2025 (4) TMI 66 - AT - Service Tax

Recovery of service tax with interest and penalty - taxability - leasing out of earth station and related equipment - Supply of Tangible Goods Services or not - entitlement to benefit of cum-tax - HELD THAT - The facts and issues involved in the present case are on all fours identical to case M/S SAHARA SANCHAAR LIMITED VERSUS COMMISSIONER OF SERVICE TAX NOIDA 2024 (1) TMI 451 - CESTAT ALLAHABAD where it was held that What is the crux of levy under the scheme of service tax under this category ius that goods have been supplied for use without transferring the property or rights in the goods. In the present case we are convinced that the appellant had supplied the goods for use by the lessee against a lease rent without transferring any right in the goods to the lessee. Hence for the period post 01.07.2012 also the services rendered by the appellant were taxable under this category. The view taken by us in the said order is on the basis of the decision of Hon ble Supreme Court in the case of M/s Adani Gas Ltd. This decision of Adani Gas Ltd. has been followed by Hon ble Supreme Court in the case of M/s K.P. MOZIKA Versus OIL AND NATURAL GAS CORPORATION LTD. 2024 (1) TMI 443 - SUPREME COURT wherein it was held that This Court has made a distinction between transferring the right to use and merely a license to use goods. In every case where the owner of the goods permits another person to use goods the transaction need not be of the transfer of the right to use the goods. It can be simply a license to use the goods which may not amount to the transfer of the right to use. As the issue is squarely covered by the above decisions and the proceedings are in respect of the statement of demand issued consequent to the earlier show cause notice dated 19.08.2015 the impugned order is modified accordingly to the extent of allowing the cum tax benefit while determining the value of taxable service. Conclusion - The leasing arrangement did not constitute a transfer of the right to use as the appellant retained control and ownership making the service taxable under the Supply of Tangible Goods Services. The appeal is partly allowed for recalculating the tax demand with cum-tax benefit while the imposition of penalties is upheld - Appeal partly allowed and matter remanded to original authority.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in the judgment include:

i) Whether the leasing out of earth station and related equipment qualifies as a taxable service under the "Supply of Tangible Goods Services" as per the Finance Act, 1994.

ii) Whether the demand for service tax amounting to Rs.2,23,05,959/- is recoverable from the appellant along with interest under Sections 73(1) and 75 of the Finance Act, 1994.

iii) Whether penalties under Sections 76 and 77 of the Finance Act, 1994 are imposable on the appellant.

iv) Whether the appellant is entitled to the benefit of cum-tax while computing the service tax demand.

2. ISSUE-WISE DETAILED ANALYSIS

Leasing Out Earth Station And Related Equipment -

The legal framework involves Section 65(105)(zzzzj) of the Finance Act, 1994, which defines "taxable service" as any service provided in relation to the supply of tangible goods for use, without transferring the right of possession and effective control. The appellant argued that the transaction involved a transfer of the "right to use" and thus paid VAT, claiming it as a deemed sale. However, the court examined the lease agreement clauses and found that the appellant retained ownership and control, indicating no transfer of possession or effective control.

The court applied the criteria from the Bharat Sanchar Nigam Limited case, which requires the transfer of effective control and possession for a transaction to be considered a transfer of the right to use. The court concluded that the appellant's arrangement did not meet these criteria, thus falling under the service tax category.

Demand for Service Tax and Interest -

The court upheld the demand for service tax under Section 73(1) of the Finance Act, 1994, as the appellant's activities were taxable under the "Supply of Tangible Goods Services." The interest on delayed payment was deemed mandatory under Section 75, as the appellant failed to remit the due service tax within the prescribed period.

Penalties under Sections 76 and 77 -

The court imposed penalties under Section 76 for failure to pay service tax and under Section 77(2) for not incorporating taxable value in returns. The appellant's argument of a bona fide belief in non-liability was rejected, as they did not disclose the service to tax authorities and relied on unsubstantiated legal advice.

Benefit of Cum-Tax -

The court acknowledged the appellant's plea for cum-tax benefit, which adjusts the taxable value by considering the tax as part of the gross amount received. The case was remanded to the original authority to recalculate the demand allowing this benefit.

3. SIGNIFICANT HOLDINGS

The court held that the leasing arrangement did not constitute a transfer of the right to use, as the appellant retained control and ownership, making the service taxable under the "Supply of Tangible Goods Services." The demand for service tax and interest was confirmed, and penalties were imposed for non-compliance with service tax provisions.

The court quoted, "The transfer of right to use the assets is not at the demise of the right of the appellant to transfer the same right to third party," emphasizing the lack of exclusive control transfer.

The court also established that VAT payment does not negate service tax liability, as both taxes operate under different jurisdictions and legal frameworks.

The appeal was partly allowed for recalculating the tax demand with cum-tax benefit, while the imposition of penalties was upheld.