TaxTMI 
TaxTMI 
2023 (1) TMI 150
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.... ISO tankers on lease/ rental basis, which were used by the appellant for transportation of refrigerant gases via sea route. The appellant claims that during the lease period, it had effective control and possession over the ISO tankers and so the entire transaction would qualify as a 'deemed sale' under article 366(29A) of the Constitution, as a result of which no service tax liability would arise. 3. However, a show cause notice dated 29.05.2013 was issued to the appellant alleging that the appellant had received services in the nature of STGU from the foreign suppliers, which would be taxable under section 65(105)(zzzzj) of the Finance Act, 1994 [the Finance Act] and leviable to service tax at the hand of the appellant in terms of section 66A of the Finance Act read with rule 2(1)(d)(iv) of the Service Tax Rules, 1994 [1994 Rules] and rule 3(iii)(c) of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 [2006 Service Rules]. 4. The appellant filed a reply to the show cause notice but the Commissioner, by an order dated 29.07.2016, confirmed the demand of service tax. The Commissioner noted the following facts before determining the issu....
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....session and effective control, not being treated as sale of good, is to be treated as "service"." (emphasis supplied) 6. The Commissioner, therefore, confirmed the demand of service tax with interest and penalty. 7. In order to appreciate the controversy raised in this appeal, it would be useful to reproduce the relevant clauses of the agreement executed between the appellant and the Tankspan Leasing Limited and they are as follows: Agreement with Tankspan Leasing Limited "7. INSPECTION AND TESTING (a) At any reasonable and from time to time, the Lessee shall permit the Lessor or it's authorised representatives to inspect any or all of the Containers available to the Lessor at any such address as may be mutually agreed. (b) For the purpose of periodic inspection and testing of the Containers in accordance with the requirements of governmental authorities regulations and agreements concerning the transportation at hazardous materials, upon sixty (60) days prior written notice from Lessor, Lessee shall make any or all of the Containers available to Lessor with a certificate of cleanliness as specified in Clause 4 at a designated depot's ....
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....good condition and repair and shall be liable for all damage to and loss of any Container and make all necessary replacements of components and parts during the term of the Lease using parts and workmanship equal to, or greater than, the condition that the Containers were in at the commencement of the Lease. The Lessee shall make no changes or alterations to the Containers except with the written consent of the Lessor. The colour of The Containers, identification marks, the Lessors service mark and name or any other plates, marks or seats or writing applied to the Containers must not be removed, mutilated, obliterated or supplemented In any way without the prior written approval of the Lessor and the Lessee shall take all steps to prevent any other person doing any such act or riling. The Lessee shall keep such marks and colour in good condition and repair throughout the term of the Lease. xxxxxxxxx 13. TAXES Lessee shall pay all taxes, fees, penalties and interest and other liens, charges or encumbrances which exist or which may be imposed during the term of the lease and levied on or in connection with or arising out of the operation, transportation, maintenance....
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....e the following submissions. i. ISO tankers procured from foreign suppliers do not amount to import of STGU service; ii. From a combined reading of the service tax provisions as also the provisions governing sale of goods, it can be interpreted that under Sales Tax, there is transfer of possession and effective control in goods, while there is no such transfer of possession and effective control under service tax; iii. Given the terms between the appellant and the foreign suppliers, it can be seen that the ISO Tankers are being used by the appellant to the exclusion of any other party, and that the appellant is not only in possession of the tankers, but also in control, to the extent of usage as also maintenance and upkeep. In this connection reliance has been placed on the decisions of the Tribunal in Petronet LNG Limited vs. Commissioner of Service Tax, New Delhi [2016 (46) STR 513 (Tribunal-Delhi)] and International Seaport Dredging Limited vs. Commissioner of Service Tax, Chennai [2018 (12) GSTL 185 (Tribunal -Chennai)]; iv. The extended period of limitation could not have been invoked in the facts and circumstances of the order; v. ....
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....h goods must not have passed on to the transferee. 16. The nature of transaction between the foreign suppliers has been elaborately described. It clearly transpires that the foreign suppliers were providing on lease ISO Tankers to the appellant on payment basis. The first two conditions, therefore, stand satisfied. The dispute, in the present appeal, centers around the third condition, which is as to whether the transaction between the appellant and the foreign buyer would involve the transfer of right of possession and effective control or a transfer of right to use. This is because a transaction where right of possession of the goods together with effective control over such goods is transferred it would tantamount to a deemed sale, which would be beyond the purview of service tax. 17. In this connection, it would be pertinent to refer to Entry 54 of List II of the Seventh Schedule to the Constitution. It empowers State to levy tax on sales and purchase of goods. The relevant Entry is reproduced below: "54. Taxes on the sale or purchase of goods other than newspaper, subject to the provisions of Entry 92 A of List I" 18. The forty-sixth amendment to the Constitu....
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....ry concomitant of the plain language of the statute- - viz. a 'transfer of the right to use' and not merely a license to use the goods; e. Having transferred the right to use the goods during the period for which it is to be transferred, the owner cannot again transfer the same rights to others." (emphasis supplied) 21. It can safely be said that under Sales Tax, there is transfer of possession and effective control in goods, while there is no such transfer of possession and effective control under service tax. 22. In the present case, the nature of transaction between the appellant and the foreign supplier for obtaining ISO Tankers on lease/rental basis reveals that: (i) The appellant had received ISO Tankers from its foreign suppliers on payment basis and during the period when the ISO Tankers were in the possession of the appellant, the legal right to use the ISO Tankers lay with the appellant to the exclusion of any other person; (ii) Further, the foreign suppliers could not pass the same right to any other person; (iii) Though the ownership of the containers was with the foreign suppliers but the appellant was not only in possession....
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....g that the validity of A.P. Amendment Act (18 of 1985) which introduced section 5-E of the Act was upheld by the High Court of Andhra Pradesh in Padmaja Commercial Corporation v. Commercial Tax Officer [1987] 66 STC 26; (1987) 4 APSTJ 26. It is further stated that the provisional assessment under section 15 of the Act has been made every month on account of submission of incorrect monthly returns claiming wrong exemption. The petitioner, it is stated, is lending highly sophisticated and valuable imported machinery to the contractors engaged by the petitioner for the purpose of construction of steel project. The machinery like cranes, docers, dumfors, road rollers, compressors, etc., are lent by the petitioner to the contractors for the use in the execution of project wok for which hire charges at specified rate are being collected by it. The machinery is given in the possession of the contractor and he is responsible for any loss or damage to it. The contractor has got every right to use it in his work at his discrection. It is further stated that in view of these clear terms and conditions there is transfer of property in goods for use, for a specific purpose and for a specified p....
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.... after scrutiny and close examination of the clauses contained in the agreement and looking to the agreement as a whole, in order to determine the nature of the transaction, concluded that the transactions between the respondent and contractors did not involve transfer of right to use the machinery in favour of the contractors and in the absence of satisfying the essential requirement of Section 5-E of the Act, i.e., transfer of right to use machinery, the hire charges collected by the respondent from the contractors were not exigible to sales tax. On a careful reading and analysis of the various clauses contained in the agreement and, in particular, looking to clauses 1, 5, 7, 13 and 14, it becomes clear that the transaction did not involve transfer of right to use the machinery in favour of contractors. The High Court was right in arriving at such a conclusion. In the impugned order, it is stated, and rightly so in our opinion, that the effective control of the machinery even while the machinery was in use of the contractor was that of the respondent company; the contractor was not free to make use of the machinery for the works other than the project work of the respondent or mo....
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....ir convenience but are to be used as per the delivery schedule given by Grasim. The counsel also does not dispute that the agreement between the parties speaks of a dedicated fleet of vehicles to be made available on 24/7 basis duly painted in a particular style and colour, and staff being under the instructions of Grasim alone. It is, however, submitted that the parties agreed for five dedicated vehicles as RMC needs to be transported immediately after it is manufactured in the batching plant, and the manufacturer cannot identify and negotiate with the transporter for carrying the products every time an order is placed. Therefore, such a clause was included in the agreement to ensure there is no delay in delivering the product to the customers. He also submits that making available the vehicles through out the day or painting them with brand name of Grasim is required keeping in view the possible hurdles in logistics, and to ensure customer satisfaction of getting the required branded RMC. According to him, these clauses by themselves do not warrant an inference of transfer of the right to use Transit Mixers. ******* 42. In addition to the above clauses, we have ....
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....action constitutes transfer of the right to use the tangible goods, including possession and effective control of the tankers. This is so since there are several other clauses in the agreements between the parties (referred in para 10 supra), which disclose that the personnel on board the tankers function and operate strictly in terms of detailed instructions, guidelines and directives issued or to be issued by the assessee in terms of the authority of the assessee to do so, under the agreements. The personnel and crew must also be replaced by the owners on valid compliant about their misbehaviour lodged by the assessee. On a true and fair analysis of the several clauses of the charter - agreements, considered as a whole, mere employment of the personnel and crew by owners does not derogate from the reality of transfer of possession to and effective control by the assessee over the tankers, for the use of these tangible goods." (emphasis supplied) 29. In Gimmco Ltd. vs. Commissioner of Central Excise and Service Tax, Nagpur [2017 (48) S.T.R. 476 (Tri.-Mum.)], the Tribunal observed as follows: "5.2 Revenue's contention is based on the clauses in the agreement relating....
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....ies indicate the clear dominion and control of ONGC over the crane during the entire period of operation of the contract once a crane is placed at the disposal of the ONGC under the contract. The crane is to be deployed at worksites as per the discretion of the ONGC and though the normal period of deployment is 10 hours in a day, such deployment at the discretion of the ONGC may be for any period beyond the normally contemplated 10 hours. The deployment of the crane in oil field operations as well as other hazardous situations is at the sole discretion of the ONGC. Though the cranes are operated by the crew provided by the contractor such crew while operating a crane is under the effective control of the ONGC and its authorities. Therefore, under the contract though the normal operational time is 10 hours in a day, the ONGC is entitled to deploy the cranes, if required, to the entire period of 24 hours to perform duties the kind of which and the locations whereof is to be decided by the ONGC. The mere fact that after the operation of the crane is over on any given day the crane may come back to the owner/contractor will hardly be material to decide as to who has dominion over the c....
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....n is over on any given day and the tangible goods come back to the owner is not a material fact for deciding who has the dominion over the tangible goods. 32. The impugned order notices that the appellant had taken the ISO containers on lease/rental basis and it had paid an amount of Rs. 4,60,67,566/- to the foreign supplier who did not have any office in India for supply of the containers. Condition No's 9 and 18 of the Agreement, which have been reproduced above, have been mis-interpreted by the Commissioner. No inference can be drawn from the aforesaid two clauses that the right of possession and effective control of the containers was not with the appellant merely because the containers had not been sold to the appellant. The Commissioner fell in error in not appreciating the difference between a 'sale' and 'a deemed sale' contemplated under article 366 (29A) of Constitution. In 'a deemed sale' it is necessary to examine who has the possession and effective control over the goods. Even the Circular dated 29.02.2008, on which reliance has been placed by the Commissioner, emphasises that in the case of 'a deemed sale' under article 366 (29A) of Constitution, transfer of right ....