Leasing of Containers from Overseas Lessor Not ‘Supply of Tangible Goods’: CESTAT Sets Aside Service Tax Demand [Read Order]

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside a Service Tax demand and ruled that the leasing of containers from foreign companies did not constitute 'Supply of Tangible Goods' when possession and effective control were transferred to the lessee.

Caravel Logistics (appellant) provides services including Custom House Agent and Transport of Goods. The company leased containers from foreign entities for transporting import and export cargo, paying rent in foreign currency.

The Service Tax authorities alleged that because the appellant supposedly lacked possession or control of the containers, they were liable to pay Service Tax under the ‘Supply of Tangible Goods’ category on a reverse charge basis. This led to the issuance of Statements of Demand (SOD) covering the period from April 2013 to March 2015.

The Principal Commissioner of Service Tax, Chennai, upheld these demands with interest and penalties. Aggrieved by the order, the appellant filed an appeal before the CESTAT.

The Counsel for the appellant argued that the issue was already decided in favor of the appellant by a previous Tribunal Order. The counsel contended that since the current demands were a continuation of the earlier dispute, the same judicial reasoning should apply.

The bench comprising M. Ajit Kumar (TechnicalMember) and Ajayan T.V. (Judicial Member), observed that the "five-fold test" established by the Supreme Court in the BSNL case was satisfied in this instance.

The tribunal observed that the delivery of containers to the appellant constituted a transfer of possession. It also observed that the appellant had the legal right to use the containers, obtained necessary customs licenses in its own name, and enjoyed "quiet possession" to the exclusion of the lessor.

The tribunal noted that the transaction was a ‘deemed sale’ Because both possession and effective control were transferred, the transaction was a "deemed sale" rather than a service.

The tribunal rejected the Department's argument that safety conditions (such as prohibiting hazardous goods) meant the lessor retained control. The bench clarified that such conditions are merely to maintain the safety of the asset and do not interfere with the lessee's right to use the goods.

The tribunal observed that as there was a transfer of possession and effective control of the goods so the activity cannot fall under Supply of Tangible Goods and the demand of service tax cannot sustain.

The tribunal set aside the order and granted the appellant consequential relief as per law. The appeal of the appellant was allowed.

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