Supply of tangible goods for use turns on possession and control; voyage charter and refundable deposit were not taxable.

For levy of service tax on supply of tangible goods for use, the decisive test was whether the arrangement transferred the right to use the vessel without transferring possession and effective control. Voyage charter receipts under Fixture Notes were treated as contracts for carriage of goods on freight terms, not as hire of the vessel, so that demand failed. By contrast, the time charter receipts were upheld, while the bareboat charter placed the vessel in the charterer's full possession and control and fell outside the taxable service. An interest-free refundable security deposit under a lease deed could not be recharacterised as advance rent, and the extended period was unavailable absent suppression with intent to evade tax; penalty was also deleted for the disputed portions.

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Issues: (i) Whether voyage charter arrangements evidenced by Fixture Notes amounted to supply of tangible goods for use and were liable to service tax. (ii) Whether time charter and bareboat charter arrangements of owned vessels amounted to taxable supply of tangible goods for use, and whether penalty was sustainable. (iii) Whether the refundable security deposit received under the lease deed was taxable as advance rent, and whether extended period and penalty could be invoked.

Issue (i): Whether voyage charter arrangements evidenced by Fixture Notes amounted to supply of tangible goods for use and were liable to service tax.

Analysis: Liability under supply of tangible goods for use requires transfer of right to use without transfer of possession and effective control. The Fixture Notes, read as a whole, showed carriage of cobblestone from Chennai to Newark on freight terms. They did not contain clauses transferring the vessel's possession or control to the charterer. The arrangements were contracts for carriage of goods on a defined voyage, not contracts for hire of the vessel itself.

Conclusion: The voyage charter receipts were not liable to service tax under supply of tangible goods for use and the demand on this count was unsustainable.

Issue (ii): Whether time charter and bareboat charter arrangements of owned vessels amounted to taxable supply of tangible goods for use, and whether penalty was sustainable.

Analysis: A time charter involves transfer of right to use the vessel, but the levy under supply of tangible goods for use applies only where such use is without transfer of possession and control. The bareboat charter terms placed the vessel in the full possession and absolute disposal of the charterer with complete control, which answered the statutory test for transfer of right to use and took the arrangement outside the taxable service. For the time charter receipts, the assessee had not successfully displaced the demand, and the amount already remitted was rightly appropriated. However, the facts did not justify an inference of suppression with intent to evade tax, and the assessee was entitled to the benefit of the statutory relief from penalty.

Conclusion: The demand on the time charter receipts was sustained, but the penalty under section 78 was set aside.

Issue (iii): Whether the refundable security deposit received under the lease deed was taxable as advance rent, and whether extended period and penalty could be invoked.

Analysis: The lease deed expressly described the amount as an interest-free refundable security deposit payable on commencement and returnable on expiry of the lease. Its character could not be altered into advance rent merely because the department sought to tax it. On limitation, the record did not establish suppression with intent to evade tax, and the extended period was not available. The same reasoning also negated penalty for the disputed portions.

Conclusion: The demand on the security deposit was set aside, and the invocation of the extended period and penalty was not sustainable for that component.

Final Conclusion: The appeal succeeded in part: the voyage charter demand and the demand on the security deposit were quashed, while the demand relating to the time charter receipts was maintained, though penalty was deleted.

Ratio Decidendi: For levy under supply of tangible goods for use, the decisive test is whether the arrangement transfers the right to use the vessel without transferring possession and effective control; a contract for carriage of goods on freight terms does not satisfy that test, and a refundable security deposit cannot be taxed as advance rent merely by recharacterisation.

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