2026-VIL-1113-CESTAT-CHE-ST
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SERVICE TAX CESTAT Cases

Service Tax - Classification of voyage charter arrangements - Department proposing service tax demand under the category of "Supply of Tangible Goods for Use Service" invoking the extended period of limitation under the reverse charge mechanism - Whether the activity of chartering vessels under voyage charter agreements is classifiable as "Supply of Tangible Goods for Use Service" or as transportation of goods - HELD - The voyage charter arrangements constitute contracts of carriage of goods and not contracts for supply of tangible goods for use. The statutory provisions and administrative clarifications make it clear that the decisive test is whether possession, effective control and the right to use are transferred to the recipient - In the present case, the vessels remained under the command and operational control of the owners who provided the crew and retained responsibility for navigation and overall management. The vessels were never placed at the disposal of the appellant with no independent right to use, deploy or commercially exploit them. The issuance of Bills of Lading, which are characteristic features of contracts of carriage, and the computation of consideration as freight on the basis of quantity of cargo transported further established that the essence of transaction was transportation of goods and not supply of vessels for use - The contractual clauses relating to demurrage, dead freight, war risk and port expenses are standard features of maritime contracts and do not confer any right of exclusive possession or control over the vessel. The consistent conduct of the Department in accepting the same activity as transportation of coastal goods for the subsequent period rendered the present classification inconsistent and unsustainable - The impugned order is set aside and the demand for service tax is held unsustainable both on merits and on limitation. The extended period of limitation is held non-invocable and consequently the penalties imposed are set aside – The appeal is allowed - Extended Period of Limitation - The demand raised by invoking the extended period is unsustainable as the appellant had not suppressed any facts. The transactions were formally recorded in books of accounts and were available for verification during repeated audits conducted by the office of the Accountant General and Departmental internal audit. The issue involved was one of classification and interpretation of statutory provisions on which the appellant had taken a bona fide view. Mere non-payment of tax or adoption of a particular classification without deliberate intent to evade tax does not amount to suppression of facts. When the normal period of limitation was computed backwards from the date of issuance of SCN, the entire demand fell beyond the normal period and was barred by limitation.
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