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TMI Blog2025 (2) TMI 956X X X X Extracts X X X X X X X X Extracts X X X X ..... rvice tax on the services. 3. The department, on verification of records of the assessee, found that no service tax had been paid and no service tax returns were filed for the period from April, 2010 onwards in respect of the supply of the said services. It is alleged by the department that, on examination and verification of records, it was noticed that the service tax not paid on the amounts received by appellant from its clients during the period from August, 2010 to December, 2010 was approximately Rs. 90,39,826/-. For the period January, 2011 to September, 2011, the total service tax not paid on the amounts received was approximately Rs. 1,33,32,190/-. It is alleged that on being pointed out by the department, appellant paid the entire service tax amount, except Rs. 1,87,313/-. Appellant also paid proportionate interest of Rs. 26,75,499/-. 4. However, from January, 2011, appellant had stopped paying service tax on the ground that the nature of activity provided by appellant attracts Value Added Tax (VAT) and, hence, service tax was not applicable. 5. In response to the letter received from the department, appellant, vide its letter dated 23.07.2014, furnished details of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d from April 2010 to March 2014, under Section 77 of the Finance Act, 1994; and i) Penalty should not be imposed on the assessee in respect of demand made in (a), (e) and (f) above, under Section 78(1) of the Finance Act, 1994." 7. Subsequent to the above, a statement of Demand No.29/2016- C(ST-II) dated 15.04.2016 was issued to appellant for the further period from April, 2014 to December, 2015 demanding an amount of Rs. 5,73,43,165/- under Section 73(1) of the Finance Act, 1994, with interest under Section 75 and penalty under Sections 76(1) and 77 of the Finance Act, 1994, respectively. 8. Appellant replied to the show cause notice vide letter dated 19.01.2016 read with another letter dated 31.05.2016. Appellant reiterated the stand that its role is limited to mere hiring out cinematographic equipment such as cameras, lenses, generators, cranes, etc., which are then operated by experts engaged by the customers. Appellant stated that its customers take delivery of the equipment and use it in the shooting of films, using their own technicians. Appellant further stated that there is no jurisdiction to levy service tax, as the activity is squarely covered under VAT as "deemed sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of 'trade receivable' as on 01.10.2011 in respect of billing made prior to 01.01.2011. g) I order that the assessee shall pay interest under Section 75 of the Finance Act, 1994 in respect of demand confirmed at S. No. (e) and (f) above, from the due date till the date of actual payment. h) I impose a penalty of Rs. 10,000/- (Rupees Ten Thousand only) on the assessee for non-filing of Service Tax returns for the period from April 2010 to March 2014, under Section 77(2) of the Finance Act, 1994; and i) I impose a penalty of Rs. 20,03,54,472/- (Rupees Twenty Crore Three Lakh Fifty four Thousand Four Hundred and Seventy Two only) on the assessee in respect of demand made in (a), (e) & (f) above, under Section 78(1) of the Finance Act, 1994. This penalty amount shall however be reduced to 25% of the Service Tax demanded, if the Service Tax and the interest are paid by the assessee along with the reduced penalty within 30 days from date of receipt of this order in terms of second proviso to Section 78(1) of the Finance Act. Statement of Demand No.29/2016 dated 16.04.2016: a) I confirm the demand of Rs. 5,73,43,165/- (Rupees Five Crore Seventy Three Lakh Fort ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... possession and effective control of such machinery, equipment and appliances. Therefore, transaction between the company (in liquidation) and the lessee would be a taxable service in relation to supply of tangible goods and since there is no transfer of ownership, there also cannot be any sale/deemed sale and hence, the relationship between the company (in liquidation) and lessee would fall under the definition of taxable service and service tax was payable. ... 13. Having considered the submissions of Mr. Shah and Mr. Adik and the agreement between the company (in liquidation) and the lessee, copy whereof is annexed to the petition, we are satisfied that the relationship between the company (in liquidation) and the lessee cannot fall under the definition of taxable service under Section 65 (105)(zzzzj) of Finance Act, 1994. Section 65 (105)(zzzzj) will apply only where a service is provided in relation to supply of tangible goods without transferring right of possession and effective control, whereas factually in this case, there has been transfer of right of possession and effective control on the containers. 14. The following provisions in the lease agreement dated 1st Apr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Agreement to the extent that such claim arises out of the breach, negligent performance or failure or delay in performance of the Agreement by the Lessee, its employees, agents or subcontractors. xxxxxxxxxxxxxxxxxx 6.1. All risk of loss of or damage to the Equipment shall pass immediately from the Lessor to the Lessee on the Commencement Date or on delivery under clause 6.3 as the case may be. 6.2. The Lessee acknowledges that execution of this Agreement shall be conclusive evidence that the Lessee shall have taken delivery of and unconditionally accepted the Equipment on 1st day of April 2011 listed in Schedule I for the purpose of this Agreement and found it to be complete, in good working order, of satisfactory quality, fit for the purpose for which it is required and acceptable in every respect. The equipment listed in Schedule I has been delivered to the Lessee in India with all costs paid. 6.3. Delivery of further Equipment shall occur on acceptance by the Lessee (hereby appointed as agent for the Lessor to accept such delivery) at the place of delivery designated by the Lessee, the Lessee having satisfied itself that any further Equipment is complete, in good worki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supply of any goods which is deemed to be a sale within the meaning of clause (29-A) of Article 366 of the Constitution; or xxxxxxxxxxxxxxxxxx 16. Clause (29A) of Article 366 of the Constitution of India reads as under: (29A)-tax on the sale or purchase of goods includes xxxxxxxxxxxxxxxxxx (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; xxxxxxxxxxxxxxxxxx (f) xxxxxxxxxxxxxxxxxx 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 a purchase of those goods by the person to whom such transfer, delivery or supply is made. 17. Section 2(24), 2(28) and Section 3 of the MVAT Act read as under: 2(24). "sale" means a sale of goods made within the State for cash or deferred payment or other valuable consideration but does not include a mortgage, hypothecation, charge or pledge; and the words "sell", "buy" and "purchase", with all their grammatical variations and cognate expressions, shall be construed accordingly; Explanation.--For the purposes of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses and-- importer shall have the respective meanings assigned to them under the relevant earlier laws. (2) A dealer to whom sub-section (1) does not apply and whose turnover, [of all sales] made, during the year commencing on the appointed day or any year subsequent thereto, first exceeds the relevant limit, specified in subsection (4), shall, until such liability ceases under subsection (3), be liable to pay tax under this Act with effect from the 1st day of April of the said respective year: Provided that, a dealer shall not be liable to pay tax in respect of [such sales] as take place during the period commencing on the 1st day of April of the said respective year upto the time when his turnover of sales, as computed from the 1st day of April of the said respective year, does not exceed the relevant limit applicable to him under subsection (4). (3) Every dealer who has become liable to pay tax under this Act, shall continue to be so liable until his registration is duly cancelled; and upon such cancellation his liability to pay tax, other than tax already levied or leviable, shall remain ceased until his turnover of sales again first exceeds the relevant limit specified i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... succession and accordingly nothing contained in the proviso to sub-section (2) shall apply to him in any year. (9) Any person who is not liable to pay tax under the foregoing, provisions of this section but has been voluntarily registered under the provisions of this Act shall be liable to pay tax from the date of effect of the certificate of registration duly granted to him and accordingly nothing contained in the proviso to subsection (2) shall apply to him in any year. 18. It is now well settled that in terms of Article 366(29A)(d) of the Constitution of India, transfer of right to use the goods is a deemed sale of goods and subject to Sales Tax/VAT. 19. Section 2(24) of the MVAT Act, defines "sale" to mean "sale" of goods and also includes 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. A harmonious reading of Section 2(24), 2(28) read with Section 3 of the MVAT Act, it is clear that VAT under the MVAT Act is applicable on "transfer of right to use" goods within the State of Maharashtra. 20. The Hon'ble Supreme Court of India, in Bharat Sanchar Nigam L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23. "Transfer of right to use goods" is excluded from the definition of 'service' as well as 'declared service' and hence, the same is not subject to service tax. Therefore, it is clear that a transfer of goods which does not involve a transfer of right to use, would be in the nature of a declared service and would be subject to service tax. Thus, only those cases where there is no transfer of right to use goods involved in a transfer of goods, service tax would be applicable. 24. Admittedly, the company (in liquidation) had provided the containers to the lessee on lease basis and recovered lease rental on which appropriate VAT at the rate of 12.5% was paid by the company (in liquidation). 25. Upon representations received, the Central Government vide Circular No.198/08/2016-SERVICE TAX, dated 17th August 2016 clarified that in terms of sub-clause (d) of clause (29A) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 29. For a transaction to be deemed sale there is no requirement of transfer of ownership and once it is not disputed that the containers are given on lease and possession and control is transferred, it is a deemed sale within the meaning of Article 336(29A)(d) of the Constitution of India and outside the purview of Finance Act, 1994. The singular distinction between an absolute transfer of goods and a transfer of right to use goods is that in case of the former, the transfer is absolute including passage of title, whereas in the case of the later, excluding passage of title, all other rights would ensue to the benefit of the user of the goods. The Hon'ble Supreme Court in Aggarwal Brothers Vs. State of Haryana [1999 (9) SCC 182] has held on facts that the possession of the shuttering material was transferred by the assessee to their customers for use during the construction of the building and the effective control over the tangible goods during that period remain in the possession of the transferee. Vide paragraph 6, it was held that the transfer of the goods for consideration to the builder for his use in construction would result in deemed sale. 30. Moreover, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to in sub-clauses ... (zzzzj) ... of clause (105) of section 65 and collected in such manner as may be prescribed." "65.(105)(zzzzj): "taxable service" means any service provided or to be provided - to any person, by any other person in relation to supply of tangible goods including machinery, equipment and appliances for use, without transferring right of possession and effective control of such machinery, equipment and appliances;" 15. The Supreme Court in BSNL v. Union of India (2006) 3 SCC 1 expounded as to what would constitute transfer of right to use and held as under: "97. To constitute a transaction for the transfer of the right to use the goods, the transaction must have the following attributes: (a) there must be goods available for delivery; (b) there must be a consensus ad idem as to the identity of the goods; (c) the transferee should have a legal right to use the goods-consequently all legal consequences of such use including any permissions or licences required therefor should be available to the transferee; (d) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of the package as provided for power generators which shall be used only to operate the equipments supplied by the hirer and shall, not be used for any other purposes The hirer will not do any act or omit to do any act by which the right of the owner to the said cinematographic equipments will be prejudiced." 17. Under Section 66 of the Finance Act, 1994, there shall be levied a tax at the rate of 12% of the value of the taxable services referred to in subclause (zzzzj) of clause (105) of Section 65 of the Finance Act, 1994. The "taxable service" means any service provided or to be provided to any person, by any other person in relation to supply of tangible goods including machinery, equipment and appliances for use, without transferring right of possession and effective control of such machinery, equipments and appliances. Therefore, where right of possession and effective control is transferred, then it will not be a taxable service. Consequently, if it is not a taxable service, then certainly service tax is not leviable under Section 66 of the Finance Act, 1994. 18. From the terms of the agreement reproduced above, it is quite clear that there is not only a transfer o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate, there shall be a deemed sale where there is 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. From the documents and particularly from the clauses reproduced above, it is quite clear that there has been a transfer of the right to use equipments for valuable consideration. Even in clause 29A of Article 366 of the Constitution of India, the only requirement is there should be transfer of the rights to use the goods for valuable consideration. Factually, there has been.
23. In the circumstances, the order-in-original cannot be sustained, as it was without jurisdiction. The same is quashed and set-aside.
24. Mr.Joseph Prabakar states that he is entitled to refund of amounts paid. Appellant may apply for refund and the authorities shall consider the same in accordance with law and dispose the application. Certainly, as the matter was sub judice, the question of raising any ground of limitation on the refund application would not arise.
The appeal is disposed of. There shall be no order as to costs. Consequently, interim application stands closed. X X X X Extracts X X X X X X X X Extracts X X X X
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