TMI Blog2018 (9) TMI 1721X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered as value of “Supply of Tangible Goods Service” and tax demanded on the same as has been done in the impugned orders. - service tax levy is not attracted. Reliance placed in the case of POWER MAK INDUSTRIES, POWER MAK PVT. LTD. VERSUS CCE, C&ST, HYDERABAD-I [2018 (2) TMI 1415 - CESTAT HYDERABAD], where it was held that the impugned transaction involving supply of DG sets on hire basis to various hirers is nothing but supply of tangible goods with transfer of both possession and control of the goods to the users of the goods. These transactions have been ruled as deemed sale of goods for the purpose of APVAT Act by the concerned Advance Ruling Authority. Appellants have also been discharging VAT on the hire charges under APVAT Act. Hence, this is the case of supply of tangible goods for use, with legal right of possession and effective control vesting with the hirer, required to be treated as deemed sale of goods, hence cannot be considered as supply of tangible goods for use of service for the purposes of Section 65(105) (zzzz) of the Finance Act, 1994 for the period upto 01-07-2012 or as taxable service for the purpose of Section 65B (44) of the Finance Act, 1994 after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellants were paying service tax on maintenance or repair service, Online information and Database retrieval service on reverse charge basis as recipient of service on a value net of TDS amount. Department took the view that for the purposes of payment of service tax under provisions of Section 66A read with Rule 2 (1) (d) (iv) of Service Tax Rules, 1994, appellants were liable to pay service tax of ₹ 27,37,927/- on the TDS amount for the period October 2003 to September 2008. 2.3 It also appeared that appellants have wrongly taken credit in respect of excise duty paid on motor vehicles amounting to ₹ 4,92,474/-. Accordingly a show cause notice dt. 22.06.2009 was issued to appellants, inter alia proposing demand of the said tax amount with interest thereon and also imposition of penalties under various provisions of law. 2.4. Another SCN dt. 12.04.2010 was issued proposing demand of service tax liability of ₹ 4,61,47,535/- with interest thereon for the subsequent period November 2008 to September 2009 in respect of alleged Supply of Tangible Goods Service received by appellants with respect to lease of the aircraft from foreign lessor and imposition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maximum of service tax payable, under Section 76 Supply of tangible goods No Appeal No.ST/41146/2014 April 2011 to March 2012 7,10,77,525 Rs.200 per day or 2% of the service tax demand per month whichever is higher subject to maximum of service tax payable for period 1 April 2011 to 7 April 2011, under Section 76 Supply of tangible goods No - Rs.100 per day or 1% of the service tax demand per month whichever is higher subject to maximum of service tax payable for period 8 April 2011 to 31 March 2012, under Section 76 Supply of tangible goods No Appeal No.ST/41211-212/2016 April 2012 to March 2014 18,55,94,522 Rs.1.85 crores under Section 76 and ₹ 10,000 under Section 77 Supply of tangible goods and declared services No Appeal No.41244/2018 April 2014 to September 2015 12,28,53,085 Rs.60 lakhs under Section 76 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ternational Seaport Dredging Ltd. Vs CST Chennai Final Order No.40236-40238/2018 dt. 30.01.2018 3.4 With regard to demand in respect of cenvat credit of ₹ 4,92,474/- taken in respect of motor cars, the appellants are not contesting the said demand. However, the appellants were under a belief that they were entitled to avail cenvat credit of vehicles other than motor cars. Only on that basis, the appellants mistakenly availed cenvat credit on trucks and haulers purchased by them. In fact during the same period, appellants had purchased three motor cars on which no cenvat credit was availed by them. There was no malafide intention on their part and hence imposed penalty under Section 78 is unjustified and it is prayed that the same may be set aside. 3.5 With respect to liability to pay service tax on TDS amount a demand of ₹ 27,37,927/- has been confirmed. In this regard, the adjudicating authority concerned has accepted their plea in adjudication that actual liability works out only to ₹ 2,71,106/- together with interest of ₹ 41,886/- which is already paid up by them. However, the adjudicating authority has imposed penalty of ₹ 2,71,106/- u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issues one by one. The main bone of contention in all these appeals concerns demand under Supply of Tangible Goods Service‟ in respect of aircraft taken on lease by the appellants. The department has taken a stand that the terms of lease satisfies the requirements of Supply of Tangible Goods Service as defined in Section 65 (105) (zzzzj) of the Act. Ld. A.R has been at pains to draw our attention to the finding of the adjudicating authority that M/s. EAT who had supposedly leased the aircraft of the appellant were themselves a lessee and that they had leased same aircraft from Boeing Capital Corporation (BCC). 7. We have perused the lease agreement between BCC and EAT (available on page 132 of paper book) dt. 05.02.2002 - One used Boeing Model 757-236 Aircraft . No doubt, as per Article 5 (a), EAT shall not sublease, assign or otherwise transfer or relinquish possession or control etc. without prior consent of BCC. At the same time, it is also provided that if the EAT seeks consent from BCC for such a provision, such consent should not unreasonably be withheld or delayed provided that such sublease shall be expressly made subject and subordinate to the lease between BCC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supply of tangible goods serviceshas been defined under section 65(105)(zzzz) of the Finance Act, 1994 as any service provided or to be provided to any person, by any other person in relation to supply of tangible goods including machinery, equipment and appliances for use, without transferring right of possession and effective control of such machinery, equipment and appliances. This service was introduced w.e.f. 16-05-2008. In the letter No. 334/1/2008 TRU, dated 29-02-2008, the CBEC while clarifying the changes in service tax proposed in Budget 2008-2009, in para 4.4 conveyed the following clarification to proposed new taxable service provided in relation to supply of tangible goods: 4.4.3 Proposal is to levy service tax on such services provided in relation to supply of tangible goods, including machinery, equipment and appliances, for use, with no legal right of possession or effective control. Supply of tangible goods for use and leviable to VAT/sales tax as deemed sale of goods, is not conveyed under the scope of the proposed service. Whether a transaction involves transfer of possession and control is a question of facts and is to be decided based on the terms of the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inter-alia with the right to use then for any purpose and which transaction is deemed as a sale will attract only sales tax levy. However, where such supply does not extend to transfer of possession and effective control of overall goods, such a transaction would not become a deemed sale but a service. This is exactly what CBEC had clarified in their circular No. 334/1/2012-TRU, dated 16.03.2012, in para 2.5.8 as follows: 2.5.8 What is the meaning of transfer of the right to use any goods? Transfer of right to use goods is a well recognized constitutional and legal concept. Every transfer of goods on lease, license or hiring basis does not result in transfer of right to use goods. Transfer of right of goodsinvolves transfer of possession and effective control over such goods. Transfer of goods without transfer of possession and effective control over goods would not be a sale but a service (such transfer has also been declared as a service under section 66F of the Act). 6.5) For the post 01-07-2012 scenario, CBEC issued compendium of circulars on 20-06-2012 under the title TAXATION OF SERVICES AN EDUCATION GUIDE. In para 6.6.1, the CBEC clarified that transfer of right of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clauses of the agreements, the following conclusion emerge: i) There was a minimum hire charge that has to be paid by the hirer per month, to be charged irrespective of the fact the machine is operated or kept on stand-by for 30 days or less in a month. ii) The agreements laid down that APVAT @ 14.5% on such charges would be charged extra and as per section 4 (8) of APVAT Act. iii) Certain safety measures were laid down by appellant to be provided or taken care of by the hirer at the time of installation of DG set and at the site operation. These include provision of concrete level flooring, minimum of three independent earth pits, supply of change over switch, provision of fire extinguishers at site, damages caused by mishandling be borne by hirer, not permitting unauthorised persons to run DG sets etc. iv) With regard to ownership, it was laid out in the agreement that DG set is a sole property of the appellant, that transaction is purely on hire basis; that DG set is hired out to the hirer for his own use only and subletting is not allowed; DG set has to be returned in good condition to the owner upon termination of the agreement etc. v) It was also clarified tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s do not know how to technically operate the DG sets. We find merit in the counter argument of the appellants that DG technicians even if provided, the manner of operation of the DG set is only as per the instructions and requirements of the hirers and not on the directions of the appellants. In any case, no allegation has been put forth by the department that the number of hours of running the DG set and the manner of utilisation of such DG power generated, was decided only by the appellants and not by the hirers. Adjudicating authority has also pointed out that all consumables like HSD, lubrication oil only that recommended by the manufacturer is to be used, this indicates restrictions on the use of lubricating oil. On the other hand, appellants have pointed out that this clause is only the requirement stipulated by the manufacturer and if wrong oil is used it can damage DG set; that further the very fact that all consumables like HSD/lubricant oil have to be supplied by the hirer itself indicates that the hirers would use the equipments as per their own needs only and hence they have full control on the usage of the DG sets. Adjudicating authority has pointed out few other aspec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s evident that the owner (Lessor) is in the agreement to collect tax as applicable from the hirer. The ruling is that the transaction falls under the purview of sub-section (8) of Section 4 of APVAT Act. The consideration received for transfer of right to use goods is liable to tax at the rate specified to the goods in the schedules to the Act. It is also not the case of the department that the appellants are not discharging sales tax/VAT on the transactions. In fact the impugned order concedes that appellants have already paid VAT under APVAT Act on the entire hiring charges. Further, the adjudicating authority has refrained from imposing penalty under the Finance Act, 1994 on the grounds that appellants were paying VAT under the APVAT Act on the very same transaction. 6.12) Viewed in this light, we are of the considered opinion that the impugned transaction involving supply of DG sets on hire basis to various hirers is nothing but supply of tangible goods with transfer of both possession and control of the goods to the users of the goods. These transactions have been ruled as deemed sale of goods for the purpose of APVAT Act by the concerned Advance Ruling Authority. App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for use; (iii) in the transaction for the transfer of the right to use goods, delivery of goods is not a condition precedent, but the delivery of goods may be one of the elements of the transaction; (iv) the effective or general control does not mean always physical control and, even if the manner, method, modalities and the time of the use of goods is decided by the lessee or the customer, it would be under the effective or general control over the goods; and (v) the approvals, concessions, licences and permits in relation to goods would also be available to the user of goods, even if such licences or permits are in the name of owner (transferor) of the goods, and (vi) during the period of contract exclusive right to use goods along with permits, licences etc., vests in the lessee. iii) The ratio laid down in the G.S. Lamba case has been followed by the Tribunal in the case of GIMMCO Ltd. vs. CCE ST, Nagpur [2017(48)S.T.R 476 (Tri.-Mumbai), where, in a case involving dispute on liability to service tax on renting of earth moving equipments to various customers, the Tribunal inter-alia held as follows: 5.2) Revenue s contention is based on the clauses in the agreement rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s appeal, we find that the Ld. Commissioner dropped the demand for the period prior to 16.05.2008 mainly on the ground that the service is of Supply of tangible goods for use which came into effect on 16.05.2008, therefore prior to that date the service was not taxable. However, we, in our above findings, held that the service in question is not the service of Supply of tangible goods for use. In this position the main ground of the Ld. Commissioner for dropping of demand does not exist and not relevant. Though the Ld. Commissioner in a passing reference mentioned in the impugned order that the service prior to 16.05.2008 does not fall under the Business Auxiliary Service but not given the detailed findings. Therefore when the main ground for dropping of demand does not exist. The issue relates to demand prior to the period 16.05.2008 needs reconsideration. 8.3. Following the ratio laid down in the decision and judgements cited and discussed supra, we are of the considered opinion that the demand of service tax under Supply of Tangible Goods Service in the impugned orders cannot sustain and will have to be set aside which we hereby do. 9. The further two disputes relate to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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