TaxTMI 
TaxTMI 
2018 (3) TMI 633
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....dgers / vessels from various companies who do not have any permanent establishment in India. The dispute in the present appeal is on two issues: (a) The liability of the appellant to pay service tax on hiring of dredgers / vessels from the foreign company under the category of 'Supply of Tangible Goods Service' on reverse charge basis in terms of section 66A of the Finance Act, 1994. (b) Inclusion of customs duty, entry tax etc. on the import of materials used for dredging services, which were paid by the clients on actual basis, in the taxable value for dredging services at the hands of appellant. 3. The proceedings initiated against the appellant concluded by issue of the impugned order dated 31.1.2013 of Commissioner of Service Tax, Chennai. 4. The original authority concluded that the appellant did receive services under the category of 'Supply of Tangible Goods' and is liable to tax on reverse charge basis under section 66A. He also held that the value for taxable service in respect of dredging should include the customs duty, entry tax etc. paid by the clients as these are expenditure to be incurred by the appellant for rendering the taxable service. A service tax....
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....nd that the transaction is not a pure sale transaction. It is only a transfer of right of possession and effective control which is a deemed sale. h. On the second issue, it is submitted that the customs duty, entry tax etc. are statutory levies on the import and movement of goods / vessels which are later used for providing taxable service of dredging. These duties and taxes were borne by the appellant but fully reimbursed on actual basis by the clients. This is as per the contractual arrangement. These statutory levies cannot be considered as part of consideration for dredging service. Reliance was placed on the circular issued by the Board as well as various decided cases. i. Alternatively even if the customs duties on vessels / equipment etc. are to be included in the taxable value of dredging, then the credit on CVD will be substantially higher than the service tax payable on such value. The denial of credit by the original authority stating that the vessels are not capital goods in terms of Rule 2(a) of CENVAT Credit Rules, 2004 is misplaced and not factual. j. The demand for extended period and the penalties imposed are not sustainable as the appellants have entered....
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....ply of tangible goods including machinery, equipment and appliances for use, without transferring right of possession and effective control of such machinery, equipment and appliances." 9. The whole dispute can be narrowed down to the interpretation of exclusion clause in the above entry. In other words, services in relation of supply of tangible goods for use, without transferring right of possession and effective control shall be liable to service tax. The appellant's case is that they have right of possession and effective control of the vessels / dredgers. In this connection, we have perused the Bareboat Charter, a copy of which was submitted by the Id. Counsel. The charter talks about delivery of vessel to be taken over by the appellant at the designated place. After due survey and inventory, the vessel is to be delivered to the appellant. At the time of delivery the appellant shall pay for all the bunkers, lubricating oils and water. Clause 9 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 mai....
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....ny of the shipowner's rights and obligations. The charterer, who provides the personnel, insurance and other materials necessary to operate the vessel, is known either as a demise charterer or as an owner pro hac vice. Also termed demise charter; demise charterparty; bareboat charterparty. The 'demise' or 'bareboat' charter is conceptually the easiest to understand. The charterer takes possession and operates the ship during the period of the charter as though the vessel belonged to the charterer. The bareboat charter is thus analogous to the driver who leases a car for a specified period or a tenant who rents a house for a term of years. The charterer provides the vessel's master and crew (much as the lessee-driver personally drives the car) and pays, the operating expenses (much as the lessee-driver buys the gasoline. "David W. Robertson, Steven F. Friedell & Michael F. Sturley, Admiralty and Maritime Law in the United States 371 - 72 (2002)." As against above, time charter is defined as a charter for a specified period under which the ship owner continues to manage and control the vessel but the charterer designates the port of call and the cargo to be carried. ....
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....t met by the appellant only. This is not the case in the case of Petronet LNG (supra). Even then the Tribunal in the said case held that reading the charter agreement as a whole, it is clear that there is a transfer of right of possession and effective control of the vessel with the assessee. 18. We note that the adjudicating authority observed that there is no legal transfer of right of possession or effective control of the vessels by the appellant. We note that such observation is contrary to the facts as revealed from the terms of charter agreement. It is relevant to note here that the transaction is not a sale simplicitor. But a transaction where there is transfer of right of possession and effective control of the goods transferred are considered as deemed sale. The clarification issued by the Board on 29.10.2008 explaining the scope of the present tax entry is relevant in this regard. It is clarified that transaction of allowing another person to use the goods without giving the legal right of possession and effective control, not being treated as sale of goods, is treated as service. As elaborately analysed above, in the present case, there is a transfer of possession an....
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....e appellant, we have arrived at the conclusion that in the present case there is a transfer of right of possession and effective control of the vessel / dredger to the appellant. This arrangement is outside the purview of service tax liability under a 'supply of tangible goods services'. 24. On the second issue, regarding demand of the service tax on customs duty and entry tax paid on imported equipment, which were reimbursed by the recipient of service, we note that the appellants were not contesting service tax on dredging operations. The clients paid consideration for such dredging work. To undertake such dredging the appellant imported certain goods and equipment and also incurred customs duty and certain entry tax on the same. The plea of the Revenue is that these taxes should form part of the consideration for taxable value. Reliance was placed on Rule 5(1) of Service Tax (Valuation) Rules, 2006. We note that the said provision has been struck down by the Hon'ble Delhi High Court in the case of Intercontinental Consultants and Technocrats Pvt. Ltd. Vs. Union of India reported in 2013 (29) STR 9 (Del.). Even otherwise, we note that these are on actual basis incu....