TaxTMI 
TaxTMI 
2026 (6) TMI 1364
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....009, the Appellant entered into agreements with foreign vessel owners for transportation of coastal goods through voyage charter arrangements. The Department entertained a view that payments made to such foreign vessel owners would fall under the taxable category of "Supply of Tangible Goods for Use Service" under Section 65(105)(zzzzj) of the Finance Act, 1994 and accordingly proposed demand of service tax under the reverse charge mechanism. The show cause notice culminated in the Impugned Order confirming the demand. 2. Aggrieved by the Impugned Order, the Appellant has filed the present Appeal before this Tribunal. 3. The Ld. Advocate Shri Ramnath Prabhu appeared on behalf of the Appellant. The Ld. Authorized Representative Ms. O.M. Reena, appeared for the Revenue. 4. The Learned Counsel for the Appellant submitted that the entire demand is unsustainable as the contracts entered into are voyage charters involving transportation of goods and not supply of vessels. It was submitted that the vessels were never placed at the disposal of the appellant and that no possession or effective control was transferred. The consideration was paid based on freight linked to tonnage of....
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....ce" or whether the same is in the nature of transportation of goods? ii. Whether the demand is sustainable on limitation and whether penalties are imposable in the facts and circumstances of the present case? Issue No. (i): Classification of voyage charter agreements- whether taxable as "Supply of Tangible Goods for Use Service" or as transportation of goods. 8.1 The determination of the present issue requires a comprehensive examination of the statutory provisions, the nature of the contractual arrangements entered into by the appellant, and the applicable judicial precedents. Section 65(105)(zzzzj) of the Finance Act, 1994 defines taxable service as supply of tangible goods for use without transferring right of possession and effective control, whereas Section 65(105)(zzzzl) deals specifically with transportation of goods, including coastal goods, which is defined as goods transported from one port in India to another. The legislative intent, as clarified by the Tax Research Unit vide D.O.F. dated 29.02.2008, is that only those transactions where goods are made available for use by the recipient fall within the scope of "Supply of Tangible Goods for Use Service". F....
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....f the vessel for use. The documentation thus supports the conclusion that the appellant has merely availed carriage of goods and has not been provided with any tangible goods for use. 8.4 We find that the Department has sought to characterize the contracts as time charter arrangements based on clauses relating to war risk, exclusive use of the vessel, demurrage, dead freight, piloting expenses, overtime expenses and port expenses. Further, there are restrictions imposed on the vessel owner to not to permit the use of the vessel by any other than the appellant. However, the appellant has rightly contended that such clauses are standard features of maritime contracts and do not alter the essential nature of a voyage charter. The distinction between voyage charter and time charter is well recognized, the former being a contract of carriage where the owner retains control, and the latter involving transfer of operational control to the charterer. A careful examination of the agreements clearly shows that the appellant has no control over navigation or operation of the vessel and that all risks and responsibilities remain with the owner. The Department has proceeded on an erroneous u....
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....t to use the vessel independently. The Tribunal further held that such transactions are essentially contracts of carriage of goods and cannot be classified under "Supply of Tangible Goods for Use Service". The said decision, being rendered by a coordinate Bench of this Tribunal on an identical issue, has persuasive value and is squarely applicable to the facts of the present case, in the absence of any distinguishing features brought on record by the Revenue. 8.7 The appellant has also relied upon the decision of the Tribunal in Greatship (India) Ltd. v. Commissioner, CGST & Central Excise, Mumbai Central. In the said case, theTribunal examined the terms of a BARECON 2001 bareboat charter and applied the settled test of transfer of right to use goods, namely transfer of possession and effective control. It was observed, inter alia, in Paras 10 and 13 of the decision, that where the charterer is placed in possession of the vessel with the right to use and operate the same to the exclusion of the owner, the transaction would amount to transfer of right to use goods and so a deemed sale and would fall outside the scope of "Supply of Tangible Goods for Use Service". The Tribunal fur....
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....for use by the recipient is not satisfied. The appellant has merely availed transportation services under voyage charter arrangements, and the vessels have been used by the owners themselves for carrying out such transportation. The Department cannot recharacterize a contract of carriage as a contract for supply of tangible goods. Accordingly, the activity undertaken by the appellant is correctly classifiable as transportation of goods and not as "Supply of Tangible Goods for Use Service", and the demand is so not sustainable. Issue No. (ii): Sustainability of demand on limitation and applicability of penalties in the facts of the case 9.1 The demand in the present case has been raised by invoking the proviso to Section 73(1) of the Finance Act, 1994, which permits recovery of service tax for an extended period only in cases involving suppression of facts, wilful misstatement or fraud with an intent to evade payment of tax. The burden to establish the existence of such elements squarely lies on the Department. 9.2 The Revenue has contended that the appellant failed to disclose the transactions in statutory returns and that the same came to light only during investigation. ....