2023 (5) TMI 654 - AT - Service Tax

Levy of service tax - consideration towards ‘bare-boat charter’ of ‘offshore drilling unit’ to M/s Transocean Drilling Services (India) Pvt Ltd - deemed sales/high seas sale - Revenue submitted that the liability to tax arises from rendering of ‘declared service’ and the sole factor in immunising themselves from the tax is evidence of ‘right to use’ having been transferred to the charterer - HELD THAT:- Ever since the broadening of the tax net under Finance Act, 1994, controversy over composite transactions involving sale/deemed sale, which are liable to tax only under the laws of the states comprising the Union, as well as service, taxable only under Finance Act, 1994, have been the subject of judicial determination.

The plea of exclusion from ‘sales tax’ imposed by states or of exclusion from ‘service tax’ stemming from the consideration of the transaction being already subject to the other tax was elaborated at length in the decision of the Hon’ble Supreme Court in re Bharat Sanchar Nigam Ltd, in TATA CONSULTANCY SERVICES VERSUS STATE OF ANDHRA PRADESH [2004 (11) TMI 11 - SUPREME COURT] where the five attributes stand settled as the determinants of exclusion from tax under Finance Act, 1994. It would appear from a scrutiny of the charter agreements that there is no reason to conclude otherwise. It was, therefore, the responsibility of the service tax authorities to base their claim to tax these transactions by demonstrating non-compliance insofar as the impugned agreements are concerned.

A perusal of the show cause notices, as well as the impugned orders confirming the demand thereon, shows those to be based entirely on the presence of permanent establishment in India, nonpayment of tax on sale and the contractual right to resume control for failure to comply with terms of agreement and chargeability to tax of ‘supply of tangible goods’ prior to 1 July 2012 - The test of ‘right to use’, as laid down by the Hon’ble Supreme Court, has not been applied to the transaction by the adjudicating authority while deciding on upholding the demand in the show cause notices. Insofar as the orders impugned in appeal of Revenue are concerned, there is no ground for interference.

The impugned order confirming the demand is not consistent with law and merits setting aside - Appeal of assessee allowed.