TMI Blog2024 (3) TMI 562X X X X Extracts X X X X X X X X Extracts X X X X ..... ought into effect from 01.07.2012. There are no strong grounds to hold that the activities undertaken by the appellants in terms of Operation Lease agreement/Master Lease Agreement for providing motor vehicles to their customers, is covered under the scope of levy of service tax, inasmuch as such activity is squarely covered under the deemed sale as per Article 366 (29A) (d) of the Constitution of India, in terms of the judgement given by the Hon ble Supreme Court in the case of BHARAT SANCHAR NIGAM LTD. (BSNL) VERSUS UNION OF INDIA [ 2006 (3) TMI 1 - SUPREME COURT] . Consequently the demands of service tax and imposition of penalties confirmed in the impugned order is not legally sustainable. The adjudged demands confirmed on the appellants in the impugned order dated 04.11.2015 is liable to be set aside - Appeal allowed. - MR. S.K. MOHANTY, MEMBER (JUDICIAL) AND MR. M.M. PARTHIBAN, MEMBER (TECHNICAL) Shri D. B. Shroff a/w Shri Mihir Deshmukh Shri Rajan Mishra, Advocates for the Appellants Shri Priyesh Bheda, Authorized Representative for the Respondent ORDER These appeals have been filed by M/s ALD Automotive Private Limited (herein after, referred to as the appellants ), assai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pairs, maintenance or servicing (vi) insurance claims handling service etc. The above services are provided by the appellants at the option of the lessee for which the appellants raise a separate invoice along with applicable service tax payable thereon. The levy and discharge of service tax on fleet management services, by the appellants is not under dispute. 3.1 On the basis of an intelligence received suggesting evasion of service tax by the appellants, an enquiry was initiated by the Head Quarters Antievasion wing of the Service Tax-I Commissionerate, Mumbai. Preliminary investigation suggested that the appellants were engaged in providing taxable services of Management, Maintenance or Repair Service and Renta-Cab service ; however they have not obtained registration for these services and not paying service tax due thereon. On completion of the investigation, the department contended that the services offered by the appellants are in the nature of Rent-a-Cab scheme operator as defined under Section 65(91) of the Finance Act, 1994 and is subjected to levy of service tax under Section 65(105)(o) ibid for the period from 01.04.2006 to 31.03.2013; and as a service as defined under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 66 (29A)(d) of the Constitution of India which is subject to State VAT/Sales Tax. He also stated that the operational lease transactions are distinguished from Rent-a-Cab service, as the fundamental difference in the transactions is with respect to the manner of identification, deployment and operation of motor vehicle to be used by the lessee. The Motor Vehicles Act, 1988 has clear demarcating provisions in respect of the vehicles to be used in the above two activities by way of the registration of motor vehicle, marking of such vehicles etc. Accordingly, there exists clear distinction in identifying the person who is in possession under the control of the vehicle plying on the road. There are substantial differences with reference to the liability towards loss or damage to the motor vehicle or to 3rd parties from the usage of vehicle which is intrinsic to the control and possession of the motor vehicle. In this context, he stated that the case of Rent-a-Cab scheme, vehicles are registered on the name of the Rent-a-Cab operator; whereas in the case of operating lease under MLA, the registration certificate under Motor Vehicles Act, 1988 is issued in the name of the lessee as regis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellants is liable to be dismissed as the nature of the services offered by them is Rent-a-Cab Operator service, and is generally covered by the definition of service, post negative list period. 5. We have heard both sides and perused the case records and the written paper books submitted in this regard. 6.1. The main issues for consideration before us can be grouped as follows: (i) (a) whether the activities of appellants in providing motor vehicles under operational lease basis under a Master Lease Agreement can be considered as taxable services under the definition of rent a cab scheme operator service as defined by Section 65(91) of the Finance Act, 1994 and taxable service under section 65(105)(o) of the said Act for the pre-negative list period and under the definition of taxable service under 65(B)51 ibid, post negative list regime, with effect from 01.07.2012; or (b) whether these are cases of deemed sale , as per Article 366 (29A) (d) of the Constitution of India which is subjected to sales tax/VAT. (ii) whether the demand of service tax invoking extended period of limitation is sustainable; and (iii) Whether penalties under Sections 76, 77 and 78 of the Finance Act, 1994 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -cab scheme operator means any service provided to any person, by a rent a cab scheme operator in relation to the value of taxable service in relation to the service provided by a Rent a cab scheme operator to any person, shall be the gross amount charged by such operator from such person for services in relation to the renting of a cab and includes such rental. 3.4 The value of taxable service in relation to the service provided by a Rent a cab scheme operator to any customer, shall be the gross amount charged by such operator from such customer for services in relation to the renting of a cab and include the rental so charged. Any other charges billed to the customer such as processing charges, administrative fees, charges for providing extra accessories or providing other value added services such as a provision of driver etc. shall also be includible in the gross amount chargeable to service tax. 3.5 However service tax will not be payable in cases where a bill has been raised on a Rent a Cab Scheme operator, by another rent-a-cab scheme operator who has sub-let the motor cab to the latter operator provided who pays service tax on the amount billed to his client for renting out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the goods, and had reemphasized the need to examine each of the agreement on the basis of five point criteria given by the Hon ble Supreme Court in BSNL case, as follows: In terms of sub-clause (d) of clause (29 A) of Article 366 of the Constitution of India, 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 is deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made. It follows that such transactions will be liable for Sales Tax/Value Added Tax. In terms of section 66E(f) of the Finance Act, 1994, transfer of goods by way of hiring, leasing, licensing or in any such manner without transfer of right to use such goods is a declared service and hence liable to service tax. In this regard some representations have been received. 2. The matter has been examined. I am directed to draw your attention to the fact that in any given case involving hiring, leasing or licensing of goods, it is essential to determine whether, in terms of the contract, there is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial Tax Officer reported in 2001(124) STC 426 Karnataka 3.2.6 G. S. Lamba and Sons vs State of Andhra Pradesh reported in 2015(324) ELT 316 AP 4.1 There will also be cases involving either a financial lease or an operating lease. The former generally involves a transfer of the asset and also the risks and rewards incident to the ownership of that asset. This transfer of the risks and rewards is also recognised in accounting standards. It is generally for a long term period which covers the major portion of the life of the asset and at the end of the lease period, usually the lessee has an option to purchase the asset. The lessee bears the cost of repairs and maintenance and risk of obsolescence also rests with him. In contrast, an operating lease does not involve the transfer of the risks and rewards associated with that asset to the lessee. It is for a short term period and at the end of the lease period the lessee does not have an option to purchase the asset. The cost of repairs, maintenance and obsolescence rests with the lessor. 4.2. Similarly in the aircraft industry there are dry leases and wet leases . Generally speaking, wet leases may involve short term provision of an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hicle. The Lessee undertakes and hereby authorises the Lessor to have the said registration transferred in the name of the Lessor or its nominee on the termination and/or expiry of the lease and/or requiring possession thereof, for whatever reason at any time during the currency of this MLA or whenever required to do so. Conditional upon the Lessee s compliance with the fulfilment of the terms and conditions of this MLA and the vehicle lease contract, the Lessee shall have the right to have exclusive peaceful procession, operation and the use of the vehicle for the full term of the Lease. 4. Lessee s warranties: 4.2 The lessee warrants that it has obtained all consents, licences, approvals as are necessary for or in connection with the execution, validity and enforceability of this MLA and the vehicle lease contract and for the use and operation of the vehicle and undertakes to give them effective and in force at all times during the period of this MLA and till the vehicle is delivered back to the ALD as specified in this MLA. Further, we find that there are separate clauses contained in this Master Lease Agreement for vehicle custody, use, maintenance and repairs ; vehicle return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent ) during the tenor of the agreement. The consideration, to be paid at regular intervals specified in the lease agreement, is sought to be brought within the authority to levy service tax under Finance Act, 1994. The impugned order has upheld the taxability while discarding the proposal to invoke the extended period beyond eighteen months computed backwards from the relevant date, which is under challenge by the assessee-appellant. There is no dispute that the tax liability on fleet management has been discharged as provider of management, maintenance or repair service and on commission received from insurance companies as provider of business auxiliary services while, claiming the transaction to be deemed sale , the lease rental was not offered up as consideration for rendering taxable service. A portion of the confirmed demand pertains to the period prior to negative list regime of taxation of services. Revenue challenges the discarding of tax liability for the extended period proposed in the show cause notice as well as the grant of abatement of sixty per cent available under Notification No. 1/2006-S.T., dated 1st March, 2006. 3 . The levy of service tax on rent-a-cab was su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers vested in the Union extend either to sale or deemed sale nor did all of the several deemed sales incorporated in the constitutional amendment include some component that was not deemed sale outside the pale of taxation in List-II in the Constitution of India. The impugned order has erred in presuming so. In works contracts , there is an aspect that is beyond the taxing powers of the States which could, under Parliamentary sanction, be taxed by the Union. In both sales and services , the taxable event is determined by the existence of buyer/recipient and seller/provider with the conclusion of the contractual obligation as the definitive event to be taxed. In the absence of concurrent jurisdiction, the vivisection of such enumerations in Article 366(29A) of the Constitution of India alone can confer the authority under List-I of the Seventh Schedule in the Constitution of India. 13 . Agreements/contracts of lease are, acknowledgedly, taxable as deemed sale ; it is not the case of Revenue that any portion of the consideration for lease is not deemed sale . As the entire rental is subject to tax as deemed sale , there is no scope for any portion thereof to be leviable to tax by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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