TaxTMI 
TaxTMI 
2024 (2) TMI 671
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.... was leased for a term of 120 months commencing from the date of delivery and the appellant had to pay monthly rental payments in accordance with the agreement. It was noted that as per the lease agreement, the air craft has to be returned to the lessor on termination of lease and the appellant has only operational control. The ownership and title has not been transferred to the appellant who has been permitted only to use the air craft on payment of monthly rent. The department was of the view that since there was no transfer of possession and effective control of the air craft to the appellant, the activity attracts levy of service tax under "Supply of Tangible Goods service". A show cause notice dt. 02.08.2013 was issued for the period May 2008 to January 2013 proposing to demand service tax under the category of "Supply of Tangible Goods service" along with interest and for imposing penalties. After due process of law, the original authority confirmed the demand along with interest and imposed penalty under Section 77, 78 of the Finance Act, 1994. Aggrieved by such order, the appellant is now before the Tribunal. 2. Ld. Counsel Sri S. Durairaj appeared and argued for the appel....
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....eing the service recipient has to pay service tax under reverse charge mechanism on the rentals paid to lessor. The department has proceeded to demand service tax alleging that there is no transfer of ownership and title and that the appellant does not have any effective control over the air craft. The terms of the agreement were adverted to by the learned counsel to argue that the demand has been confirmed on misconception of facts and law. It is the appellant who has to take the insurance risk for loss, obtain license and registration, pay duties and taxes, do regular repairs and maintenance of air craft, inspection and overhaul of air craft engines, employ all the crew of the air craft etc. The lease is a dry lease which involves supply of air craft without crew. Thus the lease in effect is a transfer of right to use goods. The adjudicating authority has wrongly concluded that the activities carried out by the appellant do not confer any special right of possession, title and effective control of leased air craft. 4. The Ld. Counsel submitted that the issue is no more res integra in view of the decision of the Tribunal in the case of Blue Dart Aviation Ltd. Vs CST Chennai - 201....
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...."Hull Insurance") shall be in an amount at all times that is not less than the Stipulated Loss Value at the beginning of each policy period as determined by reference to Annex C to this Lease. (iii) All Hull and Liability Insurance shall be written in the name of OWNER and LESSEE shall name OWNER a sole loss payee and as an additional insured and shall provide for at least thirty (30) days prior written notice to OWNER of any modification or cancellation. Hull Insurance shall be all risk ground and flight, include a breach of warranty endorsement in favor of OWNER and provide coverage for foreign object damage and war and confiscation risk. All Hull and Liability Insurance shall be written by insurance companies and with terms (including, without limitation, maximum deductibles) acceptable to OWNER and shall provide for all claims and proceeds to be payable exclusively in U.S. Dollars." .. ... ... 9. ISIGNIA. LESSEE may affix to the Aircraft any proper insignia designed by LESSEE to indicate the same is being used in the business of LESSEE. At the expiration or termination of this Lease, LESSEE agrees at its expense to remove any insignia, sign or lettering and to restore the....
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....by instalments; (d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made." 11. The above would specify the nature of transactions to which tax for sale/purchase of goods would be attracted. Section 66E of the Finance Act, 1994 deals with the concept of declared services. Clause (f) to Section 66E states that 'transfer of goods by way of hiring, leasing, licensing or i....
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....ns and terms of contract in that case." 12. The agreement reveals that the transfer of right to use goods involves transfer of possession and effective control over such goods. In the present case, the possession of the aircraft is transferred to the appellant who has taken delivery of the same. So also, the air craft is operated by the crew employed by the appellant. Appellant has to undertake maintenance and repair of the air craft and has to take insurance for the risk of loss etc. These would go to show that the effective control over such goods is also transferred to the appellant. On examination of the above, it can be seen that the transaction before us satisfies all the above criteria. The nature of the lease is therefore a transaction involving transfer of right to use goods and is not subject to levy of service tax. 13. The very same issue was decided by the Tribunal in the case of Blue Dart Aviation (supra). Relevant paragraph of the decision reads as under : "8.1 Taking into account these aspects and also the other terms of agreement brought to our attention by the Ld. Sr. Advocate, in particular, the operation of the aircraft with the personnel of the appellant the....
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....lity of these services being provided by the appellant to their clients in India and service tax is being paid by the Appellant by treating this activity as supply of tangible goods for use without transfer of right of possession and effective control, which during the period prior to 1.7.2012 was taxable under Section 65 (105) (zzzzj) of the Finance Act, 1994 and during period w.e.f. 1.7.2012 is taxable as a declared service under Section 66E of the Act. For providing this service to their clients in India, the Appellant have taken on lease two helicopters from the two foreign lessors ADA, Abu Dhabi and BLFIL, Ireland. Though in terms of Appellants lease agreement with ADA, the Appellant had option to hire flight and maintenance crew also from the lessor (ADA) along with the helicopter, there is no dispute that the Appellant have not exercised this option and from both the foreign lessors ADA, Abu Dhabi and BLFIL, Ireland, they have received helicopters without any operating or maintenance persons. In other words, both the helicopters have been taken by the Appellant from the foreign lessors on dry lease basis. The main point of dispute is as to whether this leasing of the helicop....
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....e goods/transfer of right to use the goods could be subjected to Service Tax under any of taxable service in the Act during the period prior to 1.7.2012 when there was no definition of "Service" in the Finance Act, 1994 and only the Services defined in various clauses of Section 65(105) of the Act could be subjected to Service Tax. The clause (zzzzj) covered "supply of tangible goods for use without transfer of possession and effective control over the goods". In this regard, in case of Petronet LNG Ltd. Vs Commissioner of Service Tax, New Delhi, decided by the Tribunal vide Final order No. 58076/2013 dated 24.10.2013 reported as 2013-TIOL-1700-CESTAC-DEL, and which also pertains to the period prior to 01.7.2012, the Appellant had chartered three LNG carrier vessels from a consortium of owners located overseas under three time charter agreements. The relevant clauses of the time charter agreements were as under: (i) All applicable licenses, permits, approvals, authorizations including Admiralty Publications etc., necessary for safe navigation and use of the LNG carrier vessels were to be provided by the owners to the Appellant (M/s Petronet LNG Ltd.). (ii) Appointment of the Ma....
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.... of right to use goods is a deemed sale falling within the purview of the legislative field of State Governments to tax the deemed sale as Sale and that power to tax what is a deemed sale as service is outside the legislative field of the Parliament. Thus the ratio of this judgment is that during period prior to 01.07.2012, when Service Tax was leviable only on certain services defined in various clauses of section 65(105) of the finance Act, 1994 and when Clause (zzzzj) of Section 65 (105) covered supply of tangible goods for use without transfer of right of possession and effective control a transaction of supply of tangible goods by a person to another person which involved transfer of right of possession and effective control, being a deemed sale under Article 366(29A)(d) of the Constitution, could not be taxed as "Service". ... .... .. 18. Thus, the key question to be decided in this case is as to whether the lease of helicopters by the Appellant from the two lessors located overseas involves transfer of right of possession and effective control over the goods/transfer of right to use the goods from the lessors to the lessee. We find that in this regard in the SCN dated 12....