Blue Dart Aviation Ltd. Versus Commissioner of Service Tax, Chennai, CGST & Central Excise, Chennai
Service Tax
2018 (9) TMI 1721 – CESTAT CHENNAI – TMI
CESTAT CHENNAI – AT
Dated:- 10-7-2018
ST/186/2011, ST/51/2012, ST/40420/2014, ST/41146/2014, ST/41211/2016, ST/41212/2016, ST/41244/2018, ST/41245/2018 – FINAL ORDER No. 42278-42285/2018
Service Tax
Shri Madhu Mohan Damodhar, Member (Technical) And Shri P. Dinesha, Member (Judicial)
Shri N. Venkatraman, Sr. Advocate, Shri Akil Suresh, Advocate For the Appellant
Shri K. Veerabhadra Reddy, JC (AR) For the Respondent
ORDER
Per Madhu Mohan Damodhar
The appellants are engaged in transportation of goods through Air. They are providing service mainly to their associate company, M/s.Blue Dart Express Ltd. (hereinafter referred to as BDL) for ferrying cargo and documents to different parts of the country. Appellants acquired on lease, aircraft from foreign company for transportation of cargo. The aircraft is operate
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ppeared that appellants have wrongly taken credit in respect of excise duty paid on motor vehicles amounting to Rs. 4,92,474/-. Accordingly a show cause notice dt. 22.06.2009 was issued to appellants, inter alia proposing demand of the said tax amount with interest thereon and also imposition of penalties under various provisions of law.
2.4. Another SCN dt. 12.04.2010 was issued proposing demand of service tax liability of Rs. 4,61,47,535/- with interest thereon for the subsequent period November 2008 to September 2009 in respect of alleged “Supply of Tangible Goods Service” received by appellants with respect to lease of the aircraft from foreign lessor and imposition of penalties.
2.5. On the same issue, subsequent SCN dt. 14.09.2010 proposed demand of service tax liability of Rs. 2,01,16,640/- with interest for the period July 2009 to September 2010 on supply of „Tangible Goods Service‟.
2.6 Yet another SCN dt. 29.08.2011 was issued on the very same issue, inter alia
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icle, under the CENVAT Credit Rules, 2004
No
Appeal No.ST/26/2011
November 2008 to September 2009
4,61,47,535
Rs.200 per day or 2% of the service tax demand per month whichever is higher subject to maximum of service tax payable, under Section 76
Supply of tangible goods
No
July 2009 to February 2010
2,01,16,640
Supply of tangible goods
No
Appeal No.ST/40420/2014
April 2010 to March 2011
1,88,99,721
Rs.200 per day or 2% of the service tax demand per month whichever is higher subject to maximum of service tax payable, under Section 76
Supply of tangible goods
No
Appeal No.ST/41146/2014
April 2011 to March 2012
7,10,77,525
Rs.200 per day or 2% of the service tax demand per month whichever is higher subject to maximum of service tax payable for period 1 April 2011 to 7 April 2011, under Section 76
Supply of tangible goods
No
–
Rs.100 per day or 1% of the service tax demand per month whichever is higher subject to maximum of service tax payable for period 8 April 2
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h the agreements to emphasize that as per para-5 of Article 3, the basic rent was required to be paid monthly in arrears. As per Article 5, the possession and control of the aircraft was at all times with the appellant as lessee. Appellant was also required to service, repair, maintain etc. the aircraft at their own cost. The agreement also required the appellant to cause aircrafts to be duly registered in India. As per Article 6, appellant was only required to replace all parts which have become unserviceable, louse lost, stolen etc. at their own cost and expenses. In these circumstances, as the effective possession and control of the aircraft was with the appellant at all times. The transaction could not have been brought within the fold of “Supply of Tangible Goods Service” performed by the foreign lessor.
3.2 Further, the scope of levy of service tax under the category of “Supply of Tangible Goods Service” has also been clarified by the Board in their Circular No.334/1/2008-TRU dt
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s purchased by them. In fact during the same period, appellants had purchased three motor cars on which no cenvat credit was availed by them. There was no malafide intention on their part and hence imposed penalty under Section 78 is unjustified and it is prayed that the same may be set aside.
3.5 With respect to liability to pay service tax on TDS amount a demand of Rs. 27,37,927/- has been confirmed. In this regard, the adjudicating authority concerned has accepted their plea in adjudication that actual liability works out only to Rs. 2,71,106/- together with interest of Rs. 41,886/- which is already paid up by them. However, the adjudicating authority has imposed penalty of Rs. 2,71,106/- under Section 78 of the Act. It is contended that there was considerable confusion on the taxability in respect of inclusability of TDS amount in the value of taxable service. Appellant had not discharged tax liability of Rs. 2,71,106/- only on the bonafide belief that the TDS amount is not requir
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ere the adjudicating authority has found that the aircraft is not owned by the lessor that originally belongs to Boeing Capital Corporation (BCC) who as the head lessor has given operational control and possession of the aircraft under a separate lease agreement dt.5.5.2002 to European Air Transport (EAT) for further use. Hence the ownership and title of the aircraft vests with the said BCC and not with the foreign lessor who have now leased their aircraft to the appellants. Therefore, it cannot be said that foreign lessor has vested possession and control to the appellant. He also draws our attention to paras 14 & 15 of the same impugned order wherein the adjudicating authority has correctly found that exclusion of TDS amounts from taxable income and utilization of ineligible cenvat credit on motor vehicles had been suppressed from the department with intent to evade demand of service tax liability and penalty under applicable provisions were very much imposable on the appellant.
5.
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etc. without prior consent of BCC. At the same time, it is also provided that if the EAT seeks consent from BCC for such a provision, such consent should not unreasonably be withheld or delayed provided that such sublease shall be expressly made subject and subordinate to the lease between BCC and EAT. Further, BCC have also been permitted to “wet lease” the aircraft in the ordinary course of EAT‟s business. Obviously, EAT was fully permitted and well within their rights to further lease the aircrafts to the appellant. Operating Lease agreement between EAT and the appellant dt. 27.02.2006 is for the same Boeing Model 756-236 Aircraft Sl.No. 24102. In fact, the very same conditions that were agreed upon between BCC and EAT have been reiterated in Article 5 of the agreement between EAT and the appellant.
8.1 Taking into account these aspects and also the other terms of agreement brought to our attention by the Ld. Sr.Advocate, in particular, the operation of the aircraft with the
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n our opinion, the controversy in these appeals is in a narrow compass, namely, whether the transaction entered into by the appellants with the hirers of DG sets would be in the nature of a transaction involving transfer of possession and control of goods to the users or is only one that allows the other users to use the goods without giving legal right of possession and effective control. If the transaction falls in the first category, that would be considered as deemed sale of goods and exigible to sales tax/VAT. However in case it is the latter, the transaction would then be treated as a service attracting levy of service tax under Finance Act, 1994.
6.2) Taxable service of supply of tangible goods serviceshas been defined under section 65(105)(zzzz) of the Finance Act, 1994 as 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 possessi
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.3) After 1.7.2012, consequent to change in service tax law, all services exempted any activity carried out by any person for consideration including a declared service, was made liable to service tax levy except certain activities which were specifically exempted or excluded from taxation. One such exclusion from service tax levy as per Section 65(B)(44) is an activity which constitutes merely (i) a transfer of title in goods or immovable property by way of sale, 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, d
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hose 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;
6.4) Thus, both before and after 01-07-2012, it can be reasonably concluded that supply of tangible goods inter-alia with the right to use then for any purpose and which transaction is deemed as a sale will attract only sales tax levy. However, where such supply does not extend to transfer of 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, in para 2.5.8 as follows:
2.5.8 What is the meaning of transfer of the right to use any goods?
Transfer of right to use goods is a well recognized constitutional and legal concept. Every transfer of goods on lease, license or hiring basis does not result in transfer of right to use goods. Transfer of right of goodsinvolves transf
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s 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 transactions 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 tr
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irrespective of the fact the machine is operated or kept on stand-by for 30 days or less in a month.
ii) The agreements laid down that APVAT @ 14.5% on such charges would be charged extra and as per section 4 (8) of APVAT Act.
iii) Certain safety measures were laid down by appellant to be provided or taken care of by the hirer at the time of installation of DG set and at the site operation. These include provision of concrete level flooring, minimum of three independent earth pits, supply of change over switch, provision of fire extinguishers at site, damages caused by mishandling be borne by hirer, not permitting unauthorised persons to run DG sets etc.
iv) With regard to ownership, it was laid out in the agreement that DG set is a sole property of the appellant, that transaction is purely on hire basis; that DG set is hired out to the hirer for his own use only and subletting is not allowed; DG set has to be returned in good condition to the owner upon termination of the agreement
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t, 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 of technician provided by the appellant, the hirer is not free to use the DG set and that this indicates control of the appellant over the DG set. He has also found fault with the condition that power should not be withdrawn more than 72% of 288 KV/ 500 Amps at 8 PF on standard load 40% – 60% etc.
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consumables like HSD, lubrication oil only that recommended by the manufacturer is to be used, this indicates restrictions on the use of lubricating oil. On the other hand, appellants have pointed out that this clause is only the requirement stipulated by the manufacturer and if wrong oil is used it can damage DG set; that further the very fact that all consumables like HSD/lubricant oil have to be supplied by the hirer itself indicates that the hirers would use the equipments as per their own needs only and hence they have full control on the usage of the DG sets. Adjudicating authority has pointed out few other aspects of the agreements which, according to him, also prove that hirer does not have effective control. However, we find that these are only standard clauses on any lease agreements where hire charges are fixed, payment of freight by hirer, subletting of DG set is barred etc.
6.10) The agreements therefore only set out the terms of the hire and in no way put any shackles o
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rtment dated 31.03.2005 and G.O.Ms.No. 490, Revenue (CT-II), Dept. Dated 27.08.2005 and in G.O.Ms.No. 1615, Revenue (CT-II), 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 right to use goods taxable under the Act is liable to pay a tax for such goods at the rate specified in the schedules on the total amount realized or realizable on such transfer of right to use goods.
As seen from the agreement between the owner and the hirer clause (2) of Terms and conditions it is clearly mentioned that APGST @ 8% of the invoice amount will be charged extra as per Sec. 5E of APGST Act. VAT will be applicable w.e.f. 1.4.2005. Any other taxes or levies imposed by any of the State or Central authorities will be to the hirers account with retrospective effect.
Further in the preamble of the agreement, it is clearly mentioned that the Lesser (owner) is carrying on the business of leasing of power generat
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fer of both possession and control of the goods to the users of the goods. These transactions have been ruled as deemed sale of goods for the purpose of APVAT Act by the concerned Advance Ruling Authority. Appellants have also been discharging VAT on the hire charges under APVAT Act. Hence, this is the case of supply of tangible goods for use, with legal right of possession and effective control vesting with the hirer, required to be treated as deemed sale of goods, hence cannot be considered as supply of tangible goods for use of service for the purposes of Section 65(105) (zzzz) of the Finance Act, 1994 for the period upto 01-07-2012 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 SE
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s:
30. From the judicial decisions, the settled essential requirement of a transaction for transfer of the right to use goods are : (i) it is not the transfer of the property in goods, but it is the right to use property in goods; (ii) Article 366 (29-A)(d) read with the latter part of the clause (29-A) which uses the words, and such transfer, delivery or supply would show that the tax is not on the delivery of the goods used, but on the transfer of the right to use goods regardless of when or whether the goods are delivered for use subject to the condition that the goods should be in existence for use; (iii) in the transaction for the transfer of the right to use goods, delivery of goods is not a condition precedent, but the delivery of goods may be one of the elements of the transaction; (iv) the effective or general control does not mean always physical control and, even if the manner, method, modalities and the time of the use of goods is decided by the lessee or the customer, it
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it cannot be said that there is no right to use by the lessee. Such a view of the revenue does not appear to be tenable when we read carefully the provisions of the agreement. Cl. 13 of 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 use basis. Cl. 15 relating to damages provides for compensation to be paid by the hirer to the assessee in case of damage
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y of giving various equipments on hire does not fall under the category of Supply of tangible goods for use, hence the same is not liable to service tax w.e.f. 16.05.2008. Now coming to the Revenues appeal, we find that the Ld. Commissioner dropped the demand for the period prior to 16.05.2008 mainly on the ground that the service is of Supply of tangible goods for use which came into effect on 16.05.2008, therefore prior to that date the service was not taxable. However, we, in our above findings, held that the service in question is not the service of Supply of tangible goods for use. In this position the main ground of the Ld. Commissioner for dropping of demand does not exist and not relevant. Though the Ld. Commissioner in a passing reference mentioned in the impugned order that the service prior to 16.05.2008 does not fall under the Business Auxiliary Service but not given the detailed findings. Therefore when the main ground for dropping of demand does not exist. The issue relat
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