Effective control in aircraft leasing determined prima facie taxability, leading to unconditional waiver of pre-deposit at stay stage.

Operating lease arrangements for aircraft were treated as raising a substantial prima facie defence where the aircraft remained to be maintained, operated and controlled by the appellant, indicating transfer of possession and effective control was not retained by the lessor for the taxable category of supply of tangible goods. The CBEC clarification on chartering of aircraft was noted to require a fact-specific examination of effective control, and to indicate that control is not transferred where the owner provides the crew in a wet lease. The stay stage also took account of the constitutional concept of transfer of the right to use goods as a deemed sale. On that basis, pre-deposit of service tax and penalties was dispensed with and the stay petition was allowed unconditionally; the Revenue's miscellaneous application was disposed of as infructuous.

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Issues: Whether the condition of pre-deposit of service tax and penalties was required to be dispensed with in the stay application on a prima facie view that the transaction did not fall within supply of tangible goods, and whether the Revenue's miscellaneous application had become infructuous.

Analysis: The aircraft under the operating lease were to be maintained, operated and controlled by the appellant, which indicated transfer of possession and effective control was not retained by the lessor in the manner required for the taxable category of supply of tangible goods. The Board's clarification on chartering of aircraft also contemplated that effective control must be examined on the facts of each case, and where the crew is provided by the owner in a wet lease, effective control is not transferred. The appellant also relied on the constitutional concept of transfer of the right to use goods as a deemed sale, reinforcing the existence of a substantial prima facie defence at the stay stage.

Conclusion: The condition of pre-deposit was dispensed with and the stay petition was allowed unconditionally in favour of the appellant. The Revenue's miscellaneous application was disposed of as infructuous.

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