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2023 (9) TMI 868 - AT - Service TaxClassification of services - Supply of Tangible Goods service or not - supply of DG Sets on rental basis for a non temporary period - Transfer of right to use or not - extended period of limitation - HELD THAT:- Merely because the appellant have provided the operator and undertaken the repair and maintenance, the status that the right to use, possession and effective control has been transferred to the client is not affected. The providing of operator and repair and maintenance is undertaken by the appellant only because of their technical expertise. However the use of the generator set accordingly to the requirement of the client is completely the prerogative of the client. Therefore, in the given arrangement of supply of DG Set to the client, the right to use, possession and effective control has been clearly transferred to the client. From the definition of “Supply of Tangible Goods Service” it is clear that merely supply of tangible goods will not fall under the category of taxable service but the most important aspect is that the right of possession and effective control of any equipment given on rent should not be transferred - In the present case, since the right of possession and effective control has been transferred, as can be seen from the agreement, the supply of DG Set shall not fall under the definition of “Supply of Tangible Goods Service”. The most important aspect which is the deciding factor that whether supply of tangible goods will attract service tax or otherwise is that whether such arrangement of supply of tangible goods attracts VAT under the State VAT Act or otherwise. In the present case, admittedly the appellant are registered with the Gujarat VAT department and discharging VAT on the same supply of DG Set to their client. From the clarification by Circular No. 334/1/2008-TRU dated 29.02.2008 with regard to taxability of “Supply of Tangible Goods”, it is unambiguous that when on supply of tangible goods, the sales tax is payable or paid the same transaction will not be subject to payment of service tax, for the reason that as per Article 366 (29A) of Constitution of India, the supply of tangible goods is considered as deemed sale and any sale transaction will not be a domain of service - The identical issue has been considered by this Tribunal in the case of QUIPPO ENERGY PVT LTD VERSUS C.S.T. -SERVICE TAX - AHMEDABAD [2022 (12) TMI 1440 - CESTAT AHMEDABAD] wherein it was held that Supply of tangible goods for use and leviable to VAT/sales tax as deemed sale of goods, is not covered 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 contract and other material facts. This could be ascertainable from the fact whether or not VAT is payable or paid. The similar issue has also been considered by this Tribunal in Mumbai Bench and passed the following decision in the case of M/S. UFO MOVIEZ INDIA LTD. VERSUS COMMISSIONER OF SERVICE TAX-VI, MUMBAI [2017 (9) TMI 507 - CESTAT MUMBAI] where it was held that there is no suppression of fact on appellant's part. It is also observed that the appellant obtained DDQ (Determination of Disputed Question) dt. 26.6.2008 from Commissioner of Sales Tax, who held that lease rental is liable for VAT. The appellant accordingly was discharging the VAT liability even before the taxability on ‘Supply of Tangible goods for use’. The above decision has been upheld by the Hon’ble Supreme Court as reported at COMMISSIONER OF SERVICE TAX-V, MUMBAI VERSUS UFO MOVIEZ INDIA LTD. [2022 (7) TMI 1064 - SUPREME COURT], wherein the Hon’ble Apex Court held In the facts of the present case as it is not disputed that the respondent had regularly paid amount towards VAT liability in respect of the subject goods during the relevant period, the question of claiming service tax thereon does not arise. From the above decisions it can be seen that in a case where supply of goods has been treated as deemed sale under article 366 (29A) of Constitution of India. Accordingly, it was held that on such transaction no service tax is payable. The supply of DG Set to the client of the appellant is not liable to service tax - Appeal allowed.
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