Custom, Excise & Service Tax Tribunal
Aggreko Energy Rental India P Ltd vs Commr Service Tax -I Pune on 28 June, 2024
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,
MUMBAI
REGIONAL BENCH - COURT NO. I
Service Tax Appeal No. 85299 of 2017
(Arising out of Order-in-Original No. PUN-SVTAX-000-COM-023-024-16-17
dated 18.11.2016 passed by the Commissioner of Service Tax, Pune)
Aggreko Energy Rental India Pvt. Ltd. .... Appellants
Office No.501, 5th Floor, The Chambers,
Plot No.4/12/13, Viman Nagar,
Pune - 411 014.
Versus
Commissioner of Service Tax, Pune .... Respondent
41-A, ICE House,
Sassoon Road, Opp. Wadia College
Pune- 411 001.
AND
Service Tax Appeal No. 86364 of 2019
(Arising out of Order-in-Original No. PUN-EXCUS-001-COM-24/18-19 dated
27.12.2018 passed by the Commissioner of Central Excise & GST, Pune-I)
Aggreko Energy Rental India Pvt. Ltd. .... Appellants
Office No.501, 5th Floor, The Chambers,
Plot No.4/12/13, Viman Nagar,
Pune - 411 014.
Versus
Commissioner of Central Excise & GST, Pune-I .... Respondent
41-A, ICE House,
Sassoon Road, Opp. Wadia College
Pune- 411 001.
Appearance:
Shri V. Sridharan, Senior Advocate along with S/Shri Vinay Jain, Jay Chheda
Advocates for the Appellants
Shri Pramod Kumar Maurya, Authorized Representative for the Respondent
CORAM:
HON'BLE MR. S.K. MOHANTY, MEMBER (JUDICIAL)
HON'BLE MR. M.M. PARTHIBAN, MEMBER (TECHNICAL)
2
ST/85299/2017
& ST/86364/2019
FINAL ORDER NO. A/85652-85653/2024
Date of Hearing: 29.02.2024
Date of Decision: 28.06.2024
PER: M.M. PARTHIBAN
These appeals have been filed by M/s Aggreko Energy Rental India Pvt.
Ltd., Pune (herein after referred to as 'appellants' for short) against Order-in-
Original No. PUN-SVTAX-000-COM-023-024-16-17 dated 18.11.2016 and
Order-in-Original No. PUN-EXCUS-001-COM-24/18-19 dated 27.12.2018
(herein after referred together as 'impugned orders') passed by Commissioner,
Service Tax, Pune and Commissioner of Central Excise & GST, Pune-I,
respectively.
2.1. Briefly stated, the facts of the case are that the appellants herein are
inter alia, engaged in the business of import of D.G. Sets, temperature control
and allied equipment and providing such equipment on lease/hire basis to their
customers situated in India. These equipments were purchased by the
appellants by importing it from their associated company situated in United
Kingdom, and storing it in its various warehouses located across India and
thereafter given on rental/lease basis to its customers as per their
requirement. For the purpose of such activity of leasing of equipment, the
appellants were registered with the jurisdictional authorities and were paying
VAT/CST on the hire charges/lease charges, by treating the said transaction as
deemed sale and not as provision of any taxable service under the Finance Act,
1994. While undertaking leasing/hiring of the equipment, the appellants were
also undertaking various other activities such as transportation, loading and
unloading of equipment; commissioning and decommissioning of the
equipment; insurance of equipment; obtaining approval of concerned
Electricity Board; operation of Diesel Generating sets; provision of fuel and
other connected works by executing specific agreement to this effect.
Wherever some of such activity is liable to be paid with service tax, the same
were discharged by the appellants.
2.2 During the course of audit of the appellants' records by the departmental
authorities, it was noticed by them that the contracts entered into by the
appellants with their customers are in the nature of supplying diesel generating
set/equipment to the service receiver. In one such contract entered into by the
3
ST/85299/2017
& ST/86364/2019
appellant with M/s Bharat Oman Refineries Ltd., (BORL) the departmental
authorities had found that the transportation of the equipment from appellant's
depot to BORL's site is carried out by the appellants. Further, insurance on
rented equipment is also rests on the part of the appellants. Hence, the
department had treated that the control of the equipment under the contract
remained with the appellants and hence VAT is not applicable on such
lease/hire transaction. Further, the audit found that the scope of work under
contract included loading, transportation, unloading, installation, operation,
maintenance, repair and insurance and therefore the Departmental authorities
had interpreted that the possession and effective control of the equipment has
remained with the appellants. Accordingly, the Department initiated show
cause proceedings demanding service tax under the category of 'Supply of
Tangible Goods for Use' (STGU) service, as the appellants were not discharging
their service tax liability in respect thereof. On completion of the investigation
conducted by the Department, it was found that the appellants were rendering
the services of STGU to their clients, as the transactions involved were of
actual hiring of equipment for prescribed time period, and the services are
taxable under Section 65(105)(zzzzj) of the Finance Act, 1994. The
investigation concluded that the services provided during October, 2019 to
March, 2015 and during April, 2015 to June, 2017 are liable to service tax as
STGU service. Accordingly, three show-cause notices dated 23.04.2015,
20.04.2016 and 18.04.2018 as per the Finance Act, 1994, were issued to the
appellants as follows. The further details of its adjudication, confirmation of
demand and appeal are given in the form of table as give below:-
SCN reference Order-in-Original & Period of Service Tax
Appeal Ref. dispute demand
confirmed in
Order-in-
Original ( in Rs.)
No.ST(Audit)/ST/02/15- No. PUN-SVTAX-000-COM-023- 01.10.2009 30,71,81,864/-
16 dated 23.04.2015 024-16-17 dated 18.11.2016 & to
31.03.2014
VGN(30)STC/Range- Appeal No. ST/85299/2017
April, 2014 to 6,47,73,118/-
V/SCN-Aggreko/11/ March, 2015
2015 dated 20.04.2016
No.06/P-I/COMMR/ PUN-EXCUS-001-COM-24/18-19 April, 2015 to 12,52,37,545/-
2018-19 dated dated 27.12.2018 & June, 2017
18.04.2018
Appeal No. ST/86364/2019
2.3 Learned Commissioner of Service Tax/Central Excise & GST, Pune-I vide
impugned orders dated 18.11.2016 and 27.12.2018 had confirmed the
adjudged demands; besides he had imposed penalty on the appellants under
Sections 76 and 78 of the Finance Act, 1994. The appellants being aggrieved
4
ST/85299/2017
& ST/86364/2019
with the impugned orders passed by the learned Commissioner, have filed
these appeals before the Tribunal.
3.1. Learned Senior Advocate appearing on behalf of the appellants submits
that the appellants in the present case are primarily concerned with the renting
of the Diesel Generating (D.G.) sets/equipment which constitutes the main
business. The appellants enter into contact with the customers for the purpose
of leasing/hiring the equipment. The terms of the agreement indicates that the
equipment is given on hire/lease to the customers by the appellants, for a
fixed a tenure and the equipment is to be operated at the discretion of the
customer. The rental/lease transaction of the equipment starts when the
equipment is erected and commissioned by the appellants at the site of the
customer and ends on the date such equipment is decommissioned from the
site of the customer. The additional services of transportation, loading,
unloading, installation and insurance services are provided by the appellants to
their customers before the commissioning and after decommissioning of the
equipment. During the tenure of rental/lease, the equipment is in exclusive
possession and control of the customer and the manner in which the
equipment is to be used is determined only by the customer without any
control of the appellants. Even in case of normal repair and maintenance of the
equipment, the appellants take necessary permission from their customers in
order to get access to the equipment for undertaking necessary
repair/maintenance. Therefore he submits the these incidental activities like
transportation, loading, unloading, installation and insurance carried out by the
appellants are independent of the leasing/ hiring of the equipment, but which
are mentioned as a part of the standard terms and conditions in the contract in
order to make the equipment functional in nature. The appellants provide for
certain incidental services for example, providing for an operator at the
request of the customers. Such operator is operating the said equipment as
per the instructions of the customer, as if the customer himself is operating the
said equipment. The appellants charge their customers for the additional
activities provided at their request and pay service tax on these activities.
Hence, learned Senior Advocate submitted that these additional activities are
independent services and in no manner influence the nature of hiring/leasing
activity of the equipment undertaken by the appellants.
3.2 Learned Senior Advocate further submitted that in the present case,
undisputedly the appellants have paid VAT as the transaction amounts to
5
ST/85299/2017
& ST/86364/2019
deemed sale and effective control and possession of equipment was
transferred to their customers. Hence, VAT was rightly applied on these
transactions and service tax cannot be imposed on such transactions. The
provisions relating to transfer of right to use the goods is covered under the
provisions of Section 2(24) of the Maharashtra Value Added Tax Act, 2002. In
terms of the above statutory provisions, the activities carried out by the
appellants as a dealer who is registered under this Act and where the goods
are transferred by a person to other for their right to use to goods for a period,
the same shall be liable for payment of VAT at the rates specified in the
Schedules. The appellants fulfill the various guidelines prescribed by the
Hon'ble Supreme Court in BSNL case, viz., (i) there must be available for
delivery; (ii) there must be a consensus ad idemas to the identity of the
goods; (iii) the transferee should have a legal right to use the goods,
consequently all legal consequences of such use including any permissions or
licences required therefore should be available to the transferee; (iv) the
transferee has a legal right during the period contract, which is for the
exclusion to the transferor; (v) having transfer of right to use the goods during
the period for which it is so transferred, the owner cannot again transfer the
same rights to other person. Since the appellants have leased the equipment
to customers for their use, the same is subjected to the provisions of the
Maharashtra Value Added Tax Act, 2002as 'deemed sale' and appellants are
not liable to pay Service tax on the right to use to goods.
3.3 He further submitted that the transaction between the appellants and
customers is purely a transfer of right to use the goods and no element of
service is involved. The adjudicating authority has completely misinterpreted
the clauses of the agreement. The entire proceedings initiated by the
Revenue demanding service tax under the category of "Supply of Tangible
Goods" service both under Section 65(105)(zzzj) and Section 66E(f) of the
Finance Act, 1994 for the period prior to and after 01.07.2012 respectively is
not proper and without jurisdiction and the impugned orders are liable to be
set aside.
3.4 He further submits that definition of Service inserted in the Finance
Act, 2012 w.e.f. 01.07.2012 under Section 65B (44) of the Finance Act,
1994 makes it clear that such transactions in which supply of goods is a
deemed sale within the meaning of Article 366 (29A) of the Constitution of
India, would not be termed as service. Further, the said definition of
6
ST/85299/2017
& ST/86364/2019
"service‟ includes a declared service. The term "declared service‟ has been
defined under Section 65B(22) ibid to mean any activity carried out by a
person for another person for consideration and declared as such under
Section 66E. Thus the provisions of Service tax laws, as enacted post
negative list regime also substantiate the position that when a transaction is
deemed as sales within the meaning of clause (29A) of Article 366 of the
Constitution, the same would not be treated as service and in this regard,
the definition of declared service has also further clarified that the
transaction involving right to use is not covered in the ambit of levy of
service tax. This position in the negative list regime is aligned with the
position of law as prevailing during the earlier periods and further justifies
the stand of the appellants that the present transactions, being deemed sale
under the provisions of clause (29A) of the Article 366 of the Constitution
read with provisions of Maharashtra VAT Act shall not be treated as service.
3.5 In support of above views, he placed reliance on the following
judgments:
(i) Rashtriya Ispat Nigam Ltd. Vs. Commercial Tax Officer -1989
(12) TMI 325-Andhra Pradesh High Court
(ii) State of Andhra Pradesh Vs. Rashtriya Ispat Nigam Ltd. - 2013
(31) S.T.R.513(S.C.)
(iii) G.S. Lamba & Sons Vs. State of Andhra Pradesh - 2015 (324)
E.L.T. 316 (A.P.)
(iv) UFO Moviez India Ltd. Vs. Commissioner of Service Tax-V,
Mumbai - 2018 (11) G.S.T.L. 391 (Tri. - Mumbai) affirmed by
Hon'ble Supreme Court in Civil Appeal No.181 of 2022
(v) Bharat Sanchar Nigam Ltd. (BSNL) Vs. Union of India - 2006 (2)
S.T.R. 161 (S.C.)
(vi) Quippo Energy Pvt. Ltd. Vs. Commissioner of Service Tax,
Ahmedabad - 2022 (12) T.M.I. 1440 - CESTAT- AHMEDABAD
(vii) Gujarat Powerfield Pvt. Ltd. Vs. Commissioner of Service Tax,
Ahmedabad - 2023 (9) T.M.I. 868 - CESTAT- AHMEDABAD
(viii) Subhash Light House Vs. Commissioner, Central Goods & Service
Tax, Audit-II - 2022 (2) TMI 141 - CESTAT NEW DELHI
(ix) Agrawal Builders Vs. Commissioner, Central Excise, Allahabad
2019 (2)TMI 311 - CESTAT ALLAHABAD
7
ST/85299/2017
& ST/86364/2019
4.1 Learned Authorised Representative (AR) appearing on behalf of the
Revenue reiterates the findings of the impugned orders and submits that
even if the VAT is paid, it does not entitle the appellants to escape from
service tax liability.
4.2 He further stated that as per Section 65(105)(zzzzj) of the Finance
Act, which defines the taxable service of "Supply of Tangible Goods" 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 the effective
control of such machinery, equipment and appliances. Service tax on the
supply of tangible goods like the generating set in this case was introduced
w.e.f. 16.05.2008 vide Notification No. 18/2008-S.T. dated 10.05.2008.
Further w.e.f. 01.07.2012 in the negative list regime, the transfer of goods,
by way of hiring, leasing, licensing or in any such manner without transfer of
right to use such goods constituted the declared service, in terms of clause
(f) of Section 66E of the Finance Act, 1994. Thus, the appellants are liable to
service tax as their activities are covered under the above scope of taxable
service.
4.3 He further stated that the department was of the view that the lease
charges collected by the appellants were nothing but the same was received
for providing 'Supply of Tangible Goods for Use' service. Therefore, the
service provided by the appellants were required to be classifiable under
STGU service and the service tax on the said charges was required to be
paid by the appellants and therefore the impugned orders have rightly
confirmed the demands under proviso to Section 73(1) of Finance Act,
1994and imposed penalties on the appellants. Therefore, he submitted that
the appeals filed by the appellants are liable to be dismissed.
5. The submissions advanced by the learned Advocates appearing for the
appellants and the learned Authorized Representative of the Department have
been considered by us. We have also perused the records of the case and the
additional written submissions given in the form of paper books.
6. In the impugned orders dated 18.11.2016 and 27.12.2018, the learned
Commissioner had recorded his findings that the services provided by the
appellants are covered under the category of services of 'Supply of Tangible
Goods for Use' (STGU). In identically worded findings in both the above
8
ST/85299/2017
& ST/86364/2019
referred orders, the learned adjudicating authority had concluded that the right
to transfer the property in the generating set/equipment had not been
transferred by the appellants to their clients. He also referred to the
contractual arrangements in the present case and the ratio laid down by the
Hon'ble Supreme Court in the case of BSNL (supra) and Commissioner of
Service Tax, Ahmedabad Vs. Adani Gas Ltd. 2020 (8) TMI 789 Supreme Court,
for confirmation of the adjudged demands in both the above referred orders.
The relevant paragraphs of the impugned orders, which are identical in
wordings and paragraph numbers, are extracted and given below:
"27/22.7. I further find that crucial factor to determine the transfer of
right to use of goods is the point of signing of the contract. Transfer of right
to use, transfer of custody and transfer of effective control and possession
all are governed by the terms of a written contract. I rely on the judgment
of Hon'ble Andra Pradesh High Court in the case of M/s G.S. Lamba & Sons
V/s State of Andhra Pradesh - 2015 (324) E.L.T. (A.P) in this regard.
xxx xxx xxx xxx
As per the law laid down transfer of the right to use takes place when the
contract in respect thereof is executed. In the instant case I find that even
post signing of the contract several operations e.g. steps to be taken in
breakdown situations, repairs and maintenance. Commissioning, de-
commissioning etc. remain with noticee. It therefore can be said that the
noticee has transferred custody but the there is no legal transfer of the
right to use at least till after the commissioning of the generator The
noticee, further, retains the control in matters relating to maintenance and
repair and the transferee has no leeway in getting them repaired by his
own means in case of a breakdown. In view of this, I hold that in this case,
there is no transfer of right to use the goods as per the law laid down by
the Supreme Court.
28/23. In the present case the Generating Sets were provided to the
customer as per their requirement under an agreement and the noticee is
discharging VAT on the rent charged to their customer. It is not disputed
that the noticee, themselves install the generator set at site of customer.
The noticee on behalf of their customer obtains necessary permissions
from various authorities though in the name of the lessee. Further, they
are providing skilled man power for operating the Gen Set to their
customer. The loading unloading activities are carried out by the noticee
and the expenditure incurred on them are recovered from their customer
separately. It was also not disputed that the noticee is making insurance of
the Genset on their own cost and if the equipment (gen set) is failed down
under any circumstances the noticee is free to claim the amount from
insurance. I also notice that their customer has no access to repair or
maintain the Generator at their own. Under this situation, the customer will
inform about the break down to the noticee and the noticee will repair it on
own cost and give access to use further. During the break down condition,
their customer will not pay anything for that period. As per the terms and
conditions laid down under the agreement, it cannot be said that the
noticee have given to their customer transfer of right to use the Gen set as
they wish. The terms and conditions laid down under the agreement made
9
ST/85299/2017
& ST/86364/2019
between M/s Bharat Oman Refineries Ltd., and noticee is already
reproduced in foregoing para. From these conditions it cannot be said that
the noticee have given 'transfer of right to use the goods'. From the above
mentioned legal position, clarification received from the Board, legal
interpretation in the cases of similar nature and the factual position of the
transactions made with their customers and terms and conditions
mentioned in the contract, I find that the noticee cannot to be said to have
transferred of the right to use the goods to their customers. Therefore,
even though they are paying VAT on the transactions, the activity carried
out by the noticee are squarely covered under the definition of taxable
service prior and after 01-07-2012 being 'Supply of Tangible Goods'
without transfer of the right to use of goods. I find that in the instant case
only on the basis of transfer of custody and merely having transfer of
license to use the goods the noticee is arguing that there is transfer of the
right to use the goods which in my opinion is not sustainable as per terms
of agreement and test laid down by the Apex Court in the case of Bharat
Sanchar Nigam Limited Vs. Union of India (2006 (2) S. T. R. 161 (S.C)).
Accordingly, I hold that service tax is payable on the said service by the
noticee."
7. We find that the issues arising for consideration before us from these
appeals are to determine the following:
(i) whether the activities performed or services provided by the
appellants are taxable under the category of 'Supply of Tangible
Goods for Use' (STGU) services or not?;
(ii) whether the determination of service tax liability on the
appellants, by treating the activities undertaken by them as
STGU, and confirmation of adjudged demands under the
impugned order is legally sustainable or not?; and
(iii) whether the appellants are liable for payment of penalty as
determined by learned Commissioner in the impugned orders
dated 18.11.2016 and 27.12.2018?
8. In order to address the above issues including the scope of coverage
of taxable services and the nature of STGU services, we would like to refer
the relevant legal provisions contained in the Finance Act, 1994 and relevant
definition of taxable service under Section 65(105) ibid as it is relevant for
the period prior to 01.07.2012 and Sections 66B, 66E ibid for our careful
consideration and for coming to a proper conclusion about the subject
services under dispute.
10
ST/85299/2017
& ST/86364/2019
Finance Act, 1994
"Definitions
Section 65(105)."taxable service" means any service provided or to be
provided,--
Section 65(105) (zzzzj):
(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;
Interpretations.
Section 65B. In this Chapter, unless the context otherwise requires,--
xxx xxx xxx xxx
(22) "declared service" means any activity carried out by a person for another
person for consideration and declared as such under section 66E;
(44) "service" means any activity carried out by a person for another for
consideration, and includes a declared service, but shall not include--
(a) 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 transaction in money or actionable claim;
(b) a provision of service by an employee to the employer in the course of or
in relation to his employment;
(c)fees taken in any Court or tribunal established under any law for the time
being in force...
Negative list of services.
Section 66D: The negative list shall comprise of the following services,
namely:--
(a) services by Government or a local authority excluding the following
services to the extent they are not covered elsewhere--
.....
Declared services.
Section 66E: The following shall constitute declared services, namely:--
(a) renting of immovable property;
(b) construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of completion certificate by the competent authority;
xxx xxx xxx xxx
(e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act;
(f) transfer of goods by way of hiring, leasing, licensing or in any such manner without transfer of right to use such goods;..."11
ST/85299/2017 & ST/86364/2019 The Constitution of India "Article 366. In this Constitution, unless the context otherwise requires, the following expressions have the meanings hereby respectively assigned to them, that is to say--
(29A) "tax on the sale or purchase of goods" includes--
(a) a tax on the transfer, otherwise than in pursuance of a contract, 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) involved in the execution of a works contract;
(c) a tax on the delivery of goods on hire purchase or any system of payment by installments;
(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;"
9.1 From the statutory provisions contained in Section 65(105)(zzzzj) ibid, we find that the taxable service of "Supply of Tangible Goods for Use (STGU)" is defined to mean 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 the effective control of such machinery, equipment and appliances. Service tax on the STGU was introduced w.e.f. 16.05.2008 vide Notification No. 18/2008-S.T. dated 10.05.2008. Further w.e.f. 01.07.2012 in the negative list regime, the transfer of goods, by way of hiring, leasing, licensing or in any such manner without transfer of right to use such goods constituted the declared service, in terms of clause (f) of Section 66E of the Finance Act, 1994.
9.2 The disputed period in the present appeals cover the period commencing from October, 2006 to June, 2017. In view of both the periods 12 ST/85299/2017 & ST/86364/2019 i.e. before the negative list regime prior to 01.07.2012 and after introduction of negative list regime w.e.f. 01.07.2012 are covered in these cases, we have carefully examined the relevant legal provisions that existed both the above relevant time period. We find that the key aspect to be considered for identifying whether a particular activity would be subject to levy of service tax or not, is the fact of supply of tangible goods or transfer of goods without transferring the right of possession or by way of hiring, leasing, licensing or any such manner without transfer of right to use such goods.
9.3 On analysis of the above legal provisions during the relevant period, we find that in order to fall within the definition of taxable service, following three conditions are required to be satisfied:
(i) there should be a supply or transfer of goods for use;
(ii) The transfer of goods must be by way of hire or lease or licences for using the goods; and
(iii) The right of possession and effective control of such goods must not have been passed on to the transferee.
Once all these aforesaid three conditions are satisfied, the provisions of the said taxable entry for the purpose of levy of service tax will be attracted.
9.4 We find that in the present case before us, there is no dispute in relation to the above first two conditions inasmuch as the generating set/equipment is physically supplied to various clients by the appellants and there is a sale by the appellants to their clients by way of hire purchase/lease agreement to this effect. The dispute is related only to the third condition, that is whether the transaction between the appellants and its customers would involve the transfer of right of possession and effective control or a transfer of right to use. To examine this issue, it would be appropriate to refer to the instructions issued by the Ministry of Finance at the time of introduction of service tax levy on STGU and the various terms and conditions of agreement entered into between the appellant and its clients.
9.5 In this regard, we find that the taxable service under the category of Supply of Tangible Goods for Use (STGU) was introduced with effect from 16.05.2008. At the time of bringing this service under the service tax net, the Ministry of Finance in its instructions vide D.O.F. No. 334/1/2008-TRU 13 ST/85299/2017 & ST/86364/2019 dated 29.02.2008 had explained about the scope of the service tax levy on STGU as follows:
"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 to the user of the goods.
4.4.2 Excavators, wheel loaders, dump trucks, crawler carriers, compaction 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 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 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 or not VAT is payable or paid."
The above instructions clearly provide that such levy under STGU is only in respect of transactions of allowing another person to use the goods, without giving legal right of possession and effective control, by treating the same as service. The detailed explanatory notes brought out by the Finance Ministry, TRU at the time of introduction of the above levy under STGU makes it clear, that such levy on the newly proposed services is leviable subject to the same not being subjected to Sales tax/VAT. Hence, the exclusion specifically provided in the scope of levy of service tax on STGU squarely applies in the present case.
9.6 We also find that the above explanatory instructions have correctly reflected the Budget Speech of the Hon'ble Union Finance Minister laying down the policy with respect to the introduction of levy of service on specified services including STGU, when he introduced the budget proposals before the Parliament in presenting the Union Budget, 2008. The relevant extract of the Budget Speech of the Hon'ble Union Finance Minister for the Union Budget, 2008 is extracted and given below:
"155. Finally, I turn to my proposals on service tax.
156. 55 per cent of the GDP is contributed by the services sector, which is a growing sector that must contribute its legitimate share to 14 ST/85299/2017 & ST/86364/2019 the exchequer. I propose to bring under the service tax net four services. They are:-
(i) asset management service provided under ULIP, to bring it on par with asset management service provided under mutual funds;
(ii) services provided by stock/commodity exchanges and clearing houses;
(iii) right to use goods, in cases where VAT is not payable; and
(iv) customised software, to bring it on par with packaged software and other IT services"
In view of the above, we find that on this account also, the conclusion made by learned Commissioner that the activities of the appellants, where VAT has been paid does not absolve them from the legal requirement for payment of service tax applicable on STGU services, does not survive.
9.7 On perusal of the records of the case, it is indicated that the appellants firstly purchases the equipment/generating set by importing the same from its associate company located in United Kingdom. After payment of appropriate duties, such equipment was stored in their warehouse located across India and thereafter as per the requirements of their clients, the generating set/equipment were supplied to their clients on lease/rental basis as per the terms and conditions of contracts entered with them. These terms and conditions included provision of transportation of the equipment; its loading and unloading; commissioning and decommissioning of the equipment; its insurance; obtaining approval of concerned Electricity Board; operation of Diesel Generating sets; provision of fuel, labour and other connected works which were duly incorporated in specific agreement executed to this effect by the appellants with their clients. Wherever the actual expenditure incurred as above involved mark-up, on such charges which is over and above the actual expenditure incurred, the appellants had paid service tax on the additional consideration received by them. Further, since the rented equipment are for specified use, in order to make it operational, as per the requirement of the clients, the appellants had provided erection, commissioning, installation at the site of the client and decommissioning at the end of the rental/lease period. For these services, the appellant had separately charged their clients and have also paid applicable service tax thereon. In terms of the contract, the equipment supplied on rental/lease basis is to be insured by their clients. As this equipment are for use at the site of the clients, the approval of the State 15 ST/85299/2017 & ST/86364/2019 Electricity authorities for obtaining their permission in the name of the client, was obtained by the client themselves. The appellants have only facilitated obtaining the said approval as the said permission is being issued in the name of their customers and not in the name of the appellants. We also find that the generating sets could be operated by the clients themselves, but wherever the clients required to provide assistance in supplying of such operators, the appellants have hired such labour from the external manpower supply agency. The labour employed in such manner is working directly under the control and supervision of their clients and performing the operation of the equipment as per the directions of their clients. The contractual obligations also provide that procurement and availability of fuel for operations of equipment was always rest with their clients. From the above nature of the transactions entered into by the appellants with their clients, prima facie, we find that the activities undertaken by the appellants is in the nature of supply of generating sets/ equipment on rental basis or lease basis, for a specified period as agreed upon by both the parties i.e., appellants and their clients. In undertaking such act, the appellants have also paid the applicable VAT/Sales Tax as per the local State laws. It is not the case of the department, that service tax paid by the appellants on various activities as above are neither taxable nor the VAT/Sales Tax paid by the appellants have been contested by the State VAT authorities, for treating the rental/leases transactions otherwise, for claiming payment of service tax on these services.
9.8 In the present case before us, the factual matrix indicate that the generating set/equipment are used to provide the electrical power required for undertaking the activities of the clients. These generating set/ equipment are installed at the premises of the client and for regulatory purpose of State Electricity authorities, the license/registration is taken by the clients. Further, in no manner the equipment is used by the appellants without taking permission from the clients; and even for routine repair and maintenance, specific prior permission of the client is required to be taken to access the said equipment. The entire operations of the generating set/equipment such as switching on and off, recording number of hours it has run, other functional parameters are decided by the clients and is operated by the operator as per the instructions of the client. Hence, on the facts of the case and on detailed examination of the services provided by the appellants as per the agreement entered into by the appellants, prima facie 16 ST/85299/2017 & ST/86364/2019 we do not find it feasible to categorise the activities undertaken by the appellants as 'Supply of Tangible Goods for use' in order to subject the transaction for levy of service tax under Section 65(105)(zzzzj) ibid.
10.1 In order to further examine the details of the agreement dated 05.10.2010 entered by the appellants with their clients BORL, we have extracted the various clauses and the same are given below:
"AGREEMENT THIS AGREEMENT No.: BRP/O&M/59 - 13832 - C001 - AS is made on this day of 5th, October 2010 between BHARAT OMAN REFINERIES LIMITED, incorporated In India registered under Companies Act 1956 having Its registered office at 'A' Block, Office Complex, Gautam Nagar, BHOPAL 462023 (Madhya Pradesh) and Refinery at Bina, Dist. Sagar (Madhya Pradesh) (hereinafter referred to as "the Owner which expression, unless the context requires otherwise, shall include its successors and permitted assignees) First Party, and AGGREKO ENERGY RENTAL INDIA PVT LIMITED, a company Incorporated In India and registered under Companies Act 1956, having its registered office at 404 Lunkad Skystation, Viman Nagar, Pune 411 014 India (hereinafter referred to as "the Contractor", which expression, unless the context requires otherwise, shall Include its successors and permitted assignees) Second Party:
WHEREAS A. The Owner requires the services of temporary generators plus ancillary equipments to be installed, commissioned, operated and maintained at the BORL Refinery Sites as defined below.
B. The Contractor is engaged in the business of providing such equipment and services on hire basis and has agreed to provide same to the Owner on the terms and conditions set out in this Contract.
xxx xxx xxx xxx NOW THEREFORE IT IS HEREBY AGREED as follows:- 1. INTERPRETATION
"Plant" shall mean the number of 1250kVA Generators used in each phase, including all ancillary equipment, materials and supplies used by the Contractor in connection with the performance of this Contact, or any part thereof including, without limitation, the items detailed in Schedule 5 and referred to in the Scope of Work.
xxx xxx xxx xxx 2. COMMENCEMENT AND PROVISION OF SERVICES 2.1 This Contract shall commence on the date first written above and shall
continue until such time as the deployed Plant and each part thereof has 17 ST/85299/2017 & ST/86364/2019 been taken back by the contractor safely to the Contractor's nominated depot and the payment obligations of the Owner have been met in full in line with the contract provisions mentioned in this contract.
2.2 In consideration of the payment to be made to the Contractor by the Owner for the Services and the Plant to be deployed by him hereunder on hire, the Contractor hereby covenants with the Owner that the Contractor shall duly provide the Services and shall do and perform all other acts and things in the Contract mentioned or described or which are to the implied there from or may be reasonably necessary for the completion of the said Services and at the said times and in the manner and subject to the terms and conditions or stipulations mentioned in the contract.
2.3 The Services shall be provided to the Owner in three phases (the "Phases") and during each Phase the 1250kVA Generators shall be located at the Sites as follows Phase 1A = 37 x 1250kVA Generators ("Phase 1A") xxx xxx xxx xxx Phase 1B = 41 x 1250kVA Generators ("Phase 1B") xxx xxx xxx xxx Phase 2 = 53 x 1250kVA Generators ("Phase 2") xxx xxx xxx xxx 2.4 The operational service period of each Phase shall commence on the Commercial Operation Date of that Phase and shall continue for.
Phase 1A - Site C - From date of Commissioning to 31st October 2010 Phase 1A - Site A - for one Month Phase 1A - Site B - for one Month Phase 1B - Site A, Site B and Site C for one Month Phase 2 - Site C from January 01st 2011 to 15 February 2011 Phase 2 - Site A for three Months Phase 2 - Site B for three Months xxx xxx xxx xxx
3. PAYMENT 3.1 The Owner shall pay the Contractor for the Service in accordance with clause 3 and as set out in Schedule 1 Schedule of Rates. However the Onward Transport Charges and Return Transport Charges for the Temporary Boiler Plant will be charged at actuals and reflected in the total Freight Charges accordingly.
xxx xxx xxx xxx 3.5 The Contractor shall submit to the Owner an Invoice detailing the amounts payable to the Contractor hereunder. The Owner shall pay each invoice submitted by the Contractor:
3.5.1 In respect of Hire Charges and O&M Charges; within 15 days of the date of the Invoice; and 3.5.2 In respect of Onward Transport and Mobilization Charges prior to mobilization of the Plant and immediately upon receipt by the Owner of the respective Invoices and Bank Guarantee. If call off 18 ST/85299/2017 & ST/86364/2019 option is exercised by the owner then the Mobilization and Onward Transport Charges will be adjusted accordingly; and 3.5.3 Installation charges upon commissioning of Phase 1A; and 3.5.4 Demobilization Charges shall be paid 4 weeks prior to the end of the contract; and on receipt of Bank Guarantee for the equivalent amount by the Owner. and 3.5.5 Return Transport Charges shall be paid upon receipt by the Owner of Bill of Laden for the equipment from the Contractor in full and in cleared funds to a bank account nominated in writing by the Contractor. The Contractor may at any time direct the Owner, to make payments into any other account which can be opened in the books of any other bank having required electronic facilities within India.
xxx xxx xxx xxx 3.10 All amounts payable by the Owner under the contract are exclusive of Value Added Tax ("VAT"). Where any taxable supply for VAT purposes is made under the Contract by the Contractor to the Owner, the Owner shall, upon receipt of a valid VAT invoice from the Contractor pay to the Contractor such additional amounts in respect of VAT as are chargeable on the supply of the Services or the Plant at the same time as payment is due for the supply of the Services or the Plant.
xxx xxx xxx xxx 6.2 The Owner shall be liable for, and shall defend, indemnify and hold the
Contractor harmless from and against any Claim in connection with:
6.2.1 loss of or damage to the property of the Owner, and 6.2.2 death or sickness of or injury to any member of the Owner's personnel arising out of or in connection with the performance of this Contract, save where such Claim has resulted from the or has been contributed to by any negligence and/or breach of duty (statutory or otherwise) of the Contractor.
xxx xxx xxx xxx 7.6 The Owner shall be entitled, at any time, to inspect all or any part of the
Plant. If any part of the Plant does not, at any time, meet the Specifications for reasons attributable to the Contactor, then the Contractor shall promptly replace or repair such part of the Plant in ensuring compliance with the Specification.
7.7 Any inspection of any item of the plant necessarily required during the currency of the contract to ensure continued compliance with certification requirements, or for any other reason, shall be conducted at a time convenient to the contractor...
7.8 The Contactor will have the right to carry out routine service, maintenance and repairs for the Plant and shall notify the owner at least 7 days in advance of any such scheduled maintenance....19
ST/85299/2017 & ST/86364/2019 7.10 The Owner acknowledges and agrees that the Plant is the exclusive property of the Contractor and undertakes, until the termination of the Contract:
7.10.1 not to lease, lend or dispose of the Plant in any way; 7.10.2 not to infringe against the Contractor's rights of ownership of the Plant;
7.10.3 to protect the Plant against any attachment, confiscation or any other enforcement procedure applicable under local law and to inform the Contractor of any threatened attachment, confiscation or any other enforcement procedure without delay, 7.10.4 not to repair, improve, move, interfere with, deface, or otherwise Interact or attempt to interact with the Plant, without the express written consent of the Contractor.
xxx xxx xxx xxx
9. TRANSPORTATION
9.1 the Contractor shall be responsible for transporting the Plant and the
Contractor's personnel from the Contractor's nominated depot to the Site and following termination of the Contract for transporting the Plant from the Site to the Contractor's nominated depot.
9.2 On both the onward (to the Site) and return (from the Site) journeys the Contractor shall be responsible for all handling, loading and unloading of the equipment and all costs thereof, Including the cost of craneage and Inland transport for all spare parts, consumables and other materials required for maintenance of the Plant throughout the service period.
xxx xxx xxx xxx
13. FUEL
13.1 The owner shall be responsible for the supply of Fuel and water to the
Plant in accordance with the Fuel Specifications and for the supply of appropriate fuel storage facilities.
xxx xxx xxx xxx
SCHEDULE 1-SCHEDULE OF RATES
Definitions
1 Hire Charge
The Owner shall pay the Hire Charge to the Contractor in respect of the Plant from commencement of the Commercial Operation Date of each Phase until expiry of the Operational Service Period or Extended Operational Service Period.
2 O&M Charge The Owner shall pay the O&M Charge to the Contractor from commencement of the Commercial Operation Date of each Phase until expiry of the Operational Service Period or Extended Operational Service Period.
3 Mobilisation Charge 20 ST/85299/2017 & ST/86364/2019 The Owner shall pay the Mobilisation Charge to the Contractor in full prior to the Plant from the Contractor's nominated depot.
4 Demobilisation Charge The Owner shall pay the Demobilisation Charge to the Contractor in full 4 weeks prior to demobilisation of the Plant from the Site on submission of a reciprocal Bank Guarantee for the same by the Contractor.
5 Onward Transport Charge The Owner shall pay the Onward Transport Charge to the Contractor in full prior to mobilisation of the Plant from the Contractor's nominated depot.
6 Return Transport Charge The Owner shall pay the Return Transport Charge to the Contractor upon receipt by the Owner of Bill of Laden for the equipment from the Contractor subject to clause 3.5 7 Installation Charge The Owner shall pay the Installation Charge to the Contractor upon full Installation as per the agreed billing schedule set in Schedule 1 - Schedule of Rates SCHEDULE 2-SCOPE OF WORK AGGREKO SCOPE OF WORK the Contractor will Design, Engineer (Preparation of SLD) and Deploy Diesel Generator Sets of suitable capacity on Hire basis to Bharat Oman Refineries Limited at Bina Refinery at Various Substations as per the Load Requirements.
These sets are to be operated by the contractor on round the clock basis inclusive of supply all associated equipment of the DG sets. The scope of services under this contract shall cover the following aspects:
1. Technical Support & Consultation During the entire contract tenure, the contractor shall provide technical support and consultation so as to ensure service excellence. In the event of operating parameters being revised, the contractor shall make recommendations for revisions to equipment configuration / operational mode to cater to the requirements
2. Approvals Obtain necessary clearances license from the statutory authority / state licensing authority shall be under bidder's scope. However, BORL would facilitate necessary supports for obtaining the NOC's / clearances.
3. Supply of Plant xxx xxx xxx xxx
4. Logistics & Transport xxx xxx
7. Pre Dispatch Inspection 21 ST/85299/2017 & ST/86364/2019 xxx xxx
8. Insurance Coverage xxx xxx
9. Permits / Visas / Tickets:
xxx xxx
10. Site Preparation / Site Works xxx xxx
11. Erection & Dismantling Of Plant xxx xxx
12. Installation of Equipment
13.HV cabling between the Contractor's switchgear and BORL's connection points
14.Fuel oil piping between BORL's tee off point to the Contractor's Temporary Power plaints
15.All reports of successful commissioning of equipment shall be provided to BORL to facilitate the contractor the contractor for obtaining for obtaining onsite start up clearance.
16.Commissioning of Equipment
17.Disposal of Waste
18.Project Planning & Management
19.Demobilization
20.Site Supervision
21.Operation and Maintenance
22.Personnel Provision of unskilled labourers, to work under the supervision of the Contractor Technicians during installation, commissioning and operation of the Plant.
23.Load Management
24.Spares and Consumables
25.Break Down of DG Set THE OWNERS SCOPE OF WORK Bharat Oman Refineries Ltd. will provide services as listed below with all associated costs to BORL's account unless otherwise stated.
1. Suitable Land
2. Permits
3. Site Facilities
4. Refuse
5. Connection to BORL System
6. Supply of potable water and fuel oil for DG Set as per agreed specifications.
7. Personnel & Security Provision of Security facilities and Site Security Personnel at each of the locations."22
ST/85299/2017 & ST/86364/2019 10.2 On perusal of the agreement dated 05.10.2010, it transpires that this a contractual arrangement between the appellants and their clients for providing the facility of complete Plant/generating sets by making available the specified equipment. The various clauses in the agreement sets out the detailed manner in which the 1250 KVA generators shall be located at the clients premises until the stage these are commissioned and ready for use by the lessee (owner). Similarly, after the hire/lease period, how such equipment shall be decommissioned is also provided therein. The consideration paid by the lessor (owner) is for the hire/lease of the equipment. By virtue of this agreement, the lessee (Owner) shall be considered to have possession of the plant and shall have the right to use the plant for the purpose for which it is leased to him. In view of such conditions, the effective control of the equipment is purely in the hands of customers of the appellants, as the customer is at their liberty to use the equipment hired by him. It is seen from the agreement that there is no dispute as to the fact that the goods are in the possession of the lessee (Owner) and is being used by him for the intended purpose without any interference or hurdle from the appellants once it is commissioned. On going through the clauses of above agreement, we find that the appellants had handed over the "Goods‟ i.e., Plant's/generating set's possession to the lessee (Owner) as also the right to use. Therefore, we are of the considered view that the transaction of appellants does not satisfy the condition of "without transferring right of possession and the effective control of such machinery, equipment and appliances." Hence the activity does not fall under the definition of "Supply of tangible goods for use" service as claimed by the Revenue.
10.3 Being identical issue involved, we take support from Hon'ble Supreme Court's decision in the case of BSNL (supra) which provides certain guidelines for coming to an conclusion on the issue that "what are the attributes for treating a transaction as transfer of rights to use the goods?‟ The Hon'ble Supreme Court in the said case on this issue inter alia observes as under:-
"90. The entire infrastructure/instruments/appliances and exchange are in the physical control and possession of the petitioner at all times and there is neither any physical transfer of such goods nor any transfer of right to use such equipment or apparatuses.
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;23
ST/85299/2017 & ST/86364/2019 b. There must be a consensus ad idem as to the identity of the goods; c. The transferee should have a legal right to use the goods-consequently all legal consequences of such use including any permissions or licenses required therefore should be available to the transferee; d. For the period during which the transferee has such legal right, it has to be the exclusion to the transferor this is the necessary concomitant of the plain language of the statute - viz. a "transfer of the right to use" and not merely a licence 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."
10.4 In the light of our discussion on the facts of the case and as the various clauses of agreement in paragraphs 10.1 and 10.2 and as per the guidelines of Hon'ble Supreme Court as above, we come to the conclusion that appellants have complied with all the tests as laid down in the above case to hold that there is transfer of right to use equipment/generating set. Thus the activity carried out by the appellants in hire/lease transaction is not in the nature of "service‟ under the Finance Act, 1994, in both during the period prior to negative list regime and thereafter as held in the impugned orders.
10.5 We find that the adjudicating authority has held that since the appellants are providing skilled manpower for operating the generating set, loading and unloading activities are carried out by them, repair and maintenance is carried out by them at their own cost, the appellants cannot be said to have transferred the right of the equipment to their customers. We find that except the above findings, the Commissioner has not dwelled upon any of the submission and facts made by the appellants. The terms and conditions of the agreement are vast and comprehensive for providing various activities involved in the hire/lease of the equipment; the contract/agreement as a whole provides its essence and the same is crucial in determination of nature of contract/agreement. As per agreement the equipment is delivered to the customers; in terms of various Clauses of agreements as discussed above and customers are required to get all permissions for installation of equipment; Clauses of agreement also provide that customers shall be responsible for all injuries, losses and damages caused to the equipment and shall also indemnify the appellants against any loss or damage arising to or in connection with the performance of the contract. Further the skilled manpower is supplied as an additional facility by the appellants under the agreement, for which separately applicable service 24 ST/85299/2017 & ST/86364/2019 tax is being paid. Once the control and possession of generating set/equipment was transferred to the customers, mere supply of manpower for maintenance will not change the nature of the transaction. All these factors are to be taken into consideration while determining the nature of service. Therefore, we are of the view that the finding of the impugned orders in present matters is legally not correct.
11.1 We further find that a reading of the definition of "sale‟ under the provisions of Maharashtra VAT Act, 2002 makes it crystal clear that every transfer of property in goods by one person to another in the course of trade or business, includes the transfer of right to use of any goods for any purpose. The said Act also provides levy of tax on the transfer of the right to use any goods. Article 366(29A)(d) inserted by the Constitution (46th Amendment) Act, 1982 on 02.02.1983 also provide for specific meaning attached to the phrase "tax on the sale or purchase of goods" to included deemed sale i.e., 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. Thus, in our considered view, owing to the reason of the Article 366(29A)(d) of the Constitution of India, 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, has to be considered as deemed sale or purchase of goods. It is clear that the activities in the present case clearly establish that it is a transaction of sale or purchase of goods as there is a clear case for transfer of right to use goods, and thus it is a 'deemed sale' transaction.
11.2 It is also observed that the appellants have been paying VAT on such leasing of equipment/generating sets. In this regard, we also find that DOF No. 334/1/2008- TRU, dated 29.02.2008 Circular in Para 4.4 also states that "Supply of tangible goods for use and 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 or not VAT is payable or paid". It is not in dispute that the appellants were paying VAT in all their transactions during the disputed period. Thus, we are of the considered view that the transfer of right to use gas generating set/equipment or plant on lease/hire basis is a deemed sale in terms of 25 ST/85299/2017 & ST/86364/2019 Article 366(29A)(d) of the Constitution of India, which is excluded from scope of levy of service tax.
12.1 In this regard, we find that on the identical set of facts, the Coordinate Bench of the Tribunal in the case of Quippo Energy Pvt. Ltd. (supra) have held that the transaction of leasing of power generating equipment is a deemed sale and no service tax can be demanded. The relevant paragraph of the above order is extracted and given below:
"4.8 It is observed that the appellant have been paying VAT on such leasing of equipments since year 2007-08. We also find that DOF No. 334/1/2008- TRU, dated 29-2-2008 Circular in Para 4.4 also states that "Supply of tangible goods for use and 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 or not VAT is payable or paid". It is not in dispute that the appellant were paying VAT since 2007-08 and the services of "supply of tangible goods" came into service tax net later. The subject DOF was issued before the enactment and intended that the "proposed service" would not include the transaction on which VAT is "Payable or paid". The another circular dtd. 23.08.2007 issued by the department also clarifies that the payment of VAT/ Sales Tax on the transaction has to be treated as sales of goods and levy of Service tax on such transaction would not arise. The transfer of right to use gas genset/ plant on lease charges basis is a deemed sale in terms of Article 366(29)A of the Constitution, which is exclusive from service. Since the nature of transaction under dispute is deemed sale, no service tax can be demanded, as held in various judgments and relied upon by the Appellant in the present matter. 4.9 Following the cited decisions and our independent observations in the facts of the present cases, we are of the considered opinion that the demand raised cannot sustain and requires to be set aside."
12.2 We further find that the order of the Tribunal in another case involving identical set of facts in Gujarat Power filed Pvt. Ltd. (supra) have held that it is unambiguous that when on supply of tangible goods, the sales tax is payable or paid, then the same transaction will not be subject to payment of service tax, for the reason that as per Article 366 (29A) of Constitution of India, the supply of tangible goods is considered as deemed sale and any sale transaction will not be a domain of service.
12.3 We further find that in respect of Adani Gas Ltd. (supra) relied upon by Revenue, the facts of the case were different from the present case; in that referred case the SKID equipment consisting of regulator, valves, filters and metering equipment was used for delivery of gas to the buyer at the delivery point, which in effect was useful to the buyer of the gas inasmuch as he is as 26 ST/85299/2017 & ST/86364/2019 interested as the seller in ensuring and verifying the correct quantity of the gas supplied through such equipment and additionally the equipment ensured the safety of supply of gas. Hence, the Hon'ble Apex Court concluded that the said SKID equipment is a 'tangible goods' where the buyer of gas has its use without possession or effective control over it. In the present case, the equipment/ generating set is in complete control and use for generating source of power, as per the requirements of the customer once it is commissioned. Even for routine maintenance and repair, the appellants as per clause 7.8 of the agreement have to notify the customer seven days in advance, to have access over the equipment. Further, the various clauses of the agreement clearly provide that the appellants were, nowhere having control over the equipment and the control over the equipment effectively remained with the customers/clients. Hence, we find that the facts of the present case before us is entirely different from the case of Adani Gas Ltd. (supra), and thus to this extent we are unable to agree with the Revenue's claim for application of the principle laid down by the Hon'ble Supreme Court in that case referred by them.
13. We also find that the Tribunal the case of UFO Moviez India Ltd. (supra), had held that lease transactions of an equipment is not subjected to levy of service tax. The relevant paragraphs of the said order of the Tribunal are extracted below:
"6. We find that the first demand of service tax is on lease rentals collected by the appellant from the theatre owner. The appellant is receiving film in analogue format from the distributors/producers and converting into compressed encrypted digital format for which they are charging digitalization fee from the distributors/producers and are also discharging service tax on the same. The distributors on the other hand are entering into agreements with the theatre owners for exhibition of movies. The agreement between the distributors and theatre owners are based on number of shows. The distributor also enters into a content distribution agreement with the appellant to deliver the digital content in movie theaters and to monitor the number of shows exhibited. The appellant track the number of show with the help of smart card inserted into the DCE as part of the service to distributors. The theatre owner, in order to receive the digital content and exhibit cinema, require Digital Cinema Equipments which are either owned by them or are taken on lease by them. The appellant has leased such equipments to some of the theaters. The appellant in order to fulfil contract with the distributors are inserting smart cards to monitor the number of shows in such DCE. They are also collecting registration fee from theaters for conducting feasibility study which is reimbursement of expenses. The demand against them is on lease of DCE equipments given to the theatre owners on the ground that since the effective control and possession of such equipments has remained with the appellant, hence the 27 ST/85299/2017 & ST/86364/2019 services are of "supply of tangible goods for use". We find that the adjudicating authority has held that since as per contract the equipment will remain sole property of equipment provider and he shall bear the cost of normal wear and tear and repairs it is clear that the legal right and effective controls rests with the appellant. We find that except the above findings the Commissioner has not dwelled upon any of the submission and facts made by the appellant. The terms and condition of the agreement are its essence and is deciding factor for determination of nature of contract/agreement. The findings of the impugned order nowhere lead to the conclusion on the basis of this vital aspect. The appellant before the adjudicating authority and in their appeal memo has made submission on clause of agreements i.e. in terms of Clause 1B of the agreement the equipment is delivered to the theatre owner; in terms of Clause 1D the Theatre owner would put a person well versed with handling of equipment; Clause 5J where the theatre owner is required to get all permissions for installation of DCE; Clause 5K as per which the theatre owner shall be responsible for all injuries, losses and damages cause to the equipment and shall also indemnify the appellant against any loss or damage arising to or in connection with the equipment for the reason other than normal wear or tear; Clause 16A as per which the appellant has transferred the right to use of DCE exclusively to the theatre owner and the theatre owner shall have effective control of the DCE and shall be free to make its own use for theatrical exhibition purpose at its sole discretion. The Ld. Senior Counsel appearing on behalf of appellant has argued by citing case laws that agreement should be read as a whole and not few clauses in isolation to decide the nature of service.
6.1 Further the fact that 600 theatres had exhibited the IPL matches and none of the content was provided by appellant. None of these submissions has been taken into account while passing the impugned order. We also find that in addition the appellant had made various other submissions which do not find mention in order and are discussed in later part of this order. The appellant has contended that the DCE equipments could be operated on standalone basis by the Theatre owner for screening of any content which the theatre owner would procure. The appellant had no say in all such actions of the theatre owner. The role of smart card was limited to keeping track of shows to be played and deducting credit which is available on the smart card for running of shows. It was installed on the direction of the distributors who had entered into agreement with the theatre owners for exhibiting their movie and the appellant had no connection with the theatre owner in respect of such smart card. Thus the smart card were not an instrument to control the operation of DCE on behalf of appellant or has no bearing on the agreement between the theatre owner and appellant in case of leasing of DCE Equipments. As far as insurance of the DCE equipment is concerned the Appellant were owners of the equipments and the nature of leasing agreement does not change for the reason that the insurance was done by the appellant. For bringing any service under the category of "supply of tangible goods service" in terms of Section 65(105)(zzzj) it is imperative to see that such service is in respect of services towards supply of tangible goods for use "without transferring right of possession and effective control". In the present case once the DCE were transferred to theatre owner the appellant had no control over running of such equipments which are to be operated by the persons employed/deputed by the theatre owner. The theatre owner had contractual control over such equipments which was in their possession. All these factors are to be taken into 28 ST/85299/2017 & ST/86364/2019 consideration while determining the nature of service. It is observed that the appellant has been paying VAT on such leasing of DCE since year' 2006. Further the fact remains that in 2008 they approached the authority for determination of disputed question which ruled that the services are liable for VAT. The adjudicating authority has not given any findings on this aspect when brought before him. We also find that DOF No. 334/1/2008- TRU, dated 29-2-2008 Circular in Para 4.4 also states that "Supply of tangible goods for use and 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 or not VAT is payable or paid". It is not in dispute that the appellant were paying VAT since 2006 and the services of "supply of tangible goods" came into service tax net later. The subject DOF was issued before the enactment and intended that the "proposed service" would not include the transaction on which VAT is "Payable or paid". The theaters are free to choose which movie to be displayed, the number of shows, the timing of shows, weather to play a movie or not and also have operational control over equipment. From these facts, it prima facie appears that the theatre were having absolute authority to run the Cinema Equipments as per their liking with no right of the appellant to interfere or to be forced by the appellant to run the Equipments as per their directions or control. The appellant has also relied upon the order of Tripura HC in case of Bharti Telemedia Ltd. v. The State of Tripura - 2015-TIOL-2983-HC-TRIPURA relating to identical situation and the Ld. Senior Counsel has argued that the ratio of said judgment would squarely applicable to the case.
6.2 We also find that the appellant had regularly been filing their returns and even the department from time to time had initiated enquiry with the appellant which was properly responded. The DGCEI also investigated the issue in 2008-2009 and after response by the appellant vide their letter dated 17-6-2009 no further action was taken which shows that even the revenue appears to have satisfied regarding non-applicability of tax on activities of the appellant. Further it is also not in dispute that the appellant had been paying VAT even before the levy of service tax which is being demanded in the instant case. Even the circular issued in 2008 referred above clearly states that VAT and Service Tax are mutually exclusive. Considering all above factors it appears there is no suppression of fact on appellant's part. It is also observed that the appellant obtained DDQ (Determination of Disputed Question) dated 26-6-2008 from Commissioner of Sales Tax, who held that lease rental is liable for VAT. The appellant accordingly was discharging the VAT liability even before the taxability on 'Supply of Tangible goods for use'. With the above undisputed facts. We are of the clear view that there is no suppression of facts with intent to evade payment of Service Tax on lease rentals on DCE, on the part of the appellant. Therefore we hold that the demand for extended period is clearly time-barred."
14. We further find that the department's appeal filed against the order of the Tribunal in the case of UFO Moviez India Ltd. (supra) was dismissed by the Hon'ble Supreme Court by upholding the decision taken by the Tribunal 29 ST/85299/2017 & ST/86364/2019 and affirming that the question of claiming service tax on the activities does not arise on the activities for which VAT was regularly paid by the respondent assessee. The copy of the aforesaid judgement dated 06.01.2022 is reproduced below:
30ST/85299/2017 & ST/86364/2019
15. In view of the above analysis of the legal provisions and on the basis of the orders passed by the Tribunal and the judgement of the Hon'ble Supreme Court, we are of the considered view that the services rendered by the appellants does not fall under the category of sub-clause (zzzzj) of Section 65(105) of the Finance Act, 1994 as 'Supply of Tangible Goods for Use' without transfer of right of possession and effective control, for the period prior to 01.07.2012. Further, we also find that such services are also not covered under the scope of clause (f) of declared services under Section 66E ibid, for the period post 01.07.2012. Therefore, we are of the considered view that the adjudged service tax demands confirmed by the impugned orders dated 18.11.2016 and 27.12.2018, does not stand the legal scrutiny.
For the above reasons, we are of the considered view that the said order is equally unsustainable for demand of interest and imposition of penalties on the part of appellants.
16. Therefore, we do not find any merits in the impugned orders, in so far as the adjudged demands were confirmed on the appellants. Therefore, by setting aside the impugned orders dated 18.11.2016 and 27.12.2018, the appeals are allowed in favour of the appellants.
(Pronounced in open court on 28.06.2024) (S.K. Mohanty) Member (Judicial) (M.M. Parthiban) Member (Technical) Sinha