Dismissed

M/s Deccan Transcon Leasing Private Limited

GST AAAR26 Aug 2022Order-in-Appeal No. AAAR/07/2022

Case brief

AI extract

What is this about?

The Appellate Authority dismissed the appeal filed by the appellant against an advance ruling. The court held that the lease-purchase agreement regarding tank containers from the UK, where ownership remains with the lessor until purchase, constitutes a supply of services rather than goods, attracting IGST under reverse charge.

What did the court decide?

The ruling of the lower authority was upheld; the appeal was disposed of accordingly without granting relief to the appellant.

M/s Deccan Transcon Leasing Private Limited — GST and Indirect Tax | GST AAAR (2022)

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Order-in-Appeal No. AAAR/07/2022

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TELANGANA STATE APPELLATE AUTHORITY FOR ADVANCE RULING (Goods and Services Tax) 1^st Floor, Commercial Taxes Complex, M.J. Road, Nampally, Hyderabad 500 001

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AAAR.COM/07/2021

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Dated:26.08.2022

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Order-in-Appeal No. AAAR/07/2022

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(Passed under Section 101 (1) of the Telangana Goods and Services Tax Act, 2017)

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Preamble

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In terms of Section 102 of the Telangana Goods and Services Tax Act, 2017 (TGST Act, 2017 or the Act), this Order may be amended by the Appellate authority so as to rectify any error apparent on the face of the record, if such error is noticed by the Appellate authority on its own accord, or is brought to its notice by the concerned officer, the jurisdictional officer or the applicant within a period of six months from the date of the order. Provided that no rectification which has the effect of enhancing the tax liability or reducing the amount of admissible input tax credit shall be made, unless the applicant or the appellant has been given an opportunity of being heard.

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Under Section 103 (1) of the Act, this advance ruling pronounced by the Appellate Authority under Chapter XVII of the Act shall be binding only

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(a) On the applicant who had sought it in respect of any matter referred to in sub-Section (2) of Section 97 for advance ruling;

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(b) On the concerned officer or the jurisdictional officer in respect of the applicant.

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Under Section 103 (2) of the Act, this advance ruling shall be binding unless the law, facts or circumstances supporting the original advance ruling have changed.

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Under Section 104 (1) of the Act, where the Appellate Authority finds that advance ruling pronounced by it under sub-Section (1) of Section 101 has been obtained by the appellant by fraud or suppression of material facts or misrepresentation of facts, it may, by order, declare such ruling to be void ab-initio and thereupon all the provisions of this Act or the rules made thereunder shall apply to the appellant as if such advance ruling has never been made.

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Order-in-Appeal No. AAAR/07/2022

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Subject: GST – Appeal filed by M/s. Deccan Transcon Leasing Private Limited, Block -2 (DG-6) Flat No. :103, Raintree Park, Spinal Road, Kukatpally, Hyderabad – 500 072, Telangana State under Section 100 (1) of TGST Act, 2017 Against Advance Ruling TSAAR Order No.08/2021 dated 17.08.2021 passed by the Telangana State Authority for Advance Ruling – Order-inAppeal passed – Regarding .

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The subject appeal has been filed under Section 100 (1) of the Telangana Goods and Services Tax Act, 2017 (hereinafter referred to as “TGST Act, 2017” or “the Act”, in short) by M/s. Deccan Transco Leasing Private Limited, Block -2 (DG-6) Flat No. :103, Raintree Park, Spinal Road, Kukatpally, Hyderabad – 500 072. The appellant is not registered under GST has filed an application in FORM GST ARA-01 under Section 97(1) of TGST Act, 2017 read with Rule 104 of CGST/TGST Rules. The appeal is filed against the Order No.08/2021 dated 17.08.2021 (“impugned order”) passed by the Telangana State Authority for Advance Ruling (Goods and Services Tax) (herein after referred as “Advance Ruling Authority” / “AAR” / “lower Authority”).

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Vide impugned order, the Advance Ruling Authority had given the following advance rulings:

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Is GST liable to be paid on leasing of tank containers taken form a supplier i.e., lessor who is located outside India and the tank containers do not reach India? As it is finance lease, it is supply of goods and tank containers do not reach the Indian Territory.

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Yes. The applicant is liable to pay IGST on importation of lease services into India in light of the above discussion.

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The present appeal challenges the ruling given on question before the Appellate Authority for Advance Ruling.

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Whether the appeal is filed in time

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3.1 In terms of section 100(2) of the Act, and appeal against Advance Ruling passed by the Advance Ruling Authority, has to be filed within thirty (30) days from the date of communication thereof to the applicant. The impugned Order dated 17.08.2021was received by the appellant on 31.08.2021 as mentioned in their Appeal Form GST ARA02. They filed the appeal on 02.11.2021, which is within the prescribed time-limit.

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Order-in-Appeal No. AAAR/07/2022

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Brief Facts:

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M/s Deccan Transcon Leasing Private Limited ( DTLPL ) are Non-vessel owner container carriers/ Operators (NVOCC) who are based in India but lease containers from suppliers outside the country and in turn use it in transportation of bulk chemicals.

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The applicant entered into a lease purchase agreement from M/s. Tankspan Leasing Limited (TLL) on 28.08.2018. In terms of this agreement the applicant pays lease rentals every month and he is entitled for the purchase of the container during the period of lease or at the end of the lease period by paying the agreed rate.

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The applicant contends that they have recognized the tank containers and assets in the books of account from the inception of the lease and there is certainty that the same would be purchased later. Therefore the applicant is of the opinion that this transaction is a transaction for supply of goods from the inception of the agreement in terms of Sl.No.1(c) of Schedule II to Section 7. The applicant abstracted the said entry and opined that all the requirements mentioned in the entry in the schedule II are fulfilled by them i.e.,

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There shall be transfer of title in goods.

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Such transfer is at future date as per pre-existing agreement.

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Such transfer is after payment of full consideration.

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The applicant contends that the title is transferred at the end of the lease period as evident from the sale invoices raised by the supplier to the applicant.

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The applicant further contended that the said transfer of title occurred on a future date in pursuance of a pre-existing lease agreement and the supplier transfers title only after payment of full consideration as evident from terms of agreement.

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The applicant contends that the purpose and objective of the entry 1(c) of Schedule II is to declare that the transaction involving future title transfers as per the pre-existing agreements is to treat such transaction as supply of goods from the commencement of the agreement though the owner retains title to those goods until the happening of the ultimate event at the option of the hirer. The

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Order-in-Appeal No. AAAR/07/2022

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applicant further contended that any interpretation of this transaction where in it is treated as lease before the transfer of the title and as sale after the transfer of title goes contrary to the spirit of the above Entry. The applicant further contended that the entry cannot be rendered otiose by such interpretation and relied on the Hon’ble Apex Court’s decision in the case of Grasim industries 2002 (141) ELT 593.

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The applicant further contended that the Sales Tax Act, 1950 was amended to include hire purchase as deemed sale after the same was included in the definition of sale in Entry 29A of Article 366 of Constitution of India. Further that the definition of sale under CST Act under Section 2(g) is remaining untouched and therefore the deeming fiction. That accordingly a Supreme Court of India in many cases held levy of sales tax on consolidated proceeds of hire purchase and lease purchase transaction as valid and relies on (2000) 120 STC 1.

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That as per the agreement the applicant is entitled to purchase the tank upon payment of pre-agreed price mentioned therein and the lease rentals paid adjusted against the purchase price.

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That the applicant recognised these containers as asset in his books of account from the inception of the lease due to the certainty of acquisition at a future date.

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Therefore the applicant averred that the transaction is one for purchase of goods and not for lease service. Further they averred that such goods have never entered the territory of the country and therefore do not attract any tax under CGST/IGST Acts. The applicant relied on Mohit minerals Vs UOI (2020) 33 GSTL 321 (GUJ) wherein it was held that the transaction occurring totally outside India is not liable for GST in India.

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Aggrieved by the above ruling, the present appeal has been file by the appellant on the following grounds:

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In Re: Entry 29 of Article 366 of the Constitution of India is relevant.

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Appellant contends that Article 366(29A) of Constitution of India specifically & unequivocally provides that the present transaction is to be classified as ‘sale of goods’ thereby it shall be treated as ‘supply of goods’. The Article 366(29A) of Constitution of India and ‘Sale’ definition given under CST Act, 1956 vide Section 2(g) remain untouched even after introduction of GST thereby making the lawmakers intention to

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Order-in-Appeal No. AAAR/07/2022

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continue the deeming fiction to treat the transaction as ‘supply of goods’ under GST law also. This is exactly done by the Sl. No. 1(c) of the Schedule II to the section 7, ibid by declaring the future title transfers with pre-existing agreement construes to be ‘supply of goods’ from the beginning of the transaction. Accordingly, the GST liability shall be determined.

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The transaction is ‘supply of goods from the inception of the agreement:

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Appellant contends that “ the transaction of purchasing the containers during/end of the lease period is ‘supply’ under section 7 of CGST Act, 2017 and would be classified as ‘supply of goods in terms of Sl. No. 1(c) of Schedule II to section 7, ibid. The relevant extract is given below: “Any transfer of title in goods under an agreement which stipulates that property in goods shall pass at a future date upon payment of full consideration as agreed is a supply of goods ”.

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As seen from the above, the following are the ingredients required to fall under sl.no. 1(c) of Schedule II

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a. There shall be a transfer of title in goods

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b. Such transfer is at future date as per the pre-existing agreement

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c. Such transfer is after payment of full consideration

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In the instant case, all 3 ingredients stand fulfilled as narrated below:

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a. Title in the containers is getting transferred as evident from the ‘sale invoices’ raised by the Supplier to the Appellant and the ‘ownership transfer certificates’ given in favor of the Appellant.

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b. The title transfers occurred on a future date under the pre-existing lease agreement dated referred above. The relevant clause of the agreement reads as follows:

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“C. Lease Purchase Terms – For each of the containers delivered to the Lessee hereunder, the Lessee shall pay an amount at a daily rate of US dollars ten and twenty cents (US$10.20) per container. At the expiry of the term of the Lease Purchase, as described in paragraph B thereof, the lessee shall, provided that all payments for the full five (5) year term of lease-purchase are received by Lessor from Lessee and that no event of default has occurred, purchase all such Containers on lease for several US Dollars One and Nil cents (US$ l.00) per Container. Notwithstanding the above, subject to Lessee providing Lessor with Ninety (90) days’ notice. Lessee shall have the right at any time during the term of the lease to pay the total (less any rentals paid) of US Dollars Eighteen Thousand Six Hundred and Sixteen and Nil cents (US $18,616.00). upon receipt of payment by Lessor from Lessee for full payment for the term of the lease, such title of ownership for each Container shall pass to the Lessee. The Containers shall transfer to Lessee in the condition and at the location in which they are found on the date of transfer.”

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Order-in-Appeal No. AAAR/07/2022

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c. The Suppliers has transferred the title only after payment of full consideration as evident from the terms of the agreement and ownership certificates.

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Therefore, the present transaction entered with the supplier is ‘supply of goods.

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Appellant contends that the impugned order has vide para 7(v) have stated that “

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The Entry employs two phrases in order to emphasize the obligatory nature of the contract to ensure the passing of property from the supplier to the recipient at the completion of the period of the agreement or any such period, viz

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a. "An agreement which stipulates that"

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b. "Property in goods shall pass at a future date "

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Thus, the law leaves no scope for uncertainty regarding the transfer of property.

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The law does not provide for an option to purchase the goods at the end of the lease period but makes it an obligation on the part of contracting parties to necessarily transfer such property on the completion of period of agreement.

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Thus, for a transaction to qualify under this entry it should be backed by an agreement which does not leave any option for return of the goods at the end of such agreement.”

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Further Appellant contends that the impugned order vide para (vi) has stated that “The above Entry in the Schedule II employs the word "Stipulation" to be enshrined in the agreement and also the word "Shall" to make it obligatory on the supplier to sell the goods at a future date when the full consideration is received Both the words "Stipulation" and "Shall in the Entry do not leave any option to either the purchaser or the seller in this matter.”

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In this regard, Appellant contends that it becomes of utmost importance to understand the meaning of the word stipulation. Appellant contends that the word Stipulation is defined as under

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a. As per the Normal parlance “Stipulation is a condition or a requirement that is specified or demanded as part of an agreement .”

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b. As per Oxford English, “Stipulation means to specify as a part of an agreement.”

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c. As per the Word’s Phrases of Excise & Customs (CENTAX Publication), “Stipulated means to lay down as part of the agreement.

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Appellant contends that from the above it can be concluded that Stipulation means to have a condition in an agreement. Therefore, keeping the meaning of stipulation in the cl. (c) of entry 1 of Schedule II, would mean that “there must be a clause in the agreement for the

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Order-in-Appeal No. AAAR/07/2022

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transfer of title in goods stating that the goods would be transferred upon a future date provided on payment of full consideration”

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Appellant contends that in all the agreements they have a clause stating that the goods would be transferred at a future date and hence Appellant contends that the Appellant has fulfilled the condition specified in the agreement and falls under Sl. No. 1(c) of Schedule II.

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It was the submission of the appellant that “Even going by analogy of the impugned order that the transfer shall be mandatory, it is submitted that the clause of the agreement provides for it since the terms clearly says that Appellant shall purchase the containers at the end of the lease period at the price pre-fixed. The terms of agreement referred in the impugned order also fortifies the aforesaid factual position. Merely, the reservation of rights for return of the containers for breach of the agreement do not change the character of the transaction. Every hire purchase transaction would have similar clauses which are only to safeguard the interest of the lessor and that alone cannot be barrier to change the nature of transaction.

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Appellant contends that the said transaction is nothing but a hire purchase transaction as it squarely fits in the definition of Hire Purchase Agreement as defined under section 2(c) of Hire Purchase Act which states that “hire purchase agreement as an agreement under which goods are let on hire and under which the hirer has an option to purchase them in accordance with the terms of agreement, and includes agreement under which –

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(i) possession of goods is delivered by the owner thereof to a person on condition that such person pays the agreed amount in periodical instalments and

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(ii) the property in the goods is to pass to such person on the payment of last of such instalments and

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(iii) such person has a right to terminate at any time before the property so passes.”

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Appellant contends that though the Hire Purchase Act has been repealed but it can be said that in a hire purchase agreement, the possession of goods is delivered by owner to hirer on condition of payment of agreed number of instalments. Hirer has option to purchase the goods as per terms of agreement (usually, a nominal payment is provided at the end of hire period or property passes on payment of last instalment). Property in goods is passed on to the hirer after all terms of agreement are fulfilled. If the hirer does not fulfil the conditions of hirepurchase (e.g., does not pay instalments on due dates) possession of

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goods can be taken back by owner giving goods on hire purchase. Generally, the period of hire purchase is such that hirer becomes owner when economic life of asset is almost over.

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In this regard, Appellant wishes to rely on the judgement of Charanjit Singh Chadha v. Sudhir Mehra 2001 AIR SCW 3487 (2001) 7 SCC 417, wherein it was observed, 'Hire purchase agreements are executory contracts under which goods are let on hire and hirer has option to purchase in accordance with terms of the agreement. -- Under hire purchase agreement, the hirer is simply paying for the use of goods and for option to purchase them. - - If the hirer makes default by not paying instalments, the owner can take possession of goods”

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Appellant contends that as stated in the background facts, Appellant entered into a lease purchase agreements with M/s. Tankspan leasing Ltd. In terms of the aforesaid agreement, the agreed rates of lease rentals would be paid every month and the Appellant entitles for purchase of the tank containers at the end or middle of the lease period as per the rates agreed in the beginning of the lease itself. Therefore, the said transaction is nothing but a Hire Purchase.

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Appellant contends that once the transaction is a Hire Purchase Agreement the same is a supply of goods as the same is clarified in Sl. 18 of FAQs issued by the CBIC (3^rd Edition) issued on 15.12.2018. Which is reproduced for the easy reference

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“Q 18. Whether goods supplied on hire purchase basis will be treated as supply of goods or supply of services? Why? Ans. Supply of goods on hire purchase shall be treated as supply of goods as there is transfer of title, albeit at a future date”

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Further Appellant contends that the same entry was even existed in the VAT regime wherein it was held treated as goods and vat was levied

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a. In Jay Bharat Credit & Investment Co. v. CST (2000) reported in 120 STC 1 ( SC 3-member bench), it was held that sales tax can be levied on full amount paid by the hirer, which would include the hire charges.

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b. In the INSTALMENT SUPPLY (PRIVATE) LTD. AND ANOTHER VERSUS THE UNION OF INDIA AND OTHERS (1961 (5) TMI 53 - SUPREME COURT) wherein the Hon’ble Supreme Court has held that “It is clear that under the law, as it now stands, which has now been crystallised into the section of the Hire Purchase Act, quoted above, the transaction partakes of the nature of a contract of bailment with an element of sale, as aforesaid, added to it. In such an agreement, the hirer may not be bound to purchase the thing hired; he may or may not be. But in either case, if there is an obligation to buy, or an option to buy, the

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goods delivered to the hirer by the owner on the terms that the hirer, on payment of a premium as also of a number of instalments, shall enjoy the use of the goods, which ultimately may become his property, the transaction amounts to one of hire-purchase, even though the title to the goods has remained with the owner and shall not pass to the hirer until a certain event has happened, namely, that all the stipulated instalments have been paid, or that the hirer has exercised his option to finalise the purchase on payment of a sum, nominal or otherwise.”

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Further Appellant wishes to rely on the international judgement in the case of the Commissioners for Her Majesty’s Revenue & Customs v Mercedes-Benz Financial Services UK Ltd – decision dated 04^th October 2017 in Case C 164/16 wherein it was held that “The Court held that, the words 'contract for hire which provides that in the normal course of events ownership is to pass at the latest upon payment of the final instalment', used in Article 14(2)(b) of Council Directive 2006/112/EC must be interpreted as applying to a leasing contract with an option to purchase if it can be inferred from the financial terms of the contract that exercising the option appears to be the only economically rational choice that the lessee will be able to make at the appropriate time if the contract is performed for its full term.

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a) An agreement may be considered to contain an express ownership transfer clause where that agreement contains an option to purchase the leased asset.

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b) It must be clear from the terms of the contract, as objectively assessed at the time when it is signed, that ownership of the goods is intended to be acquired automatically by the lessee if performance of the contract proceeds normally, over the full term of the contract.

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c) The only inference to be drawn from the words contained in the phrase in question, is that the on final payment of sums to be paid by the lessee under the terms of the contract, the same results, by operation of law, in the transfer to that lessee of ownership of the goods to which the agreement relates.”

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From the above, the Appellant contends that the Appellant believes that the said transaction falls under the supply of goods.

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Further the Appellant contends that the impugned order has stated that “In K.L. Jahar & Co, Vs Dy. Commercial Tax Officer, AIR 1965 SC 1083 it has been held that a hire purchase agreement is distinct from a sale in which the price is to be paid later by installments, In the case of sale in which the price is to be paid by installment, the property passes as soon as the sale is made even though the price has not been fully paid and may later be paid by installments. The distinguishing feature of a hire

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purchase agreement is that the property does not pass when the agreement is made but only passes when the option is finally exercised after complying with all the terms of the agreement.”

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In this regard, the Appellant contends that the Hon’ble SC in case of K.L. Johar and Co. v. CTO [(1965) 2 SCR 112 = AIR 1965 SC 1082 held that ‘sale’ happens only at the time of exercising the option to purchase and ‘sales tax can be levied only on the value at the time of exercising such purchase option. Pursuant to the 61^st law commission recommendation, the Constitution of India was amended vide insertion of Article 366(29A) to specify ‘hire purchase’ or ‘other installment’ purchase transaction as ‘sale’ and the state sales tax laws, Central Sales Tax (CST) Act, 1956 was also amended to deem ‘hire purchase’ as ‘sale of goods’ at the time of entering into the agreement itself. The relevant extracts of the 61^st law commission report, the amended definitions of ‘sale of goods’ under the Constitution of India, CST Act, 1956 and state sales tax laws is enclosed as annexure VII.

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Appellant contends that the purpose & objective of the sl. 1(c) of Schedule II is to declare that the transaction involving future title transfers as per the pre-existing agreements shall be treated as ‘supply of goods’ from the commencement of the agreement even though there may be a stipulation to the effect that in spite of the transfer of goods to the hirer, the owner retains title to those goods until the happening of the ultimate event, namely, completion of title at the option of the hirer. If the entry is read to include only that transfer taking place at the time of exercising purchase option and splitting the pre-transfer as ‘separate transaction’, then it violates the language of the Sl. No. 1(c) of Schedule II as it would not have been necessary to include future title transfers separately. The whole objective of the Sl. No. 1(c) is to provide that wherever the pre-existing agreement stipulates that the title transfers take place in future would be treated as ‘supply of goods’ even before the actual title transfer event. Any different interpretation violates the language of Sl. No. 1(c) and makes the entry redundant. It is settled law that any interpretation making the redundancy of any other provisions shall be avoided and all provisions has to be construed to harmonize & give effect of the provisions in the statute. In this regard, reliance is placed on

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a. Grasim Industries Vs CC, Bombay 2002 (141) ELT 593 (SC) wherein it was held that “ 8. No words or expressions used in any statute can be said to be redundant or superfluous. In matters of interpretation, one should not concentrate too much on one word and pay too little attention to other words. No provision in the statute and no word in any section can be construed in isolation. Every provision and every word must be looked at generally and in the context in

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which it is used. It is said that every statute is an edict of the legislature.”

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b. Collector Vs Jiyajeerao Cotton Mills Limited 1990 (45) ELT A33 (SC).

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Appellant further contends that the disputed transaction is a hire purchase transaction wherein the title of the goods will be transferred at a future date and the said transaction is in the nature of being ‘sale’. In this regard, Appellant wishes to place reliance on the judgment of

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a. Hon’ble SC in case of Jay Bharat Credit and Investment Co. Ltd vs. CST 2000 120 STC 1 wherein it has upheld that levy of sales tax on the consolidated proceeds of hire purchase.

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b. Hon’ble SC in case of Instalment Supply Ltd. vs. STO [1974] 34 STC 65 (SC) held that lease-purchase transactions are sale and liable for sales tax.

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Further, the total price paid by the Appellant remains the pre-agreed sale price irrespective of the fact that when the actual sale taken place as the lease rentals paid gets adjusted while paying the purchase price by the Appellant. Hence, though the title transfer is postponed, the intention of the parties is always to execute the sale of the tank containers at a future date with pre-agreed price & terms, which is precisely & concisely covered by the language of the Sl. No. 1(c) of Schedule II.

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It is further submitted that the Appellant is responsible for the repairs, maintenance, damages, replacement and insurance of the tank containers which also fortifies the fact that the transaction is ‘sale’ and intention of the parties is to transfer the title from the inception of the agreement.

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Appellant further contends that the initial lease rentals paid till the exercise of the purchase option would be adjusted for sale price of the tank containers and the suppliers would be issuing the credit note to nullify the previous transaction and raise the sale invoice for agreed sale price. The sample copies of the credit notes are enclosed as Annexure-V hence, the whole transaction is concluded as ‘sale of tank containers’ only.

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It is further submitted that the Appellant recognizes ‘tank containers’ as an asset from the inception of ‘lease’ following the certainty that acquisition in future date. The relevant extracts of the financial statements are enclosed as Annexure-VIII.

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Appellant contends that the transaction of purchasing the containers during/end of the lease period is ‘supply’ under section 7 of CGST Act,

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2017 and would be classified as ‘Finance Lease’ in terms of Accounting Standard – 19 “Leases” .

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Appellant contends that the impugned order vide para 7(ii) has stated that “Further under Accounting Standard – 19 of Accounting Standards of India the leased asset will be shown in the books of the lessee and this does not alter the nature of lease transaction”

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Appellant contends that the AS-19 recognizes a particular transaction based on the substance of the transaction rather than its form. This is even evident from the Para 8 & Para 12 of the Accounting Standards – 19 publishes by the Ministry of Corporate Affairs which is extracted for easy reference

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“8. Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than its form . Examples of situations which would normally lead to a lease being classified as a finance lease are:

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a. the lease transfers ownership of the asset to the lessee by the end of the lease term.

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b. the lessee has the option to purchase the asset at a price which is expected to be sufficiently lower than the fair value at the date the option becomes exercisable such that, at the inception of the lease, it is reasonably certain that the option will be exercised

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c. the lease term is for a major part of the economic life of the asset even if title is not transferred.

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d. at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all the fair value of the leased asset; and

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e. the leased asset is of a specialised nature such that only the lessee can use it without major modifications being made.”

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“12. Transactions and other events are accounted for and presented in accordance with their substance and financial reality and not merely with their legal form. While the legal form of a lease agreement is that the lessee may acquire no legal title to the leased asset, in the case of finance leases the substance and financial reality are that the lessee acquires the economic benefits of the use of the leased asset for the major part of its economic life in return for entering into an obligation to pay for that right an amount approximating to the fair value of the asset and the related finance charge.”

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In this regard, Appellant contends that the substance will prevail over the form which means the actual usage prevails when compared to terms of the agreements. Hence, the transaction would be treated as a ‘supply of goods.’ In this regard, reliance is placed on

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a. Avadhi Computers Pvt Ltd Vs CCE, Mangalore 2016 (46) STR 429 (Tri-Bang) wherein it was held as follows

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3. Revenue’s grievance is that if the MOU is read and most particularly Article 4 of the MOU, it shows that the appellant was not at all an agent or an employee or a sub-contractor of NIIT. Therefore, appellant cannot claim benefit under any other clause under Section 65(19) of the Finance Act, 1994.

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4. Heard both sides on the submissions above. This does not appeal to common sense that the appellant was in the status of client and consultant relation. Reading of the memorandum of understanding shows that the appellant was to carry out the object of the appellant which is computer education. The doctrine of substance prevails over the firm for which Revenue cannot make the plea that the contract is to be read in literal sense. So also, when the object of the notification cited by appellant is examined the appellant having provided computer education is exempt from liability to service tax. Therefore, the appeal is allowed.

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b. M/s. M.P. Power Generating Co. Pvt. Ltd. Versus CCE, Bhopal (2017 (4) TMI 952 – CESTAT New Delhi) wherein it was held that “7. Admittedly, the residential quarters of the appellants have been given on rent for occupation of the employees of the contractors. The Revenue contends that the employees of the contractors staying in such accommodation will help in furtherance of business or commerce of the appellants as well as the contractors. In this connection, we refer to the statutory definition as reproduced above. Explanation-I to the tax entry explains the scope of the term, -for use in course or furtherance of business or commerce’. It includes use of space in immovable property as factories, offices, buildings, warehouses, theatres, exhibition halls, and multiple-use buildings. Admittedly, in the present case, the property has not been used for any one of these purposes. It is to be considered whether the employees of the contractors using the property for residential accommodation and attending to the contract work can be considered as usage of property in course or furtherance of business or commerce. We find such interpretation is not tenable. Such inference will virtually cover large number of pure residential accommodations under the tax net of renting of immovable property only on the ground that the person occupying the residential accommodation happens to be involved in business or commerce. We are of the opinion that the actual usage of the property for a particular purpose will decide the nature, either ‘residential ‘or used in ‘furtherance of commerce or business ‘. The nature of contracting

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parties or the occupation of the occupant has no relevance to decide the scope of the tax entry.”

¶147

c. In Nilkantha Narayan Singh v. CIT (1951) 20 ITR 8 (Patna), it is well settled that an agreement has to be read as a whole and the intention of the parties is to be gathered from it. Moreover, if the terms used in the agreements are not conclusive and one has to look at the substance rather than the form. In addition, it is equally well settled that a name given to a transaction by the parties does not necessarily decide the nature of the transaction. Thus, it is the substance of the contract that has to be regarded.

¶148

d. In State of Andhra Pradesh v. Kone Elevators India Ltd. (2005) 181 ELT 156 (Supreme Court), Apex Court held that “the substance of the contract is determinative and not its form. Thus, the essence of the contract is crucial and to be seen, keeping in mind the intention of the parties.”

¶149

e. In Bharat Sanchar Nigam Ltd. v. Union of India (2006) 2 STR 161; (2006) 3 STT 245 (SC), it was held that “before determining the nature of the taxes which can attract in the context of the Agreements, it is essential to determine the intention of the contracting parties and the true nature of the transaction as per the law declared by the Hon'ble Supreme Court in various judgment.”

¶150

Therefore, Appellant contends that the Substance of the transaction must prevail over his legal form and AS-19 follows the substance over the form hence the transaction is a finance lease and is the purchase of goods and not services.

¶151

The transaction falls outside the jurisdiction of GST law in India:

¶152

Without prejudice to the above, Appellant contends as the impugned order has completely ignored this submission the Appellant wishes to reiterate the submissions made before the Advance Authority.

¶153

Appellant contends that the Indian GST has adopted the dual levy concept wherein the IGST would be levied on the inter-state transaction and CGST + SGST would be levied on the intra-state transaction. For this, the charging sections i.e., Section 5 of IGST Act, 2017 provides for the levy of GST on the inter-state supplies of goods/services and Section 9 of CGST Act, 2017 & state SGST laws provides for levy of GST on the intrastate supplies. Section 7 of the IGST Act, 2017 specifies the criteria to treat any supply as ‘interstate supplies’, and similarly, section 8 of IGST Act, 2017 provides for the criteria to determine ‘intra-state supplies. The present transaction of supplying the containers & not bringing into India do not fall into any of the criteria given under section 7 or 8 of IGST Act, ibid. Therefore, there is no levy of GST on the present transaction.

¶154

Appellant further contends that Article 269A of Constitution of India permits ‘sale in the course of import into territory of India’ to be

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considered as interstate supply, hence, the section 7/8 IGST Act, 2017 cannot be extended to the ‘present transaction’ in absence of the import into India.

¶158

Appellant further contends that the transaction is occurring outside India and hence not liable for GST in India. Section 1(2) of IGST Act, 2017 provides that Act extends to whole of India. Further ‘India’ has been defined in section 2(56) of CGST Act read with section 2(24) of IGST Act, 2017 to mean ‘the territory of India as referred to in article 1 of the Constitution, its territorial waters, seabed and sub-soil underlying such waters, continental shelf, exclusive economic zone or any other maritime zone as referred to in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976, and the air space above its territory and territorial waters’

¶159

Hence, Appellant contends that scope of IGST Act, 2017 is limited to territorial jurisdiction to which it extends. Thus, IGST can be levied only to supplies occurred within the territorial jurisdiction of the IGST Act, 2017 qua Indian Territory. The present transaction taking place outside India. Hence, GST is not leviable in India on the same.

¶160

The Appellant wishes to rely on Mohit Minerals Vs UOI 2020 (33) G.S.T.L. 321 (Guj.) wherein it was held that the transaction which occurred totally outside the India is not liable for GST in India.

¶161

Appellant further contends that the tank containers are totally used for export business outside India and hence, the transaction remains totally consumed outside the territory of India. In this regard, Applicant wishes to rely on the decision in case of Genom Biotech Pvt. Ltd. v. C.C.Ex. &Cus., Nashik [2016 (42) S.T.R. 918 (Tri-Mumbai) wherein it was held that “Services that are not connected with manufacture or with the transport of goods till the customs frontier of the country can be disassociated from use within the country and hence would not lie within the ambit of the legal fiction of import of services. Services that are undeniably rendered by a foreign 'service provider' in relation to the goods sold abroad cannot be presumed to be covered by the legislative intent to tax. To tax a service using the legal fiction of import and then reimburse that tax because the service was not required for any activity within the country is an exercise in futility and is contrary to the objectives of and means devised for export promotion by the State.”

¶162

Appellant contends that transaction happened outside India is not liable for indirect taxes in India as the Indirect taxes including the GST is the destination and consumption-based tax. In this regard, reliance is placed on the following decisions:

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a. All India Federation of Tax Practitioners vs UOI 2007 (7) STR 625 S.C;

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b. Indian Association of Tour Operators Vs. UOI 2017 (5) G.S.T.L. 4 (Del.);

¶167

c. Paul Merchants Ltd. v. Commissioner — 2013 (29) S.T.R. 257 (Tribunal);

¶168

d. Cox & Kings India Ltd. v. Commissioner — 2014 (35) S.T.R. 817 (Tribunal);

¶169

e. Intas Pharmaceuticals Ltd. vs. C.S.T 2009 (16) STR 748

¶170

f. Infosys Ltd. v. Commissioner of Service Tax, Bangalore [2015 (37) S.T.R. 862 (Tri.- Bang.)

¶171

g. Milind Kulkarni & Others v. CCE, Pune – I2016 (44) S.T.R. 71 (Tri. - Mumbai)

¶172

Falls under Schedule III of section 7 of CGST Act, 2017 and hence not a ‘supply’ leviable to GST:

¶173

Appellant further contends the impugned transaction squarely falls under sl. No. 7 of Schedule III of section 7, ibid which provides that Supply of goods from one place to another place in Non-taxable territory without bringing into India is neither supply of goods nor supply of services. In the instant case, the goods qua containers from M/s. TLL gets supplied from the place in a non-taxable territory and does not come to India thereby the transaction is not liable for GST in the hands of the Applicant.

¶174

Appellant contends that the proviso to section 5(1) of IGST Act, 2017 provides that IGST is levied & collected on the goods imported as per the provisions of Customs law more specifically section 3 of Customs Tariff Act, 1975 and section 12 of Customs Act, 1962.

¶175

On a conjoint reading of the above provisions, it is clear that IGST on goods imported into India is to be levied and collected following Section 3 of the Customs Tariff Act, 1975 and Section 12 of the Customs Act, 1962, and the same is to be levied and collected at the time of import into India. The goods are considered to be imported into India only after they cross the customs frontier after compliance with applicable procedures and payment of duty as applicable. Section 12 of the Customs Act, 1962 provides that custom duties which include integrated tax in respect of imported goods would be levied only at the time of import or export of goods. Accordingly, there is no levy in the present case as the goods do not cross the customs frontier in compliance with Section 12 of the Customs Act and Section 3 of the Customs Tariff Act, ibid .

¶176

The CBIC vide Circular No. 33/2017-Customs dated 01.08.2017 has

¶177

also clarified that GST is not leviable on the High seas’ sales transaction referring to the above provisions. The relevant extract of the clarification is given below:

¶178

“4. GST council has deliberated the levy of Integrated Goods and Services Tax on high sea sales in the case of imported goods. The council has

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decided that IGST on high sea sale (s) transactions of imported goods, whether one or multiple, shall be levied and collected only at the time of importation i.e., when the import declarations are filed before the Customs authorities for the customs clearance purposes for the first time. Further, value addition accruing in each such high sea sale shall form part of the value on which IGST is collected at the time of clearance.

¶182

5. The above decision of the GST council is already envisioned in the provisions of sub-section (12) of section 3 of Customs Tariff Act, 1975 inasmuch as in respect of imported goods, all duties, taxes, cesses etc shall be collected at the time of importation i.e., when the import declarations are filed before the customs authorities for the customs clearance purposes. The importer (last buyer in the chain) would be required to furnish the entire chain of documents, such as original Invoice, high-seas-sales-contract, details of service charges/ commission paid etc, to establish a link between the first contracted price of the goods and the last transaction. In case of a doubt regarding the truth or accuracy of the declared value, the department may reject the declared transaction value and determination the price of the imported goods as provided in the Customs Valuation rules.”

¶183

The aforesaid clarification is equally applicable to the present set of facts & circumstances. The circular bind the quasi-judicial authorities in terms of the Hon’ble SC decision in the case of Commissioner v. Ratan Melting and Wire Industries 2008 (12) S.T.R. 416 (S.C.).

¶184

Appellant further contends that the similar issue was dealt with by the below cited decisions given by the Authority of Advance ruling wherein it was held that GST is not liable on the goods supplied outside India if not brought into India:

¶185

a. Authority for Advance Ruling, Kerala vide Order No. CT 12275/18C3 dated 26.03.2018 in the case of M/s. Synthite Industries Ltd., Ernakulam, Kerala reported in 2018 (4) TMI 583

¶186

b. Authority for Advance Ruling, Gujarat vide Order No. GUJ/GAAR/R/04/2020 in case of M/s. Sterlite Technologies Ltd reported in 2020 (6) TMI 485

¶187

c. Authority for Advance Ruling, Maharashtra vide Order No. GST-ARA24/2018-19/B-75 dated 26.07.2018 in case of M/S. Jotun India Pvt. Ltd 2018 (12) TMI 67

¶188

Personal Hearing:

¶189

In terms of Section 101(1) of the Act, the appellant was given personal hearing, in virtual mode on 21.02.2022. Shri Sudhir V.S., Chartered

¶190

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Accountant of M/s. Hiregange & Associates LLP and Authorised Representative appeared for the Appellants. The appellants reiterated their written submissions made along with the application and no additional submissions were made at the time of personal hearing. They requested to set aside the advance ruling in respect of said issue that are being contested and consider their appeal favourably.

¶193

7. Discussions and Findings :

¶194

The objections raised by the appellant are examined and arrived at the following conclusions:

¶195

1. The appellant has entered into ‘lease purchase agreements’ with M/s Tankspan leasing Ltd, Surrey, United Kingdom, as per the agreements the appellant shall pay agreed rates of lease rentals every month and the appellant shall have an option to purchase the tank containers at the end of the lease period.

¶196

1. As per the copies of the lease purchase agreement submitted by the appellant, some of the conditions are as under:

¶197

a. Leasing- In consideration of the terms and covenanats herein contained, lessor agrees to offer on lease purchase to the lessee and the lessee agrees to hire from the lessor 100 New IMO Type 1 (T11) 25,000 Litre Tank containers to the specification provided by lessor to lessee, to be taken on lease ex CIMC factory and identified by the serial numbers TASU 665261 to TASU 665360 listed in the then current invoice, to be provided after delivery and incorporated herein (hereinafter called the “containers”)

¶198

b. Term-The term of lease purchase shall commence as to each container on the date of delivery to the lessee of such container to TASU and shall continue for each of the containers for a maximum period of five(5) years counting from their respective dates of delivery and thereupon the lease shall terminate as to each container, respectively.

¶199

c. Lease purchase terms – For each of the container delivered to the lessee hereunder, the lessee shall pay an amount at a daily rate of US Dollars 10.20 per container At the expiry of the term of the lease purchase, as described in paragraph B hereof, the lessee shall, provided that all payments for the full five (5) year term of lease purchase is received by lessor and that no event of default has occurred, purchase all such containers on lease for an amount of Us dollars 1.00 per container, notwithstanding the above, subject to lessee providing lessor with 90 days notice, lessee shall have the right at any time during the term of the lease to pay the total (less any rentals paid) of US Dollars 18,616-00. Upon receipt of payment by lessor from lessee for full payment for the term of the lease, such title of ownership for each container shall pass to the lessee. The container shall transfer to the lessee in the condition and at the location in which they are found on the date of transfer.

¶200

d. Return after expiry of lease purchase term- Upon expiration of lease purchase term, as in paragraph B or expiry of the lease purchase term where the lessee has not purchased the containers in accordance with paragraph C or termination due to default of the lease purchase terms, the lessee shall return each container

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as to which the lease shall have expired pursuant to Paragraph B hereof to lessor at deposits to be nominated by the lessor. All other terms and conditions shall remain the same. Ancillary Charges.

¶204

i. Handling Charges – For each container delivered to the lessee ex CIMC factory, the lessee shall pay US $ Nil per lift. For each container returned to the lessor, the lessee shall pay to lessor, a handling charge of US $100.00 per lift at time of redelivery.

¶205

ii. Survey Charges – For each container delivered to the lessee, the lessee shall pay to lessor, a survey charges of US $ NIL per container.

¶206

e. Replacement values- The replacement value for each container damaged beyond economic repair, lost or destroyed pursuant to paragraph 10 of the lease terms shall be Us $ 25,000.00. Such replacement value shall be depreciated by 4% per annum for each full year from the date of manufacture of the container, down to a residual value of not less than 40% of the said replacement value. Each container shall be insured, by the lessee, new for old, to the value of the said replacement value

¶207

1. From the terms of the Lease purchase agreement it is evident that the appellant is obtaining the containers on lease for a period of 5 years and after expiry of 5 years or prior to five years the appellant has an option to purchase the container on payment of certain amount as per the contract. On exercising the option to purchase and payment of corresponding amount the ownership of the container passes on to the appellant from the lessor. If the appellant fails to purchase the containers he shall return back the same to lessor.

¶208

1. Hon’ble Supreme court of India in case of M/s Magma fincorp Limited Vs Rajesh Kumar Tiwari (Civil appeal No 5622 of 2019) in judgment dated 01-10-2020 held that the financier/Lessee continues to remain the owner of a vehicle, covered by a hire purchase agreement till all the hire installments are paid and the hirer/lesee exercises the option to purchase. Till such time the option is exercised the hirer remains only as the trustee or bailee of goods covered by such agreement. The same is applicable to lease purchase agreements also.

¶209

“ 63. The District Forum, as also the State Commission and the National Commission, did not consider the law relating to hire purchases as enunciated by this Court in a plethora of judgments.

¶210

64. In Charanjit Singh Chandha & Ors. V. Sudhir Mehra1 relied upon by the Financier, this Court held:

¶211

“5. Hire-purchase agreements are executory contracts under which the goods are let on hire and the hirer has an option to purchase in accordance with the terms of the agreement. These types of agreements were originally entered into between the dealer and the customer and the dealer used to extend credit to the customer. But as hire- purchase scheme gained in popularity and in size, the dealers who were not endowed with liberal amount of working capital found it difficult to extend the scheme to many customers. Then the financiers came into the picture. The finance company would buy the goods from the dealer and let them to the customer under hire-purchase agreement. The dealer would deliver the goods to the customer who would then drop out of the transaction leaving the finance company to

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collect instalments directly from the customer. Under hirepurchase agreement, the hirer is simply paying for the use of the goods and for the option to purchase them. The finance charge, representing the difference between the cash price and the hire-purchase price, is not interest but represents a sum which the hirer has to pay for the privilege of being allowed to discharge the purchase price of goods by instalments.

¶215

7. In Damodar Valley Corpn. v. State of Bihar AIR 1961 SC 440 this Court took the view that a mere contract of hiring, without more, is a species of the contract of bailment, which does not create a title in the bailee, but the law of hire purchase has undergone considerable development during the last half a century or more and has introduced a number of variations, thus leading to categories and it becomes a question of some nicety as to which category a particular contract between the parties comes under. Ordinarily, a contract of hire purchase confers no title on the hirer, but a mere option to purchase on fulfilment of certain conditions.

¶216

But a contract of hire purchase may also provide for the agreement to purchase the thing hired by deferred payments subject to the condition that title to the thing shall not pass until all the instalments have been paid. There may be other variations of a contract of hire purchase depending upon the terms agreed between the parties. When rights in third parties have been created by acts of parties or by operation of law, the question may arise as to what exactly were the rights and obligations of the parties to the original 1 (2001) 7 SCC 417 contract.

¶217

65. In Charanjit Singh Chadha (supra), this Court held that a Hire Purchase Agreement is an executory contract of sale, conferring no right in rem on the hirer, until the conditions for transfer of the property to him have been fulfilled. The Financier continues to be the owner of the goods under a hire purchase agreement. The hirer simply pays for use of the goods and for the option to purchase them. The finance charge, representing the difference between the price and the hire purchase price represents the sum which the hirer has to pay for the privilege of being allowed to pay the purchase price in instalments. Where the hirer had defaulted in payment of instalments and the agreement specifically provided that the Financier was entitled to repossess the vehicle in case of default, no case was made out against the Financier.

¶218

66. In K.L. Johar & Co. v. Deputy Commercial Taxes Officer, Coimbatore2 this Court took the view that a hire-purchase agreement has two elements: (1) element of bailment; and (2) element of sale, in the sense that it contemplates an eventual sale. The element of sale fructifies when the option is exercised by the intending purchaser after fulfilling the terms of the agreement. When all the terms of the agreement are satisfied, and the option is exercised, a sale takes place of the goods, which till then, had been hired.

¶219

2. AIR 1965 SC 1082

¶220

67. In Anup Sarmah v. Bhola Nath Sharma and Others 3 cited on behalf of the Financier, this Court held that, in an agreement of hire-purchase, the purchaser remains merely a trustee/bailee on behalf of the financier/financial institution and ownership

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remains with the latter. Thus, in case the vehicle is seized by the Financier, no criminal action can be taken against the Financier, as the Financier is only repossessing the goods owned by the Financier.

¶224

86. This Court held that the Financier continues to be the owner of the goods. There is an obvious typographical error in paragraph (27) of the judgment where hirer has been erroneously been typed in place of lender/financier.

¶225

87. The question raised by the Financier in this appeal, that is, whether the Financier is the real owner of the vehicle, which is the subject of a Hire Purchase Agreement, has to be answered in the affirmative in view of the law enunciated by this Court in Haranjit Singh Chadha (supra), K.L. Johar & Co. (supra) and Anup Sarmah (supra). The Financier being the owner of the vehicle which is the subject of a Hire Purchase Agreement, there can be no impediment to the Financier taking possession of the vehicle when the hirer does not make payment of instalments/hire charges in terms of the Hire Purchase Agreement. However, such repossession cannot be taken by recourse to physical violence, assault and/or criminal intimidation. Nor can such possession be taken by engaging gangsters, goons and musclemen as so called Recovery Agents. “

¶226

1. From the Conditions of the Lease purchase agreements and Judgment of Hon’ble Supreme court of India M/s Magma fincorp Limited Vs Rajesh Kumar Tiwari mentioned supra , the ownership of the containers lies with M/s Tankspan Leasing Ltd until the appellant exercises option to purchase the container as per the agreement.

¶227

1. In view of the above there is no transfer of title in goods until the appellant purchases the container and this fact wasn’t disputed either.

¶228

1. The appellant contends that this supply (obtaining Tankers on lease from M/s Tankspan Leasing Limited with an option to purchase them) falls under Entry 1 C of schedule II of CGST /TGST Act,2017, the contents of which are as under :

¶229

Transfer

¶230

(a) any transfer of the title in goods is a supply of goods;

¶231

(b) any transfer of right in goods or of undivided share in goods without the transfer of title thereof, is a supply of services;

¶232

(c) any transfer of title in goods under an agreement which stipulates that property in goods shall pass at a future date upon payment of full consideration as agreed, is a supply of goods.

¶233

1. Upon a plain interpretation of the entry, for a supply to be categorized under entry 1(c)

¶234

a. prima facie there shall be transfer of title in goods and

¶235

b. The agreement should not leave any option regarding passing of property in goods, upon payment of full consideration.

¶236

1. Taxation statutes should be interpreted strictly, For supplies falling under Entry 1(c) there should be immediate transfer of title in goods

¶237

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as per the agreement and property should be passed automatically on payment of full consideration at a future date. Thereby, where there is a future title transfer, the supply cannot be classified under entry 1(c) of Schedule –II.

¶240

1. As discussed above as there is no transfer of title in goods i.e., containers from the lessor to the lessee until purchased by the lessee, the supply doesn’t fall under Entry 1 C of Schedule II.

¶241

1. Further, as seen from the clauses of the agreement, default in payment is one of the conditions for return of goods and not the sole condition for “return of goods”, making it clear that title transfer after the payment of full consideration is not automatic. The Authority for advance Ruling has correctly pointed out that the law doesnot provide for an option to purchase the goods at the end of the lease period but makes it an obligation.

¶242

12) The appellant relies on Entry 29A of Article 366 of the Constitution of India to classify this transaction as that of Supply of goods. The appellant contends that only Entry 29A declares the classification of certain transactions. In this connection it may be recalled that the Article 366 begins with the phrase “ In this Constitution, unless the context otherwise requires, the following expressions have, the meanings hereby respectively assigned to them, that is to say”.

¶243

13) Therefore, the phrase tax on sale or purchase of goods is to be interpreted only within the context of Article 269 of the Indian Constitution. However, the present Act (CGST Act/ TGST Act, 2017), under which the transaction is being assessed, was formulated under the provisions of Article 269A of the Constitution of India.

¶244

14) Further, Entry 29A provides for as to what “tax on the sale or purchase of goods includes”. It is doesn’t classify the transactions as Supply (Sale or Purchase) of Goods or Services. The said classification was brought about through the Schedule –II of the TGST Act/CGST Act , which creates a deeming fiction as to which type of transactions shall be treated as Supply of Goods and which as Supply of Services.

¶245

1. The assessee contends his transaction to be Hire-purchase and thereby falling within the scope of Schedule II , Entry 1 (C) of the TGST Act, 2017 and interprets any other interpretation of the entry as rendering the entry itself as otiose. In this context, it is observed that GST Act doesn’t differentiate between the type of leases as to whether it is a Hire-purchase, financial lease or Operating Lease.

¶246

16) Transfers are classified only under Entry 1 of Schedule- II, Entry 1 (c) being a conditional entry. Here, terms of the present agreement do not meet with the conditions laid out in the Entry 1(c).

¶247

17) Entry 1(c) shall not be rendered otiose merely because the transactions of the kind discussed do not fall under the said Entry. The entry may be interpreted to include such type of transactions where the title transfer is done immediately but the physical

¶248

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possession of the goods is passed on at a future date, upon payment of full consideration.

¶251

1. The appellant has furnished the approval letters from RBI for making remittances in foreign exchange for the purchase of tankers without a bill of entry. One of the approvals accorded by the Reserve Bank of India recognizes the transaction as operating lease rentals for hiring tank container on operating lease basis which is in contrast to the submissions made by the appellant.

¶252

1. The appellant while bringing to fore the discussion on Accounting Standards has rightly contended that the substance of an agreement prevails over its form. However, substance prevails over form when Substance of an agreement doesn’t align with its form. Here in this case, form of the agreement (leasing agreement) aligns with the substance (intention to lease). The intention of the parties was to lease the containers with an option to purchase.

¶253

1. The intentions were evident as seen from the agreement; the monies arising out of the claim of insurance shall be transferred to the Lessor (the owner of the goods). As per the terms of agreement the lessee cannot even alter the color, identification marks or undertake Buffing(polishing) without the written approval from the lessor. Hence, the claim of the appellant that the intention of the parties is to transfer the title from the inception cannot be accepted.

¶254

1. The supply is squarely covered under Entry 1(b) of Schedule –II, which is read as under: “any transfer of right in goods or of undivided share in goods without the transfer of title thereof, is a supply of services”, as here in this case, there is a transfer of right in goods without the transfer of title.

¶255

1. Therefore the transaction in question is decided to be “Supply of Services”. Further as per the provisions of Sub-section (4) of Section 7 of IGST Act, 2017 which reads as under :

¶256

(4) Supply of services imported into the territory of India shall be treated to be a supply of services in the course of inter-State trade or commerce.

¶257

1. Therefore the transaction attracts IGST and is exigible to tax under the provisions of Sub-section(1) and Sub-section (3) of Section 5 of IGST Act and Notification No: 10/2017 –IGST(R).

¶258

1. Section 5(3) of IGST Act, reads as under:

¶259

(3) The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.

¶260

Accordingly the Central Government, upon the recommendations of the Council has notified (through Notification No: 10/2017 –IGST

¶261

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(Rate)) the following category of supply for which tax shall be paid on reverse charge basis by the recipient of service.

¶264

S.No	Category of Supply of	Supplier of	Recipient of
	Services	service	Service
1	Any service supplied by any person who is located in a non-taxable territory to any person other than non-taxable online	Any person located in a non- taxable territory	Any person located in the taxable territory other than non- taxable online
	recipient.		recipient.

¶265

Further as per the Provisions of Section 13 of IGST Act,2017 where the location of the supplier of services or recipient of services is located outside India, the place of supply is the location of recipient of services. Therefore, the transaction is taxable under reverse charge basis, with tax to be paid by the recipient of services, i.e. M/s Deccan Transco Leasing Private Limited with Place of Supply as ‘Telangana’.

¶266

The ruling of the lower authority is therefore upheld and the subject appeal is disposed accordingly.

¶267

ORDER

¶268

25. In view of the observations stated above, the following ruling is issued:

¶269

Questions Ruling Is GST liable to be paid on leasing of Yes, The applicant is liable to pay Tank Containers taken from a IGST on Importation of lease services supplier located outside India and into India in the light of the above the tank containers donot reach discussion. India ?

¶270

To:

¶271

M/s. Deccan Transco Leasing Private Limited, Block -2 (DG-6) Flat No. :103, Raintree Park, Spinal Road, Kukatpally, Hyderabad – 500 072 Telangana.

¶272

Copy to:

¶273

The Telangana State Authority for Advance Ruling, CT Complex, MJ Road, Nampally, Hyderabad- 500 001.

¶274

The Chief Commissioner of Central Tax & Customs, Hyderabad Zone – for information and for forwarding copies of the order to the concerned / jurisdictional officer of Central tax.

¶275