Custom, Excise & Service Tax Tribunal
Appearance vs Shri Arun Kumar, Dy.Commissioner/Ar ... on 1 February, 2018
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL REGIONAL BENCH AT HYDERABAD Division Bench Court I Appeal No. Appellant Respondent
Impugned Order No. & Date ST/20224/2015 Power Mak Industries CCE,C&ST, Hyderabad-I O-I-O No: HYD-EXCUS-002-COM-38-14-15, dated 28.11.2014 issued by Commissioner of ST, Hyderabad.
ST/20225/2015 Power Mak Pvt. Ltd CCE,C&ST, Hyderabad-I O-I-O No: HYD-EXCUS-002-COM-38-14-15, dated 20.11.2014 issued by Commissioner of ST, Hyderabad Appearance Shri Alok Barthwal, Advocate for the Appellant.
Shri Arun Kumar, Dy.Commissioner/AR for the Respondent.
Coram:
Honble Mr. M.V. RAVINDRAN, MEMBER (JUDICIAL) Honble Mr. MADHU MOHAN DAMODHAR, MEMBER(TECHNICAL) Date of Hearing: 22.01.2018 Date of Decision: 01.02.2018 FINAL ORDER No. A/30115-30116/2018 [Order per: Madhu Mohan Damodhar]
1. Both these appeals involving the same dispute, hence they are taken up for common disposal.
2.1) M/s Power Mak Industries, the appellants in ST/20224/2015 (hereinafter referred to as PMI), were registered under service tax under the category of Goods Transport Agency Services, General Insurance Service and Legal Consultancy Service. It emerged that appellants had entered into Hire Agreement with parties for supply of Diesel Generators on hire basis subject to conditions as laid down in Hire Agreement. It appeared to the department that essential components to constitute these transactions as sale, namely, (i) an agreement to transfer title, (ii) supported consideration and (iii) actual transfer of title in goods were absent; that all through agreement period, equipment was in the possession and control of the owner. It also appeared that insurance, maintenance, repairs and damages charges pertaining to diesel generators for the purpose of analysis/testing were also borne by the owner. Department therefore took the view that the said services rendered by appellants to their customers i.e. supply of diesel generators are classifiable under the category of supply of tangible goods and that appellants are liable for payment of service tax on the consideration received for such services from 16-05-2008 onwards.
2.2) Accordingly, following show cause notices were issued to PMI, inter-alia seeking demand of service tax liability with interest thereon as follows:
S.No. S.C.N. O.R. No. & Date Service Tax involved in Rs.
Period covered
1.
05/2012-Adjn(ST)(Comnr), dated 18.01.2012 2,52,61,016/-
05/2008 to 03/20112. 135/2012 Adjn (ST) (Commr) dt. 16.10.2012 1,12,52,789/-
04/2011 to 03/20123. 22/2014-Adjn(ST) (Commr) dated 11.03.2014 46,62,024/-
04/2012 to 06/20124. 113/2014-Adjn(ST) (Commr), dated 8.8.2014 1,53,13,521/-
07/2012 to 03/20135. 211/2014-Adjn(ST) (Commr) dated 10.11.2014 98,28,415/-
04/2013 to 11/20132.3) These show cause notices were adjudicated by an order No. O-I-O HYD-EXCUS-002-COM-38-14-15, dated 28-11-2014 (impugned order) where the adjudicating authority has ordered as follows:
A) In respect of Show Cause Notice dated 18-01-2012, service tax demand confirmed but restricted to Rs. 2,23,35,254/- with interest thereon, for the period May, 2008 to March, 2011. Rest of the demands proposed in the show cause notice dropped. Penalties proposed in notice waived.
B) In respect of Show Cause Notice dated 16-10-2012, service tax demand confirmed but restricted to Rs. 1,03,45,914/- with interest thereon, for the period April, 2011 to March, 2012. Rest of the demands proposed in the show cause notice dropped. Penalties proposed in notice waived.
C) In respect of Show Cause Notice dated 11-03-2014, service tax demand confirmed but restricted to Rs. 41,49,184/- with interest thereon, for the period April, 2012 to June, 2012. Rest of the demands proposed in the show cause notice dropped. Penalties proposed in notice waived.
D) In respect of Show Cause Notice dated 08-08-2014, service tax demand confirmed but restricted to Rs. 1,36,28,979/- with interest thereon, for the period July, 2012 to March, 2013. Rest of the demands proposed in the show cause notice dropped. Penalties proposed in notice waived.
E) In respect of Show Cause Notice dated 10-11-2014, service tax demand confirmed but restricted to Rs. 87,47,254/- with interest thereon, for the period April, 2013 to October, 2013. Rest of the demands proposed in the show cause notice dropped. Penalties proposed in notice waived.
2.4) Aggrieved, PMI have filed appeal No. ST/20224/2015 3.1) On similar grounds, show cause notices were issued to Power Mak Pvt. Ltd (hereinafter referred to PMPL, appellants in ST/20225/2015) alleging that supply of diesel generators by them are services under the category of supply of tangible goods and the taxable value thereof would be liable to service tax.
3.2) Accordingly, show cause notices proposing demand of service tax on the alleged taxable income from these services with interest thereon as also imposition of penalty under various portions of law for various periods between 05/2008 to 11/2013 were issued as under:
S.No. S.C.N. O.R. No. & Date Service Tax involved in Rs.
Period covered
1.
04/2012-Adjn(ST)(Comnr), dated 18.01.2012 91,02,472/-
05/2008 to 03/20112. 136/2012 Adjn (ST) (Commr) dt. 16.10.2012 5,13,506/-
04/2011 to 03/20123. 21/2014-Adjn(ST) (Commr) dated 11.03.2014 1,18,409/-
04/2012 to 06/20124. 117/2014-Adjn(ST) (Commr), dated 8.8.2014 3,27,344/-
07/2012 to 03/20135. 210/2014-Adjn(ST) (Commr) dated 8.8.2014 1,85,029/-
04/2013 to 11/20133.3) These Show Cause Notices were adjudicated by a common order O-I-O No.HYD-EXCUS-002-COM-38-14-15, dated 20-11-2014 (impugned order) where the adjudicating authority has ordered as follows:
A) In respect of Show Cause Notice dated 18-01-2012, confirmed the service tax demand limited to Rs. 78,66,699/- for the period May 2008 to March 2011 with interest. Rest of the demand proposed in show cause notice dropped. Penalties proposed waived.
B) In respect of Show Cause Notice dated 16-10-2012, service tax demand confirmed but limited to Rs. 4,61,958/- for the period April 2011 to March 2012. Rest of the demands proposed with interest dropped. Penalties proposed waived.
C) In respect of Show Cause Notice dated 11-03-2014, service tax demand confirmed but limited to Rs. 1,05,383/- for the period April 2012 to June 2012. Rest of the demands proposed in the notice with interest dropped. Penalties proposed waived.
D) In respect of Show Cause Notice dated 08-08-2014, service tax demand confirmed but restricted to Rs. 2,91,335/- for the period July 2012 to March 2013. Rest of the demands proposed in the notice with interest dropped. Penalties proposed waived.
E) In respect of Show Cause Notice dated 10-11-2014, service tax demand confirmed but restricted to Rs. 1,64,675/- for the period April 2013 to November, 2013. Rest of the demands proposed in the show cause notice with interest dropped. Penalties proposed waived. Hence, appeal No. ST/20225/2015.
3.4) Hence appeal No. ST/20225/2015.
4. On 22-01-2018, when these appeals came up for hearing, on behalf of both appellants, Shri Alok Barthwal, Ld. Advocate made common submissions, which can be broadly summarised as under:
4.1) The activities carried out by the appellants constitute transfer of right to use goods and not supply of tangible goods for use service, hence no service tax be imposable.
4.2) Service tax under supply of tangible goods for use is liable only on those transactions where possession and control is not transferred.
4.3) Appellants are engaged in letting out of DG sets on lease basis to various hirers for their use during the subsistence of the contract. Where DG set is let to hirer during the term of the contract, the same is available to hirer for their use during all times of day and night. During existence of agreement, appellant do not have any control over the DG sets and the entire control of possession of DG sets vests with the hirers.
4.4) Adjudicating authority has taken a view that since DG technicians are provided by appellants, in some cases, the effective control of DG sets is with the appellants. This is the erroneous conclusion since DG technician do not work under the direction and control of the appellants during the period of hire. DG technicians are provided for operation of DG sets only, to ensure safety and security of the men and machinery and only because most of the hirers do not know how to operate the DG sets.
4.5) Even if the DG set has to be operated by technicians supplied by appellant, the hirers get it operated only as per their requirement. Transaction between appellants and the hirers is only transfer of the right to use any goods involving transfer of both possession and control of the goods to the users, which is a deemed sale and is leviable the sales tax/VAT as deemed sale of goods. The definition of sale under section 2(g) of Central Sales Tax Rules 1956 includes a transfer of right to use any goods for any purpose (whether or not for specified period) for cash, deferred payment or other valuable consideration. Similarly sub section 8 of section 4 of Andhra Pradesh Value Added Tax Act (APVAT Act) provides for tax on transfer of right to use goods, hence the transaction entered into by appellants is deemed sale of VAT which is payable on such transaction.
4.6) Appellant PMPL had filed application and sought clarification on advance ruling under section 67 of APVAT Act 2005 read with rule 66(2) (1) of APVAT Rules 2005 on the following:
a) Whether hiring of generators is covered by the clause levy of tax on transfer of right to use goods under APVAT Act or not?
b) Whether the hire charges received form part of taxable turnover or not?
Ld. Advocate submits a copy of the proceedings of the Advance Ruling Authority dated 30-06-2006 wherein it has been ruled as follows:
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. 4.7) In CBEC letter M.F (D.R) letter No. 334/1/2008-TRU, dated 29-02-2008 at para 4.4 it has been clarified that only 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 supplied as service. In case of the appellants, transaction gives full possession and effective control to the hirers only and is also being treated as sale of goods under the APVAT Act. Hence, as clarified by TRU therein, such supply of tangible goods for use and leviable to VAT/Sales Tax as deemed sale of goods is not covered under the scope of supply of tangible goods for use service.
4.8) Ld. Advocate submitted a copy of work order dated 22-03-2013 for supply of 1 No. 60 KVA DG sets on leave basis for the Service Tax building, Hyderabad wherein, inter-alia, it has been clearly indicated by the department only that APVAT @ 14.5% will be paid.
4.9) Ld. Advocate relies upon the following case laws:
i) Bharat Sanchar Nigam Limited Vs. Union of India [2006(2)S.T.R 161 (SC)]
ii) Gimmco Limited vs. CCE&ST, Nagpur [2017(48) S.T.R 476 (Tri.-Mumbai)]
iii) G.S. Lamba & Sons vs. State of Andhra Pradesh [2015(324)E.L.T 316 (A.P.)]
5. On the other hand, Ld. DR, Shri Arun Kumar supports the impugned order. He submits that Commissioner has made in-depth analysis of the transaction entered into by the appellant with the hirers. He has also analysed the agreement entered with the appellants and the hirers and has come to the correct conclusion that hirer is not free to use DG sets as he wants and has to comply with many requirements imposed by the appellants; that repair and maintenance of the DG set is controlled by their own technicians only and hence complete possession and control vests with the appellants only and is not transferred to the hirers. Ld. AR relies upon the case of State of Andhra Pradesh vs. Rashtriya Ispat Nigam Ltd [2013 (31) S.T.R 513 (S.C.)] wherein the Honble Apex Court has held that where the assessee had supplied sophisticated machinery to contractor and received hire charges, the transactions do not involve transfer of right to the use of machinery in favour of the contractors and hence the hire charges were not exigible to sales tax. With regard to the appellants contention that they have been paying VAT on the transaction as deemed sale, Ld. AR submits that they may very well have been discharging VAT by mistake instead of service tax but the transaction is such that service tax is also very much payable.
6.1) Heard both sides and have gone through the facts. In 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 services has 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 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 fact whether or not VAT is payable or paid. 6.3) 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 exluded 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, 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 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;
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 goods involves 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 use including any permissions 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 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 month, to be charged 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 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 the goods. In fact, 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. 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 pointed out that all 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 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 not vide 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 (CT.II) Department 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 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 transfer 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 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 follows:
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 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) Revenues 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, it can not 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 usebasis. Cl. 15 relating to damages provides for compensation to be paid by the hirer to the assessee in case of damage 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 usewhich 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 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. 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 Servicebut not given the detailed findings. Therefore when the main ground for dropping of demand does not exist. The issue relates to demand prior to the period 16.05.2008 needs reconsideration.
8) Revenue have placed reliance on the judgment of Supreme Court in the case of State of Andhra Pradesh vs. Rashtriya Ispat Nigam Limited [2013 (31) S.T.R 513 (S.C)] contending that Honble Apex Court has held therein that transaction involving supply of sophisticated machinery of hire charges did not involve transfer of right to use machinery. However, on a close analysis of the judgment, we find that the facts therein were that the assessee, holding a steel project for its execution had allowed different works to contractors and supplied them sophisticated machinery. However, Honble Supreme Court found that the transactions did not involve transfer of right to use the machinery in favour of the contractors and that the contractors are free to make use of machinery for the works other than the project work of Rashtriya Ispat Nigam Ltd, who only had effective possession and control of the machinery. However, in the appeal before us, it has been found that both effective possession and physical control of the DG sets had been transferred by the appellants. Hence, the facts being different, the said judgment will not help the case of the respondent. In fact, the Supreme Court in their subsequent judgment in BSNL (supra), in para 71, had taken note of the judgment of Rashtriya Ispat Nigam Ltd. and commented that there was no intention to transfer the right to use.
9) In the light of the discussions herein above, we find that the entire proceedings which have been culminated in the impugned order O-I-O No: HYD-EXCUS-002-COM-38-14-15, dated 28.11.2014 (in respect of appeal No. ST/20224/2015) and impugned order O-I-O No: HYD-EXCUS-002-COM-38-14-15, dated 20.11.2014 (in respect of appeal No. ST/20225/2015), have proceeded on erroneous conclusions and misconception of law and will therefore cannot sustain. These impugned orders are therefore required to be set aside which we hereby do. Both appeals are allowed with consequential benefits, if any, as per law.
(Pronounced in the open court on 01.02.2018)
(MADHU MOHAN DAMODHAR) (M.V. RAVINDRAN)
MEMBER (TECHNICAL) MEMBER (JUDICIAL)
vrg
(1) Appeals No: ST/20224/2015
ST/20225/2015