, United Kingdom, as per the agreements the appellant shall pay agreed rates of lease rentals every month and the appellant shall have an option to purchase the tank containers at the end of the lease period. 2) As per the copies of the lease purchase agreement submitted by the appellant, some of the conditions are as under:- a. Leasing- In consideration of the terms and covenanats herein contained, lessor agrees to offer on lease purchase to the lessee and the lessee agrees to hire from the lessor 100 New IMO Type 1 (T11) 25,000 Litre Tank containers to the specification provided by lessor to lessee, to be taken on lease ex CIMC factory and identified by the serial numbers TASU 665261 to TASU 665360 listed in the then current invoice, to be provided after delivery and incorporated herein (hereinafter called the containers ) b. Term-The term of lease purchase shall commence as to each container on the date of delivery to the lessee of such container to TASU and shall continue for each of the containers for a maximum period of five(5) years counting from their respective dates of delivery and thereupon the lease shall terminate as to each c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the lessee, new for old, to the value of the said replacement value .................................... 3) From the terms of the Lease purchase agreement it is evident that the appellant is obtaining the containers on lease for a period of 5 years and after expiry of 5 years or prior to five years the appellant has an option to purchase the container on payment of certain amount as per the contract. On exercising the option to purchase and payment of corresponding amount the ownership of the container passes on to the appellant from the lessor. If the appellant fails to purchase the containers he shall return back the same to lessor. 4) Hon'ble Supreme court of India in case of M/s Magma fincorp Limited Vs Rajesh Kumar Tiwari (Civil appeal No 5622 of 2019) in judgment dated 01-10-2020 held that the financier/Lessee continues to remain the owner of a vehicle, covered by a hire purchase agreement till all the hire installments are paid and the hirer/lesee exercises the option to purchase. Till such time the option is exercised the hirer remains only as the trustee or bailee of goods covered by such agreement. The same is applicable to lease purchase agreements ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s until all the instalments have been paid. There may be other variations of a contract of hire purchase depending upon the terms agreed between the parties. When rights in third parties have been created by acts of parties or by operation of law, the question may arise as to what exactly were the rights and obligations of the parties to the original contract. 65. In Charanjit Singh Chadha (supra), this Court held that a Hire Purchase Agreement is an executory contract of sale, conferring no right in rem on the hirer, until the conditions for transfer of the property to him have been fulfilled. The Financier continues to be the owner of the goods under a hire purchase agreement. The hirer simply pays for use of the goods and for the option to purchase them. The finance charge, representing the difference between the price and the hire purchase price represents the sum which the hirer has to pay for the privilege of being allowed to pay the purchase price in instalments. Where the hirer had defaulted in payment of instalments and the agreement specifically provided that the Financier was entitled to repossess the vehicle in case of default, no case was made out against the Fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t exercises option to purchase the container as per the agreement. 6) In view of the above there is no transfer of title in goods until the appellant purchases the container and this fact wasn't disputed either. 7) The appellant contends that this supply (obtaining Tankers on lease from M/s Tankspan Leasing Limited with an option to purchase them) falls under Entry 1 C of schedule II of CGST /TGST Act,2017, the contents of which are as under :- 1. Transfer (a) any transfer of the title in goods is a supply of goods; (b) any transfer of right in goods or of undivided share in goods without the transfer of title thereof, is a supply of services; (c) any transfer of title in goods under an agreement which stipulates that property in goods shall pass at a future date upon payment of full consideration as agreed, is a supply of goods. 8) Upon a plain interpretation of the entry, for a supply to be categorized under entry 1(c) a. prima facie there shall be transfer of title in goods and b. The agreement should not leave any option regarding passing of property in goods, upon payment of full consideration. 9) Taxation statutes should be interpre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other interpretation of the entry as rendering the entry itself as otiose. In this context, it is observed that GST Act doesn't differentiate between the type of leases as to whether it is a Hire-purchase, financial lease or Operating Lease. 16) Transfers are classified only under Entry 1 of Schedule- II, Entry 1 (c) being a conditional entry. Here, terms of the present agreement do not meet with the conditions laid out in the Entry 1(c). 17) Entry 1(c) shall not be rendered otiose merely because the transactions of the kind discussed do not fall under the said Entry. The entry may be interpreted to include such type of transactions where the title transfer is done immediately but the physical possession of the goods is passed on at a future date, upon payment of full consideration. 18) The appellant has furnished the approval letters from RBI for making remittances in foreign exchange for the purchase of tankers without a bill of entry. One of the approvals accorded by the Reserve Bank of India recognizes the transaction as operating lease rentals for hiring tank container on operating lease basis which is in contrast to the submissions made by the appellant. 19) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing category of supply for which tax shall be paid on reverse charge basis by the recipient of service. S.No Category of Services Supply of Supplier of service Recipient of Service 1 Any service supplied by any person who is located in a non-taxable territory to any person other than non-taxable online recipient. Any person located in a non-taxable territory Any person located in the taxable territory other than non-taxable online recipient. 25. Further as per the Provisions of Section 13 of IGST Act,2017 where the location of the supplier of services or recipient of services is located outside India, the place of supply is the location of recipient of services. Therefore, the transaction is taxable under reverse charge basis, with tax to be paid by the recipient of services, i.e. M/s Deccan Transco Leasing Private Limited with Place of Supply as 'Telangana'. 24. The ruling of the lower authority is therefore upheld and the subject appeal is disposed accordingly. ORDER 25. In view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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