Custom, Excise & Service Tax Tribunal
G E Power Services India Private Limited vs Principal Commissioner, Service ... on 1 February, 2021
Author: Dilip Gupta
Bench: Dilip Gupta
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI
PRINCIPAL BENCH
SERVICE TAX APPEAL NO. 53109 OF 2016
(Arising out of Order-in-Original No. DLI-SVTAX-001-COM-018-16-17 dated
28.07.2016 passed by the Principal Commissioner of Service Tax, Delhi- I)
M/s GE Power Services ......Appellant
India Private Limited
Versus
Principal Commissioner of .......Respondent
Service Tax, Delhi - I APPEARANCE:
Shri B.L. Narasimhan, Advocate and Shri Tarun Trehan, Advocate for the Appellant Shri Arun Thapliai, Authorized Representative for the Department CORAM : HON'BLE MR. JUSTICE DILIP GUPTA, PRESIDENT HON'BLE MR. P.V. SUBBA RAO, MEMBER (TECHNICAL) Date of Hearing: January 19, 2021 Date of Decision: February 1, 2021 FINAL ORDER No. 51034/2021 JUSTICE DILIP GUPTA :
M/s GE Power Services India Power Ltd.1 has filed this appeal to assail the order dated July 28, 2016 passed by the Principal Commissioner of Service Tax Delhi2, by which the two show cause notices dated April 18, 2013 and December 27, 2013 have been adjudicated upon. Out of the demand of service tax proposed in the show cause notices, an amount Rs. 15,18,115/- has been confirmed 1 the Appellant 2 the Principal Commissioner 2 with the aid of the proviso to section 73(1) of the Finance Act 19943.
The Appellant has paid service tax with interest on the amount of Rs. 5,85,611/- confirmed under service provided to Special Economic Zone. Thus, the remaining demand to the extent of Rs. 9,32,504/- is sought to be assailed in this appeal.
2. The Appellant is engaged in providing scheduled and unscheduled maintenance service in respect of steam turbines and generators, engineering services and repair services. An audit was conducted in respect of the operation of the Appellant under rule 5A of the Service Tax Rules, 1994. It culminated in issuance of two show cause notices. The period of dispute is from 2009-10 and 2011-12. The details of the demands proposed in the two show cause notices and the findings in the impugned order are tabulated below:
Show Cause Notice dated 18.04.2013 Issue Period Taxable Service Finding in Impugned Value Tax/Credit Order (Rs.) Amount(Rs.) Availment of CENVAT credit on invoices issued on October 2007 premises other than to - 3,34,35,238 Demand dropped registered premises March 2012 Provision of tool kits to Demand confirmed on associated companies. As the ground that per the notice, the Appellant ownership over the tool is liable to pay service tax kits remained with the under the category of 2011-12 59,87,599 6,16,723 Appellant, even though "supply of tangible goods for VAT was paid on the use".(STGU) transaction.
Show Cause Notice dated 27.12.2013
Issue Period Taxable Value Service Tax/ Finding in Impugned Order
(Rs.) Credit Amount
(Rs.)
Provision of service to SEZ, 2010-11 56,85,523 5,85,611 Demand confirmed as
incorrect availment of to (paid with services rendered prior to
exemption in respect of 2011-12 interest) issuance of LOI and
services rendered prior to supporting documents not
issuance of Letter of furnished. Paid with intreset.
Approval, and no supporting
documents provided in
respect of one invoice
Foreign currency 2009-10 30,65,833 3,15,781 Demand confirmed on the
expenditure as rental charge ground that the transaction
for bake oven and services was an import of STGU
received from GE Energy service as ownership over the
Services INC USA - sought goods remained with the
to be taxed under the foreign supplier. Freight
category of STGU service. charges paid by the Appellant
were not reducible.
3 the Finance Act
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3. Shri B.L. Narasimhan learned counsel for the appellant assisted by Shri Tarun Trehan made the following submissions:
(i) The Appellant had provided tool kits to its associated companies.
During the period when the tool kits were in the possession of the associated companies, the legal right to use the kits was with such companies, which possession was to the exclusion of the Appellant. Further, the Appellant could not pass the same right to any other person. Hence, the transaction between the Appellant and the associated companies qualifies as a „transfer of right to use goods‟, which is not exigible to service tax;
(ii) The Department has also not provided any evidence to support its claim that the Appellant did not transfer the right to use the kits to its associated entities;
(iii) The entire premise of confirmation of demand is solely based on one factor, namely that the ownership of the kits was not transferred. Article 366 (29A) (d) of the Constitution does not require transfer of ownership. If a specific transaction involves transfer of ownership /title, then there is no requirement to invoke the deeming provision („transfer of right to use goods‟) because such a transaction is chargeable to VAT, as sale of goods. In the present case, there is no factual dispute that against the provision of kits, the Appellant was raising VAT invoices on the associated companies and was discharging VAT;
(iv) Payment of VAT on supply goods is also a factor to determine whether the transaction is that of sale. In this regard, reliance has been placed on the clarification issued by the Department on February 29, 2008, wherein the taxable category of "supply of tangible goods for use" was clarified and its distinction with deemed sale under sales tax was brought out; and
(v) On import of „Baking Oven‟ from its foreign associated company, the Appellant discharged Customs Duty and paid the freight charges. The order has confirmed the demand of the service tax on the entire amount paid by the Appellant, including the freight charges. The only finding in the impugned order is that the 4 ownership of the baking ovens continued to be with foreign supplier, on account of which the transaction qualifies as a service involving STGU. The Department has not established as to why the possession and control over the baking ovens continued to be with the foreign companies, when the same were clearly imported and were in the exclusive possession of the Appellant.
4. Shri Arun Thapliai learned Authorized Representative appearing the Department, however, supported the impugned order and submitted that the demand has been confirmed in accordance with the provisions of the Finance Act.
5. The submissions advanced by the learned counsel for the appellant and the learned Authorized Representative of the Department have been considered.
6. Two issues arise for the consideration; the first is whether the tool kits provided by the appellant to associated companies would be a service of "supply of tangible good for use"4 and would be a taxable service contemplated under section 65 (105)(zzzzj) of the Finance Act, which is any service provided to any person, by any other person, in relation to supply of tangible goods without transferring right of possession and effective control; and the second issue is whether service tax would be leviable on rental charges for baked oven under STGU.
First Issue
7. The finding recorded by the Principal Commissioner on this issue is as follows:
"I find from the perusal of the invoices issued in this matter that the invoices have been issued for charges towards rental of LKG for certain days. The notice had rented the tool kits to its associate companies for a period of time and recovered rental charges against the services so provided. The rental income towards such supply
4. STGU 5 of the tool kits cannot be termed as deemed sale as claimed by the notice as the ownership of the tool kits remained with the noticee, hence I conclude that the services rendered by the noticee are covered under the ambit of the definition of "Supply of Tangible goods for use" and are liable to service tax under Section 65(105) (zzzzj) of the Act ibid."
(emphasis supplied)
8. The Principal Commissioner has held that the tool kits supplied by the Appellant to its associated companies would amount to STGU service, as the ownership of the tool kits remained with the appellant.
9. Section 65(105)(zzzzj) of the Finance Act, defines taxable service as follows:
"65(105)(zzzj) "taxable service" means any service provided, - (zzzzj) 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."
10. It would be seen from the aforesaid definition that the following criteria is required to be fulfilled for a transaction to qualify as STGU service:
(i) There must be a supply of tangible goods, including machinery/ equipment/ appliance;
(ii) The supply must be for use;
(iii) The right of possession and effective control over such goods must not have been passed on to the transferee.
11. There is no dispute with the regard to the first two conditions. The dispute revolves around the third condition, namely whether the transaction between the Appellant and the associated companies involves transfer of right of possession and effective control. This is for the reason that any transaction involving transfer of „right to use‟ would result in a "deemed sale", which would be beyond the purview of service tax.
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12. In this connection it would be pertinent to refer to article 366 (29A) of the Constitution. This article deals with tax on the sale or purchase of goods. It provides:-
"(29A) tax on the sale or purchase of goods includes-
(a) ............
(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;
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;"
(emphasis supplied)
13. The aforesaid article of the Constitution empowered the State to levy sales tax/ VAT on transactions in the nature of "transfer of the right to use any goods", which before the insertion of this article by the 46th amendment to the Constitution, were not exigible to sales tax as such transaction were not covered by the definition of "sale" in the Sale of Good Act" 1930.
14. Pursuant to the aforesaid amendment, the Central Sales Tax was also amended to include the „transfer of right to use goods‟ within the definition of „sale‟.
15. The term „transfer of right to use goods‟ was interpreted by the Supreme Court in Bharat Sanchar Nigam Ltd. vs. UOI5, wherein five attributes for a transaction to constitute a „transfer of right to use goods‟ were highlighted. The relevant extract from the said judgment is reproduced:-
"91. 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 consensus ad idem as to the identity of the goods;
5 2006 (2) STR 161 (SC) 7 c. The transferee should have a legal right to use the goods-
consequently all legal consequences of such use including any permission or licenses required therefor should be available to the transferee;
d. For the period during which the transferee has such legal right, it has to be to the exclusion of the transferor. This is a necessary concomitant of the plain language of the statue- - viz. a „transfer of the right to use‟ and not merely a license to use the goods; e. Having transferred the right to use the goods during the period for which it is to be transferred, the owner cannot again transfer the same rights to others."
16. It is, therefore, clear that sales tax/VAT can be levied if there is a transfer of possession and effective control in goods, while for levy of service tax there is no transfer of possession and effective control.
17. According to the Appellant, it provided tool kits to its associated companies and during the period tool kits were in possession of the associated companies, the legal right to use the kits was with such companies and it was to the exclusion of the Appellant. The Appellant further claims that it could not pass this right to any other person. Thus, according to the Appellant, the transaction between the Appellant and the associated companies would qualify as "transfer of right to use goods", which would not be exigible to service tax.
18. It is seen from order of the Principal Commissioner that the demand has been confirmed only on the basis that the ownership of the kits was not transferred. This is not a factor that has to be examined for levy of service tax. For a „deemed sale‟ there is a transfer of possession and effective control and this what is also contemplated in article 366 (29A)(d) of the Constitution. If a specific transaction involves transfer of ownership/title, there can possibly be no requirement to invoke the deeming provisions - "transfer of right to use goods", - because such a transaction would be chargeable to Sales Tax/VAT as sale of goods.
19. In fact, the Department itself had issued a clarification through a Circular dated February 28, 2008, in which a distinction was drawn between the taxable category of STGU and the „deemed sale‟ under the 8 Sales Tax Act. The relevant portion of the Circular dated February 28, 2018 is reproduced below:-
"Payment of VAT on supply goods is also a factor to determine whether the transaction is that of sale. In this regard, reliance has been placed on the clarification issued by the Department on February 29, 2008, wherein the taxable category of STGU was clarified and its distinction with deemed sale under sales tax was brought out. The relevant portion of the said clarification is reproduced below:-
4.4. Supply of Tangible Goods for use:
4.4.1 Transfer of the right to use any goods is leviable to sales tax/ VAT as deemed sale of goods (Article 366 (29A)(d) of the Constitution of India). Transfer of right to use involves transfer of both possession and control of the goods.
4.4.2 Excavators, wheel loaders, dump trucks, crawler carriers, companion equipment, cranes etc. offshore construction vessels & barges, geo-technical vessels, tug and barge flotillas, rigs and high value machineries are supplied for use, with no legal right of possession and effective control. Transaction of allowing another person to use the goods, without giving legal right of possession and effective control, not being treated as sale of goods, is treated as service.
4.4.3 Proposal is to levy service tax on such services provided in relation to supply of tangible goods, including machinery, equipment and appliance, for use, with legal right of possession or effective control. Supply of tangible goods for use is leviable to VAT/Sales tax as deemed sale of goods, is not covered 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 fact whether VAT is payable or paid."
(emphasis supplied)
20. Reference needs to be made to another Circular dated August 23, 2007 issued by the Department that clarifies that the payment of VAT/Sales Tax on a transaction has to be treated as sales of goods and levy of service tax on such transaction would not arise. The relevant portion reproduced below:
Reference Code Issue Clarification
(1) (2) (3)
036.03/ 23-8-07 Whether spare parts sold by a Service tax is not leviable on a transaction
service station during the treated as sale of goods and subjected to
servicing of vehicles is liable to levy of sales tax/VAT. Whether a given payment of service tax? Whether transaction between the service station and the exemption can be claimed on the customer is a sale or not, is to be determined cost of consumables that get taking into account the real nature and material consumed during the course of facts of the transaction. Payment of providing service? VAT/sales tax on a transaction indicates that the said transaction is treated as sale of goods.
(emphasis supplied) 9
21. The submission of the appellant that tool kits were in possession of the associated companies with the right to use the kits to the exclusion of appellant and the appellant could also not have passed the right to any other person has not be controverterd in the impugned order nor has any material been provided by the learned Authorized Representative of the Department to controvert this fact.
22. Thus, it is not possible to sustain the finding recorded by the Principal Commissioner on the First Issue.
Second Issue
23. This issue relates to levy of service tax under the category of STGU on the tools imported by the appellant. The appellant had imported "baking oven" from its foreign associated companies. The appellant claims that it discharged the applicable customs duty and freight charges were also paid by the Appellant.
24. The Principal Commissioner has recorded the following finding, while confirming the demand:
"13.4 From the perusal of the above terms and conditions, it clearly emerges that the bake ovens have been imported on rent for specific number of days. Further no charges were payable for time taken to mobilize and demobilize the equipment and that the rates indicated were inclusive of applicable taxes. Now, coming to the issue of leviability of service tax, I find that the bake ovens have been supplied to the noticee on rent basis and the ownership of the same remained with their overseas supplier. I have also discussed in para 12 above, chargeability of service tax on the tool kits supplied on rental basis. In view of the discussion supra, I conclude that the supply of such equipments viz. bake ovens on rent is squarely covered under the ambit of taxable services "Supply of Tangible Goods for Use" under the provisions of Chapter V of the Finance Act, 1994."
(emphasis supplied)
25. It would be seen that the Principal Commissioner has confirmed the demand by holding that "the ownership" of the baking oven continued with the foreign supplier, as a result in which the transaction would qualify as a service involving STGU.
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26. There is no discussion in the order passed by the Principal Commissioner as to why the possession and control of the baking oven continued to be with foreign companies. According the Appellant, the baking ovens were imported and they were in exclusive possession of the Appellant. Thus, when the possession and exclusive control over the imported goods was in the hands of the Appellant, the transaction would qualify as deemed sale by foreign companies. The Principal Commissioner was, therefore, not justified in holding that the transaction would result in levy of service tax under the category of STGU.
27. Thus, as the confirmation of demand of service tax under the aforesaid two issues is not justified, the order dated July 28, 2016, passed by the Principal Commissioner deserves to be set aside and is set aside.
28. The appeal is, accordingly, allowed.
(Order pronounced on February 1, 2021 ) (JUSTICE DILIP GUPTA) PRESIDENT (P V SUBBA RAO) MEMBER (TECHNICAL) Shreya