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TMI Blog2024 (7) TMI 1582X X X X Extracts X X X X X X X X Extracts X X X X ..... roviders located abroad. It appeared to the Department that the containers were leased by the overseas service providers only for use by the appellant and the appellant has no right of possession or effective control of the containers. The appellant is thus liable to pay service tax under the category of 'Supply of Tangible Goods Services' on the lease rent charges paid by them from 16.05.2008 onwards, on reverse charge basis. 1.2. Show Cause Notice dated 08.01.2013 was issued to the appellant demanding service tax along with interest on the lease rentals paid by the appellant during the period from 16.05.2008 to 31.03.2012. The Statement of Demand No. 113/2014 dated 09.05.2014 was issued for the period from April 2012 to June 2012, as well as, another Show Cause Notice No. 214/2014 dated 01.09.2014 was issued for the period July 2012 to March 2013, on the very same allegations and proposing to demand service tax under 'Supply of Tangible Goods Services' along with interest and also for imposing penalties. After due process of law, the Original Authority adjudicated all the Show Cause Notices together and held that the activity would be classifiable under the categ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is submitted that the Hon'ble Supreme Court in the case of Bharath Sanchar Nigam Ltd. Vs. Union of India [2006 (3) VST 95] has set out a five-fold test for examining whether the transaction is a 'transfer of right to use goods'. On an application of the test laid down to the facts of the present case, it would be clear that the activity is a transfer of right to use the containers given to the appellant and is not an activity of Supply of Tangible Goods or lease falling under Section 66E(f). The Ld. Counsel compared the points of analysis in the BSNL case (supra) with that of the present case which is as under:- BSNL Test Present Case There must be goods available for delivery The containers are available for delivery on the date of the lease. There must be a consensus ad idem as to the identity of the goods There is consensus ad idem as to identity of containers as each container containers a unique serial number for identification. The transferee should have a legal right to use the goods-consequently all legal consequences of such use including any permissions or licenses required therefor should be available to the transferee The Appellant has a legal right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stances, etc. It is thus assumed by the Adjudicating Authority that transport can be only of cargo which is agreed by the lessor. There is no such condition in the agreement that the lessor has any right to decide the cargo which is to be carried in the container. Only for safety and compliance of regional law, the Agreement stipulates that the appellant should not carry hazardous substances in the container. 2.7. The Ld. Counsel relied upon the decision in the case of Lindstrom Services (P) Ltd. Vs. Commissioner of GST [2020 SCC ONLINE CESTAT 4542] to submit that in the said case, the Tribunal had analysed whether the transaction of work wear rental would fall under the category of Supply of Tangible Goods Service. After analysing the conditions of Agreement, the Tribunal followed the decision passed by the Chandigarh Bench in the assessee's own case and set aside the demand. The Department filed an appeal before the Hon'ble Apex Court which was dismissed maintaining the decision of the Tribunal as reported in [2023 (11) CENTAX (228) SC]. 2.8. In the case of Universal Dredging and Reclamation Corporation Ltd. Vs. Commissioner of CGST & Central Excise [2020 SCC ONLINE CES ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Agreement are as under:- * Assessee has entered into contracts for lease of 'containers' with lessor who has in their disposal 'containers' to give under lease * 'Containers' means the equipment, and any machinery supplied with the equipment * Assessee has to take delivery of containers from the locations set forth by the lessor * Assessee has to maintain the containers as per standards * Cost of repairs if any incurred is on the assessee subject to any optional arrangement with lessor whereby lessor assumes responsibility for some portion of the cost of repair * Assessee has to return the containers at 'Return locations' specified by the lessor * Assessee requires prior written consent of lessor for making any modifications, improvements, etc in the container * Assessee has to use each container so as to comply with all loading limitations, handling procedures and operating instructions, and to prevent excessive impact, unbalanced loading, and other hazardous conditions. * Assessee should not use the Containers for storage or transportation of Hazardous Substances or other unsuitable contents which may corrode, oxidize, severely d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions in complying with the customs procedures of various countries is on the appellant. Such compliance is in the course of business of the appellant and do not in any way establish that the appellant has effective control over the containers. 3.2.4. The appellant cannot sub-lease their containers without prior consent of the lessor or make any changes to the containers. So also, the containers can be used only for International Trade which all goes to establish that the lessor holds the possession and effective control even though the custody of the containers is given to the appellant on payment of rentals. The Ld. Authorised Representative asserted that the appellant holds custody of the containers and used them in their business and there is no transfer of right to use of such goods as there is no transfer of effective control or possession. 3.3. The decision in the case of Commissioner of Service Tax, Ahmedabad Vs. Adani Gas Ltd. [Civil Appeal No. 2633 of 2020 dated 28.08.2020] was relied by the Ld. Authorised Representative to argue that after examining the applicability of the tests rendered in the case of BSNL (supra), the Hon'ble Apex Court held that the amounts coll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... horised Representative appearing for the Department has argued that since the containers have to be taken delivery from the location as instructed from the lessor, it cannot be said that there is a transfer of possession of goods. The said argument does not find favour with us. When the containers are delivered to the appellant it constitutes transfer of possession of the goods by the lessor. 8. In the present case, there is meeting of minds (consensus ad idem) with regard to the identity of the goods as each container has identification number. The lessor and the lessee had agreed to lease a specific container / containers. The second test is also satisfied. 9. In the present case, the container is used by the appellant for transportation of cargo. It is for the appellant to take necessary Licenses from the Customs Authorities and also to register the container before the Customs. The appellant has legal right to use the container and has all permissions / licenses in their name for compliance with customs formalities as well as courier formalities. The agreement stipulates that hazardous goods should not transported. This condition has been interpreted by the Department to hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he rights to any other person. On perusal of the agreement, it is seen that the lessor does not reserve any right to transfer the right to use to others, during the lease period. The fifth test is satisfied. 13. From the above, we find that the five-fold test put forward in the BSNL (supra) case stands satisfied. There is indeed transfer of possession as well as effective control of the containers to the appellant by the foreign supplier. In such circumstances, the activity cannot fall under Supply of Tangible Goods Services as defined under Section 65(105)(zzzzj). As the above five-fold test for transfer of right to use the goods being satisfied, the transaction has to be construed as a deemed sale. It cannot be a 'Service' as defined under 65B(44) of the Finance Act, 1994. 14. Our view is supported by the decision of the Tribunal in the case of Lindstrom Services (P) Ltd. (supra). In the case of Taneja Aerospace and Aviation Ltd. Vs. Commissioner of GST and Central Excise [2024 (17) CENTAX 335 (Tri. Mad.)], a similar issue was considered. It was held that the transaction of leasing of an aircraft from entity abroad does not fall under Supply of Tangible Goods Service as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hers." 3.1 This criteria must invariably be followed and applied to cases involving hiring, leasing or licensing of goods. The terms of the contract must be studied carefully vis-a- vis the criteria laid down by the Supreme Court in order to determine whether service tax liability will arise in a given case. It is not possible to either give an exhaustive list of illustrations or judgements on this issue. Cases decided under the Sales Tax/VAT legislations have to be considered against the background of those particular legislative provisions and terms of contract in that case." 12. The agreement reveals that the transfer of right to use goods involves transfer of possession and effective control over such goods. In the present case, the possession of the aircraft is transferred to the appellant who has taken delivery of the same. So also, the air craft is operated by the crew employed by the appellant. Appellant has to undertake maintenance and repair of the air craft and has to take insurance for the risk of loss etc. These would go to show that the effective control over such goods is also transferred to the appellant. On examination of the above, it can be seen that the tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to their clients in Oil and Natural Gas industry in India, which, besides providing helicopters to the client, also involves (i) maintenance of the helicopters during the period of charter hire as per the DGCAs regulations by qualified engineers engaged by them so as to keep the helicopters always in airworthy condition; (ii) employing qualified and licensed crew for operating the helicopters and (iii) operating the helicopters for providing air transportation for the clients personnel and cargo as per their requirement. There is no dispute about the taxability of these services being provided by the appellant to their clients in India and service tax is being paid by the Appellant by treating this activity as supply of tangible goods for use without transfer of right of possession and effective control, which during the period prior to 1.7.2012 was taxable under Section 65 (105) (zzzzj) of the Finance Act, 1994 and during period w.e.f. 1.7.2012 is taxable as a declared service under Section 66E of the Act. For providing this service to their clients in India, the Appellant have taken on lease two helicopters from the two foreign lessors ADA, Abu Dhabi and BLFIL, Ireland. Though i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tral Sales Tax Act, 1956 and, hence, these transactions, whether during the period prior to 1.7.2012 or thereafter, are outside the purview of Service Tax under Finance Act, 1994. Before coming to the question as to which of the two rival contentions is correct, it would be worthwhile to go through the legal provisions and the judgments of the Tribunal in this regard. ...... .... 16. A transaction of supply of some tangible goods by a person to another person for some consideration which involved transfer of right of possession and effective control over the goods/transfer of right to use the goods could be subjected to Service Tax under any of taxable service in the Act during the period prior to 1.7.2012 when there was no definition of "Service" in the Finance Act, 1994 and only the Services defined in various clauses of Section 65(105) of the Act could be subjected to Service Tax. The clause (zzzzj) covered "supply of tangible goods for use without transfer of possession and effective control over the goods". In this regard, in case of Petronet LNG Ltd. Vs Commissioner of Service Tax, New Delhi, decided by the Tribunal vide Final order No. 58076/2013 dated 24.10.2013 reporte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer of right to use and hence the Appellant would be liable to pay Service Tax under reverse charge. The Tribunal in this case, in Para 13 of its judgment, held that supply of tangible goods involving transfer of right of possession and effective control of the goods is outside the purview of the taxable service defined under Section 65(105)(zzzzj), that such exclusion is consistent with the Constitutional limitation upon the legislative field of the Parliament, that post 46th Amendment to the Constitution and introduction of Article 366 (29A(d), transfer of right to use goods is a deemed sale falling within the purview of the legislative field of State Governments to tax the deemed sale as Sale and that power to tax what is a deemed sale as service is outside the legislative field of the Parliament. Thus the ratio of this judgment is that during period prior to 01.07.2012, when Service Tax was leviable only on certain services defined in various clauses of section 65(105) of the finance Act, 1994 and when Clause (zzzzj) of Section 65 (105) covered supply of tangible goods for use without transfer of right of possession and effective control a transaction of supply of tangible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sor or it's authorised representatives to inspect any or all of the Containers available to the Lessor at any such address as may be mutually agreed. (b) For the purpose of periodic inspection and testing of the Containers in accordance with the requirements of governmental authorities regulations and agreements concerning the transportation at hazardous materials, upon sixty (60) days prior written notice from Lessor, Lessee shall make any or all of the Containers available to Lessor with a certificate of cleanliness as specified in Clause 4 at a designated depot's as may be mutually agreed. In the event that prior written notice is not received from Lessor, it is still Lessees responsibility, at all times, to ensure that the Containers comply with all statutory, national and international regulations. All costs relating to the cleaning, delivery and preparation of the Containers in readiness for inspection shall be borne by the Lessee. The Lessor shall be responsible for the cost of inspection and testing itself. If at such time any Container is found to be damaged or altered or requires cleaning, the cost of repair and/or cleaning shall be for the account of the Lessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tten approval of the Lessor and the Lessee shall take all steps to prevent any other person doing any such act or riling. The Lessee shall keep such marks and colour in good condition and repair throughout the term of the Lease. xxxxxxxxx xxxxxx 13. TAXES Lessee shall pay all taxes, fees, penalties and interest and other liens, charges or encumbrances which exist or which may be imposed during the term of the lease and levied on or in connection with or arising out of the operation, transportation, maintenance, storage, loading or other use or possession or ownership of the Containers until redelivered to Lessor, including, without limitation, withholding, deduction, income (excluding any taxes levied on Lessors net income in its country of domicile), taxes, duties and charges of any type, so that If, for any reason whatsoever, the Lessee is unable to make any payment without a deduction or withholding, It will pay such additional amount so that the et amount received by Lessor will equal the full amount Lessor would have received had such deduction or withholding not been made. xxxxxxxxxx 16. OWNERSHIP As between the Lessor and the Lessee, ownership of the Containers sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with possession and effective control; and (iv) The fact that after the operation is over on any given day and the tangible goods come back to the owner is not a material fact for deciding who has the dominion over the tangible goods. 32. The impugned order notices that the appellant had taken the ISO containers on lease/rental basis and it had paid an amount of Rs. 4,60,67,566/- to the foreign supplier who did not have any office in India for supply of the containers. Condition Nos. 9 and 18 of the Agreement, which have been reproduced above, have been misinterpreted by the Commissioner. No inference can be drawn from the aforesaid two clauses that the right of possession and effective control of the containers was not with the appellant merely because the containers had not been sold to the appellant. The Commissioner fell in error in not appreciating the difference between a 'sale' and 'a deemed sale' contemplated under article 366 (29A) of Constitution. In 'a deemed sale' it is necessary to examine who has the possession and effective control over the goods. Even the Circular dated 29.02.2008, on which reliance has been placed by the Commissioner, e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he following shall constitute declared services, namely:- (a) renting of immovable property (b) construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of 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) architect 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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Clause (6) and its various sub clauses is reproduced as under : "6. Maintenance and operations A. 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d other relevant clauses observed as under : "17. We note that the analysis and reasoning adopted by the Tribunal in Petronet LNG are squarely applicable to the present dispute. In fact, in the present case, Manager, Master and crew of the vessel and are actually under control and 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : "any services provided or to be provided to any person by any other person in relation to supply of tangible goods including machinery, equipment and appliances for use, without transferring of possession and effective control of such machinery, equipment and appliances" 22. Prior to 1.7.2012 when the 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. 23. 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 Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot sustain. The issue on merits is found in favour of appellant. 26. The Ld. Consultant has also advanced arguments on the ground of limitation. Show cause notice is dated 07.12.2017 and issued for the period November 2015 to January 2016. Undisputedly, the demand has been raised on reverse charge basis and the appellant would be eligible for credit, if they paid the service tax. Thus it is a revenue-neutral situation. The Larger Bench of the Tribunal in the case of Jay Yuhshin Ltd. vs. CCE New Delhi (supra) has held that extended period cannot be invoked when the situation is of revenue-neutral one. Further the issue is also interpretational one. Moreover, the department has not been able to establish any positive act on the part of the appellant that they have suppressed facts with intention to evade payment of service tax. Taking note of these facts, we are of the considered opinion that the demand raised for the extended period cannot sustain. Appellant succeeds on the issue of limitation also. Impugned order is set aside. Appeal is allowed with consequential relief, if any, as per law." 17. The Department has relied on the decision rendered in the case of Adani Gas Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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