Universal Dredging and Reclamation Corporation Ltd. Vs Commissioner of CGST & Central Excise (CESTAT Chennai)
Transfer of goods by way of hiring vessel is not a Declared Service & hence No Service Tax applicable
The issue under consideration is whether the transfer of goods by way of hiring the charter vessel is taxable under Service Tax as declared service?
In the present case, the appellants were awarded dredging activity in the dock basin of Tuticorin Port by M/s.VOC Port Trust, Tuticorin. To carry out such dredging activity, they entered into agreement with M/s.Codralux S.A., Luxemberg and hired the charter vessel i.e. Cutter Suction Dredger for dredging activity. Referring to various clauses in the agreement, the department was of the view that the appellants are liable to pay service tax under reverse charge mechanism on the consideration paid to foreign company for hiring the vessel, being a ‘declared service’ under Section 66E (f) of the Finance Act, 1994 w.e.f. 1.7.2012.
CESTAT state 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 Luxemberg. 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. From the discussions made above, CESTAT 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 The Demand therefore cannot sustain.
Hence the appeal filed by the assessee is allowed.
FULL TEXT OF THE CESTAT JUDGEMENT
Brief facts of the case are that the appellants were awarded dredging activity in the dock basin of Tuticorin Port by M/s.VOC Port Trust, Tuticorin. To carry out such dredging activity, they entered into agreement with M/s.Codralux S.A., Luxemberg on 17.07.2015 and hired the charter vessel i.e. Cutter Suction Dredger for dredging activity. Referring to various clauses in the agreement, the department was of the view that the appellants are liable to pay service tax under reverse charge mechanism on the consideration paid to foreign company for hiring the vessel, being a ‘declared service’ under Section 66E (f) of the Finance Act, 1994 w.e.f. 1.7.2012. Show cause notice dated 07.12.2017 was issued proposing to demand the service tax for the period November 2015 to January 2016. After due process of law, the original authority confirmed the demands along with interest and also imposed penalties. Aggrieved by such order, the appellant is now before the Tribunal.
2.1 The Ld. Consultant, Shri K. Sivarajan appeared and argued on behalf of the appellant. His arguments are summarized as under :
2.2 The appellant was awarded a contract for dredging the dock basin in front of North Cargo Berth-II of Tuticorin Port by M/s.VOC Port Trust, Tuticorin. The appellant then set up project office in Tuticorin for the limited purpose of undertaking the contract with the port. To carry out the activities as per the contract of doing dredging, the appellant entered into charter agreement dt. 17.07.2015 with M/s. M/s.Codralux S.A., Luxemberg (LESSOR) for vessel i.e. J.F.J. DeNul – Cutter Suction Dredger. The appellant also hired other equipments / vessels for the completion of the project.
2.3 The vessels were taken by the appellant only on lease basis under a Bare Boat Charter Agreement (unmanned vessels). In shipping industry, bare boat charter represents an arrangement for leasing of vessels without any crew and involves giving up the possession of vessel by the owner. The vessels were imported by appellant as per the agreement for use in dredging activity. Post completion of the project, the vessels / equipments imported were re-exported.
2.4 During the course of audit conducted in September 2016, the officers of the department observed that the appellant had imported charter vessel on hire from owners located outside India and they raised the issue of taxability for chartering / hiring these vessels. The appellants submitted a detailed write up in support of their contentions vide letter dt. 29.12.2016 and 20.02.2017. The said contentions put forward by the appellants were not accepted and show cause notice dt. 07.12.2017 was issued alleging that the consideration paid by the appellant to the lessor is a leasing transaction which is a declared service under Section 66E (f) of the Finance Act, 1994 as amended in 2012 and that it is not a transfer of right to use goods as contended by the appellants. The appellant were thus asked to pay up service tax under reverse charge mechanism on the consideration paid to the lessor for the period November 2015 to January 2016.
2.5 In the reply to SCN appellant had referred to the key clauses in the agreement that these clauses in the agreement would satisfy the test laid down by the Hon’ble Apex Court in the case of BSNL Vs UOI – 2006 (2) STR 161 (SC) as to whether a transaction is right to use goods / deemed sale. The Ld. Consultant pointed out that the TRU circular D.O.F. No.334/1/2012-TRU New Delhi dt.16.03.2012 has given clarification in paras 2.5.7, 2.5.8 as to what are ‘deemed sales’ and also the meaning of ‘transfer of right to use any goods’.
2.6 In the Taxation of Services and Education Guide issued by the CBEC dt. 20.06.20 12, which is after the major amendments wherein declared services was introduced, the Board has clarified the meaning and scope of the phrase “transfer of right to use goods”. The clarification in this Education Guide is again based on the decision of the Hon’ble Apex Court in BSNL Vs UOI – 2006-TIOL-15-SC-CT-LB = 2006 (2) STR 161 (SC) The test laid down by the Board relying upon BSNL case of the Hon’ble Supreme Court is as follows :
1. There must be goods available for delivery;
2. There must be a consensus ad idem as to the identity of the goods;
3. The transferee should have legal right to use the goods – consequently all legal consequences of such use including any permissions or licenses required therefore should be available to the transferee;
4. For the period during which the transferee has such legal right, it has to be 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 license to use the goods;
5. Having transferred the owner cannot again transfer the same right to others.
2.7 The Ld.Consultant adverted to the various clauses in the charter agreement and compared the same with the test laid down in the BSNL judgment / Education Guide issued by department to explain that clauses in the agreement would satisfy the conditions laid down in BSNL judgment to hold that transaction is nothing but a transfer of right to use goods and not transfer of goods by way of hiring, leasing, licensing or any such manner. His submissions in regard to clause in the charter agreement is as under :
