TMI Blog2023 (11) TMI 218X X X X Extracts X X X X X X X X Extracts X X X X ..... pany Ltd. [ 2019 (12) TMI 225 - SUPREME COURT ], the Hon ble Supreme Court had an occasion to deal with various modes of charterparty of vessels and had observed that the time charterparty involved in the said case was absolute transfer of right to use along with transfer of possession and control, and levy of sales tax was applicable in terms of Article 366(29A)(d) of the Constitution of India. It is clear that the charterparty may operate as a demise of the ship herself or it may confer on the charterer nothing more than the right to have his goods conveyed. In the case on hand, what is conveyed under the above Fixture Notes is only the right to convey the goods in a particular ship on a particular voyage and nothing more - From the contracts / Fixture Notes, intention of the parties is clear, to transport cobblestone from one place to another and incidentally using voyage charter and hence, there is nothing mentioned in the Fixture Notes about the otherwise usage of the charter. It is held that what is provided for in the Fixture Notes is only a contract for carriage of cobblestone from Chennai to Newark for a freight and though the contract is said to be on a voyage cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity since what is relevant is to only check if the contents of such document yields to the taxing statute. It is, therefore, not possible to interpret the intention of the parties reduced into writing to suit the requirements of the statute - the demand of Service Tax with interest cannot sustain on the security deposit and consequently, the same is set aside. To this extent, therefore, even the penalty imposed under Section 78 is set aside. Invocation of extended period of limitation under Section 73(1) of the Finance Act, 1994 - HELD THAT:- It is clear that the entire activity of the appellant was available with the Revenue in black and white; it is the appellant who, in good faith, requested as to the taxability as early as in 2009 from the Department - Though the allegation in the Show Cause Notice is only as to suppression of facts, but the intent to evade tax is conspicuously missing, which by itself makes it clear that even the Revenue did not have any justifiable reason to allege suppression of facts with an intent to evade tax. There cannot be any demand other than for the normal period, but there can never be any penalty under Section 78 ibid - Appeal allowed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OOD PURPOSE, which was a standard bareboat charter and the other agreement entered into in respect of vessel, by name, MV GOOD SEASON, appears to be a time charter in Government Form approved by the New York Produce exchange. Sl. No. Financial Year Name of the vessel Name of the owner Name of the customer Type of contract 1 2008- 2009 MV Good Purpose Core Minerals Good Earth Maritime Ltd. Time 2 2009- 2010 MV Good Season Core Minerals Good Earth Maritime Ltd. Time 2. It appears that there was an investigation by the Survey, Intelligence and Research (SIR) branch of Service Tax Commissionerate, Chennai, consequent to which a Show Cause Notice ( SCN for short) No. 174/2011 dated 11.04.2011 came to be issued to the appellant proposing a demand of Service Tax of Rs.5,48,01,202/- on the alleged activity of the appellant, of providin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l of the goods to the user of the goods. Transaction of allowing another person to use the goods without giving legal right of possession and effective control, not being treated as sale of goods, is treated as service under STGS. In order to attract levy under STGS, two ingredients must be satisfied. i.e., i) there should be transfer of right to use and ii) such transfer of right to use should be without transfer of legal right of possession and control. Fixture notes entered into between the appellant and M/s. Archean Granites Private Limited were for carriage of cobblestone from Chennai to Newark on payment of freight; that the Fixture Note is a simple contract of carriage and it is not an arrangement for transfer of right to use the vessel. The Fixture Notes do not even mention anything about such transfer of right to use or about non-transfer of legal right of possession and control, in order to attract the levy of service tax under STGS. He relied upon the decision of the Hon ble Supreme Court in the case of M/s. Great Eastern Shipping Company Ltd. v. State of Karnataka [2020 (32) G.S.T.L. 3 (S.C.)] wherein, at paragraph 52 of its order, the Hon bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant given to M/s. Good Earth Maritime Ltd., it was submitted that in respect of the said vessels, it was a bareboat charterparty, and in terms of the said bareboat charterparty clauses, it involved a transfer of right to use and as such the first ingredient for levy of Service Tax on STGS stood satisfied. The second ingredient requires that such transfer of right to use should be without transfer of legal right of possession and control, which is not satisfied in this case, and hence, there cannot be any levy. In this regard, he has placed reliance on the following decisions: - a) International Seaport Dredging Ltd. v. Commissioner of Service Tax, Chennai [2018 (12) G.S.T.L. 185=2018 (3) TMI 633 CESTAT, Chennai] b) Universal Dredging Reclamation Corporation Ltd. v. Commr. of C.G.S.T. C.Ex., Madurai [2021 (44) G.S.T.L. 401 (Tri. Chennai)] c) Petronet LNG Ltd. v. Commissioner of Service Tax, New Delhi [2016 (46) S.T.R. 513=2013-TIOL- 1700-CESTAT-DEL] It was submitted that the bareboat charter party in respect of the vessel MV GOOD PURPOSE was entered into on 19.12.2007 and the vessel was delivered during December 2007 itself; the levy of Servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essel for a voyage or series of voyages or may lease only a part of the vessel; that under a voyage charter, the vessel is let out to the charterer for a specific voyage and the ship owner will be paid freight which will cover its costs, including fuel and crew, as well as its profit. 7.2 It was submitted that time charter is a contract for the hire of a ship or charterparty for a specified period of time; the charterer pays for the bunker fuel, fresh water, port charges, etc., in addition to the charter hire, a charter under which the ship owner continues to manage and control the vessel, but the charterer designates the ports of call and cargo carried. 7.3 It is submitted that under both types of charter, the vessel is chartered and therefore, the contention of the appellant that a voyage charter is meant for transport of goods was incorrect. 7.4 On the contention of the appellant that the agreement was entered into in respect of vessel MV GOOD PURPOSE (dated 19.12.2007) prior to the introduction of levy of Service Tax on STGS for use and no Service Tax was payable on it, she would submit that the appellant neither made this plea nor submitted any agreement evidencing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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. 10.3 From the above, it is clear that the transfer of right to use any goods is leviable to sales tax / VAT as deemed sale of goods in terms of Article 366(29A)(d) of the Constitution of India and transfer of right to use involves transfer of both possession and control of the goods to the user of the goods, but transfer of right to use of any goods, without giving legal right of possession and effective control, not being treated as deemed sale of goods, is treated as service. That is to say, the following ingredients are required to be satisfied for fastening any liability to Service Tax under the head STGS: - i. there should be transfer of right to use; and ii. such transfer of right should be without transfer of right of possession and control. 10.4 We have to therefore examine whether the activities of the appellant on voyage charter basis and on time charter basis to their group companies, M/s. Archean Granites Pvt. Ltd. and M/s. Good Earth Mariti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... simpliciter though it is mentioned as voyage charter . In the case of M/s. Great Eastern Shipping Company Ltd. (supra), the Hon ble Supreme Court had an occasion to deal with various modes of charterparty of vessels and had observed that the time charterparty involved in the said case was absolute transfer of right to use along with transfer of possession and control, and levy of sales tax was applicable in terms of Article 366(29A)(d) of the Constitution of India. Reference has also been made to Halsbury s Laws of England, 4th Edition, Vol. 43, which is reproduced below for the sake of convenience: - 52. Halsbury s Laws of England, 4th Edn., Vol. 43, has also been referred to in which the following discussion has been made : 402. Meaning of contract by charterparty. A contract by a charterparty is a contract by which an entire ship or some principal part of her is let to a merchant, called the charterer, for the conveyance of goods on a determined voyage to one or more places, or until the expiration of a specified period. In the first case, it is called a voyage charterparty, and in the second a time charterparty. Such a contract may operate as a demise of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the control over her working and navigation, are transferred, for the time being, to the persons who use her. In such cases, the contract is one of letting the ship, and subject to the express terms of the charterparty, the liabilities of the ship owner and the charterer to one another are to be determined by the law which relates to the hiring of chattels and not by reference to the liabilities of carriers and shippers. 11.6.4 Thus, where the ship and the control over her working and navigation are transferred for the time being to the persons who use her, then such charterparties are not contracts of carriage. However, the agreements being in the form of Fixture Notes , there can be no transfer of ship along with control navigation by the appellant to M/s. Archean Granites Pvt. Ltd. and therefore, it is difficult to accept that they are contracts of carriage. 11.6.5 It is relevant at this juncture, to re-visit Gosalia Shipping Pvt. Ltd. (S.C.) (supra), wherein the contract in question was time charterparty and the issue was whether the consideration paid by the charter was towards carriage of goods, to be amenable to tax under Section 172(2) of the Income tax Act. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reements in the case of voyage charter. We find that agreements in the form of Fixture Notes were entered into only in the case of voyage charter vessels and the agreements in respect of owned vessels which were let out on time charter basis were in different formats and clauses of the agreement are also different. We find that apart from the above allegation in the SCN, there is no other valid reason put forth to support that there is transfer of right to use in such Fixture Note agreements entered into with M/s. Archean Granites Pvt. Ltd. 11.8.1 The other allegation in the Show Cause Notice is that the appellant has been accounting for the receipts under the Fixture Note agreements as charter hire charges. In this regard, the appellant has furnished a Chartered Accountant s Certificate which is placed at page 53 of the Appeal Memorandum, which is reproduced below: - wherein it is certified that the ocean freight charges collected from M/s. Archean Granites Pvt. Ltd. under voyage charter was aggregated with income from hire charges from time charter and shown in the balance-sheet under the head Charter hiring charges . That per se cannot be the reason to assume that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Eastern Shipping Company (supra), it was held that the time charterparty involved the transfer of possession and control and hence, there was a transfer of right to use the vessel within the meaning of Article 366(29A)(d) of the Constitution of India and that the same tantamounts to deemed sale. 12.2 The appellant admittedly owned two vessels namely, MV GOOD PURPOSE and MV GOOD SEASON and they have given the same to M/s. Good Earth Maritime Ltd. on a time charter basis. Learned Advocate contended that the time charterparty was in the form of bareboat charter in the case of vessel MV GOOD PURPOSE and the time charterparty in respect of vessel MV GOOD SEASON was in the form approved by New York Produce Exchange like in the case of M/s. Gosalia Shipping Pvt. Ltd. (supra). He would submit that in the case of bareboat charter in respect of vessel MV GOOD PURPOSE, as per the clauses in the charter, the transfer of right to use the vessel was granted to M/s. Good Earth Maritime Ltd. absolutely with full possession and complete control and hence, it was a case of deemed sale for which reason the same would not be covered as a taxable service under STGS. 12.3 Clause 8 of the bareboat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... / orders to buttress her case that the supply of vessels on charter hire basis would merit classification under STGS with effect from 16.05.2008: - a) Shipping Corporation of India Ltd. v. C.C.E. S.T. (LTU), Mumbai [2014 (33) S.T.R. 552 (Tri. Mum.)] b) Commissioner of Service Tax, Ahmedabad v. Adani Gas Ltd. [2020 (40) G.S.T.L. 145 (S.C.)] c) EIH Ltd. v. Commissioner of Central Excise, Delhi-I [2019 (24) G.S.T.L. 592 (Tri. Del.)] d) Global Vectra Helicorp Ltd. v. Commissioner of Service Tax, Mumbai-II [2016 (42) S.T.R. 118 (Tri. Mum.)] 12.6 We find that the appellant did not dispute, as contended by the learned Departmental Representative, the taxability of the above before the adjudicating authority and accordingly, had also remitted the tax of Rs.2,11,85,231/- during July 2009 on the hire charges realized in respect of vessel MV GOOD PURPOSE for the period from October 2008 to June 2009. Though the appellant can urge any legal ground even after paying Service Tax, that per se would not prevent an appellant from urging such grounds before a higher forum, but however since the learned Advocate did not put forth any other contentions on merits nor did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt period as well, which apparently was honoured by the appellant immediately, by remitting the Service Tax of Rs.2,11,85,231/- for the subsequent period from October 2008 to June 2009. Other than this, we do not see any other allegation in the Show Cause Notice to propose the demand of Service Tax in this regard and hence, under these circumstances, the allegation that the appellant did not disclose or that but for the investigation, the non- payment would not have come to light, lacks merit. Nor do we find any merit in the allegation about the appellant having any intention to evade payment of tax. Thus, we do not find any justifiable reasons to sustain penalty under Section 78 ibid. The appellant has clearly made out a case for extending the benefit of Section 80 ibid. and consequently, we are of the view that the imposition of penalty under Section 78 in this regard was uncalled for and the same is, therefore, set aside. 13.1 The learned Additional Commissioner has inter alia placed reliance on the decision of the Hon ble Apex Court in the case of M/s. Adani Gas Ltd. (supra). In the said case, there is a clear Gas Sales Agreement (GSA), as noticed by the Hon ble Court at p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5(105)(zzzzj) does not require exclusivity of use. The SKID equipment is an intrinsic element of the service which is provided by the respondent therein, acting pursuant to the GSA, as a supplier of natural gas to its buyers. In other words, the gas supply is intrinsically connected with the SKID equipment and that it may not be possible to sell gas without SKID equipment. 13.5 In the case on hand, what is available is a Fixture Note , which is for transportation / supply of cobblestones from Chennai to Newark. Further, unlike in the case of supply of gas along with SKID equipment, which is continuous in nature, here, once the cobblestones reach the destination, that per se terminates the contract. Further, there is no warranty clause binding on either of the parties. Interest of both the parties lacking; appellant is only interested in supplying / ferrying goods to the other party. 13.6 In view of this discussion, the said decision is not applicable. Security deposit : 14.1 With regard to the demand of Service Tax on the amount of Rs.42,00,000/- received by the appellant as security deposit in terms of the lease agreement dated 20.06.2007, the adjudicating auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he above it appears that the assessee contravened the provisions of Chapter V of Finance Act, 1994 and the Rules made thereunder as detailed above with an intention to evade payment of service tax and the same warrants invocation of proviso to Section 73(1) of the Finance Act, 1994 for demand of service tax 15.2.1 The above allegation has been countered by the appellant in its reply to the Show Cause Notice filed on 30.05.2011 with the office of the Commissioner of Service Tax and the relevant portion has also been extracted in the impugned Order-in-Original at page 10 of 22 at paragraph 7(k). For the sake of convenience, a part of the above reply is reproduced hereunder: - (The above emphasis is supplied by us, for clarity) 15.2.2 From the above it is very much clear that the entire activity of the appellant was available with the Revenue in black and white; it is the appellant who, in good faith, requested as to the taxability as early as in 2009 from the Department. The Revenue has not denied as to issuing no objection to the stand of the appellant, which is also forthcoming from the above reply and it is also further clear that no demand subsequent ther ..... X X X X Extracts X X X X X X X X Extracts X X X X
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