Finance lease of tank containers from foreign lessor ruled as service transaction under Section 13 IGST Act 2017

The AAAR-Telangana ruled on a finance lease arrangement where the appellant leased tank containers from a foreign lessor for 5 years with a purchase option. The containers remained outside India throughout the lease period. The authority held that ownership remained with the lessor until the purchase option was exercised, making this a service transaction rather than goods supply. The transaction attracted IGST under reverse charge mechanism with the recipient as the liable party, and place of supply was determined as Telangana where the service recipient was located, following Section 13 of IGST Act 2017.

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Issues Involved:
1. Classification of the transaction as supply of goods or services.
2. Applicability of GST on leasing of tank containers from a supplier located outside India.
3. Jurisdiction of GST law in India on transactions occurring outside India.
4. Timeliness of the appeal filing.
5. Interpretation of relevant legal provisions and agreements.

Detailed Analysis:

1. Classification of the Transaction as Supply of Goods or Services:
The appellant, M/s. Deccan Transcon Leasing Private Limited, entered into a lease purchase agreement with M/s. Tankspan Leasing Limited for leasing tank containers with an option to purchase. The appellant argued that the transaction should be classified as a supply of goods from the inception of the agreement based on Entry 1(c) of Schedule II to Section 7 of the CGST Act, 2017. They contended that the transaction met all the requirements of a transfer of title in goods under a pre-existing agreement upon payment of full consideration. However, the appellate authority concluded that the transaction does not fall under Entry 1(c) as there is no immediate transfer of title in goods, and the agreement leaves an option for the lessee to purchase the containers, making it a supply of services under Entry 1(b) of Schedule II.

2. Applicability of GST on Leasing of Tank Containers from a Supplier Located Outside India:
The appellate authority upheld the lower authority's ruling that the appellant is liable to pay IGST on the importation of lease services into India. The transaction is classified as a supply of services, and as per Section 7(4) of the IGST Act, 2017, supply of services imported into India is treated as inter-State trade or commerce, attracting IGST under Section 5(1) and Section 5(3) of the IGST Act. The tax is payable on a reverse charge basis by the recipient of the service, i.e., the appellant.

3. Jurisdiction of GST Law in India on Transactions Occurring Outside India:
The appellant argued that the transaction occurred outside India and should not be liable for GST in India, citing Section 1(2) of the IGST Act, 2017, and relevant case laws. However, the appellate authority rejected this argument, stating that the transaction involves the importation of services into India, making it subject to IGST. The authority also referred to Section 13 of the IGST Act, which specifies that the place of supply for services where the supplier or recipient is located outside India is the location of the recipient, i.e., Telangana, India.

4. Timeliness of the Appeal Filing:
The appeal was filed within the prescribed time limit as per Section 100(2) of the TGST Act, 2017. The impugned order dated 17.08.2021 was received by the appellant on 31.08.2021, and the appeal was filed on 02.11.2021, which is within the 30-day period allowed for filing an appeal.

5. Interpretation of Relevant Legal Provisions and Agreements:
The appellate authority examined the lease purchase agreement and relevant legal provisions, including Article 366(29A) of the Constitution of India and Schedule II of the CGST Act, 2017. The authority concluded that the transaction does not meet the criteria for a supply of goods under Entry 1(c) of Schedule II, as the transfer of title is not automatic and depends on the lessee exercising the option to purchase. The transaction is therefore classified as a supply of services under Entry 1(b) of Schedule II.

Conclusion:
The appellate authority upheld the lower authority's ruling that the appellant is liable to pay IGST on the importation of lease services into India. The transaction is classified as a supply of services, and the tax is payable on a reverse charge basis by the recipient of the service. The appeal was filed within the prescribed time limit, and the interpretation of relevant legal provisions and agreements supports the classification of the transaction as a supply of services. The ruling of the lower authority is upheld, and the appeal is disposed of accordingly.

Order:
Question: Is GST liable to be paid on leasing of Tank Containers taken from a supplier located outside India and the tank containers do not reach IndiaRs.

Ruling: Yes, the applicant is liable to pay IGST on importation of lease services into India.

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