2024 (10) TMI 1669 - AT - Service Tax

Classification of service - Supply of Tangible Goods Service (STG Service) or not - right of possession and effective control was always with the service provider (appellant herein) which was never transferred to their service receiver - leasing of JCBs - deemed sale or not - period April 2008 to September 2012 - extended period of limitation. Classification of service - HELD THAT - Admittedly as could be gathered from the various contracts / work orders / letter of intents that are reproduced in the impugned orders the scope of understanding between the parties is for transportation of RMC to the customer s sites and since RMC settles very fast that is within about 4 hours the same was required to be transported using rotating drum which is generally popularly known as transit mixer and the same is out of necessity. Other than this there is no parting with the possession or control over such transit mixers since the wear and tear was always on the appellant-service provider. Apart from this it is also seen from the terms and conditions of various contracts reproduced in the impugned orders that the payment for transportation of RMC is per day basis per Cubic Meter (CUM) and none of the letters of intent / work orders indicates that the rental per month basis was to be paid on either transit mixers or RMC. The Revenue has never denied the rendering and remittance of service tax by the appellants under GTA services since they appear to be satisfying the conditions for both pre and post Negative list but it was the understanding that there was use of transit mixer by the service recipient which prompted the Revenue to propose tax under STG. But we have carefully examined the rival contentions with the support of work orders/ letters of intent etc. which clearly negates the suspicion of the Revenue since all the documents point out to the rendering of GTA service alone. Thus what is understandably transported is RMC alone and hence the provisions of Section 65 (105) (zzzzj) ibid would not apply as there is no STG service at all and hence the first ground of the impugned orders cannot sustain - the impugned order set aside. Leasing of JCB - deemed sale or not - HELD THAT - It is not disputed by the Revenue that the appellant had indeed remitted the applicable VAT and the transaction involving leasing of the JCBs. Without accepting the same the Revenue proposed and confirmed the demand under service tax which has been questioned here. The very same issue has been addressed to by the Hon ble Apex Court in the case of Imagic Creative Pvt. Ltd. Vs. Commissioner of Commercial Taxes 2008 (1) TMI 2 - SUPREME COURT wherein it has been held that once the VAT liability is discharged service tax cannot be demanded since VAT and service tax are mutually exclusive. In view of binding decision of the Hon ble Apex Court it is opined the demand of service tax on the leasing of JCB is also not sustainable and hence the impugned orders to this extent also cannot sustain. Extended period of limitation - HELD THAT - It is satisfied that the appellants succeed on merits and hence it is not proposed to give any finding on the invocation of extended period. Conclusion - i) The appellants are not liable to service tax under STG service for transportation of RMC. ii) The service tax demand on leasing of JCBs is unsustainable due to prior VAT payment. The impugned order set aside - appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The Tribunal considered the following core legal questions:

(i) Whether the appellants were liable to pay service tax under the category of 'Supply of Tangible Goods Service' (STG Service) as defined under Section 65(105)(zzzzj) of the Finance Act, 1994, particularly in relation to the transportation of Ready Mix Concrete (RMC) using transit mixers.

(ii) Whether the appellants were liable to pay service tax on leasing of JCBs, despite having discharged State VAT on the leasing transactions, and whether such transactions attract service tax or are covered under the ambit of VAT as "Transfer of right to use goods".

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Liability to service tax under 'Supply of Tangible Goods Service' (STG Service)

Relevant legal framework and precedents: Section 65(105)(zzzzj) of the Finance Act, 1994, introduced with effect from 16.05.2008, defines taxable service as any service provided in relation to supply of tangible goods including machinery, equipment and appliances for use, without transferring right of possession and effective control of such goods. The service tax liability under this category arises when goods are supplied for use without transferring possession and control.

Court's interpretation and reasoning: The Tribunal examined the contracts, work orders, and letters of intent to understand the nature of the service provided by the appellants. The appellants were engaged in transportation of RMC in their own vehicles, specifically using transit mixers (rotating drums) to transport RMC to customer sites. The Tribunal noted that RMC settles quickly (within approximately 4 hours), necessitating the use of transit mixers for transportation.

It was observed that the right of possession and effective control over the transit mixers always remained with the appellants, the service providers. The wear and tear of the transit mixers was borne by the appellants, indicating no transfer of control to the service recipients. The payment terms were on a per day or per cubic meter basis for transportation of RMC, and there was no evidence of monthly rental payments for transit mixers or RMC. The Revenue's contention that the service constituted STG service was based on the assumption that the transit mixers were supplied for use without transfer of possession or control. However, the Tribunal found that the service was essentially transportation service and not supply of goods for use.

Key evidence and findings: The impugned orders and supporting documents showed no transfer of possession or control of transit mixers to the customers. The appellants issued consignment notes and remitted service tax under Goods Transport Agency (GTA) services, which was not disputed by the Revenue. The Revenue's reliance on terminology like 'hiring of transit mixer' was undermined by the absence of rental payments on a monthly basis and the fact that such work orders predated the period under dispute.

Application of law to facts: Given that the appellants retained possession and control of the transit mixers and were paid for transportation of RMC, the Tribunal concluded that the service did not fall within the ambit of STG service under Section 65(105)(zzzzj). The transportation service was correctly classified under GTA services, and the introduction of STG service from 16.05.2008 did not retrospectively affect the nature of the service rendered during the disputed period (April 2008 to September 2012).

Treatment of competing arguments: The Revenue argued that the use of transit mixers by customers constituted supply of tangible goods service. The appellants countered that the mixers were never transferred for use or control. The Tribunal favored the appellants' interpretation based on contractual terms and operational realities, rejecting the Revenue's suspicion.

Conclusions: The Tribunal held that the appellants were not liable to pay service tax under STG service for transportation of RMC, and the impugned orders to the contrary were set aside.

Issue (ii): Liability to service tax on leasing of JCBs

Relevant legal framework and precedents: The leasing of goods such as JCBs was treated by appellants as 'deemed sale' under Article 366(29A) of the Constitution of India, attracting State VAT as "transfer of right to use goods". The Revenue sought to impose service tax on the same transactions. The Tribunal referred to the binding precedent set by the Hon'ble Apex Court in Imagic Creative Pvt. Ltd. Vs. Commissioner of Commercial Taxes, which held that once VAT liability is discharged, service tax cannot be levied on the same transaction as VAT and service tax are mutually exclusive.

Court's interpretation and reasoning: The Tribunal noted that the appellants had duly remitted VAT on leasing of JCBs, and the Revenue did not dispute this fact. The Revenue's demand for service tax on leasing was contrary to the Apex Court's ruling that such transactions cannot attract both VAT and service tax simultaneously.

Key evidence and findings: The record showed payment of VAT by the appellants on leasing transactions and the Revenue's failure to establish any additional liability for service tax. The Tribunal found no basis to sustain the service tax demand.

Application of law to facts: Applying the Apex Court's decision, the Tribunal concluded that the leasing of JCBs was subject to VAT and not service tax, and the demand for service tax was unsustainable.

Treatment of competing arguments: The Revenue's attempt to impose service tax despite VAT payment was rejected based on the principle of mutual exclusivity established by the Apex Court.

Conclusions: The Tribunal set aside the service tax demand on leasing of JCBs.

3. SIGNIFICANT HOLDINGS

"Section 65(105)(zzzzj) of the Finance Act, 1994, introduced w.e.f. 16.05.2008, provides for taxability of supply of tangible goods for use, without transferring right of possession and effective control over such goods, as a 'taxable service'. However, where the service provider retains possession and control of the goods (transit mixers) and provides transportation service of Ready Mix Concrete, such service does not fall under the ambit of 'Supply of Tangible Goods Service'."

"The appellants' service of transporting RMC using their own transit mixers is correctly classifiable under GTA services and not STG service, as there is no transfer of possession or control of the transit mixers to the service recipients."

"Once VAT liability is discharged on leasing of goods such as JCBs under the 'transfer of right to use goods' category, service tax cannot be demanded on the same transaction since VAT and service tax are mutually exclusive, as held by the Hon'ble Apex Court."

The Tribunal concluded that the appellants were not liable to service tax under STG service for transportation of RMC and that the service tax demand on leasing of JCBs was unsustainable due to prior VAT payment. Accordingly, the impugned orders were set aside and the appeals allowed with consequential benefits.