TaxTMI 
TaxTMI 
2013 (11) TMI 1011
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.... of the Finance Act, 1994 (under the reverse charge mechanism) as the recipient of "supply of tangible goods", (STGU), a taxable service defined and enumerated under Section 65(105)(zzzzj) of the Finance Act, 1994 (the Act). The period covered under this show cause notice is May 2008 and March 2010. A second show cause notice dated 22.9.11 proposed levy of service tax on commercial borrowings during the period 2006 to March 2011. The third show cause notice dated 13.10.11, covering the period April 2010 to March 2011 was for levy of service tax, also on the taxable "STGU" service. 4. The assessee is an incorporated company promoted by four Public Sector Undertakings - oil and gas companies - the Gas Authority of India Ltd; Indian Oil Corporation; Bharat Petroleum Corporation Ltd.; and the Oil & Natural Gas Commission. The assessee is engaged inter alia in marketing Liquefied Natural Gas (LNG); receiving; storage; and re-gasification. For the purpose of re-gasification, the assessee imports LNG from its vendor- RasGas, Qatar through cryogenic ships, since LNG could be transported from Qatar to India only at the extremely low temperature of minus 164 degrees-Celsius. The assessee'....
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....t term period bear the respective names and Hull Nos. - Disha (2210); Raahi 2211) and Trinity Glory respectively. We are provided particulars of the dates of signing TCA, date of delivery of the tankers to the appellant; respective contractual period and the dates of issuance of licences by the Director General of Shipping to the assessee, in a tabula form, cross referenced with documents filed along with the memorandum of appeal before this Tribunal. Revenue has not disputed these particulars. We extract the Table: Ship Name HUL No. Date of signing of the Contract Delivery Date of the Ship to the Appellant Period of Contract Date of issuance of license by DG Shipping to the Appellant DISHA 2210 March 31, 2001 Refer Annexure 6 (Vol II of the Appeal Memo, page 500) January 9, 2004 (Refer Vol III of the Appeal Memo, page 716) From date of delivery until April 30, 2028 (Refer Vol. II of the Appeal Memo page 509) March 29, 2001 (Refer Vol. III of the Appeal Memo, page 718) RAAHI 2211 March 31, 2001 Refer Annexure 7 (Vol II of the Appeal Memo, page 359) December 16, 2004 (Refer Vol III of the Appeal Memo, page 717)....
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....s - "Disha" and "Raahi" are in identical terms; these vessels were delivered to the assessee (as set out in the Table supra) on 9.1.2004 and 16.12.2004 respectively. e) The relevant and material terms of the long-term agreements are: - The preamble to the agreement provides for construction of the tanker by the owner and its delivery to the assessee for the specified period and under conditions defined' and specified in the agreement; and stipulates that the assessee desires to hire the tanker to load LNG at Ras Laffan, Quatar or at any other LNG loading terminals and to. transport such LNG to discharging terminals at Dahej, Gujarat, Kochi, Kerala or to any other LNG discharging terminals in the world under the conditions defined in the agreement. - Clause 2 of the agreement provides that the assessee has an option to continue the charter of tankers at the end of the initial charter for a specified period and subject to an exercise of option as specified, a further extension of the charter is also provided, at the option of the assessee. Such request for extending the charter period by t....
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....to the performance of the tanker in terms of time and fuel efficiency. The assessee is authorised to issue necessary instructions to the master of the tanker about the timelines of the voyage, including the factor for controlling the speed and fuel consumption of the tanker. The owner also guarantees to maintain the specified service speed of the tanker. - Clause 10 stipulates trading limits within which the tanker is employed and the assessee has the right to order the tanker to any part of the world for carrying LNG. - Clause 12 stipulates obligations of the owners including towards payment of all expenses including provisions and wages, of the Crew, insurance of the tanker, cost of licences, maintenance, repair and overhaul costs, dry docking costs etc. - Clause 13 sets out obligations of the assessee including with regard to payments for fuel, port and related charges, loading/unloading charges, insurance of cargo, special insurance of tanker and other obligations. - Clause 14 stipulates terms relating to the hire charge....
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....erms relating to shipbuilding. The assessee has the right to approve the builder of the tanker before entering into shipbuilding contract; to approve specifications and plars for shipbuilding; to inspect and monitor the progress and quality of construction of the tanker; to collect copies of drawings for providing comments; to require information on suppliers and subcontractors of the builders of the tanker; to instruct the owner to terminate the shipbuilding contract; to approve changes in the shipbuilding contract; to require modifications in the tanker; to receive construction progress certificate from the builder; to specify name of the tanker, colour and logo; and to seek indemnity from the owner in respect of acts and omissions by the builder or owner in connection with the performance of the shipbuilding contract. - Clause 53 stipulates that the owners shall substitute the tanker on the same terms and conditions as under agreement; in case the tanker is temporarily not available for performing the service; - Clause 62 stipulates for novation of the agreement by the assessee in favour of its promo....
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.... (k) Even in the case of short term charter of "Trinity Glory", the terms and conditions o the agreement entered into on 30.4.2009 (between the assessee and Trinity LNG Transport SA) clearly establish that the assessee had possession and effective control of the tanker during the period of its hire. To illustrate this fact, suffice it to notice that: (a) Master and the crew operating the tanker are required to work under the direct control and instructions of the assessee; (b) The assessee is authorised to issue directions to the tanker for transportation of LNG to any part of world; (c) The tanker is to loaded and discharged at any place, as the assessee may direct; (d) The owner shall deliver the tanker to the assessee at the specified location and the assessee redeliver the tanker to the owner at the location specified in the agreement. During the period of hire, the assessee has exclusive possession and control over the vessels to the exclusion of others including the owner and the assessee relinquishes its possession an....
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....ver the vessels. Consequently, the legal consequence as to use of the vessels, remains with the owner; and (iii) The agreement provides that the in case Government requisitions the vessels, the hire charges paid by the Government shall be retained by the owners. Thus, the legal right over the vessels is not completely extinguished in favour of the assessee and the legal right is not to the exclusion of the owner; (b) Dealing with the assessee's contention that the service, if any provided, was prior to introduction of 'STGU' as a taxable service, the adjudicating authority ruled that though the Agreements were signed prior to 16.5.2008 (the date of introduction of STGU as a taxable service), the supply of vessels being a continuous process, the liability to service tax exists and the date of signing of the agreement has no relevance to provision of the service. (c) Responding to the claim of the assessee that the transaction falls outside the scope of Section 66A read with the provisions of Taxation of Service (Provided from outside India and received in India) Rules, 2006 (2006 Rules), the authority rejected t....
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....ective control of tangible goods" from the purview of service tax, by incorporating the exclusionary clause in Section 65(105)(zzzzj). 14. The scope of the 46th amendment to the Constitution and introduction of the concept of 'deemed sale', was considered in several judgments. In 20th Century Finance Corporation and Anr. Vs. State of Maharashtra (2000) 6. SCC. 12 the Supreme Court clarified that the levy of (sales) tax is not on the use of goods but on the transfer of the right to use goods. The right to use goods accrues only on account of transfer of the right; the right arises only on the transfer of such right; and unless there is a transfer of the right, the right to use does not arise. The specific observations of the Court (relevant to this appeal) are extracted: "27. ...Therefore, it is the transfer which is sine qua non for the right to use any goods. If the goods are available, the transfer of the right to use takes place when the contract in respect thereof is executed. As soon as the contract is executed, the right is vested in the lessee. Thus, the situs of taxable event of such a tax would be the transfer which legally transfers the right to use goo....
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....the real intention. If involves power of control and intent to control". 17. The Gauhati High Court in HLS Asia Ltd, vs. State of Assam and Ors. (2003) 132 STC 217 (Gauhati), considered whether the transaction in issue therein was a 'deemed sale', warranting imposition of sales tax. The petitioner before the High Court was the owner of high technology equipment used in wire line logging and perforation activities. The operations are done by the use of the high technology equipment deep into the earth through holes drilled into the oil field for identification and mapping of electronic seismic impulses, which are then processed through special software and recorded on magnetic tapes. The Court had therefore to consider whether the relevant contract involved a lease as defined under the Assam General Sales Tax Act, 1993. The relevant provision of the State legislation brought to sales tax the transfer of the right to use any goods for valuable consideration, without the transfer of the ownership i.e. excluding transfer of ownership. The High Court observed that once it is shown that the right to use any goods is transferred by one person another for exclusive use, it would constit....
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....rks was exigible to sales tax under Andhra Pradesh General Sales Tax Act, 1957, as a 'deemed sale' . The High Court held that since the effective control of the machinery even during use by the contractor remained with the petitioner and the contractor was not free to make use of the same for other his works or to move them out during the period the machinery was in his use; despite a condition that the contractor would responsible for the custody of the machinery while on the site, there was no transfer of the right to use of the machinery. Therefore the transaction was not liable to be treated as a (deemed) sale. 20. In G.S. Lamba and Sons vs. State of A.P. (2011) 43 VST. 323 (AP), the issue was whether hiring transit mixers by the petitioner to M/s Grasim Industries Ltd. a unit of M/s Birla Ready Mix Concrete was a deemed sale. The contracts were for providing transportation service for shipping ready mix concrete by hiring specially designed transit mixers. Transit mixers were never transferred and the effective control over running, use of these vehicles and the disciplinary control over the drivers, always remained with the petitioners. The responsibility to obtain route p....
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....titioners. Though the phrase 'offer services to take care of transporting solution needs' is used the real purpose, as can be seen from the second part, is to enable Grasim to have the right to use the Transit Mixers. The agreement requires the Petitioners to provide drivers to be dressed in uniform, and all of them are to obey the lawful instructions issued by Grasim. Further RMC has to be delivered by these drivers in Transit Mixers only at the time and places as instructed by the officials of Grasim, and the Petitioners have no right to carry RMC wherever and whenever they like. Thus the full control on the method, manner and time of using the Transit Mixers, owned by the Petitioners vests absolutely in Grasim. (43) ...These dedicated vehicles are to be painted in a particular style and colour which has to be re-painted once in six months. For any third party, during these 42 months, the goods as visible in use would create an immediate impression that they belong to Grasim. No reasonable man would even think that the Transit Mixers, being used for transporting RMC of Grasim, belong to the Petitioners and they are only being used to meet the transportation needs ....
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...., as distinguished from its custody, by the Corporation, and loss of possession so far as the owner is concerned. There is thus transfer of possession of the bus as both the aspects mentioned by Salmond in this regard, which have been noted above, are satisfied and consequently there is transfer of the right to use the same. 14. In view of the above, we are of the opinion that the present was the case of "sale" within the extended meaning of this word, inasmuch as there was transfer of the right to use the vehicle for valuable consideration". 22. In Great Eastern Shipping Company Limited vs. State of Karnataka and Ors. [2004] 136 STC. 519 (Kar), the appellant a public limited company owned towing vessels and entered into a charter party agreement with the New Mangalore Port rust (Port Trust) whereby the appellant agreed to make available services of its vessels for the purposes enumerated in agreement alongwith the master and other personnel of the appellant to the Port Trust for a period if six months from the date of commencement of the service. When the taxable event of the transfer of the right to use the goods occurred, for the purpose of application of the ....
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..... Merely because, the appellant is required to undertake to maintain the vessel during the period of charter, would not, in any manner, support the contention of the appellant that there has not been a transfer of right to use the tug by the appellant to the NMPT". 23. Administrative understanding/construction of STGU: Board Circular No.334/1/2008-TRU dated 29.02.2008, inter alia issued clarifications in respect of the proposed taxable service - STGU. Paragraph 4.4 of the circular clarified that the transfer of the right to use any goods is leviabe to sales tax/ VAT as deemed sale of goods; the transfer of the right to use involves transfer of both possession and control of the goods to the user of the goods; and that the proposal is to levy service tax on such services provided in relation to STGU, with no legal right of possession or effective control. The circular specifically clarified that STGU which is leviable to sales tax as deemed sale of goods is outside the purview of the proposed service. 24. From the statutory provision (Section 65(105)(zzzzj), in particular the exclusionary clause therein and the constitutional position flowing from Article 366 (29A)(d), it i....
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....h appointment must be acceptable to the assessee. The personnel cannot be changed without the assessee's consent. The assessee, in specified circumstances is authorised to require the owner to change the personnel, to complain of their conduct to the owner and on such complaint, the owner must investigate and if reasonable cause exists, must change the appointment of crew or personnel. These factors are considered significant indicators of transfer of possession and effective control - vide Krushna Chandra Behera and G S Lamba; (v) The voyages, the loading and unloading of LNG are to be in terms of and under instructions/directions of the assessee. The bills of lading to be filed for and on behalf of the assessee and as per its direction. The Manager though engaged by the owner must operate the tankers as per the assessee's directions, failing which the owner would be responsible and the assessee such case may seek replacement of the manager. These circumstances indicate effective control - vide Great Eastern Shipping (supra). The assessee exercises deep and pervasive control over the crew in respect of the journey, speed and fuel consumption parameters and is autho....
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.... of the agreement, in case any Government or competent authority requisitions a tanker during the charter period, no hire charges are payable by the assessee and any compensation paid in such circumstances by Government or other competent authority in respect of such requisitioned period shall be retained by the owner though such period shall be counted as part of the charter. From this clause in the agreement, the authority infers that the legal right of the owner over the tankers is not completely extinguished in favour of the assessee. According to the Authority, this condition is inconsistent with clause (e) of the ingredients of the transfer of the right to use goods, spelt out in para 91 of the BSNL judgment. This conclusion by the adjudicating authority is equally misconceived. When goods are requisitioned by Government or other competent authority, such requisition is only under authority of a legislation or in exercise of other statutory power. Such power to requisition prevails over any other right, whether in terms of ownership or under a lease/charter. The clause in the contract recognizing such overarching right of the State or other competent authority, cannot be cons....
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....ter etc. and the cost of expenses for survey and overhauling, there is no transfer of the possession and effective control of tankers by the owner to the assessee. 29. It requires to be noticed that this contention adverted to in the written submissions is not among the reasons recorded by the adjudicating authority for coming to the conclusion that there was no transfer of the right to use, of the tankers. It is axiomatic that it is impermissible for the respondent-Revenue to invent new grounds, not forming part of the adjudication order to sustain the adjudication order. As pointed out by the Supreme Court in Commissioner of Police, Bombay vs. Gordhandas Bhanji AIR 1952 SC 16; a public order publicly made must be tested on the basis of reasons recorded therein and cannot be supplemented by reasons contrived in a later affidavit or as in this case by way of written submissions in the appellate forum. In the adjudication order the analysis of law and consideration of the relevant facts of the transaction occurs only in paragraph 37.3, in relation to taxability of the transaction, under Section 65 (105) (zzzzj). Further the mere fact that the Manager, Master, personnel and other ....
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....e before the Supreme Court, on an appeal by the Union of India, was whether the contract between the chaterer and the owners of the ship was for conveyance of goods or for the use and hire of the vessel. The Supreme Court concluded that the amount which the time charterers were required to pay to the owners of the ship was not payable on account of carriage of the goods but was payable on account of the use and hire of the ship. The following observations, forming part of the analysis by the Supreme Court clarify the nature of the transaction:- "Indeed, the other terms of the charter party and the general tenor of the document show that the payment was in fact to be made by the time-charterers for use and hire of the ship. Under the agreement, charterers had the "liberty to sublet" the vessel for all or any part of the time covered by the agreement. The Captain of the ship was to be under the orders and directions of the, charterers as regards employment and agency. And if the vessel be lost, money paid in advance and not earned was to be returned by the owners to the charterers at once. These terms and conditions of the contract between the parties are not consiste....
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....f carriers and shippers." The Supreme Court also refers to the following passage in "Scrutton on Charterparties": "charterparties fall into three main categories (i) charters by-demise (ii) time charters (not by way of demise), and (iii) voyage charters. Sometimes categories (i) and (ii) are both referred to as time charters as distinguished from category (iii), and they have this in common that the shipowner's remuneration is reckoned by the time during which the charterer is entitled to the use of services of his ship". The Supreme Court concluded that the Clause 4 in the charterparty (in issue before it) provides for payment "for the use and hire" of the vessel at the stipulated rate for the stipulated period and duration; that the relevant clauses of the charterparty show that the Aluminium Company took the ship from its owners on a time-charterparty; that the owners were entitled to the payment for the use and hire of the ship; that the amount was payable irrespective of what use the ship was put to by the time-charterers or indeed, whether it was put to any use at all and that no part of the payment can therefore be said to have been made on account of t....
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....harter agreement (para 44), the High Court concluded that possession was not handed over to the charterer, resulting in transfer of the right to use and effective control of the vessel; and therefore there was no deemed sale by way of transfer of the right to use for any purpose. The High Court on the basis of its finding/ conclusion (para 58) that there was no demise of the ship and therefore no transfer of the vessel, ruled that the consideration received for the time charter did not amount to a deemed sale attracting levy under the Tamil Nadu General Sales Tax Act, 1959. The Court concluded that the contract was not for hire of the vessel but for hiring the services to be provided to the owner, as a carrier to carry the goods which are put on board of the ship by the time-charterer. 34. Another contention by Revenue in the written submission is that the BSNL judgement does not specifically require delivery of physical possession of the tankers. This is a contention that is stated to be rejected. Para 91 of the BSNL judgment which enumerates ingredients of a transfer of the right to use goods clearly indicates that there must be goods available for delivery. The fact that good....
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....(C) From the statutory provision (extracted in para 9 supra), the following ingredients must be satisfied for a transaction to constitute the taxable service: (i) There should be a supply of tangible goods (including machinery, equipment and appliances) by the supplier to the user, for use; (ii) The supply of the tangible goods must be on or after 16.05.2008 (the date of introduction of the taxable service); and (iii) The right to possession and effective control over the tangible goods are not transferred in favour of the user by the supplier of the goods. (D) From the ingredients of the architecture of the taxable service (noticed above), it is clear that the taxable event is the supply of the tangible goods for use and not the use of the tangible goods supplied. Therefore, the date on which the tangible goods (tankers) are supplied for use by the owner to the assessee, is the date on which the taxable event has taken place. From the facts on record the tankers "Disha" and "Raahi" were supplied for the use of the assessee under agreement and deli....
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...., which legally transfers the rights to use goods. (H) In Art Leading Limited vs. CCE, Cochin, the issue was the rate of service tax applicable to the taxable "banking and other financial services", pertaining to hire purchase contracts. The contracts in issue were entered into prior to 14.05.2003. The rate of service tax was enhanced from 5% to 8% w.e.f. 14.05.2003. The Tribunal held that the taxable event having occurred prior to 14.05.2003, the service tax leviable was at 5% notwithstanding that installments (for the taxable event that occurred prior to 14.05.2003), for the service provided were remitted by the service recipient after 14.05.2003. (I) The position as to taxability and when service tax is leviable, (though in the context of "Banking and other Financial" services and Hire purchase agreements) was clarified by the Board vide the letter dated 09.07.2001. At para 2.1.4. the Board clarifies that where the hire-purchase agreement is executed prior to the date of introduction of the levy, no service tax is leviable on such service provided that the goods are delivered prior to the date of introduction of the taxable service.  ....
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....aid to be located in India during the period of their use by the recipient of the service; the transaction cannot be treated as a taxable service provided from outside India and received in India. The assessee contended that the tangible goods in issue are oil tankers used for transportation of LNG under cryogenic conditions, from Qatar to the assessee's regasification terminal at Dahej, Gujarat. (ii) During a substantial portion of the charter period, whether long term or short term, the tankers are in transit, on the high seas and come to the shore only for loading of LNG (outside India) and unloading LNG (in India). All other operations of the tankers is outside India, either in the high seas beyond the territorial limits of India or in another country. As the tankers (tangible goods) supplied for use of the assessee cannot be said to located in India during the period of use of such tangible goods, the transactions fall outside the purview of the proviso. (iii) The assessee also contended that the 2006 Rules classified the taxable services considered therein into three categories and specified distinct criteria for each of the categories, subject....
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....situated in India. Rule 3(11) specifies taxable services, (other than those specified in rule 3(i); and the first proviso thereto enjoins that where such taxable services are partly performed in India, it shall be treated as performed in India. Rule 3(iii) enumerates taxable services excluding those specified in Clauses (a), (b) and (c) thereunder. (viii) The proviso to Rule 3(iii) is a specific and distinct provision in relation to STGU, a taxable service enumerated and defined in Section 65(105)(zzzzj), In the context of the elegant and distinct design of the several distinct provisions in Rule 3, and exclusive treatment of various taxable services therein, it is impermissible to read the stipulation of one clause of this rule into another. The proviso to Rule 3(iii) is therefore, on a true and fair construction of the provisions of Rule 3, a stand-alone provision specifically and exclusively applicable to the taxable STGU. Accordingly, tangible goods supplied for use must be located in India during the period of use of such goods by the recipient, for the charge of service tax to apply under the reverse charge mechanism enjoined by Section 66A (ix....
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.... out in paragraphs 6 and 7 (supra), penalties under Sections 76 to 78 of the Act were imposed on the assessee, either by the adjudication order or subsequent corrigenda issued, The assessee challenges imposition of penalties, contending that penalties are liable to be chewed by invocation of the discretion Section 80 of the Act. (ii) It is contended that on 26.2.09, a letter was issued by the Assistant Commissioner of Service Tax seeking certain documents with regard to the charter agreements. The documents were furnished by the assessee, vide its letter dated 28.2.09. On 4.3.09, further documents were sought. These were submitted on 12.4.09. On 13.4.09, the Assistant Commissioner (Anti-Evasion Division) sought further information/documents. These were furnished on 27.5.09. On 22.6.09, personal appearance of the authorised representative of the appellant was called, for recording a statement on 29.6.09. The statement was recorded on 26.6.09 under Section 14 of the Central Excise Act, 1944. On 28.8.09, the assessee received a detailed legal advice from a Senior Advocate clearly advising that no service tax is leviable on the hiring charges paid by the assessee for hi....
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....ity of the facts and circumstances and in view of the legal advice obtained by the petitioner, we consider that the discretion under Section 80 ought to have been invoked for deleting penalties under Sections 76 to 78 of the Act. 40. We answer this contention accordingly, in favour of the assessee. 41. Whether corrigenda dated 14.4.12, 29.5.12, 31.5.12 and 22.6.12 are valid: (i) It is contended by the assessee that the corrigenda were issued altering the quantum of penalty or levying interest, thus substantively amending of the adjudication order; and that the corrigenda were issued without notice or opportunity to the assessee. Reliance is placed on the decision of Rajasthan High Court in Banswara Syntex Ltd. vs. CESTAT 2007 (216) ELT 12 (Raj.) and of this Tribunal in Iquira XNC vs. C.C., Chennai 2004 (170) ELT 583 (Tri-Bang) for the proposition that a corrigendum issued without hearing the assessee violates principles of natural justice and cannot be sustained, Since the corrigenda were issued without notice or opportunity to the petitioner we hold that these are unsustainable. In any event since we have concluded that the transactions in issue do not fall w....