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TMI Blog2024 (11) TMI 615X X X X Extracts X X X X X X X X Extracts X X X X ..... se Agreement was also executed between the appellant and Skol on 30.01.2008[the License Agreement] whereby the appellant endorsed the brewery license in favour of Skol. This License Agreement was renewed from time to time and a License Agreement dated 01.03.2014 was executed between the appellant and Sab Miller India Limited [Sab Miller] (earlier known as Skol). The appellant treated the execution of the License Agreement to be a "deemed sale" under article 366(29A)(d) of the Constitution and paid VAT. 4. The department believed that the amount paid to the appellant under the License Agreements dated 30.01.2008 and 01.03.2014 should be included in the assessable value of "renting of immovable property service" because without the license endorsement the plant and machinery leased to the appellant could not have been put to use by Skol for brewing beer. 5. Accordingly, a show cause notice dated 11.10.2013 was issued to the appellant. The appellant has been referred to as "TAL" in the show cause notice. The relevant portion of the show cause notice is reproduced below: "18. As discussed above on the basis of details/information gathered during the search operation and document ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the Finance Act, 1994 and Rules made thereunder. Thus, the service tax not paid by TAL on the value of taxable services suppressed by them is recoverable from them by invoking the extended period under proviso to Sub-section(1) of Section 73 of the Finance Act 1994 along with interest at the appropriate rate as per Section 75 of the Finance Act 1994." (emphasis supplied) 6. The appellant filed a reply to the show cause notice and denied allegations made therein. 7. The Commissioner, by the impugned order dated 27.04.2018, confirmed the demand proposed in the show cause notice with interest and penalty. The appellant has been referred to as "TAL" in the order. The relevant portions of the order are reproduced below: "18.3.2 ******** In the instant case, M/s SKOL has taken the plant, machinery and premises of M/s TAL, situated at Village Mahtoli, Banmore along- with the brewing license on rent for the purpose of brewing beers of their own brand. The License to manufacture/brew the alcoholic beverage in the said premises has been issued by the M.P State Excise Deptt. to TAL. M/s SKOL is not having the requisite License to brew beer at the rented premises. Hence, SKOL can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .4. In view of the above discussion, I find that the party was liable to include their receipts, against the 'License agreement', in the taxable value of 'rental income' and the party was liable to pay service tax on the same. By not including it, in the taxable value, during the period April, 2008 to June, 2016, the party has short-paid service tax (including cesses) amounting to Rs. 4,57,12,389/- as detailed above. Said amount of service tax is recoverable form them." (emphasis supplied) 8. It is this order dated 27.04.2018 passed by the Commissioner that has been assailed in this appeal. 9. Shri Kamal Sawhaney, learned counsel for the appellant assisted by Ms. Akansha Wadhwani and Shri Deepak Thakur made the following submissions: (i) The License Agreements dated 30.01.2008 and 01.03.2014, by which the appellant endorsed the brewery license issued in its name to Skol/Sab Miller, is a deemed sale under article 366(29A)(d) of the Constitution and, therefore, service tax could not have been demanded on the amount received by the appellant. To support this contention, various clauses of the License Agreements have been placed which clauses shall be referred to at the approp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of limitation was correctly invoked in the facts and circumstances of the case. 11. The submissions advanced by the learned counsel for the appellant and the learned authorized appearing for the department have been considered. 12. The issue that arises for consideration in this appeal is as to whether a "deemed sale" under article 366(29A)(d) of the Constitution had taken placed under the License Agreement. 13. As noticed above, a Lease Deed was executed between the appellant and Skol for renting of land, building plant and machinery by the appellant to Skol. The appellant has been described as the "Lessor" and the Skol has been described as the "Lessee" in the said Lease Deed. The relevant clauses of the Lease Deed are reproduced below: "A. The Lessor is in lawful possession and has a clear, absolute unrestricted registered title and ownership rights with respect to wall compounded plot of land bearing Survey Numbers 1285, 1311, 1309, 1315, 1312, 1306, 1317, 1301 and 1303 admeasuring approximately 10.925 Hectares situated at MEHTOLI, Manmore, Morena District, Madhya Pradesh (hereinafter referred as "Demised Land") as per detailed map in Schedule A, inclusive of Buil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted between the appellant and Sab Miller (the name of Skol was changed to Sab Miller). The appellant has been referred to as "Tripti" in the Agreement. The relevant clauses of the said License Agreement dated 01.03.2014 are reproduced below: "A. Tripti has a license to work a brewery which has been sub-licensed to SABMiller. The current licensing agreement between the Parties is valied till 31st January, 2014. Both the Parties intend to renew the agreement for the period from 1st February 2014 to 31st March 2018. B. Tripti has represented to SABMiller that it will procure the necessary approvals from the relevant governmental authorities for a valid endorsement or sub-license of the Brewery License in favour of SABMiller such that SABMiller can brew and manufacture beer utilizing the Brewery License and the capacity permitted therein from time to time ("Proposed Transaction"). C. Parties have agreed to record the terms and conditions of this arrangement in this Agreement. Accordingly, in consideration of the foregoing and other consideration, the sufficiency and adequacy of which is hereby acknowledged, and intending to be legally bound hereby, the Parties agree as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will result in breach of this Agreement or the Lease Deed and shall cause the Company to perform all its obligations hereunder. The obligations of the Promoters and the Company under this Agreement shall be joint and several. ***** 6. This Agreement shall terminate only in accordance with the following provisions: ***** 6.2 This Agreement shall be co-terminus with the lease deed executed on even date between the Parties (the "Lease Deed") and shall automatically terminate upon the termination of the said Lease Deed, unless otherwise mutually agreed in writing. ***** 7. The promoters who hold 100% of the issued and paid up share capital of Tripti hereby grant the option and right of first refusal to SABMiller to acquire upto the entire equity share capital of Tripti at the end of the Term, upon the terms and conditions mutually agreed between the Parties. Further, at any time during the Term, if the Promoters want to sell their shareholding in Tripti to any third person or Tripti proposes to induct any third person as a new shareholder or investor through a fresh issuance of share capital or convertible instruments or otherwise, including any competitor of SAB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... article 366(29A)(d) of the Constitution was repelled by the Commissioner for the reason that: "from the facts of the case and conditions laid down in the agreements, it is clear that leasing of the license in the instant case is also subject to certain restrictions and TAL have not only sub-leased the license, they have also provided a bunch of services along-with it, as discussed above. Hence, in view of the above ruling, no 'sale' has taken place in the present case and the party was not liable to pay VAT on it." (emphasis supplied) 20. To appreciate the issue that has been raised in this appeal, it would be pertinent to refer to Entry 54 of List II of the Seventh Schedule to the Constitution. It empowers State to levy tax on sales and purchase of goods. The relevant Entry is reproduced below: "54. Taxes on the sale or purchase of goods other than newspaper, subject to the provisions of Entry 92 A of List I" 21. The forty-sixth amendment to the Constitution extended the meaning of "sale or purchase of goods" by giving an inclusive definition to the phrase "tax on the sale or purchase of goods" under article 366(29A) of the Constitution. The said amendment is repr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (v) a supply, by way of or as part of any service or in any other manner whatsoever, of goods being food or any other article for human consumption or any drink (whether or not intoxicating) where such supply or service is for cash, deferred payment or other valuable consideration; (vi) a transfer of the right to use any goods including leasing thereof for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and purchase of those goods by the person to whom such transfer, delivery or supply is made, but does not include a mortgage, hypothecation, charge or pledge; Explaination *****" 25. Schedule II of the MP Value Added Tax Act gives the description of goods and amongst others it includes all intangible goods like copyright, patent and rep license. 26. It can safely be said that under the Sales Tax Act, there is transfer of possession and effective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inct from the transfer of goods, is yet another economic activity intended to be exigible to State tax. 53.3. There are clear distinguishing features between ordinary sales and deemed sales. 53.4. Article 366(29-A)(d) of the Constitution implies tax not on the delivery of the goods for use, but implies tax on the transfer of the right to use goods. The transfer of the right to use the goods contemplated in sub-clause (d) of clause (29-A) cannot be equated with that category of bailment where goods are left with the bailee to be used by him for hire. 53.5. In the case of Article 366(29-A)(d) the goods are not required to be left with the transferee. All that is required is that there is a transfer of the right to use goods. In such a case taxable event occurs regardless of when or whether the goods are delivered for use. What is required is that the goods should be in existence so that they may be used. 53.6. The levy of tax under Article 366(29-A)(d) is not on the use of goods. It is on the transfer of the right to use goods which accrues only on account of the transfer of the right. In other words, the right to use goods arises only on the transfer of such right to use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is a transfer of the right to use or not is a question of fact which has to be determined in each case having regard to the terms of the contract under which there is said to be a transfer of the right to use. In the instant case, the petitioner - Rashtriya Ispat Nigam Limited owning Visakhapatnam Steel Project, for the purpose of the steel project allotted different works of the project to contractors. To facilitate the execution of work by the contractors with the use of sophisticated machinery, the petitioner has undertaken to supply the machinery to the contractors for the purpose of being used in the execution of the contracted works of the petitioner and received charges for the same. The respondents made provisional assessment levying tax on the hire charges under section 5-E of the Act. In this writ petition, the petitioner prays for a declaration that the tax levied by the 1st respondent in purported exercise of power under section 5-E of the Act on the hire charges collected during the period 1988-89, is illegal and unconstitutional. The respondents filed a counter-affidavit in support of the levy stating that the validity of A.P. Amendment Act (18 of 1985) which introd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion because the effective control of the machinery even while the machinery is in the use of the contractor is that of the petitioner-company. The contractor is not free to make use of the same for other works or move it out during the period the machinery is in his use. The condition that he will be responsible for the custody of the machinery while the machinery is on the site does not militate against the petitioners' possession and control of the machinery. For these reasons, we are of the opinion that the transaction does not involve transfer of the right to use the machinery in favour of the contractor. As the fundamental requirement of section 5-E is absent, the hire charges collected by the petitioner from the contractor are not exigible to sales tax." (emphasis supplied) 30. The appeal filed by the Department against the decision of the Andhra Pradesh High Court was dismissed by the Supreme Court (State of Andhra Pradesh and another vs. Rashtriya Ispat Nigam Ltd-2002 (3) TMI 705- Supreme Court). The relevant portion of the decision of the Supreme Court is reproduced below: "The High Court after scrutiny and close examination of the clauses contained in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... putably came into force on 01.10.2002. The intention of the parties as noticed supra has to be understood by reading the entire agreement; reading a word here or a clause there is not sufficient. Grasim was looking for a transporter to take care of the transporting need of their RMC plants in Hyderabad. The petitioners, who are owners of Transit Mixers, were looking for advancing their business interest in Hyderabad. The latter approached the former offering their Transit Mixers to take care of all transporting solution needs. These essentially form part of the recitals. The Habendum of the agreement speaks of the petitioners providing a dedicated fleet of five Transit Mixers painted in a particular style and colour as well as brand name of "Grasim‟ to transport RMC, on 24 hours basis every day of the week as instructed by the lessee, failure of which will attract penalties. The staff of the petitioners were required to obey the instructions issued by Grasim, and they should use safety equipment like helmets. These Transit Mixers cannot move or carry RMC to the work sites as per their convenience but are to be used as per the delivery schedule given by Grasim. The counse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ountenance any of the submissions made by the petitioners' counsel." (emphasis supplied) 33. In Petronet LNG Ltd. vs. Commissioner of Service Tax, New Delhi [2016 (46) STR 513 (Tri.-Delhi)], the Tribunal observed as follows: "25. The issue that therefore falls for our consideration is whether the transactions involving the two long-term charters and one short-term charter (of the vessels Disha, Rahi and Trinity Glory, respectively) amount to a transfer of the right of possession and effective control of these vessels for use by the assessee from the owners thereof. If the transactions establish a transfer of the right to use possession and effective control, the transactions fall outside the purview of the enumerated taxable service. ***** 29. ***** In the adjudication order the analysis of law and consideration of the relevant facts of the transaction occurs only in paragraph 37.3, in relation to taxability of the transaction, under Section 65(105)(zzzzj). Further the mere fact that the Manager, Master, personnel and other crew are employed by the owner does not in any manner derogate from the fact that the transaction constitutes transfer of the right to use the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 provides for charging of VAT at 12.5% on the monthly invoice value which shall be payable by the hirer. These terms and conditions stipulated in the agreement, lead to the conclusion that the transaction envisaged in the agreement is one of "transfer of right to use" which is a deemed sale under Section 2(24) of the Maharashtra Value Added Tax Act, 2002. The Finance Minister's speech and the budget instructions issued by the C.B.E. & C. also clarify that if VAT is payable on the transaction, then service tax levy is not attracted." (emphasis supplied) 35. In Dipak Nath vs. Oil and Natural Gas Corporation Ltd. and others [2009 (11) TMI 834- Guahati High Court], the Gauhati High Court observed as follows: "The above analysis of the relevant provisions of the contract agreement between the parties indicate the clear dominion and control of ON ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the authority of the decision of the Apex Court in 20th Century Finance Corpn. Ltd. (supra), constitutes the taxable event under article 366(29A)(d) of the Constitution." (emphasis supplied) 36. From the decisions referred to above, it clearly transpires that: (i) Whether there is a transfer of right to use or not is a question of fact which has to determined in each case having regard to the terms of the contract under which there is a transfer of right to use; (ii) If with the transfer of the right to use, possession and effective control is also transferred, the transaction falls outside the preview of service tax liability. However, when the effective control and possession is not transferred and it continues to remain with the person who has transferred the right, it would not be open to the authority to levy service tax; (iii) Mere fact that the persons are employed by the owner does not in any manner deter from the fact that the transaction constitutes a transfer of the right to use the tangible goods with possession and effective control; and (iv) The fact that after the operation is over on any given day and the tangible goods come back to the owner is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 40. The Commissioner placed much emphasis on the Lease Deed executed between the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X
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