TaxTMI 
TaxTMI 
2024 (7) TMI 1582
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....paid lease rent charges in foreign currency to the service providers located abroad. It appeared to the Department that the containers were leased by the overseas service providers only for use by the appellant and the appellant has no right of possession or effective control of the containers. The appellant is thus liable to pay service tax under the category of 'Supply of Tangible Goods Services' on the lease rent charges paid by them from 16.05.2008 onwards, on reverse charge basis. 1.2. Show Cause Notice dated 08.01.2013 was issued to the appellant demanding service tax along with interest on the lease rentals paid by the appellant during the period from 16.05.2008 to 31.03.2012. The Statement of Demand No. 113/2014 dated 09.05.2014 was issued for the period from April 2012 to June 2012, as well as, another Show Cause Notice No. 214/2014 dated 01.09.2014 was issued for the period July 2012 to March 2013, on the very same allegations and proposing to demand service tax under 'Supply of Tangible Goods Services' along with interest and also for imposing penalties. After due process of law, the Original Authority adjudicated all the Show Cause Notices together an....
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.... not fall under Section 65(105)(zzzzj) of the Finance Act, 1994. 2.3. It is submitted that the Hon'ble Supreme Court in the case of Bharath Sanchar Nigam Ltd. Vs. Union of India [2006 (3) VST 95] has set out a five-fold test for examining whether the transaction is a 'transfer of right to use goods'. On an application of the test laid down to the facts of the present case, it would be clear that the activity is a transfer of right to use the containers given to the appellant and is not an activity of Supply of Tangible Goods or lease falling under Section 66E(f). The Ld. Counsel compared the points of analysis in the BSNL case (supra) with that of the present case which is as under:- BSNL Test Present Case There must be goods available for delivery The containers are available for delivery on the date of the lease. There must be a consensus ad idem as to the identity of the goods There is consensus ad idem as to identity of containers as each container containers a unique serial number for identification. The transferee should have a legal right to use the goods-consequently all legal consequences of such use including any permissions or licenses....
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....the agreement which says that the container should not be used for storage or transportation of hazardous substances, etc. It is thus assumed by the Adjudicating Authority that transport can be only of cargo which is agreed by the lessor. There is no such condition in the agreement that the lessor has any right to decide the cargo which is to be carried in the container. Only for safety and compliance of regional law, the Agreement stipulates that the appellant should not carry hazardous substances in the container. 2.7. The Ld. Counsel relied upon the decision in the case of Lindstrom Services (P) Ltd. Vs. Commissioner of GST [2020 SCC ONLINE CESTAT 4542] to submit that in the said case, the Tribunal had analysed whether the transaction of work wear rental would fall under the category of Supply of Tangible Goods Service. After analysing the conditions of Agreement, the Tribunal followed the decision passed by the Chandigarh Bench in the assessee's own case and set aside the demand. The Department filed an appeal before the Hon'ble Apex Court which was dismissed maintaining the decision of the Tribunal as reported in [2023 (11) CENTAX (228) SC]. 2.8. In the case of U....
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....t and discussed as to whether the activity would fall under Supply of Tangible Goods Service. The basic features of the Agreement are as under:- • Assessee has entered into contracts for lease of 'containers' with lessor who has in their disposal 'containers' to give under lease • 'Containers' means the equipment, and any machinery supplied with the equipment • Assessee has to take delivery of containers from the locations set forth by the lessor • Assessee has to maintain the containers as per standards • Cost of repairs if any incurred is on the assessee subject to any optional arrangement with lessor whereby lessor assumes responsibility for some portion of the cost of repair • Assessee has to return the containers at 'Return locations' specified by the lessor • Assessee requires prior written consent of lessor for making any modifications, improvements, etc in the container • Assessee has to use each container so as to comply with all loading limitations, handling procedures and operating instructions, and to prevent excessive impact, unbalance....
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.... / manager. The policy cannot be changed without prior notice to the lessor. This shows that obtaining the insurance and maintaining the insurance is pre-requisite for lease and the same indicates that the right of possession is not transferred. 3.2.3. During the use of containers in their business, the necessary permissions in complying with the customs procedures of various countries is on the appellant. Such compliance is in the course of business of the appellant and do not in any way establish that the appellant has effective control over the containers. 3.2.4. The appellant cannot sub-lease their containers without prior consent of the lessor or make any changes to the containers. So also, the containers can be used only for International Trade which all goes to establish that the lessor holds the possession and effective control even though the custody of the containers is given to the appellant on payment of rentals. The Ld. Authorised Representative asserted that the appellant holds custody of the containers and used them in their business and there is no transfer of right to use of such goods as there is no transfer of effective control or possession. 3.3. The de....
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.... 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." 7. Our endeavour would be to analyse the Agreement as to whether the above attributes are present in the transaction. In the present case, the containers are delivered to the appellant by the lessor. The Ld. Authorised Representative appearing for the Department has argued that since the containers have to be taken delivery from the location as instructed from the lessor, it cannot be said that there is a transfer of possession of goods. The said argument does not find favour with us. When the containers are delivered to the appellant it constitutes transfer of possession of the goods by the lessor. 8. In the present case, there is meeting of minds (consensus ad idem) with regard to the identity of the goods as each container has identification number. The lessor and the lessee had agreed to lease a specific container / containers. The second test is also satisfied. 9. In the present case, the container is used by the appellant for transportation of cargo. It is for the appellant to take necessary....
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....CLUDED AND EXTINGUISHED." (emphasis supplied) 11. It is stated that the lessee (appellant) shall have quiet possession as against any person claiming under or through lessor. This establishes that the appellant has right to use the containers to the exclusion of the lessor. The fourth test is satisfied. 12. During the lease period, the goods can be used only by the appellant and the lessor cannot transfer the rights to any other person. On perusal of the agreement, it is seen that the lessor does not reserve any right to transfer the right to use to others, during the lease period. The fifth test is satisfied. 13. From the above, we find that the five-fold test put forward in the BSNL (supra) case stands satisfied. There is indeed transfer of possession as well as effective control of the containers to the appellant by the foreign supplier. In such circumstances, the activity cannot fall under Supply of Tangible Goods Services as defined under Section 65(105)(zzzzj). As the above five-fold test for transfer of right to use the goods being satisfied, the transaction has to be construed as a deemed sale. It cannot be a 'Service' as defined under 65B(44) of the Fin....
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.... available to the transferee; d. For the period during which the transferee has such legal right, it has to be to the exclusion to the transferor this is the necessary concomitant of the plain language of the statute - viz. a "transfer of the right" to use and not merely a licence 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 right to others." 3.1 This criteria must invariably be followed and applied to cases involving hiring, leasing or licensing of goods. The terms of the contract must be studied carefully vis-a- vis the criteria laid down by the Supreme Court in order to determine whether service tax liability will arise in a given case. It is not possible to either give an exhaustive list of illustrations or judgements on this issue. Cases decided under the Sales Tax/VAT legislations have to be considered against the background of those particular legislative provisions 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 ....
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.... The demand was under BSS. Department was of the view that since helicopters are infrastructure for the assessee's business, the demand was made under 'Business Support Service'. After analysing the agreement, the Tribunal held that leasing of the helicopters involves transfer of right to use goods (deemed sale) and the demand of service tax cannot be sustained. Relevant paragraphs read as under : "8. The Appellant are engaged in the business of providing helicopters on charter hire basis to their clients in Oil and Natural Gas industry in India, which, besides providing helicopters to the client, also involves (i) maintenance of the helicopters during the period of charter hire as per the DGCAs regulations by qualified engineers engaged by them so as to keep the helicopters always in airworthy condition; (ii) employing qualified and licensed crew for operating the helicopters and (iii) operating the helicopters for providing air transportation for the clients personnel and cargo as per their requirement. There is no dispute about the taxability of these services being provided by the appellant to their clients in India and service tax is being paid by the Appe....
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....r Section 76/78 and 77 of the Act. The Appellants contention, on the other hand, is that since leasing of helicopters from the two overseas lessors involves transfer of right to use from the lessors to the Appellant during the period of lease and since this fact stands accepted by the Department, a fact which is clear from the Commissioners findings in Para 25 of the impugned order, these transactions are deemed sale under Art 366 (29A)(d) of the Constitution and Section 5(2) read with Section 2(g) of the Central Sales Tax Act, 1956 and, hence, these transactions, whether during the period prior to 1.7.2012 or thereafter, are outside the purview of Service Tax under Finance Act, 1994. Before coming to the question as to which of the two rival contentions is correct, it would be worthwhile to go through the legal provisions and the judgments of the Tribunal in this regard. ...... .... 16. A transaction of supply of some tangible goods by a person to another person for some consideration which involved transfer of right of possession and effective control over the goods/transfer of right to use the goods could be subjected to Service Tax under any of taxable service....
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....t as and when required. The main point of dispute in this case was whether the Appellants time charter agreements with the consortium of owners with the above mentioned terms and conditions, represented supply of tangible goods (LNG Carrier Vessels) by the owners located abroad to the Appellant without transfer of right of possession and effective control and hence taxable under Section 65 (105) (zzzzj) of the Finance Act, 1994. The Department was of the view that these time charter agreements represented supply of tangible goods from the owners located abroad without transfer of right to use and hence the Appellant would be liable to pay Service Tax under reverse charge. The Tribunal in this case, in Para 13 of its judgment, held that supply of tangible goods involving transfer of right of possession and effective control of the goods is outside the purview of the taxable service defined under Section 65(105)(zzzzj), that such exclusion is consistent with the Constitutional limitation upon the legislative field of the Parliament, that post 46th Amendment to the Constitution and introduction of Article 366 (29A(d), transfer of right to use goods is a deemed sale falling wi....
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.... tankers on lease would amount to Supply of Tangible Goods for the period upto 30.06.2012. The conditions of the Agreement noted in the said decision are almost similar to the Agreement in the present case. The relevant paragraphs read as under:- "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 Claus....
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.... 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 xxxxxx 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,....
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.... there is a transfer of right to use or not is a question of fact which has to determined in each case having regard to the terms of the contract under which there is a transfer of right to use; (ii) If with the transfer of the right to use, possession and effective control is also transferred, the transaction falls outside the preview of service tax liability. However, when the effective control and possession is not transferred and it continues to remain with the person who has given the machinery on hire, it would not be open to the authority to levy service tax; (iii) Mere fact that the persons are employed by the owner does not in any manner deter from the fact that the transaction constitutes a transfer of the right to use the tangible goods with possession and effective control; and (iv) The fact that after the operation 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....
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....d sale, it would be outside the purview of taxability under Finance Act, 1994. The relevant paragraphs read as under:- "16. The period involved is from November 2015 to January 2016. For the period prior to 1.7.2012 when the classification of services were in existence, similar issue has been decided by the Tribunal in the case of International Seaport Dredging Ltd. (supra) and Petronet LNG Ltd. (supra). There has been sweeping amendment to the Finance Act, 1994 w.e.f. 1.7.2012. Thus our endeavour would be to examine whether the legal analysis of the 'transfer of right to use goods' made in the decisions cited above would be applicable post 2012 after the introduction of the definition of 'service' and also 66E mentioning the 'declared services'. "Declared services 66E. The following shall constitute declared services, namely:- (a) renting of immovable property (b) construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of completion certificate by the com....
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....able property, by way of sale, gift or in any other manner; or (ii) Such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A)of article 366 of the Constitution; or (iii) A transaction in money or actionable claim; (b) A provision of service by an employee to the employer in the course of or in relation to his employment; (c) fees taken in any Court or tribunal established under any law for the time being in force. 18. In the present case, the question is whether the transfer of goods is by way of hiring of the vessel simplicitor or whether it involves transfer of right to use the vessel. For a transaction to be transfer of right to use the goods, there should be transfer of possession as well as transfer of effective control. In the present case, the department has mainly relied upon clause (6) of the agreement, to contend that there is no transfer of possession as well as effective control. Clause (6) and its various sub clauses is reproduced as under : "6. Maintenance and operations A. The Lessee shall maintain the Vessel, her machinery, appurtenances and spare part....
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....plained that such a clause giving right to the owner / lessor to withdraw the vessel is only to protect the interest of the owner on the vessel. It also has to be noted that such right to withdraw the vessel comes into play only when there is a breach in the clause of the agreement to do the necessary repairs of the vessel. During the charter period, the appellant has full fledged right to use the vessel by abiding to the conditions in the agreement to the exclusion of the lessor/owner of the vessel. It goes without saying that when there right is given to operate the vessel it also casts a responsibility to maintain the vessel in proper and good condition. Similar conditions were analyzed by the Tribunal in the case of Petronet LNG Ltd. vs. CST New Delhi- 2016 (46) STR 513 (Tri- Del) and also International Seaport Dredging Ltd. - 2018 (3) TMI 633- CESTAT CHENNAI : 2018 (12) G.S.T.L 185 (Tri.-Chennai). In International Seaport Dredging (supra), the Tribunal in the said case after analysing the clause stipulating for repair and maintenance of the vessel and other relevant clauses observed as under : "17. We note that the analysis and reasoning adopted by the Tribunal in Pet....
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....essel in case they cause breach of the condition to do repairs of the vessel, cannot be a ground to infer that there is no transfer of effective control of the vessel. Even though discussions in these decisions pertain to the period prior to 1.7.2012, the facts being identical the legal principles for understanding whether a transaction is transfer of right to use goods are the same. This is evident from the TRU Circular dt. 16.3.2012 and the Service Tax Education Guide dated 20.6.2012 issued by CBEC. The Board has relied on the decision rendered by Apex Court in BSNL ltd. vs. UOI 2006 (20 STR 16 (SC). The meaning and scope of the phrase 'transfer of right to use goods' is clarified as a transaction which involves transfer of possession and effective control over such goods. A fleeting look on the definition of "Supply of Tangible Goods Service" under Section 65 (105) (zzzzj) of the Finance Act, 1994 as it stood then clarifies why these decisions can also be made applicable for the period after 1.7.2012. The definition of "Supply of Tangible Goods Service" is as under : "any services provided or to be provided to any person by any other person in relation to supply....
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....ht to use of the vessel to another person. We have no hesitation to hold that the appellant enjoys right to use the vessel to the exclusion of the owner. 24. Another finding in the impugned order is that since the appellant retained the registration and the flag of the vessel, there is no transfer of effective control over the vessel. The vessel is registered in Luxemburg . It may not be practical to change the registration of the vessel in each case of charter agreement. In the present case, there is no change in ownership. If that be the case, it would be a sales simplicitor. Change of Registration and change of flag is necessary only when there is change in ownership. 25. From the discussions made above, we are of the considered opinion that the transaction in the present case is identical to the transaction analysed by the Tribunal in the case of International Seaport Dredging (supra) as well as Petronet LNG Ltd.(supra). The transaction is nothing but transfer of right to use the goods and does not fall within the 'declared services' as alleged by department. The Demand therefore cannot sustain. The issue on merits is found in favour of appellant. ....