9911796707
TMI Blog2025 (1) TMI 939X X X X Extracts X X X X X X X X Extracts X X X X ..... s of letting out motor tugs on hire basis to various port trust authorities and have obtained Service Tax registration under the category of 'Port Services'. The appellant entered into a hire agreement with M/s Murmagao Port Trust, Goa (MPT) on 25.05.2007 for the purpose of providing motor tug named 'MV Sigma' on hire basis subject to certain terms and conditions mentioned in the agreement (hereinafter referred to as the contract). Consequent upon scrutiny of the documents during the audit proceedings, the Department was of the view that supply of tug by the appellants to MPT on hire basis without involving any legal right of possession and effective control, is classifiable under the category of 'Supply of Tangible Goods' (STG) and not as 'Transfer of Right to Use Goods'. The appellant's main submission is that their activities fall under the category of transfer of right to use tug and not under STG and therefore, they are not required to pay any Service Tax and instead, their activities require them to discharge VAT duty in terms of statutory provisions under VAT Act and Rules, where this activity would be termed as 'deemed sale'. According to them, this was based on the clarifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BSNL Judgement test Condition fulfilled Yes or no M/s Sea Sparkle agreement clause 1 (a) there must be goods available for delivery No The Hire Agreement is for hiring a tug for service which are described in para b of the agreement "b. On the date of the commencement of the hire the said Tug shall be tight, staunch, strong and in every way fit for the purpose of the hire andshall be manned with full complement of qualified and experienced Master, Officers and crew to be employed n the services of berthing and underthing of vessels at Mormugao Port or other places outside of the Port limits as determined by the Board, and including towing and rescue operations as necessary (hereinafter called 'the said service')" The services that are to be rendered are berthing and unberthing of vessels and initially the Tug sigma is identified for this purpose. But in case of out of operation of the tug Sigma an alternate tug is to be provided which is enumerated at clause q of the agreement "q. In the event of the said Tug is out of operations for any reasons whatsoever for a period longer than seven (7) days, then the Contractor shall prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... board as is evident from clause s of the agreement "s. All salvage rendered to other vessels shall be for the Board's and Contractor's equal benefit after deducting all lawful expenses including additional insurance, if any, hire paid under the agreement for time lost in the salvage and other repair or damage and fuel consumed. No salvage shall be undertaken without the explicit orders of the Deputy Conservator. The Master of the tug shall take all measures to secure payment of salvage, as instructed by the Deputy Conservator, who shall be the sole authority to enter into any agreement for salvage." 5. (e) having transferred the right to use the goods during the period for which it is to be transferred, the owner cannot again transfer the same rights to others." Yes 5. Learned AR has, inter alia, relied on the case of M/s KP Mozika Vs Oil and Natural Gas Corporation Ltd (supra), wherein, the Hon'ble Supreme Court, after considering the following judgments at Para 32 & 33, observed as under:- a) State of Madras Vs. Gannon Dunkerley & Co. [AIR 1958 SC 560 = 2015 (330) E.L.T. 11 (SC)] b) M/s. K.L. Johar & Co. Vs. Deputy Commercial Tax Officer, Coimbatore I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubs, contract for transfer of the right to use any goods are some such economic activities. 53.2 The transfer of the right to use goods, as distinct from the transfer of goods, is yet another economic activity intended to be exigible to State tax. 53.3 There are clear distinguishing features between ordinary sales and deemed sales. 53.4 Article 366(29A)(d) of the Constitution implies tax not on the delivery of the goods for use, but implies tax on the transfer of the right to use goods. The transfer of the right to use the goods contemplated in sub-clause (d) of clause (29A) cannot be equated with that category of bailment where goods are left with the bailee to be used by him for hire. 53.5 In the case of Article 366(29A)(d) the goods are not required to be left with the transferee. All that is required is that there is a transfer of the right to use goods. In such a case taxable event occurs regardless of when or whether the goods are delivered for use. What is required is that the goods should be in existence so that they may be used. 53.6 The levy of tax under Article 366(29-A)(d) is not on the use of goods. It is on the transfer of the right to use goods which accrue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legal consequences of using the cranes or were required to pay for consumables or that crane must be moved and operated by crew, in the instant case in addition to the insurance provided by the appellant, the protection and indemnities available to the tugs owned by MPT are also extended to the tugs owned by the appellant while engaged in duty. Moreover, the cost of fuel, lubricants, port charges are solely borne by the MPT and not by the appellant and there is clear provision that the master and crew provided by the appellant are under the orders and directions of the Deputy Conservator of MPT. Therefore, MPT is in control of the tugs even though the master and crew are provided by the appellant. Learned Counsel has also given reasons that in the facts of the contract between the appellant and MPT, there is no case of STG and how it is different from KP Mozika case, as relied by the department. The same is summarized below : - 1. Para 34 of K. P. Mozika 2. Scope of Work/Contract: The services of the manned (Driver/Operator/Slinger/Khalasi etc. as the case may be) Crane (type of vehicle/equipment to be given) as per the technical specifications given herein or a vehicle/equipme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Deputy Conservator or his representative complains to the Contractor that they are dissatisfied with the Master or to the Master that they are dissatisfied with any member of the Officers or the crew, the Contractor or the Master shall investigate such complaint and if necessary will remove the person complained of and appoint another in his place within seven days of lodging the complaint. Distinction Though the staff and crew is provided by the Appellant, unlike in the case of K. P. Mozika the master and crew have to operate under the instructions and orders of the Deputy Conservator (appointed by MPT). Further, in case of any complaint by the Deputy Conservator, MPT regarding the Master or the crew, the Appellant is required to take action. Thus, the control over the Master and crew lies with MPT and such a clause is not available in the case of K. P. Mozika, wherein ONGC provides instructions and orders to the crew of the contractor. Further, there is no clause in the agreement of the Appellant wherein the accommodation and other requirements of the staff is required to be provided by the Appellant near the site of operation. Further, there is no clause in the agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor at rates prevailing in Goa, ........ Distinction In the case of K.P. Mozika the contractor is liable to pay the cost of consumables. However, in the instant case, MPT only is liable to bare all cost of fuel, lubricants (excluding hydraulic oils) fresh watery, Port charges, pilotage, dock, harbor and tonnage due, buoyage due in respect of the goods transferred to MPT. 5. Para 34 of K. P. Mozika (viii) The contractor will be solely responsible and shall keep ONGC indemnified against any consequence under any law arising from any accident caused to the equipment/property/personnel engaged in the contract. Even for damage or injury to any third party due to the operation of cranes, the contractor will be responsible. The contractor shall safeguard his interest through comprehensive insurance at his own cost, and the ONGC shall not be liable to pay any amount towards the insurance; (x) The insurance taken by the contractor shall cover all the risks of whatsoever nature to any third party, any equipment/property/personnel of the contractor and damage to the property or personnel of ONGC Para 37 of K. P. Mozika The contractor was required to ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tside the port limits as determined by the deputy conservator. Distinction In the case of K. P. Mozika, ONGC does not take the responsibility of even parking the cranes as the same are within the control of the contractor. There is no similar clause in the agreement of the Appellant since the Appellant is not in control and possession of the tug. The tugs are in control and possession of MPT, thus the parking and harboring is as per the instructions or requirements of MPT. 7. Para 36 of K. P. Mozika The contract concerns hiring services of ten truck-mounted all-terrain hydraulic cranes with the crew and clause 2 provides that the supply of equipment will not be by way of lease or transfer or right to use the equipment. The contracts do not reflect the intention on the part of the contractor to transfer the right to use the goods. Sea Sparkle No such clause in the agreement. Distinction The contract in K. P. Mozika itself specified that the supply is not by way of transfer of right to use and there is no intention for transfer of right to use. However, there is no such clause in the agreement of the Appellant. 8. Para 37 of K. P. M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P. Mozika, the contractor is responsible for custody of the products because effective control and possession is not given to ONGC. Thus, they are liable for any loss of goods. However, in the instant case there is no such clause. Considering the above, in the case of K. P. Mozika it was held that the contract is for providing tank trucks for transportation of goods and once goods are loaded, it would be the responsibility of the contractor for safety during transit. Based on the above finding it was held that test (c) of BSNL was not satisfied. 7. In addition, learned Advocate has also relied on the case of Great Eastern Shipping Company Ltd Vs State of Karnataka & Ors., [2020 (32) GSTL 3 (SC)], which incidentally was also referred to in the KP Mozika case (supra) to support their contention that even when the contractors were liable to provide for maintenance, operation and insurance was to be provided by the contractor at their expense against protection and indemnity risks, even then the transaction was held to be a deemed sale, as there was transfer of right to use the vessel as provided in Article 366(29A)(d) of the Constitution. 8. Learned Advocate has also, by way of an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to possession and effective control, the same transaction would amount to service, as proposed by the department, under the heading 'Supply of tangible goods'. It is important to examine and analyze the contract because if there is a transfer of right to use the goods, it will amount to sale in terms of clause 29A(d) of Article 366 of the Constitution of India. The issue as to whether contract is a contract for service or it involves deemed sale was dealt with in detail in the case of BSNL (supra) where the issue whether there was sale of goods that would attract sales tax or a service that would attract service tax under Entry 97 of List-I of Seventh Schedule to the Constitution of India analyzed and decided upon. In order to decide, the Hon'ble Supreme Court examined the contract to arrive at the conclusion that in a given fact, whether there was any transfer of right to use any goods and after examining various earlier cases, including 20th Century Finance Corporation Ltd (supra), they took into account the observation of the Hon'ble Supreme Court in the case of BSNL at Para 91, quoted below for ease of reference:- "91. To constitute a transaction for the transfer of the righ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f their argument that there has not been any transfer of legal right of possession and effective control. While the department is insisting that the test for determining whether there has been a transfer of legal right of possession and effective control has not been satisfied, if various conditions of the contract are analyzed holistically, whereas, the appellants have also relied on the same contract and certain conditions, to support that those tests are fully complied with. 16. The conditions of BSNL judgment and argument as to whether it has been complied or nor are elucidated below:- a) There must be goods available for delivery:- As per clause 'b' and 'q', there is a requirement for hiring of tug, which is required to be manned with full complement of qualified and experienced master, officers and crew to be employed in the services of berthing and unberthing vessels at MPT or other places outside of the port limits including towage and rescue operations. Further, department submits that though tug 'sigma' is identified initially, there is a provision that in case it is out of operation, an alternate tug is required to be provided. Therefore, the contract is for providing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (upon permission from the Deputy Conservator) and the revenues earned is to be shared between the contractor/appellant and MPT, as is evident from clause 's' of the contract. In fact, the responsibility is on the master of the tug to take all measures to secure payment of salvage, as instructed by the Deputy Conservator, who shall be the sole authority to enter into any agreement for salvage. Thus, the test 'd' is not fully satisfied. Moreover, there is a formula for sharing the expenses for the time lost on account of undertaking salvage operations in clause 's'. On the other hand, the appellant submits that during the period of transfer, the legal right to use the goods is to the exclusion of appellant i.e., appellant cannot use the motor tug 'sigma' for their own purposes. Further, though the master and crew are provided by the appellant, the master only functions as per the instructions and orders of the Deputy Conservator, MPT and not the appellant. Even to undertake salvage operations, the same could only be undertaken with explicit instruction of Deputy Conservator, MPT. e) Having transferred the right to use the goods during the period for which it is to be transferred, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... except for certain protection and indemnities, while engaged on duties as instructed by Deputy Conservator as are available to tugs owned by MPT. This provision is also subject to the condition that damage occurred is not due to failure of the tug or due to error committed by the master and crew of the tug. This would again indicate that there would not be any taking over the legal consequences of hiring the said tug and certain conditions have been stipulated basically to indemnify MPT as also for non-compensation in certain events as per clause 'd'. 18. Further, in terms of clause 'f', while the MPT is providing and paying for fuel, lubricants (excluding hydraulic oils), fresh water, port charges, pilotage, dock, harbor and tonnage dues, buoyage dues, there is a condition that if there is more than 10% increase in the fuel consumption indicated for the tug while engaged in harbor operation, the cost of fuel in excess of 10% of the indicated fuel consumption will be deducted from the daily hire rate of the tug. 19. In terms of clause 'g', the master of the tug is, inter alia, required to render all customary assistance with crew and is required to keep full and correct log of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various decisions exist on the issue as to how to interpret a contract. In the case of GS Lamba & Sons, Secunderabad & Others Vs State of Andhra Pradesh [2011 (52) APSTJ 191], the Hon'ble High Court of Andhra Pradesh, inter alia, held that while interpreting a contract, the first principle is to construe the document as a whole and the second principle is to understand the meaning of a document or a part thereof from the document itself. The third principle is to give literal meaning to the words used in the document and the fourth principle is that in the event of the intrinsic incongruities and inconsistencies flowing from the words and language used in the document, "the intention would prevail over the words used." Therefore, the contract as a whole is to be examined. It is the intention of the parties of the document which will be more relevant than the words used in the contract. Similarly, it is required to understand the meaning of a document or a part of it from the document itself. Therefore, relying on these principles, we have examined the contract as a whole and understanding the intention of the parties entering into the said contract. 23. There are conditions in cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Whether in the event of the activities being classifiable under 'Supply of tangible goods', the taxable event i.e., signing of contract, being prior to introduction of service would lead to non-levy of Service Tax on the considerations received post introduction of the service or otherwise:- 25. By way of an alternative argument, the appellants have tried to argue that in this case, since hire agreement itself was signed prior to introduction of specified service and therefore, relying on the judgment of Petronet LNG Ltd Vs CST, New Delhi (supra), since the situs of the taxable event is prior to introduction of service, therefore, on this count itself, the demand is not sustainable. We have gone through the judgment and especially para 36(k) and para 36(g) reproduced as under, from which it appears that the situs, in the above case, was decided with reference to Sales Tax/VAT and not Service Tax. Whereas, in the case of service, it would be Point of Taxation Rules, 2011 (POTR) for the period after 01.03.2011 and Rule 6 of Service Tax Rules, 1994 (STR) up to period 28.02.2011 that would determine the situs. The relevant portion is quoted below:- "(K) In the above circumstances, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... monthly at the following rate : Indian Rs 1,04,580/- (Rupees One Lakh Four Thousand Five Hundred and Eighty only) per day or part thereof not later than the seventh day of every succeeding month of hire, on submission of certificate of satisfactory service from the Deputy Conservator. Day to be considered from 12 noon to 12 noon." 28. Therefore, it is evident that the payments are being received before 7th day of the succeeding month of hire on submission of certificate of satisfactory service from the Deputy Conservator of MPT and therefore, it means that it is only afte satisfactory compliance, the payments are being made and therefore, the argument of the appellants that service has been rendered when the tug is delivered is misplaced. 29. In view of the discussion in the foregoing paras, it would be obvious that the said 'hire agreement' is for providing services of berthing and unberthing and not for supply of tugs and that it is for continuous supply of said service, which is required to be assessed on monthly basis and only subject to satisfaction, the payments are released in the succeeding months. 30. There is another aspect of limitation, where the appellants have a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Service Tax authority working under the provisions of the Finance Act, 1994. 31. We find much force in the contention of the appellant that they were under bonafide belief, especially, when they had got clarification from the concerned commercial tax authorities and in fact, they started paying VAT also. Thus, merely because a copy of the contract was found in the course of audit, in the absence of any positive and cogent grounds for invoking extended period or for imposing penalty, etc., the extended period as well as imposition of penalty is not sustainable in the facts of the case. Further, we also find that the Commissioner (Appeals) has, in the impugned order, only dealt with the matter relating to classification and leviability of Service Tax and has in fact, already given the relief that the Service Tax would be leviable w.e.f. 16.05.2008 only. He has however, not expressed any opinion on the issue of invoking of extended period or for that matter, imposition of penalty, etc. Moreover, it is obvious that there were interpretational issues concerning proper classification, as also bonafide belief for treating said transaction as that of deemed sale. Therefore, in view of f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... VAT are mutually exclusive, therefore, they should be held to be applicable having regard to respective provisions of Service Tax and Sales Tax, as envisaged in composite contract. This is not an issue in the present appeal and what has been decided that entire contract itself is that of service and not deemed sale. They have also relied on the other case laws in support but we find that since we have categorically found that the contract involves only service i.e., STG and no element of deemed sale, so this case laws would not have any relevance. 34. Therefore, we uphold the impugned order holding that the services provided by the appellant would be classifiable under Section 65(105)(zzzzj) as STG and it would not be treated as deemed sale of goods. However, for the reasons discussed above, this liability would arise only w.e.f. 16.05.2008. Moreover, there will not be any penalty on the appellants in the facts of the case and demand beyond the limitation period will also not be tenable. The matter will be remanded to the Original Adjudicating Authority only for calculating demand amount along with applicable interest, in view of the findings above. 35. Accordingly, Appeal No. ST ..... X X X X Extracts X X X X X X X X Extracts X X X X
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