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2025 (7) TMI 2 - AT - Service TaxClassification of services - renting of immovable property service or deemed sale - services rendered by the appellant by way of endorsement of their brewery licence along with renting of their land building plant machinery and premises - HELD THAT - The issue is squarely covered in the case of the appellant themselves for the earlier period from 2008 2009 to 2015-16 in M/S TRIPTI ALCOBREW PVT. LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE CGST BHOPAL 2024 (11) TMI 615 - CESTAT NEW DELHI . The Principal Bench considered in depth the contents of the agreement entered into by the appellant with M/s. SKOL Breweries Ltd. in the light of the various decisions and considered the issue whether a deemed sale under Article A 366 (29A) (d) of the Constitution had taken place under the licensed agreement and in order to examine the issue the Bench considered whether there was transfer of right to use goods with control and possession. Since the issue of the Principal Bench has been passed in the case of the appellant themselves for the earlier period the same is squarely applicable in the present appeal concerning the subsequent period. The impugned order is set aside - appeal allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal were: (a) Whether the services rendered by the appellant by way of endorsement of their brewery license to a third party, along with renting of their land, building, plant, machinery, and premises, are liable to service tax under the category of "renting of immovable property" as defined under Section 66E(a) of the Finance Act, 1994; (b) Whether the transaction involving the endorsement or sub-licensing of the brewery license amounts to a "deemed sale" under Article 366(29A)(d) of the Constitution, thereby excluding it from the ambit of service tax on renting of immovable property; (c) Whether the Lease Deed and the License Agreement executed between the appellant and the third party constitute a single integrated transaction for renting of immovable property or are distinct agreements with separate legal consequences; (d) Whether the consideration received by the appellant under the License Agreement is liable to service tax or should be excluded from such tax liability on account of the nature of the transaction. 2. ISSUE-WISE DETAILED ANALYSIS Issue (a) and (b): Classification of the transaction and applicability of service tax on renting of immovable property versus "deemed sale" under the Constitution Relevant legal framework and precedents: The Tribunal relied heavily on the earlier decision of the Principal Bench concerning the appellant's transactions for the period 2008-09 to 2015-16. The key statutory provisions examined were Section 66E(a) of the Finance Act, 1994, which defines "renting of immovable property" as a taxable service, and Article 366(29A)(d) of the Constitution, which defines "deemed sale" as a transfer of the right to use goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration. Court's interpretation and reasoning: The Tribunal analyzed the terms of the License Agreement entered into between the appellant and the third party (Skol/Sab Miller). The License Agreement transferred the right to use the brewery license and the permitted capacity for a fixed term of four years, free from any interference or encumbrances. The third party was entitled to utilize the license fully and operate the brewery without any hindrance from the appellant. The appellant also agreed to indemnify the third party against any claims arising from prior periods and undertook not to act in a manner that would breach the License Agreement. The Tribunal observed that the transaction was not merely a use of the license but a transfer of the right to use the license with control and possession, which constituted a "deemed sale" under Article 366(29A)(d). This interpretation was supported by the fact that the appellant relinquished any right to use the brewery license during the term of the agreement. Key evidence and findings: The License Agreement's explicit terms granting exclusive rights, freedom from encumbrances, indemnity clauses, and the appellant's inability to use the license during the term were critical evidence establishing the nature of the transaction as a transfer of right to use goods. Application of law to facts: The Tribunal applied the constitutional definition of "deemed sale" to the facts and concluded that the transaction fell within this category, thereby excluding it from the scope of service tax on renting of immovable property. Treatment of competing arguments: The Commissioner had argued that the License Agreement was merely ancillary to the Lease Deed and that the entire transaction should be taxed as renting of immovable property. The Tribunal rejected this view, holding that the Lease Deed and License Agreement must be examined separately and that the recital in the Lease Deed requiring endorsement/sub-license did not convert the License Agreement into a part of the lease transaction. Conclusions: The Tribunal concluded that the consideration received under the License Agreement was not liable to service tax as renting of immovable property, since the transaction constituted a "deemed sale" of the right to use the license under the Constitution. Issue (c): Whether the Lease Deed and License Agreement constitute a single transaction Relevant legal framework and precedents: The principle of examining the substance over form and the independent legal effect of separate agreements was applied. Court's interpretation and reasoning: The Tribunal emphasized that the Lease Deed and License Agreement were distinct contracts with different objects and legal consequences. The Lease Deed pertained to renting of physical immovable property (land, building, plant, machinery), whereas the License Agreement concerned the transfer of the right to use the brewery license, an intangible right. Key evidence and findings: The Lease Deed's clause requiring procurement of a valid endorsement/sub-license was held to be a condition precedent or ancillary to the lease, not a merger of the two agreements into one. Application of law to facts: The Tribunal held that the two agreements must be treated separately for tax purposes, and the consideration under the License Agreement could not be clubbed with the Lease Deed consideration to impose service tax on renting of immovable property. Treatment of competing arguments: The Commissioner's argument that the License Agreement validated the Lease Deed and formed an integral part of the renting service was rejected. Conclusions: The Tribunal concluded that the Lease Deed and License Agreement are independent agreements and must be assessed separately for service tax liability. Issue (d): Liability to service tax on consideration received under the License Agreement Relevant legal framework and precedents: The Tribunal referred to the earlier Principal Bench ruling which had addressed the same issue for earlier periods. Court's interpretation and reasoning: Since the transaction under the License Agreement was held to be a "deemed sale," the consideration received could not be subjected to service tax under the category of renting of immovable property. Key evidence and findings: The consistent application of the earlier ruling to the subsequent period was key, as the facts and nature of the transaction remained unchanged. Application of law to facts: The Tribunal applied the precedent to the present case and set aside the demand of service tax on the License Agreement consideration. Treatment of competing arguments: The appellant argued for consistency and reliance on the earlier decision, which the Tribunal accepted. Conclusions: The Tribunal allowed the appeal and held that the consideration under the License Agreement is not liable to service tax. 3. SIGNIFICANT HOLDINGS The Tribunal affirmed the following crucial legal principles and determinations: "It is, therefore, clear from the aforesaid terms of the License Agreement that it is not merely the use of the License that has been transferred to Skol/Sab Miller by the appellant. What has been transferred by the appellant is the right to use the License. As can be seen from the Agreement, Skol/Sab Miller have been transferred the right to use the brewery license and the permitted capacity for a period of 4 years free from any charges, encumbrances, liens or third party rights. Skol/Sab Miller shall also enjoy the freedom to utilize the brewery license and operate during the entire term without any hindrance, obstruction or limitation from the appellant. In fact, the appellant also agreed to indemnify, defend and hold Skol/Sab Miller harmless from any actions, causes of actions, claims, demands, costs, liabilities, expenses and damages arising out of or in connection with any claim that would constitute a breach of any of warranties and/ or obligations, relating to the period prior to the commencement of the License Agreement dated 30.01.2008. The agreement also provides that the promoters shall not do or cause to be done any act that will result in breach of the License Agreement. The appellant does not, with the transfer of the right to use by Skol/Sab Miller, have any right to itself use the brewery license. There is, therefore, no manner of doubt that a "deemed sale" under article 366(29A) (d) of the Constitution had taken place when the appellant granted the right to use the License to Skol/Sab Miller. The findings to the contrary recorded by the Commissioner cannot be sustained." "The two documents, namely, the Lease Deed and the License Agreement have to be separately examined and merely because there is a recital in the Lease Deed that the appellant shall procure a valid endorsement/sub-license of the brewery license in favour of Skol does not mean that the subsequently executed License Agreement becomes an integral part of the Lease Deed." "A deemed sale had taken place when the appellant transferred the right to use the brewery license issued to the appellant in favour of Skol/Sab Miller on execution of the License Agreement. The consideration received by the appellant on the execution of the License Agreement cannot, therefore, be subjected to service tax nor can such consideration be clubbed with the consideration received by the appellant under the Lease Deed so as to be subjected to service tax under 'renting of immovable property' service." Accordingly, the Tribunal set aside the impugned order and allowed the appeal, granting consequential relief, thereby holding that the service tax demand on the License Agreement consideration was unsustainable.
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