2018 (9) TMI 1721 – CESTAT CHENNAI – TMI – Reverse Charge Mechanism – Supply of Tangible Goods Service or deemed sale – Department took the view that the foreign lessor has supplied tangible goods to appellants on lease; that lessor therefore rendered “Supply of Tangible Goods Service” as per section 65 (105) (zzzzj) of Finance Act, 1994; hence appellant as recipient of service are liable to pay service tax on reverse charge basis – Section 66A read with Rule 2 (1) (d) (iv) of Service Tax Rules, 1994 – non-inclusion of TDS amount in taxable value – wrong availment of Credit in respect of excise duty paid on motor vehicles – penalties.
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Held that:- The lease agreement between EAT and the appellant is one wherein the right of possession and control of the aircraft has been bestowed on the appellant and not retained with the lessor. This being so, the ingredients of “Supply of Tangible Goods Service” requiring exigibility to service tax by the Finance Act, 1994 are not present in th
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ed 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.
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It was also held in the case that the 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 Ministers 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.
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The assessees activity 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.
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Penalties i
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L) 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 operated by appellant with their own crew. Maintenance and repair of aircrafts is also done by the appellants. The department took the view that the foreign lessor has supplied tangible goods to appellants on lease; that lessor therefore rendered Supply of Tangible Goods Service as per section 65 (105) (zzzzj) of Finance Act, 1994; hence appellant as recipient of service are liable to pay service tax on reverse charge basis amounting to ₹ 1,53,13,956/- for the period May 2008 to October 2008. 2.2 Appellants were paying service tax on maintenance or repair service, Online information and Database retrieval service on reverse charge basis as recipient of service on a value net of TDS amount. Department took the view that for the purposes of payment of service tax under provisions of Section 66A read with Rule
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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 proposing demand of service tax liability of ₹ 1,88,99,721/- with interest thereon and under Supply of Tangible Goods Service along with proposal to impose penalty. 2.7 In adjudication, proposals in the SCNs were confirmed with interest and penalties imposed against which orders, appellants have filed these appeals as per the following table : Appeal No. Period Tax Demand (INR) Penalty demand Category of services / Allegation Whether limitation period invoked Appeal No.ST/186/2011 May 2008 to October 2008 1,53,13,956 Rs.200 per day or 2% of the service tax demand per month whichever is higher subject to maximum of service tax payable Supply of tangible goods Yes July 2005 to October 2008 – Rs.2,71,106 under Section 78 Non inclusion of TDS in the value of consideration paid to the lessor of aircr
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.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 2011 to 31 March 2012, under Section 76 Supply of tangible goods No Appeal No.ST/41211-212/2016 April 2012 to March 2014 18,55,94,522 Rs.1.85 crores under Section 76 and ₹ 10,000 under Section 77 Supply of tangible goods and declared services No Appeal No.41244/2018 April 2014 to September 2015 12,28,53,085 Rs.60 lakhs under Section 76 Transfer of goods by way of leasing without transfer of right to use such goods No Appeal No.41245/2018 October 2015 to June 2017 16,99,14,559 Rs.80 lakhs under Section 76 Transfer of goods by way of leasing without transfer of right to use such goods No 64,99,17,543 3. When the matter came up for hearing, on behalf of the appellants, Ld. Sr. Advocate Shri N. Venkatraman, assisted by Shri Akhil Suresh, Advocate submitted copy of the lease agreement between DHL Aviation, Netherlands (lessor) and the appellant (lesse
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been clarified by the Board in their Circular No.334/1/2008-TRU dt. 29.02.2008. It is clarified in para 4.4.3 of the said circular that proposal to levy service tax on such services provided is in relation to supply of tangible goods for use, with no legal right or possession or effective control. 3.3 Ld. Advocate placed reliance on the following case laws : (1) Power Mak Industries Vs CCE Hyderabad 2018-TIOL-1352-CESTAT-HYD (2) GIMMCO Ltd. Vs CCE & ST Nagpur – 2017 (48) STR 476 (Tri.-Mumbai) (3) Heligo Charters Pvt. Ltd. Vs CST Mumabi-VI 2017-TIOL-2831-CESTAT-MUM. 4) International Seaport Dredging Ltd. Vs CST Chennai Final Order No.40236-40238/2018 dt. 30.01.2018 3.4 With regard to demand in respect of cenvat credit of ₹ 4,92,474/- taken in respect of motor cars, the appellants are not contesting the said demand. However, the appellants were under a belief that they were entitled to avail cenvat credit of vehicles other than motor cars. Only on that basis, the appellants mis
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1,106/- only on the bonafide belief that the TDS amount is not required to be included in the value for assessment. For this reason, the imposition of penalty on that score is also not justified and may be set aside. 4.1 On the other hand, Ld. A.R supports the impugned order. He draws our attention to Article 5 of the lease agreement where it is mandated that appellant being lessee shall not sub-lease, assign or otherwise transfer or relinquish possession or control of any item of equipment or any part thereof without prior written consent of foreign lessor. This very clear condition laid down in the agreement indicates that the possession and control of the aircraft was at all times with the foreign lessor and not with the lessee. Hence all ingredients of Supply of Tangible Goods Service as defined in Finance Act, 1994 were satisfied. Adjudicating authorities in all these impugned orders have therefore correctly confirmed the said demands under this service. 4.2 Ld. A.R also draws our
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plicable provisions were very much imposable on the appellant. 5. Heard both sides and have gone through the facts of the case. 6. We intend to take up the issues one by one. The main bone of contention in all these appeals concerns demand under Supply of Tangible Goods Service‟ in respect of aircraft taken on lease by the appellants. The department has taken a stand that the terms of lease satisfies the requirements of Supply of Tangible Goods Service as defined in Section 65 (105) (zzzzj) of the Act. Ld. A.R has been at pains to draw our attention to the finding of the adjudicating authority that M/s. EAT who had supposedly leased the aircraft of the appellant were themselves a lessee and that they had leased same aircraft from Boeing Capital Corporation (BCC). 7. We have perused the lease agreement between BCC and EAT (available on page 132 of paper book) dt. 05.02.2002 – One used Boeing Model 757-236 Aircraft . No doubt, as per Article 5 (a), EAT shall not sublease, assign or
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n particular, the operation of the aircraft with the personnel of the appellant themselves, requirement of maintenance of aircraft by the appellants etc., we have no doubt in our mind that the lease agreement between EAT and the appellant is one wherein the right of possession and control of the aircraft has been bestowed on the appellant and not retained with the lessor. This being so, the ingredients of Supply of Tangible Goods Service requiring exigibility to service tax by the Finance Act, 1994 are not present in this transaction. In consequence, the monetary consideration paid by the appellants to EAT cannot be considered as value of Supply of Tangible Goods Service and tax demanded on the same as has been done in the impugned orders. 8.2 We also find that the case laws relied upon by the Ld. Advocate fully support his case. The Tribunal in Power Mak Industries -2018-TIOL-1352-CESAT-HYD, in which one of the Members here was also a party to the decision, held as under : 6.1) Heard
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use, without transferring right of possession and effective control of such machinery, equipment and appliances. This service was introduced w.e.f. 16-05-2008. In the letter No. 334/1/2008 TRU, dated 29-02-2008, the CBEC while clarifying the changes in service tax proposed in Budget 2008-2009, in para 4.4 conveyed the following clarification to proposed new taxable service provided in relation to supply of tangible goods: 4.4.3 Proposal is to levy service tax on such services provided in relation to supply of tangible goods, including machinery, equipment and appliances, for use, with no legal right of possession or effective control. Supply of tangible goods for use and leviable to VAT/sales tax as deemed sale of goods, is not conveyed under the scope of the proposed service. Whether a transaction involves transfer of possession and control is a question of facts and is to be decided based on the terms of the contract and other material facts. This could be ascertainable from the fac
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ct, 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 on the 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, and such transfer, delivery or supply of any good
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of right of goodsinvolves transfer of possession and effective control over such goods. Transfer of goods without transfer of possession and effective control over goods would not be a sale but a service (such transfer has also been declared as a service under section 66F of the Act). 6.5) For the post 01-07-2012 scenario, CBEC issued compendium of circulars on 20-06-2012 under the title TAXATION OF SERVICES AN EDUCATION GUIDE. In para 6.6.1, the CBEC clarified that transfer of right of goods involves transfer of possession and effective control over such goods and reproduced the following tests laid by Supreme Court in the case of Bharat Sanchar Nigam Limited vs. Union of India [2006(2)STR 161 (SC) to determine whether transaction involves transfer of right to use goods: – There must be goods available for delivery; – There must be a consensus ad idem as to the identity of the goods; – The transferee should have legal right to use the goods consequently all legal consequences of such
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a transaction involves transfer of right to use goods. The CBEC also advised that the nature of each transaction has to be examined in totality keeping in view all the terms and conditions of an agreement relating to such transaction. 6.6) The take away from the combined reading of all the above reproduced legal provisions and the CBEC circular are that there cannot be one-size-fix-all method to determine whether a transaction is supply of tangible is deemed sale or service. On the other hand, each transaction having its own unique entities and conditions, will have to be critically examined and subject to various tests laid down by the Courts, in particular the tests laid down by the Honble Supreme Court in the landmark judgment of Bharat Sanchar Nigam Limited cited supra. This is precisely what we wish to proceed to do. 6.7) From a perusal of the various clauses of the agreements, the following conclusion emerge: i) There was a minimum hire charge that has to be paid by the hirer per
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on of the agreement etc. v) It was also clarified that lessee shall run/operate the DG set for his exclusive use, therefore lessor hereby transfers the right to use the said DG set subject to fulfilment of all terms and conditions laid down in the lease agreement. vi) Total safety of machinery lay with lessee against any sabotage, misuse, damages, fire, accidents due to unauthorised operation/mishandling of the DG set by lessee personnel or outsider since DG set lies in the premises of the lessee. vii) In some agreements, it 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 Honble 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 th
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40% – 60% etc. We find that these objections have been adequately countered by the appellants in the grounds of appeal clarifying that condition relates to the tolerance level of the equipments and deviation from it will result in break down of the equipment, accordingly, they prescribed a list of Dos and Donts by the manufacturer. Appellants have also clarified that DG technicians were provided by them in many cases as some of the hirers do not know how to technically operate the DG sets. We find merit in the counter argument of the appellants that DG technicians even if provided, the manner of operation of the DG set is only as per the instructions and requirements of the hirers and not on the directions of the appellants. In any case, no allegation has been put forth by the department that the number of hours of running the DG set and the manner of utilisation of such DG power generated, was decided only by the appellants and not by the hirers. Adjudicating authority has also pointe
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ny 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 appellants 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 notvide 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 and Rules and HSN Codes notified by Government vide G.O.Ms.No: 398, Revenue (
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generators. Hence it is evident that the owner (Lessor) is in the agreement to collect tax as applicable from the hirer. The ruling is that the transaction falls under the purview of sub-section (8) of Section 4 of APVAT Act. The consideration received for transfer of right to use goods is liable to tax at the rate specified to the goods in the schedules to the Act. 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 very same transaction. 6.12) Viewed in this light, we are of the considered opinion that the impugned transaction involving supply of DG sets on hire basis to various hirers is nothing but supply of tangible goods with
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SERVICES AN EDUCATION GUIDE, para 6.6. As already discussed, Honble 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 Honble 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 Transit Mixers to the manufacturers of ready mix concrete, 24 hours and every day of the week as instructed by manufacturer while considering the issue, the Honble High Court held as fo
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it would be under the effective or general control over the goods; and (v) the approvals, concessions, licences and permits in relation to goods would also be available to the user of goods, even if such licences or permits are in the name of owner (transferor) of the goods, and (vi) during the period of contract exclusive right to use goods along with permits, licences etc., vests in the lessee. iii) The ratio laid down in the G.S. Lamba case has been followed by the Tribunal in the case of GIMMCO Ltd. vs. CCE&ST, Nagpur [2017(48)S.T.R 476 (Tri.-Mumbai), where, in a case involving dispute on liability to service tax on renting of earth moving equipments to various customers, the Tribunal inter-alia held as follows: 5.2) Revenue s contention is based on the clauses in the agreement relating to restrictions of use by the lessee, provision of skilled operator by the lessor and maintenance and repairs of the equipment by the lessor. Merely because restrictions are placed on the lessee
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ge 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 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 Ministers 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. 6. In view of the foregoing, we are of the considered view that the assessees ac
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relates to demand prior to the period 16.05.2008 needs reconsideration. 8.3. Following the ratio laid down in the decision and judgements cited and discussed supra, we are of the considered opinion that the demand of service tax under Supply of Tangible Goods Service in the impugned orders cannot sustain and will have to be set aside which we hereby do. 9. The further two disputes relate to imposition of penalties in respect of non-inclusion of TDS amount in taxable value and wrong availment of cenvat credit on motor vehicles. We find that the appellants have been crying hoarse even at the stage of adjudication proceedings that these infractions have occurred only due to bonafide belief that TDS was not required to be added in assessable value and that credit availed on trucks and haulers, as opposed to motor vehicles, was in order. In any case, appellants have paid up the tax liabilities of ₹ 4,92,474/- and ₹ 2,71,106/- respectively with interest liabilities also thereto.
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