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2016 (1) TMI 1066

Head Note / Extract:
Taxability of services - Nature of activity - transfer of right to use goods - effective control and possession of the subject System stands transferred to the Customer - services for the provision of automated, online ID and 2D bar code printing system, labeling application system, aggregation system and dispatch system in accordance with ESCIMS standard operating procedures for distilleries, breweries and wineries. - to provide for a System comprising of a complete set of various machines/ equipments which are installed and commissioned by the applicant as per ESCIMS.

Customer is responsible for the operational maintenance of all 4 sub-systems of main Systems i.e. printing, labelling, aggregation and dispatching, as also daily maintenance, whereas SICPA is to look after other than daily maintenance. In nut-shell, Schedule 6 to the Agreement makes it clear that operation and operational maintenance of the System is the responsibility of the customer.

Revenue has not explained as to how the cost of consumables etc. paid by the customer to the applicant as fees, would not transfer the right to use the System to the Customer and effective control will remain with SICPA/applicant. It is observed from perusal of scope of the Agreement that it also involves supply of consumables, which constitute a part of value/consideration. Further, transfer of right to use goods, shall not include service(s). In view of above, contention of Revenue is not tenable.

The phrase "grant of license to use the System on a non-exclusive basis" (clause 2.1.2 to the Agreement) is used for the reason that the proprietary / intellectual property used in the System is utilized by the applicant in other similarly placed transaction with other customers. However, the use of System by the customer is on exclusive basis.

The activity proposed to be undertaken by applicant is not liable to Service Tax under the provisions of the Finance Act, 1994. - Decided in favor of assessee.


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