TaxTMI 
TaxTMI 
2023 (11) TMI 218
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....al Year Name of the foreign vessel Name of the owner Name of the customer Type of contra ct 1 2008- 2009 MV Ozgy Aksoy Cargil SA Archean Granites P. Ltd. Voyage 2 MV Ikan Selangat Pacnav SA Voyage 3 MV Good Providence GML, India. Voyage 4 2009- 2010 MV Bainco Zealand Sea Priority Archean Granites P. Ltd. Voyage 1.2 It appears that the above said vessels were provisioned to the group company, M/s Archean Granites Private Limited on back-to-back basis and on actual cost basis. It appears that agreements entered into by the appellant with the above foreign vessel owners as well as that with M/s. Archean Granites Pvt. Ltd. were in form of "Fixture Notes", as per which, the same was for the carriage of cobblestone from Chennai to Newark on voyage charter basis, for a specified amount of freight. 1.3 It is a fact borne on record that the following vessels, admittedly owned by the appellant, were lent to their group company, viz., M/s. Good Earth Maritime Ltd. on time ch....
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....aid by appellant, as proposed in the SCN, and also Rs.1,39,297/- paid by appellant vide challan dated 31.03.2010. Penalty equal to the above demand of service tax was also imposed under Section 78 ibid. 4. Aggrieved by the above demands in the impugned Order-in-Original, the appellant has preferred the present appeal before this forum. 5. When the matter was taken up for hearing Shri M. Karthikeyan, learned Advocate, appeared for the appellant and Smt. Sridevi Taritla, learned Additional Commissioner, argued for the Revenue. 6. The submissions of the learned Advocate are summarized below: - * Levy of service tax on the taxable service of "supply of tangible goods" was introduced in effect from 01.06.2008 by insertion of clause (zzzzj) to Section 65(105) of the Finance Act. * TRU letter DOF No. 334/1/2008-TRU dated 29.02.2008 clarified that transfer of right to use any goods is leviable to sales tax/VAT as deemed sale of goods in terms of Article 366(29A)(d) of the Constitution of India and such transfer of right to use involves transfer of both possession and control of the goods to the user of the goods. * Transaction of allowing another person ....
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....ration or freight usually calculated according to the quantum of cargo carried." * Reliance was placed on an order of the co-ordinate Mumbai Bench of CESTAT in the case of M/s. Essar Steels Ltd. v. Commissioner of Customs, Ahmedabad reported in 2003 (156) E.L.T. 42 (Tri. - Mum.) wherein, according to him, it has been held that freight cost for the voyage from loading port to the destination port was required to be included in the CIF value of the imported goods for the purpose of levy of import duties and the totality of charges paid for hire of vessels on time charter basis need not be added to determine the assessable value. He would further contend that the Revenue's appeal against the said order of the Mumbai Bench was dismissed by the Hon'ble Supreme Court by relying upon the decision in M/s. Gosalia Shipping Pvt. Ltd. (supra). * Thus, the transactions by Fixture Notes in question were contracts for transportation of goods for freight and it did not involve any transfer of right to use the vessel and hence, the demand of Service Tax under STGS was not sustainable. * With regard to own vessels of the appellant given to M/s. Good Earth Maritime Ltd., i....
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....d explicitly provided that such a payment of Rs.42,00,000/- was towards interest fee security deposit, which was refundable on expiry of the lease period, and when there was no specific mention as to the requirement of any advance payment of rent, treating the same as advance payment of rent would not arise. * It was submitted that the issue involved in the proceedings is of legal interpretation and the Department did not suspect the bona fides of the appellant and nor is there any finding as to the fact that the appellant had acted with an intention to evade payment of tax. Therefore, the invocation of extended period of limitation and consequently, the imposition of penalty under Section 78 of the Finance Act, 1994, is not sustainable. In this regard, he drew our attention to page 10, paragraph 7(k) of the Order-in-Original. 7.1 Per contra, learned Additional Commissioner submitted that according to Blacks' law dictionary, a 'voyage charter' is a charter under which the ship owner provides a ship and crew, and places them at the disposal of the charterer for the carriage of cargo to a designated port; the voyage charterer may lease the entire vessel for a voyage or se....
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....able? 10.1 The learned Advocate has referred to the TRU letter dated 29.02.2008, the relevant portion of which reads as follows: - "4.4 Supply of tangible goods for use: 4.4 .1 Transfer of the right to use any goods is leviable to sales tax / VAT as deemed sale of goods [Article 366(29A)(d) of the Constitution of India]. Transfer of right to use involves transfer of both possession and control of the goods to the user of the goods. 4.4.2 Excavators, wheel loaders, dump trucks, crawler carriers, compaction equipment, cranes, etc., offshore construction vessels & barges, geo-technical vessels, tug and barge flotillas, rigs and high value machineries are supplied for use, with no legal right of possession and effective control. Transaction of allowing another person to use the goods, without giving legal right of possession and effective control, not being treated as sale of goods, is treated as service." 10.2 Levy of service tax on "supply of tangible goods for use" ('STGU' for short) was introduced with effect from 16.05.2008 by insertion of clause (zzzzj) of section 65(105) of the Finance Act, 1994, which reads as under: - "to any person, b....
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....S [FIO BSS means - 'free in and out basis']. That is to say, the freight is not inclusive of the charges towards loading and discharging and the same is to be borne by the charterer. There is also a separate provision in the agreement for loading and discharging rates. The agreement clearly mentions the Notice of Readiness (NOR), LAYTIME (Time allowed for loading or discharging) and LAYCAN (period within which the contract must start). In addition, the appellant has also furnished copies of 11 Bills-of-Lading issued by it between 4th August 2008 to 9th August 2008 for 44041 MT of cobblestone loaded on to the above vessel by the shipper M/s. Archean Granites Pvt. Ltd. for movement from Chennai to Port Newark, USA. The appellant has charged freight of Rs.11,88,36,199/- on M/s. Archean Granites Pvt. Ltd. for the above [actual quantity of 44041.300 MT] shipped at the agreed rate of 63 USD per MT (conversion rate @42.83). 11.5.1 Further, there is nothing to suggest from the above agreements / Fixture Notes that transfer of right to use the vessel was granted by the appellant to M/s. Archean Granites Pvt. Ltd. and hence, we notice that it is an arrangement for carriage of goods for fr....
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....er which "a contract by charterparty is a contract by which an entire ship or some principle part thereof is let to a merchant who is called the charterer, for the conveyance of goods on a determined voyage to one or more places, or until the expiration of a specific period. The former case is called a "voyage charterparty", and the latter, a "time charterparty". A time charter, according to the author, is one in which the ownership and also possession of the ship remain with the original owner, whose remuneration or hire is generally calculated at the monthly rate on the tonnage of the ship, while a voyage charter is a contract to carry specified goods on a defined voyage on a remuneration or freight usually calculated according to the quantity of the cargo carried." 11.6.2 Even as per the above observation of the Hon'ble Supreme Court, it emerges that a voyage charter is a contract to carry specified goods on a defined voyage for freight. 11.6.3 The Hon'ble Apex Court in the above said decision has also relied on the discussion contained in Carver's Carriage by Sea (Eleventh Ed., 1963, page 263) as per which "all charterparties are not contracts of carriage. Sometimes the s....
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....of the vessel, the charterer is required to pay the agreed consideration, in the case of voyage charter if the vessel is not used for intended voyage for any reason by the charterer, then the charterer is not required to pay the agreed freight but the charterer may be called upon to pay damages for breach of contract and loss incurred by the vessel owner and in any case, such damages would not take the colour or character of consideration under the contract and payment of such damages would not alter the nature of the contract. 11.7 Learned Additional Commissioner had put forth that even in the case of voyage charter, the vessel is chartered and hence the claim of the appellant that voyage charter was nothing but a contract for carriage of goods, is not correct. But this will not hold any water in view of our discussions above. Moreover, the above contentions are not arising out of the SCN, wherein it has been put forth that the general terms and conditions enumerated in the Fixture Notes in respect of voyage charter vessels and the time charter vessels are identical, and since appellant is paying Service Tax on time charter vessels, they are liable to pay Service Tax even on th....
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....greement holistically, we have to hold that what is provided for in the Fixture Notes is only a contract for carriage of cobblestone from Chennai to Newark for a freight and though the contract is said to be on a voyage charter basis, we do not find any clauses to the effect that it involves transfer of right to use of the vessel. Therefore, when the contract itself is not for transfer of right to use the vessels, there cannot be any levy of Service Tax under the head "supply of tangible goods for use". Accordingly, the demand of Service Tax with interest, confirmed in this regard, deserves to be set aside and consequently, the impugned order to this extent stands set aside. Time charter: 12.1 We analyse this in the light of decisions of the Hon'ble Apex Court, in the case of M/s. Gosalia Shipping Pvt. Ltd. (supra) and M/s. Great Eastern Shipping Company (supra). In the case of a time charter, there is transfer of right to use the vessels involved. However, to attract the levy of Service Tax under STGS in such time charters, the transfer of right to use the vessels should not be absolute and it should not involve the transfer of right of possession and control. In the case of....
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....ioner of Service Tax, Chennai [2018 (12) G.S.T.L. 185=2018 (3) TMI 633 - CESTAT, Chennai] b) Universal Dredging & Reclamation Corporation Ltd. v. Commr. of C.G.S.T. & C.Ex., Madurai [2021 (44) G.S.T.L. 401 (Tri. - Chennai)] c) Petronet LNG Ltd. v. Commissioner of Service Tax, New Delhi [2016 (46) S.T.R. 513=2013-TIOL-1700- CESTAT-DEL] 12.4.2 Learned Advocate has further submitted that the bareboat charter in respect of vessel MV GOOD PURPOSE was entered into on 19.12.2007 and the vessel was delivered during December 2007; since the levy of Service Tax under STGS was introduced only with effect from 16.05.2008, the appellant is not liable to pay Service Tax in respect of the above bareboat charter. In support, he drew our reference to paragraph 36 of the order in M/s. Petronet LNG Ltd. (supra). 12.5.1 Learned Departmental Representative on the other hand submitted in this regard that the appellant had not taken the above plea regarding time charter before the adjudicating authority and moreover, it had accepted the tax liability in this regard, had also paid the tax on being pointed out and therefore, the demand was rightly made. 12.5.2 She further drew su....
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....axable services and the collection of taxable value was not disclosed in its ST-3 returns, with an intention to evade payment of Service Tax and that the non-payment would not have come to the light but for the investigation conducted. 12.7.3 We find that the learned adjudicating authority has not recorded any finding with regard to the invoking of extended period of limitation, but has only recorded while confirming penalty under Section 78 that the non-payment came to light only during investigation and that the services were not brought to the notice of the Department. The adjudicating authority has only held that the decisions relied upon by the appellant were not applicable. 12.7.4 We find regarding time charterparty, that there is no dispute that the appellant had paid Service Tax for the period from May 2008 to September 2008, in October 2008 which is much before the investigation, which happened only in June 2009. That being so, the finding of the learned adjudicating authority that the services had not been brought to the notice of the Department, lacks merit insofar as time charterparty is concerned. What the officers appear to have pointed out was that the appellan....
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....by it." 13.3 At paragraph 27, the Hon'ble Court refers to the "use" test. At paragraph 28, the Hon'ble Court observes that the terms of the GSA indicate that the supply, installation, maintenance and repair of the measurement equipment is exclusively entrusted to the respondent therein as the seller. The Hon'ble Court further observes in the same paragraph that "it is an incident of ownership and control being vested with the respondent. The purpose of the SKID equipment and utility, lie in its ability to regulate the supply and achieve an accurate verification of that which is supplied; in the present case the supply of goods by the respondent to its buyers. This enures to the benefit of the seller and the buyer ...... The GSA is an agreement reflecting mutual rights and obligations between the seller and the purchaser. Both have a vital interest in ensuring the correct recording of the quantity of gas supplied..." 13.4 In view of the above, the Hon'ble Court holds that Section 65(105)(zzzzj) applies precisely in a situation where the use of the goods by a person is not accompanied by control and possession. 'Use' in the context of SKID equipment, postulates the utilization ....
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....uthority is only to go by the language of the document which reflects the true intention between the parties and hence, nothing can be added by the authority since what is relevant is to only check if the contents of such document yields to the taxing statute. It is, therefore, not possible to interpret the intention of the parties reduced into writing to suit the requirements of the statute. 14.3 In view of the above, the demand of Service Tax with interest cannot sustain on the security deposit and consequently, the same is set aside. To this extent, therefore, even the penalty imposed under Section 78 is set aside. Discussion on the issue of invoking extended period of limitation under Section 73(1) of the Finance Act, 1994 : 15.1 In the Show Cause Notice dated 11.04.2011, it is alleged at paragraph 5.1 as under: - "5.1 Whereas it also appears that the assessee suppressed the facts of providing taxable services and the collection of taxable value by not disclosing the same in the ST-3 returns filed by them with an intention to evade payment of service tax or in any other manner. It also appears that the non payment of service tax would not have come to light bu....
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....M/S. CORE MINERALS,, TVH BELICIAA TOWERS, PHASE II, 5TH FLOOR, NO. 94 MRC NAGAR, CHENNAI-600 028 FOR CARRIAGE OF COBBLE STONE FROM CHENNAI TO NEWARK ON VOYAGE CHARTER BASIS. .DETAILS OF VESSEL NAME DWT LOA BEAM GRT/NRT : MV OZGE AKSOY : 45,664 MT ON 11.62 M SSW DRFT : 185.70 M : 30.40 : 26059/14889 HOLDS/HATCHES : 5/5 LOAD PORT : CHENNAI DISCHARGE PORT: NEWARK FREIGHT : USD 63 PER MT FIO BSS LOAD RATE : 3000 MT PWWD SHINC DISCHARGE RATE : 8000 MT PWWD SHINC NOR & LAYTIME : NOR ATDNSHINC, LAYTIME TO COMMENCE ON DEMURRAGE LAYCAN ARRIVAL BENDS : USD 37500 PER DAY; DEMHDES WTS BENDS :08/17 JULY 2008 For Cargill International,SA (As Owners) AUTHORISED SIGNATORY For Core Minerals (As Charterers) ·B.S.S. Darayan & AUTHORISED SIGNATORY Document 2 ARCHEAN GRANITES PRIVATE LIMITED Corporate Office: TVH Beliciaa Towers, Phase II, 5th Floor, No.94, MRC Nagar, Chennai - 600 028 Ph: +91 44 43033444 Fax: +91 44 43033555, 43033777 Email: [email protected] FIXTURE NOTE IT IS THIS DAY 27th JUNE 2008 MUTALLY AGREED BETWEEN M/S. CORE MINERALS DISPONENT OWNERS OF M.V....
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.... per the audited Profit and Loss Account for the year 2008-09 and 2009-10 vessel wise are as given in the annexure to this certificate. For V. CHANDRASEKHARAN & ASSOCIATES CHARTERED ACCOUNTANTS. ين v V. CHANDRASEKHARAN PARTNER (M.No.024187) CHARTERE &A Document 4 Core Minerals 76 archean In the following case law, it has been ruled that returnable security deposits are not liable to service tax. The ratio is applicable to our case also. BEFORE THE COMMISSIONER OF CUSTOMS AND CENTRAL EXCISE (APPEALS), BHOPAL - IN RE: BSNL - 2010 (17) STR 322 - In this case, it was held, inter alia: "I find force in the above submission of the assessee and logically it would be appropriate that any type of security deposit/initial deposit cannot be charged to service tax since these amounts are liable to be refunded to the customers if so desired for not availing the services or can be adjusted towards the default charges made by the customers during any period". Therefore, we submit that the demand for service tax amounting to Rs.5,19,120/- on this count is unsustainable and is not liable to be paid by us. 13. THE DE....
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....arding the non-taxability of the impugned shipping. activities. Therefore, the allegation in the show cause notice that we had suppressed facts with intent to evade tax is false and contrary to facts. (B): Therefore, we submit that when the department was aware of the issue of transportation of export cargo by ships relating to our company and had refrained from initiating any action by raising the issue themselves, obtaining our reply and becoming convinced of our stand evidenced in their silence of concurrence and not taking any action to demand tax for one and half years, the allegation that the issue is new, being brought to light for the first time and that we had an intent to evade tax does not hold water. It is simply untrue and does not have any basis in truth. We wish to cite the following case laws of the Hon'ble Supreme Court in our defense. In the case of Padmini Products vs. CCE 1989 (43) ELT 195 (SC) it was held by the Apex Court that a mere failure or negligence on the part of manufacturer to take out license or pay duty in case there was scope for doubt as to whether goods were dutiable or not could not att....