2023 (8) TMI 1237 - AT - Service Tax

Transactions of chartering vehicles & vessels held as sales subject to VAT, not service tax. Appellant prevails.

Arkay Logistics Ltd Versus C.C.E. & S.T. -SURAT-I

The Tribunal held that the transactions involving chartering vehicles and vessels were deemed sales subject to VAT, not services liable to service tax. ... Interpretation of statute - Supply of tangible goods for use - exclusion clause in tax entry Section 65(105)(zzzzj) of the Finance Act, 1994 - Liability of service tax on appellant - Vehicles and vessels chartered by them to M/s Essar Steel India Ltd., Arkay Holdings Ltd. and Arkay Sea Logistics Ltd. - revenue’s case is that appellant have right of possession and effective control of the vessels/vehicles - HELD THAT:- Wherever transaction involves transfer of possession and effective control of the goods, then it is a ‘sale’ and the activity will not be subjected to Service Tax; and where possession and effective control has not been transferred, then, the transaction will be covered in the category of ‘service of supply of tangible goods for use’. Thus, the subject transactions are to be verified with the relevant contracts/ agreements, then only it can be determined whether there is a ‘service’ or a ‘sale’. The clause 10 of the Charter states that the vessel shall during the charter period be in full possession and at the absolute control for all purposes of the charterers and under their complete control in every respect. The charterers shall maintain the vessel. In view of it is clear that during the charter period of vessels the right of possession of vessels and effective control have been transferred to service recipient, therefore the service does not fall under the “Supply of Tangible Goods Service”. On examining the scope of transfer of right to use, the Hon’ble Karnataka High Court in THE GREAT EASTERN SHIPPING CO. LTD. VERSUS STATE OF KARNATAKA & OTHERS [2019 (12) TMI 225 - SUPREME COURT] held that when the vessel during the charter period was for all purposes at the disposal of the charterer and under their control in every respect including maintenance, spare parts, efficient operation, fulfilment of legal obligations etc., the same should be considered as transfer of right to use. On careful consideration of the terms of the above Bareboat Charter agreement and Agreement with M/s Essar Steel India Ltd. (M/s ESIL), in the present case, vessels/vehicles were transferred to the customers with right of possession and effective control of such vessels/vehicles - In the present matter on the disputed transaction appellant has discharged the VAT liability considering the same as ‘deemed sale’ under the provisions of Gujarat Value Added Tax Act, 2003 , hence no service tax can be demanded on the said transaction. In the present case also since the appellant have admittedly paid the VAT to the state VAT department, following the above observation of the Apex Court, the transaction is not liable to service tax under the category of “Supply of tangible goods for use” service. The impugned orders are not sustainable, accordingly the impugned orders are set aside - Appeal allowed. Issues Involved:1. Service tax liability on chartering vehicles and vessels.2. Classification of transactions as 'deemed sale' or 'service.'3. Applicability of VAT versus service tax.Summary:1. Service Tax Liability on Chartering Vehicles and Vessels:The appellant provided cargo handling and port handling services, among others, and chartered vehicles and vessels without paying service tax, claiming the transactions were deemed sales. The authorities issued show cause notices for the period 2010-11 to 2014-15, demanding service tax under the category of 'Supply of Tangible Goods Services' as per Section 65(105)(zzzzj) of the Finance Act, 1994.2. Classification of Transactions as 'Deemed Sale' or 'Service':The appellant argued that the transactions were deemed sales subject to VAT under the Gujarat VAT Act, 2003, as they involved the transfer of effective control and possession. They cited various agreements and judicial precedents to support their claim. The Tribunal examined the agreements and found that the right of possession and effective control were indeed transferred to the charterers, making the transactions deemed sales and not services.3. Applicability of VAT Versus Service Tax:The Tribunal referred to the C.B.E. & C. Circular No. 334/1/2008-TRU and various judicial decisions, including the Hon'ble Supreme Court's ruling in the case of UFO Moviez India Ltd., which clarified that transactions involving the transfer of possession and control are deemed sales liable to VAT, not service tax. The Tribunal concluded that since the appellant had paid VAT on these transactions, they were not liable for service tax.Conclusion:The Tribunal set aside the impugned orders, holding that the transactions were deemed sales subject to VAT and not services liable to service tax. All appeals were allowed with consequential relief as per law.(Pronounced in the open court on 25.08.2023)