TMI Blog2018 (2) TMI 1415X X X X Extracts X X X X X X X X Extracts X X X X ..... possession and effective control of overall goods, such a transaction would not become a deemed sale but a service. This is exactly what CBEC had clarified in their circular No.334/1/2012-TRU, dated 16.03.2012. The agreements only set out the terms of the hire and in no way put any shackles on the hirer for full enjoyment of the DG set hired by the hirers or for that matter, bring about less than complete transfer of possession and control. It is also noteworthy that the hirer pays "hire charges" and not "service charges". We also find merit in the appellant's contention that the deposit amount is also paid by the hirers, which is the practice only in cases of leasing contracts which are deemed sale transactions and not the cases where only service is provided or received - It is also not the case of the department that the appellants are not discharging sales tax/VAT on the transactions. In fact the impugned order concedes that appellants have already paid VAT under APVAT Act on the entire hiring charges. Further, the adjudicating authority has refrained from imposing penalty under the Finance Act, 1994 on the grounds that appellants were paying VAT under the APVAT Act on the v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so borne by the owner. Department therefore took the view that the said services rendered by appellants to their customers i.e. supply of diesel generators are classifiable under the category of supply of tangible goods and that appellants are liable for payment of service tax on the consideration received for such services from 16-05-2008 onwards. 2.2) Accordingly, following show cause notices were issued to PMI, inter-alia seeking demand of service tax liability with interest thereon as follows: S.No. S.C.N. O.R. No. Date Service Tax involved in Rs. Period covered 1. 05/2012-Adjn(ST)(Comnr), dated 18.01.2012 2,52,61,016/- 05/2008 to 03/2011 2. 135/2012 Adjn (ST) Commr dt. 16.10.2012 1,12,52,789/- 04/2011 to 03/2012 3. 22/2014-Adjn(ST) (Commr) dated 11.03.2014 46,62,024/- 04/2012 to 06/2012 4. 113/2014-Adjn(ST) (Commr) dated 8.8.2014 1,53,13,521/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portions of law for various periods between 05/2008 to 11/2013 were issued as under: S.No. S.C.N. O.R. No. Date Service Tax involved in Rs. Period covered 1. 04/2012-Adjn(ST)(Comnr), dated 18.01.2012 91,02,472/- 05/2008 to 03/2011 2. 136/2012 Adjn (ST) (Commr) dt. 16.10.2012 5,13,506/- 04/2011 to 03/2012 3. 21/2014-Adjn(ST) (Commr) dated 11.03.2014 1,18,409/- 04/2012 to 06/2012 4. 117/2014-Adjn(ST) (Commr), dated 8.8.2014 3,27,344/- 07/2012 to 03/2013 5. 210/2014-Adjn(ST)(Commr) dated 8.8.2014 1,85,029/- 04/2013 to 11/2013 3.3) These Show Cause Notices were adjudicated by a common order O1-0 No.HYD-EXCUS-002-COM-38-14-15, dated 20-1 1-2014 (impugned order) where the adjudicating authority has ordered as follows: A) In respect of Show Cause Notice dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ective control of DG sets is with the appellants. This is the erroneous conclusion since DG technician do not work under the direction and control of the appellants during the period of hire. DG technicians are provided for operation of DG sets only, to ensure safety and security of the men and machinery and only because most of the hirers do not know how to operate the DG sets. 4.5) Even if the DG set has to be operated by technicians supplied by appellant, the hirers get it operated only as per their requirement, Transaction between appellants and the hirers is only transfer of the right to use any goods involving transfer of both possession and control of the goods to the users , which is a deemed sale and is leviable the sales tax/VAT as deemed sale of goods. The definition of 'sale' under section 2(g) of Central Sales Tax Rules 1956 includes a transfer of right to use any goods for any purpose (whether or not for specified period) for cash, deferred payment or other valuable consideration. Similarly sub section 8 of section 4 of Andhra Pradesh Value Added Tax Act (APVAT Act) provides for tax on transfer of right to use goods, hence the transaction entered into by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come to the correct conclusion that hirer is not free to use DG sets as he wants and has to comply with many requirements imposed by the appellants; that repair and maintenance of the DG set is controlled by their own technicians only and hence complete possession and control vests with the appellants only and is not transferred to the hirers. Ld. AR relies upon the case of State of Andhra Pradesh Vs. Rashtriya Ispat Nigam Ltd [2013 (31) S.T.R 513 (S.C.)] wherein the Hon'ble Apex Court has held that Where the assessee had supplied sophisticated machinery to contractor and received hire charges, the transactions do not involve transfer of right to the use of machinery in favour of the contractors and hence the hire Charges were not exigible to sales tax. With regard to the appellant's contention that they have been paying VAT on the transaction as deemed sale , Ld. AR submits that they may very well have been discharging VAT by mistake instead of service tax but the transaction is such that service tax is also very much payable. 6.1) Heard both sides and have gone through the facts. In our opinion, the controversy in these appeals is in a narrow compass, namely, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gift or in any other manner or (ii) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of Article 366 of the constitution or (iii) a transfer in money or actionable claim. At this stage, it will be useful to refresh ourselves with the said clause 29(A) of Article 366 of the Constitution which reads as follows: (29A) tax on the sale or purchase of goods includes (a) a tax on the transfer, otherwise than in pursuance of a contact, of property in any goods for cash, deferred payment or other valuable consideration; (b) a tax on the transfer of property in goods (whether as goods or in some other form) invoked in the execution of a works contract; (c) a tax on the delivery of goods on hire purchase or any system of payment by instalments; (d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (f) a tax o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... including any permissions or licenses required therefore should be available to the transferee; For the period during which the transferee has such legal right, it has to be the exclusion to the transferor - this is the necessary concomitant of the plain language 91 of the statute, viz., a 'transfer of the right to use' and not merely a license to use the goods; Having transferred, the owner cannot again transfer the same right to others. It was also advised that whether a transaction amounts to transfer of right or not cannot be determined with reference to a particular word or clause in the agreement. The agreement has to be read as a whole, to determine the nature of the transaction. In para 6.6.2, CBEC gave examples of transactions to clarify whether such transaction involve transfer of right to use or otherwise. However, it was also advised therein that the list was only illustrative of how Courts have interpreted terms and conditions of various types of contracts, to see if a transaction involves transfer of right to use goods. The CBEC also advised t e nature of each transaction has to be examined in totality keeping in view all the terms and condi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was laid down that DG technician shall be provided by the lessor to assist the lessee . 6.8) It then appears to reason that the transaction between the appellants and the hirers involves transfer of right to use goods and satisfy the tests laid by the Hon'ble Apex Court in the BSNL judgment DG sets are available for delivery. There is definitely a consensus between lessor and the lessee as to the identity of the goods. The hirers very much have legal right to use the goods. In fact, the agreements clearly lay down that the lessee shall render/operate the DG set for his exclusive use and that lessor has transferred the right to use the DG set. It is also not in dispute that as long as goods are with the hirer, appellants do not have any legal right to use the goods themselves. It is also not in dispute that appellants have transferred the right only to one hirer at a time. 6.9) With this background, we are unable to fathom how the adjudicating authority has concluded that effective possession and control of the impugned DG sets remains with the appellants and not with the hirers. The authority has held that since hirer is not permitted to run the DG set in the absence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bring about less than complete transfer of possession and control. It is also noteworthy that the hirer pays hire charges and not service charges . We also find merit in the appellant's contention that the deposit amount is also paid by the hirers, which is the practice only in cases of leasing contracts which are deemed sale transactions and not the cases where only service is provided or received. 6.11) We also find that the Advance Ruling Authority, Commercial Tax Department, Government of Andhra Pradesh in response to clarification sought by PMPL on whether the hiring of generators is covered by the clause levy of tax on transfer of right to use goods under APVAT or not vide an order dated 30-06-2006, had given the following ruling: 'V. The issue has been examined with reference to the provisions of the APVAT Act Rules and HSN Codes notified by Government vide G.O.Ms.No:398, Revenue (CT.II) Department dated 31.03.2005 and G.O.Ms.No.490, Revenue (CT-Il), Dated 27.08.2005 and in G.O.Ms.No.1615, Revenue (CT-Il), Dept. Dated 31.08.2005 and the ruling is given as under: VI. As per subsection (8) of Section 4 of APVAT Act, every VAT dealer who transfers the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or as taxable service for the purpose of Section 65B (44) of the Finance Act, 1994 after 01-07-2012. 7) In arriving at these conclusions, we draw sustenance from the ratio of the following case laws of higher Appellate Forums: i) In the case of Bharat Sanchar Nigam Ltd [2006(2) STR 161 (SC), which has also been referred to by CBEC in the TAXATION OF SERVICES - AN EDUCATION GUIDE , para 6.6. As already discussed, Hon'ble Apex Court had laid down certain tests to determine whether the transaction involves transfer of right to use goods which aspect has already been analysed supra. These tests have already been applied by us in para 6.8 and we found that the transactions of appellant are very much in the nature of a transfer to the hirer of the right to use the goods with full possession and control, rendering the transaction as deemed sale with liability to discharge sales tax only. ii) In the case of G.S. Lamba Sons Vs. State of Andhra Pradesh [2015(324) ELT 316 (A.P), the Hon'ble High Court of Andhra Pradesh, which is the jurisdictional High Court for this Forum, the issue therein concern the liability of sales tax on the assessee who had provided Trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the agreement provides for Hirers Covenants. As per Cl. 13.1, the hirer will use the equipment only for the purpose it is hired and shall not misuse or abuse the equipment. Similarly in Cl. 13.3, it is provided that the hirer will ensure the safe custody of the equipment by providing necessary security, parking bay, etc., and will be responsible for any loss or damage or destruction. Cl. 13.5 provides that the hirer shall be solely responsible and liable to handle any dispute entered with any third party in relation to the use and operation of the equipment. Further Cl. 14 dealing with title and ownership specifically provides that equipment is offered by GMMCO Ltd. only on rights to usebasis. Cl. 15 relating to damages provides for compensation to be paid by the hirer to the assessee in case of damage to the equipment during the period of use. These responsibilities cast on the hirer clearly show that the right of possession and effective control of the equipment rest with the hirer; otherwise the hirer cannot be held responsible for misuse/abuse, safe custody/security, liability to settle disputes with third parties in relation to use etc. Further Cl. 4.3 of the agreement provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the contractors and that the contractors are free to make use of machinery for the works other than the project work of Rashtriya Ispat Nigam Ltd , who only had effective possession and control of the machinery. However, in the appeal before use it has been found that both effective possession and physical control of the DG sets had been transferred by the appellants. Hence, the facts being different, the said judgment will not help the case of the respondent. In fact, the Supreme Court in their subsequent judgment in BSNL (supra), in para 71, had taken note of the judgment of Rashtriya Ispat Nigam Ltd. and commented that there was no intention to transfer the right to use. 9) In the light of the discussions herein above, we find that the entire proceedings which have been culminated in the impugned order O-I-O No: HYD-EXCUS-002-COM-38-14-15, dated 28.11.2014 (in respect of appeal No.ST/20224/2015) and impugned order O-I-O No: HYD-EXCUS-002-ST/20225/2015), have proceeded on erroneous conclusions and misconception of law and will therefore cannot sustain. These impugned orders are therefore required to be set aside which we hereby do. Both appeals are allowed with con ..... X X X X Extracts X X X X X X X X Extracts X X X X
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