The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai Bench, has held that no service tax is leviable on hiring of dredgers and vessels under bareboat charter agreements where there is a transfer of possession and effective control to the charterer.
The Bench of M. Ajit Kumar (Technical Member) and Ajayan T.V. (Judicial Member) emphasized that merely imposing restrictions on the use of the vessel or requiring compliance with contractual conditions does not negate the transfer of possession and control. These are standard commercial safeguards and do not alter the fundamental nature of the transaction.
The dispute arose from a series of show cause notices issued by the Department covering the period from October 2011 to September 2014. The Department alleged that the appellant, engaged in dredging and reclamation activities at seaports, had hired vessels and equipment from foreign entities and was liable to pay service tax under the category of “supply of tangible goods service” on a reverse charge basis under Section 66A of the Finance Act, 1994.
The core issue before the Tribunal was whether the charter arrangements constituted a taxable service or fell outside the purview of service tax due to transfer of the right to possession and effective control of the vessels.
The appellant argued that the issue was no longer res integra, as the Tribunal in its own earlier case (2018) had already held that such bareboat charter agreements involve transfer of possession and control, thereby excluding them from the scope of “supply of tangible goods service.” It was further submitted that the earlier decision had attained finality, as it was not challenged by the Revenue.
The Tribunal, after examining the terms of the bareboat charter agreements, observed that the vessels were delivered to the appellant along with full operational control. The appellant was responsible for manning, operating, maintaining, insuring, and bearing all operational expenses of the vessels. Such comprehensive control clearly indicated transfer of possession and effective control.
Relying on settled jurisprudence, including decisions of the Supreme Court of India in cases such as Great Eastern Shipping Company Ltd. and Shelf Drilling, the Tribunal reiterated that service tax under “supply of tangible goods service” applies only where possession and effective control remain with the owner. In cases where such control is transferred, the transaction assumes the character of a deemed sale and falls outside the ambit of service tax.
The Tribunal noted that the Department had relied on the same reasoning as in earlier proceedings, which had already been rejected. In the absence of any material change in facts, the Tribunal held that the issue stood conclusively settled between the parties.
The Tribunal held that the order confirming service tax demand was unsustainable in law. It set aside the demand along with applicable interest and penalties, allowing the appeal with consequential relief.
Case Details
Case Title: International Seaport Dredging Pvt. Ltd. Versus Commissioner of GST & Central Excise
Citation: JURISHOUR-1065-CES-2026(CHE)
Case No.: Service Tax Appeal No. 40957 of 2017
Date: 28.04.2026
Counsel For Appellant: Bharat Raichandani, Advocate
Counsel For Respondent: Sanjay Kakkar, Authorised Representative
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