Custom, Excise & Service Tax Tribunal
Rockwell Automation India Pvt Ltd vs Ce & Cgst Noida on 10 July, 2025
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
ALLAHABAD
REGIONAL BENCH - COURT NO.I
Service Tax Appeal No.70470 of 2016
(Arising out of Order-in-Original No.36/Commissioner/NOIDA-I/2015-16
dated 29.01.2016 passed by Commissioner of Central Excise, Noida-I)
M/s Rockwell Automation India Pvt. Ltd., .....Appellant
(A-66, Sector-64, Noida, U.P.)
VERSUS
Commissioner of Service Tax, Noida ....Respondent
(Noida) APPEARANCE:
Shri Vishal Kumar, Advocate for the Appellant Shri A. K. Choudhary, Authorized Representative for the Respondent CORAM: HON'BLE MR. P.K. CHOUDHARY, MEMBER (JUDICIAL) HON'BLE MR. SANJIV SRIVASTAVA, MEMBER (TECHNICAL) INTERIM ORDER NO.- 01/2025 DATED 20.01.2025 FINAL ORDER NO.- 70464/2025 DATE OF HEARING : 30.07.2024 DATE OF DECISION : 10.07.2025 P. K. CHOUDHARY:
The present appeal has been filed by the Appellant assailing the Order-in-Original No.36/Commissioner/NOIDA- I/2015-16 dated 29.01.2016 passed by Commissioner of Central Excise, Noida-I.
2. The facts of the case in brief are that the Appellant is inter alia engaged in the manufacture of Automation Controls Systems falling under Chapter Heading No.90.32 of the First Schedule of Central Excise Tariff Act, 1985. The Appellant sells automation controls systems to its customers by charging Excise Duty as well as State VAT/CST. The Appellant parallely executed Parts Management Programme Contract with its customers, whereby it supplies spare parts to its customers, which are stored at the Service Tax Appeal No.70470 of 2016 2 premises of the customers and kept under the custody and control of the said customers. Since by virtue of the Contract, the critical spare parts are readily available, they are replaced by the customers in the event of any breakdown of machinery. The objective behind executing the contract is to ensure immediate availability of critical spares, thereby arresting zero down time and the time that would be consumed towards procurement/replacement of defective machine parts. The Appellant raises quarterly invoice upon its customers alongwith VAT/CST, by treating the said activity as "deemed sale". At the end of the tenure of the Contract, the customers have the option to either return the inventory or renew the Contract or purchase the inventory as per mutual agreed consideration. In terms of the Show Cause Notice1, it has been alleged that the Appellant placed critical spare parts at customer‟s premises, however, the Appellant owns and manages such spare parts inventory with effective control over these parts and in turn received monthly/quarterly fees for the service.
3. It is the case of the Department that the ownership of the spare parts remains with the Appellant and the customers/service recipient either has to return the inventory, renew the contract or buy the inventory, which suggests that the activity undertaken by the Appellant is related to the services provided to their customers with respect to supply of inventory/spares against which "Hiring Charges" are received by the Appellant. Scrutiny of various contracts and invoices issued by the Appellant suggest that the services provided by the Appellant appears to be classifiable under "Supply of Tangible Goods for use" service; inasmuch as the Appellant has provided spare parts management services to their customers under which (i) the Appellant places critical spare parts at the customer‟s premises; (ii) the Appellant manages such spare parts inventory with effective control over these parts and the ownership of such parts are not transferred to their customers;
(iii) the Appellant has provided their customers the services of 1 SCN Service Tax Appeal No.70470 of 2016 3 ready access to parts for their use at the time of damage/breakdown without transferring possession and effective control on such spare parts on payment of hiring charges, thereby rendering their services taxable under "Supply of Tangible Goods for Use" service. In terms of the impugned order, the learned Adjudicating authority has arrived at the following findings:-
"1. The Appellant has placed critical spare parts at their customers premises and manage such spare parts inventory with effective control and the ownership of such spare parts is not transferred to the customers. The Appellant has provided their customers the service of ready access to the parts for their use at the time of damage/breakdown, thus without transferring possession and effective control on such parts, on payment of hiring charges.
2. In the instant case, there was no actual sale of goods, but the particular goods were at the disposal of the customers for use and replacement as and when they required. As per the contract, the customers have to return the said spare parts to the Appellant on termination/expiry of the contract. They give credence to the view that overall control of the spare parts rest with the Appellant.
3. The insurance with respect to the spare parts are taken by the Appellant and they make themselves liable to pay any claims, for any occurrence due to performance or non- performance of the services under the contact. In view thereof, inference can be drawn that the effective control of the spare parts is with the Appellant and not with the customers.
4. In view of the above findings, the Appellant has provided taxable service under the category of "supply of tangible goods for use" services and hence, Appellant is liable to pay the service tax alongwith interest and penalty."
Service Tax Appeal No.70470 of 2016 4
4. The Adjudicating Authority vide the impugned Order-in- Original has passed the following order:-
"ORDER
(i) I order that the service provided by the party are appropriately classifiable under the category of „supply of tangible goods for use‟ as defined under Section 65(105)(zzzzj) of chapter V of the Finance Act, 1994.
(ii) I confirm the demand of service tax amounting to Rs.1,32,10,199/- (One crore thirty two lacs ten thousand one hundred ninety nine only), under Section 73(2) of the Finance Act, 1994.
(iii) I order for recovery of interest at the appropriate rate on the aforesaid amount of Rs.1,32,10,199/- of service tax confirmed at serial (ii) above, under Section 75 of the Finance Act, 1994.
(iv)I impose a penalty of Rs.13,21,019/- (Rupees Thirteen lacs twenty one thousand nineteen only) upon the party under Section 76 of Finance Act, 1994 in terms of Section 78B(1)(b) of Finance Act, 1994 for contravention of various provisions of Act & Rules as discussed supra.
(v) I also impose upon the party a penalty of Rs.200/- (Rs.
Two Hundred only) for every day during which failure to take registration continues till 09.05.2013 or Rs.10,000/- (Rs. Ten Thousand) whichever is higher under Section 77(1)(a) of the Finance Act, 1994 and Rs.5000/- (Rs. Five Thousand only) under Section 77(1)(a) of the Finance Act, 1994 for the period 10.05.2013 to March, 2014 for contravention of various provisions of Act & Rules as discussed supra." Hence, the present appeal before the Tribunal.
5. The learned Advocate appearing on behalf of the Appellant submitted that the definition of service has three major parts to it. Firstly, there is a means portion; secondly, there is the inclusive portion which includes declared services and lastly Service Tax Appeal No.70470 of 2016 5 there is the exclusive portion, which excludes certain activities from the ambit of the definition of service. He further submitted that sale and deemed sale form part of the exclusive portion of the definition of service as provided in the Act w.e.f. 01.07.2012. He also submitted that amount to a sale or a deemed sale shall not be, as per the definition provided, service and no service tax shall be applicable on the same.
6. The learned Advocate vehemently argued that the ld. Commissioner in the impugned Order-in-Original has discussed about the Service Tax post 01.07.2012 whereas in the SCN service tax is proposed to be levied on the Appellant under Section 65(105) (zzzzj). The said Section was not in existence and therefore the ld. Commissioner has travelled beyond the scope of the SCN.
7. Learned Departmental Authorized Representative justified the findings of the Adjudicating Authority.
8. Heard both the sides and perused the appeal records.
9. We find that to constitute a transaction for the transfer of the right to use the goods, the transaction must have the following attributes:-
a. There must be goods available for delivery; b. There must be 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.
Service Tax Appeal No.70470 of 2016 6
10. We find that the Appellant is treating the said sale as deemed sale and paying sales tax and therefore as held by various judicial pronouncements, the transaction attracting the sales tax will not attract service tax.
11. We find that the consideration on which service tax was demanded was subjected to sales tax.
12. In view of the above discussion, impugned order cannot be sustained and is accordingly set aside. The appeal filed by the Appellant is allowed with consequential relief, as per law.
(Order pronounced in open court on..........................................................................) Sd/-
(P. K. CHOUDHARY) MEMBER (JUDICIAL) Separate Order (SANJIV SRIVASTAVA) MEMBER (TECHNICAL) LKS Service Tax Appeal No.70470 of 2016 7 SANJIV SRIVASTAVA:
13. I have gone through the order prepared by Learned Member (Judicial). However, even after long hours of persuasion, I am not in position to agree with the findings recorded. I record my reasons as follows:-
14. Member (J) has recorded in the impugned order that as the appellant had paid sales tax/ vat they could not have been subjected to service tax. Similar view was expressed by a coordinate bench in appellant case vide Final Order No 70660- 70662/2019 dated 25.03.2019. However I find that Hon‟ble Supreme Court has in case of BSNL held as follows:
78. As we have said Art. 366(29A) has no doubt served to extend the meaning of the word „sale‟ to the extent stated but no further. We cannot presume that the Constitutional Amendment was loosely drawn and must proceed on the basis that the parameters of „sale‟ were carefully defined.
But having said that, it is sufficient for the purposes of this judgment to find, as we do, that a telephone service is nothing but a service. There is no sales element apart from the obvious one relating to the hand set if any. That and any other accessory supplied by the service provider in our opinion remain to be taxed under the State Sales Tax Laws. We have given the reasons earlier why we have reached this conclusion.
79. This brings us to the decision of the Kerala High Court in Escotel.
In that case Escotel was admittedly engaged in selling cellular telephone instruments, SIM cards and other accessories and was also paying Central Sales Tax and Sales Tax under the Kerala General Sales Tax Act, 1963 as applicable. The question was one of the valuation of these goods. State Sales Tax Authorities had sought to include the activation charges in the cost of the SIM card. It is contended by Escotel that the activation was part of the service on which service tax was being paid and could not Service Tax Appeal No.70470 of 2016 8 be included within the purview of the sale. The Kerala High Court also dealt with the case of BPL, a service provider. According to BPL, it did not sell cellular telephones. As far as SIM cards were concerned, it was submitted that they had no sale value. A SIM card merely represented a means of the access and identified the subscribers. This was part of the service of a telephone connection. The Court rejected this submission finding that the SIM card was "goods" within the definition of the word in the State Sales Tax Act.
80. It is not possible for this Court to opine finally on the issue. What a SIM card represents is ultimately a question of fact as has been correctly submitted by the States. In determining the issue, however the Assessing Authorities will have to keep in mind the following principles: If the SIM Card is not sold by the assessee to the subscribers but is merely part of the services rendered by the service providers, then a SIM card cannot be charged separately to sales tax. It would depend ultimately upon the intention of the parties. If the parties intended that the SIM card would be a separate object of sale, it would be open to the Sales Tax Authorities to levy sales tax thereon. There is insufficient material on the basis of which we can reach a decision. However we emphasise that if the sale of a SIM card is merely incidental to the service being provided and only facilitates the identification of the subscribers, their credit and other details, it would not be assessable to sales tax. In our opinion the High Court ought not to have finally determined the issue. In any event, the High Court erred in including the cost of the service in the value of the SIM card by relying on the aspects doctrine. That doctrine merely deals with legislative competence. As has been succinctly stated in Federation of Hotel & Restaurant Association of India v. Union of India (1989) 3 SCC 634 - "subjects which in one aspect and for one purpose fall within the power of a particular legislature may in another aspect and for another purpose fall within another legislative power. They might be Service Tax Appeal No.70470 of 2016 9 overlapping; but the overlapping must be in law. The same transaction may involve two or more taxable events in its different aspects. But the fact that there is overlapping does not detract from the distinctiveness of the aspects". No one denies the legislative competence of States to levy sales tax on sales provided that the necessary concomitants of a sale are present in the transaction and the sale is distinctly discernible in the transaction.
81. This does not however allow State to entrench upon the Union List and tax services by including the cost of such service in the value of the goods. Even in those composite contracts which are by legal fiction deemed to be divisible under Art. 366(29A), the value of the goods involved in the execution of the whole transaction cannot be assessed to sales tax. As was said in Larsen & Toubro v. Union of India (supra) :-
"The cost of establishment of the contractor which is relatable to supply of labour and services cannot be included in the value of the goods involved in the execution of a contract and the cost of establishment which is relatable to supply of materials involved in the execution of the works contract only can be included in the value of the goods".
111. It is not possible to interpret the contract between the service provider and the subscriber that the consensus was to mutilate the integrity of contract as a transfer of right to use goods and rendering service. Such a mutilation is not possible except in the case of deemed sale falling under sub-clause (b). Nor can the service element be disregarded and the entirety of the transaction be treated as a sale of goods (even when it is assumed that there is any goods at all involved) except when it falls under sub-clause (f). This will also result in an anomaly of the entire payment by the subscriber to the service provider being for alleged Service Tax Appeal No.70470 of 2016 10 transfer of a right to use goods and no payment at all for service. The licence granted by the Central Government fixes the tariff rates and all are for services.
112. Sale of Goods Act, comprehends two elements, one is a sale and the other is delivery of goods. 20th Century Finance Corporation Limited v. State of Maharashtra - 2000 (6) SCC 12 at 44, ruled that -
"(c) where the goods are available for the transfer of right to use the taxable event on the transfer of right to use any goods is on the transfer which results in right to use and the situs of sale would be the place where the contract is executed and not where the goods are located for use.
(d) in cases where goods are not in existence or where there is an oral or implied transfer of the right to use goods, such transactions may be effected by the delivery of the goods. In such cases the taxable event would be on the delivery of goods."
113. It is, therefore, unnecessary to deal with the question of delivery of possession which is related only to situs and not to subject-matter of taxation which is a transfer of right to use goods. In the present case, as no goods element are involved, the transaction is purely one of service. There is no transfer of right to use the goods at all.
114. I am, therefore, of the view that the imposition of sales tax on any facilities of the telecommunication services is untenable in law.
From the observations made by the Hon‟ble Supreme Court it is evident that it is nature of the transaction that would ultimately be the determinant of levy of a particular tax. The payment of sales tax/ vat would not exclude the levy of the service tax if the same is within the parameters of law.
Service Tax Appeal No.70470 of 2016 11
15. Hon‟ble Supreme Court has in the case of M/s Adani Gas Ltd. 2020 (40) GSTL 145 (SC) after considering the various past precedents have observed as follows:-
"15. The applicability of Article 366(29A)(d) was discussed in a decision of this Court in Bharat Sanchar Nigam Limited and Another v. Union of India and Others [2006 (3) SCC (1) = 2006 (2) S.T.R. 161 (S.C.)] ("BSNL"). In BSNL, the Court held that the purpose of Article 366(29A)(d) was to levy tax on those transactions where there was a "transfer of the right to use any goods" to the purchaser, instead of passing the title or ownership of the goods. Thus, by a fiction of law, these transactions were now treated as „sale‟. Elucidating on the "transfer of the right to use any goods", Dr. A.R. Lakshmanan, J. in a concurring opinion held :
"97. To constitute a transaction for the transfer of the right to use the goods, the transaction must have the following attributes :
(a) there must be goods available for delivery;
(b) there must be 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."
(emphasis supplied) Service Tax Appeal No.70470 of 2016 12
16. The test laid down in BSNL has been applied by courts to determine whether a transaction involves the "transfer of the right to use any goods" under Article 366(29A)(d). In doing so, the Courts have analysed the terms of the agreement underlying the transaction to ascertain whether effective control and possession has been transferred by the supplier to the recipient of the goods. Recently, this Court in Great Eastern Shipping Company Limited v. State of Karnataka and Others [2020 (3) SCC 354 = 2020 (32) G.S.T.L. 3 (S.C.)] considered whether the transfer of a vessel under a charter party agreement was a „deemed sale‟, subject to sales tax. The Court, after analysing the terms of the charter party agreement, held :
"43. We are not turning our decision upon the terms used like „let‟, „hire‟, „delivery‟ and „redelivery‟ but on the other essential terms of the Charter Party Agreement entered in the instant case which clearly makes out that there is a transfer of exclusive right to use the vessel which is a deemed sale and is liable to tax under the KST Act. In the instant case, full control of the vessel had been given to the charterer to use exclusively for six months, and delivery had also been made. The use by charterer exclusively for six months makes it out that it is definitely a contract of transfer of right to use the vessel with which we are concerned in the instant matter, and that is a deemed sale as specified in Article 366(29A)(d). On the basis of the abovementioned decision, it was urged that all Charter Party Agreements are service agreements. The submission cannot be accepted, as there is no general/invariable rule/law in this regard. It depends upon the terms and conditions of the charter party when it is to be treated as only for service and when it is the transfer of right to use.
xx xx xx
54. When we consider the charter party in question in the context of applicable law, particularly in view of the constitutional provisions of Article 366(29A)(d), we find that there is transfer of right to use tangible goods, which is determinative of deemed sale as per the Constitution of India and provisions of section 5C reflecting the said intendment. We Service Tax Appeal No.70470 of 2016 13 are of the considered opinion that there is transfer of right to use exclusively given to charterer for six months, and the vessel has been kept under the exclusive control. The charterer qualifies the test laid down by this court in BSNL (supra)."
(emphasis supplied)
17. Therefore, sales tax is levied in pursuance of Article 366(29A)(d) on transactions which resemble a sale in substance as they result in a transfer of the right to use in goods, instead of the transfer of title in goods. The Finance Act, 1994, deriving authority from the residuary Entry 97 of the Union List, enabled the Central Government to levy tax on services. „Service tax‟ was introduced as a response to the advancement of the contemporary world where an indirect tax was necessary to capture consumption of services, which are economically similar to consumption of goods, inasmuch as they both satisfy human needs [All India Federation of Tax Practitioners v. Union of India, (2007) 7 SCC 527, para 4 = 2007 (7) S.T.R. 625 (S.C.)]. This Court, in Association of Leasing and Financial Service Companies v. Union of India, [(2011) 2 SCC 352 = 2010 (20) S.T.R. 417 (S.C.)] had noted :
"38...Today with technological advancement there is a very thin line which divides a "sale" from "service". That, applying the principle of equivalence, there is no difference between production or manufacture of saleable goods and production of marketable/saleable services in the form of an activity undertaken by the service provider for consideration, which correspondingly stands consumed by the service receiver. It is this principle of equivalence which is inbuilt into the concept of service tax under the Finance Act, 1994. That service tax is, therefore, a tax on an activity. That, service tax is a value added tax. The value addition is on account of the activity which provides value addition...Thus, service tax is imposed every time service is rendered to the customer/client...Thus, the taxable event in each exercise/activity undertaken by the service provider and each time service tax gets attracted."
(emphasis supplied) Service Tax Appeal No.70470 of 2016 14
18. The introduction of Section 65(105)(zzzzj) in the Finance Act, 1994, was with the intention of taxing such activities that enable the customer‟s use of the service provider‟s goods without transfer of the right of possession and effective control. This provision creates an element of taxation over a service, as opposed to a „deemed sale‟ under Article 366(29A)(d). For the purpose of clarification, the Department of Revenue issued a Circular, D.O.F. No. 334/1/2008-TRU, dated 29 February, 2008. The said circular clarified the applicability of Section 65(105)(zzzzj) vis-a-vis Article 366(29A)(d). The relevant portions of the circular are 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."
(emphasis supplied) Service Tax Appeal No.70470 of 2016 15
19. The above circular clarified that Section 65(105)(zzzzj) is applicable only to those transactions where there is a supply of tangible goods for use, without the transfer of possession or effective control to the recipient. This aspect has been interpreted by various Courts and Tribunals. In the Bombay High Court decision in Indian National Shipowners‟ Association and Anr. v. Union of India and Others ("Shipowners") [(2009) 4 AIR Bom R 775 = 2009 (14) S.T.R. 289 (Bom.)], the petitioners were engaged in providing services to major exploration and production operators by supplying their various vessels including offshore drilling rigs, offshore support vessels, harbour tugs, and construction barges. The question before the Bombay High Court was whether, prior to the introduction of Section 65(105)(zzzzj) in 2008, the petitioner could be taxed on its services in relation to mining of mineral, oil, or gas under
Section 65(105)(zzzy). In the present matter, we are not concerned with the merits of Shipowners‟, which was affirmed on appeal by this Court in Union of India v. Indian National Shipowners‟ Association and Anr. [2010 (14) SCC 438 = 2011 (21) S.T.R. 3 (S.C.)]. This Court explicitly restricted itself to the interpretation of Section 65(105)(zzz) while leaving the other observations on interpretation of the law, "open to be considered at length at an appropriate stage" [2010 (14) SCC 438, para 7]. We note however, the analysis of Section 65(105)(zzzzj) of the Bombay High Court, where the High Court observed :
"38. Entry (zzzzj) is entirely a new entry. Whereas Entry (zzzy) covers services provided to any person in relation to mining of mineral, oil or gas, services covered by Entry (zzzzj) can be identified by the presence of two characteristics namely (a) supply of tangible goods including machinery, equipment and appliances for use, (b) there is no transfer of right of possession and effective control of such machinery, equipment and appliances. According to the members of the 1st petitioner, they supply offshore support vessels to carry out jobs like anchor handling, towing of vessels, supply to rig or platform, diving support, fire fighting etc. Their marine construction barges support offshore construction, provide accommodation, crane support and stoppage area on main deck or equipment. Their Service Tax Appeal No.70470 of 2016 16 harbour tugs are deployed for piloting big vessels in and out of the harbour and for husbanding main fleet. They give vessels on time charter basis to oil and gas producers to carry out offshore exploration and production activities. The right of possession and effective control of such machinery, equipment and appliances is not parted with. [...]"
(emphasis supplied)
20. The taxable service is defined as a service which is provided or which is to be provided by any person to another "in relation to supply of tangible goods". The provision indicates that the goods may include machinery, equipment or appliances. The crucial ingredient of the definition is that the supply of tangible goods is for the use of another, without transferring the right of possession and effective control "of such machinery, equipment and appliances". Hence, in order to attract the definition of a taxable service under sub-clause (zzzzj), the ingredients that have to be fulfilled are :
(i) The provision of a service; (ii) The service is provided by a person to another person;
(iii) The service is provided in relation to the supply of tangible goods, including machinery, equipment and appliances;
(iv) There is no transfer of the right of possession;
(v) Effective control over the goods continues to be with the service provider; and
(vi) The goods are supplied for use by the recipient of the service.
There is an element of service which is the foundation for the levy of the tax.
23. At the outset, it is clear from the provisions of the agreement, and it has been admitted by both the parties, that there is no transfer of ownership or possession of the pipelines or the measurement equipment (SKID equipment) by the Service Tax Appeal No.70470 of 2016 17 respondent to its customers. Clause 5.3 of the agreement specifically provides that the „Measurement Equipment‟ is to be supplied, installed and maintained by the seller at the cost of the buyer and that the ownership of the equipment will rest with the respondent forever. Clause 5.6 further clarifies that the buyer has no right to adjust, clean, handle, replace, maintain, remove or modify the measurement equipment. Clause 5.10 guarantees that the seller shall have the right of entry at all hours to the Measurement Equipment and associated apparatus at the Buyer‟s premises. The pipelines are also part of the "Seller‟s Facilities" under the agreement and are constructed and maintained by the respondent at the cost of the customer. Thus, the ingredient of not transferring the ownership, possession or effective control of the goods under Section 65(105)(zzzzj) is satisfied.
24. The crux of the dispute is whether the supply of tangible goods - the SKID equipment - is for the use of the purchaser. In determining as to whether the provisions of Section 65(105)(zzzzj) are attracted, it is necessary to distinguish between the rights and obligations of the respondent (as the seller of gas) and of their purchasers, from the issue of whether the measurement equipment (SKID equipment) is supplied for the use of the purchaser of gas, without transferring the right of possession and effective control.
25. The purchaser of gas has an interest in ensuring the accuracy of billing and regulation of supply. The respondent is interested in ensuring that it receives payment for the quantity of gas which is contracted to be supplied to the purchaser. The „SKID‟ consists of regulators, valves, filters and the metering equipment. The SKID equipment regulates and records supply. Under the terms of the GSA, the obligation of the seller is to deliver gas to the buyer at the Delivery Point. The gas pipeline from the nearest distribution main to the buyers‟ metering station is constructed and maintained by the seller at the cost of the buyer. The measurement equipment is supplied, installed and maintained by the seller at the cost of the buyer, in spite of ownership of the equipment resting with the respondent as the seller. The measurement equipment is installed and maintained Service Tax Appeal No.70470 of 2016 18 exclusively by the seller. Clause 5.6 indicates that the buyer has no right to adjust, clean, handle, replace, maintain, remove or modify it in any manner. Clause 5.10 guarantees the seller‟s access to the Measurement Equipment at the buyer‟s premises at all hours. Ownership, control and possession of the measurement equipment is with the respondent. The measurement equipment comprises not only of electronic meters that are useful for determining the quantity of gas supplied to the purchaser at the Delivery Point, but also of isolation valves, filters and regulators that are crucial for regulating the pressure of gas and ensuring safe operation of the buyer‟s facilities. In order to maintain the sanctity of the equipment, the agreement casts the exclusive responsibility to install and maintain it on the respondent as the seller. The terms of the GSA would indicate that the quantity of gas supplied is to be measured at the Delivery Point. For this purpose, the measurement equipment is supplied, installed, owned and maintained by the seller at the cost of the buyer. The working of the measurement equipment is verified periodically by the parties to the agreement. If the buyer doubts its accuracy, this has to be communicated in writing to the seller, who alone is entitled to test, re-calibrate, remove or modify it. Similarly, if the seller has any doubt about the proper working of the measurement equipment it is entitled to check the meter in the presence of the representatives of the buyer. If according to the seller, the existing measurement equipment is not working satisfactorily it would be replaced at the cost of the buyer. These provisions indicate that the supply, installation and maintenance of the measurement equipment is exclusively carried out by the seller. The buyer has contractual remedies against the seller in terms of the GSA. These remedies to the buyer as a purchaser of gas are distinct from the issue as to whether the equipment for which gas connection charges are recovered is used by the buyer.
26. Under Section 65(105)(zzzzj), the taxable service is provided or to be provided in relation to the supply of tangible goods for the use of another, without transferring the right of possession and effective control. The Service Tax Appeal No.70470 of 2016 19 expression "use" has been defined in Black‟s Law Dictionary :
"Use, n. Act of employing everything, or state of being employed; application, as the use of a pen, or his machines are in use. Also the fact of being used or employed habitually; usage, as, the wear and tear resulting from ordinary use. Berry-Kofron Dental Laboratory Co. v. Smith, 345 Mo. 922, 137 S.W. 2d 452, 454, 455, 456. The purpose served; a purpose, object or end for useful or advantageous nature. Brown v. Kennedy, Ohio Appellant. 49 N.E. 2d 417, 418. To put or bring into action or service; to employ for or apply to a given purpose. Beggs v. Texas Dept. of Mental Health and Mental Retardation, Tex. Civ. App., 496 S.W.2d 252, 254. To avail oneself of; to employ; to utilize; to carry out a purpose or action by means of; to put into action or service, especially to attain an end. State v. Howard, 221 Kan. 51, 557 P. 2d 1280, 1281.
Non-technical sense. The "use" of a thing means that one is to enjoy, hold, occupy or have some manner of benefit thereof. Use also means usefulness, utility, advantage, productive of benefit."
27. The expression "use" does not have a fixed meaning. The content of the expression must be based on the context in which the expression is adopted. The use of an article may or may not result in a visible change in its form or substance. Moreover, the nature of use is conditioned by the kind of article which is put to use. Section 65(105) of the Finance Act, 1994 envisages myriad interpretations of the expression "use", in a variety of services such as telecommunication [Section 65(105)(zzzzb), Finance Act, 1994], renting of immovable property [Section 65(105)(zzz-z), Finance Act, 1994], and services related to art, entertainment, and marriage [Section 65(105)(zzzzr), Finance Act, 1994]. In the case of some articles, use may Service Tax Appeal No.70470 of 2016 20 be signified by a physical operation of the article by the person who uses it. In such a case, actual physical use is what is meant by the supply of the goods for the use of another. In the case of others, the nature of the goods supplied impacts the character of the use to which the goods can be put. As an illustration, Section 65(105)(zzzze) of the Finance Act, 1994, seeks to tax services related to information technology and interprets the "right to use" to include the "right to reproduce, distribute, sell, etc. [Circular D.O.F. No. 334/1/2008-TRU, dated 29 February, 2008]". This understanding of "use" differs from the supply of tangible goods under Section 65(105)(zzzzj) at hand, where effective control or possession is not ceded. Thus, physical operation is not the only or invariable feature of use. As a corollary to the same, technical expertise over the goods in question is not a sine qua non for determining the ability of the consumer to use the goods. Therefore, the expression "use" also signifies the application of the goods for the purpose for which they have been supplied under the terms of a contract.
28. The terms of the GSA indicate that the supply, installation, maintenance and repair of the measurement equipment is exclusively entrusted to the respondent as the seller. These provisions have been incorporated in the GSA to ensure that a buyer does not calibrate or tinker with the equipment. It is an incident of ownership and control being vested with the respondent. The purpose of the SKID equipment and its utility, lie in its ability to regulate the supply and achieve an accurate verification of that which is supplied; in the present case the supply of goods by the respondent to its buyers. This enures to the benefit of the seller and the buyer. The seller is concerned with the precise quantification of the gas which is supplied to the buyer. The buyer has an interest in ensuring the safety of its facilities and that the billing is based on the Service Tax Appeal No.70470 of 2016 21 correct quantity of gas supplied and delivered under the GSA. To postulate, as did the Tribunal, that the measurement equipment is only for the benefit of the seller in measuring the quantity of the gas supplied would not be correct. The GSA is an agreement reflecting mutual rights and obligations between the seller and the purchaser. Both have a vital interest in ensuring the correct recording of the quantity of gas supplied. Additionally, delivery of gas in a safe and regulated manner, enabled by the SKID equipment, is an essential component of the GSA. The SKID equipment subserves the contractual rights of both the seller and the purchaser of gas. Indeed, without the SKID equipment there would be no gas supply agreement. In fact, in the GSA, the buyer has also provided a warranty to ensure that the "Buyer‟s Facilities" remain technically and operationally compatible with the "Seller‟s Facilities", both of which include the „measurement equipment‟. This warranty would not have been provided if the measurement equipment was not of „use‟ to the buyer. The equipment is thus a vital ingredient of the agreement towards protecting the mutual rights of the parties and in ensuring the fulfilment of their reciprocal obligations as seller and buyer in regulating the supply of gas. As an incident of regulating supply, it determines the correct quantity of gas that is supplied. The obligation to supply, install and maintain the equipment is cast upon the seller as an incident of control and possession being with the seller. Section 65(105)(zzzzj) applies precisely in a situation where the use of the goods by a person is not accompanied by control and possession. „Use‟ in the context of SKID equipment postulates the utilization of the equipment for the purpose of fulfilling the purpose of the contract. Section 65(105)(zzzzj) does not require exclusivity of use. The SKID equipment is an intrinsic element of the service which is provided by the Service Tax Appeal No.70470 of 2016 22 respondent, acting pursuant to the GSA, as a supplier of natural gas to its buyers.
29. While interpreting the term „use‟, the Tribunal in the impugned judgment has relied on its decision in the case of Meru Cab Company Pvt. Ltd. v. Commissioner of Central Excise, Mumbai [2016 (41) S.T.R. 444 (Tri. - Mum.)] ("Meru Cab"). Meru Cab involved the transfer of a vehicle from a radio taxi operator to the driver, in turn to provide a service to the passengers. We find that the reliance placed on Meru Cab is misplaced as the factual context of the „use‟ in the two cases is substantially different. In present matter, the agreement to supply gas, and the measurement equipment and pipelines only involves two parties - the respondent and the ultimate customer. Having said that, we are not expressing any opinion on the correctness of the decision in Meru Cab.
37. We find ourselves in agreement with the findings of the Adjudicating Authority. The extent of the refund of gas connection charges collected from industrial, commercial and domestic consumers by the respondent depends on their usage. From the internal note dated 13 July, 2007 and the tabulation of customers provided above, it is evident that the percentage of funds refunded varies from customer to customer, while the remaining amount is retained by the respondent. In any case, as regards the domestic customers, no deposit receipts have been provided and instead, the respondent has relied on the tabulation of the refund of deposit to industrial consumers to support their contention. Thus, the argument of the respondent that these gas connection charges collected from industrial, commercial and domestic consumers constitute a refundable security deposit is rejected.
38. Thus construed, we are of the view that the Adjudicating Authority was correct in concluding that the buyer of gas is as interested as the seller in ensuring and verifying the correct quantity of the gas supplied through the instrumentality of the measurement equipment and the pipelines. Additionally, the role of regulating pressure and ensuring the safety of supply of gas performed by the measurement equipment is an essential Service Tax Appeal No.70470 of 2016 23 aspect for the „use‟ of the consumer. The SKID equipment fulfils the description in Section 65(105)(zzzzj) of a taxable service :
service in relation to "tangible goods" where the recipient of the service has use (without possession or effective control) of the goods."
14. In terms of the decision above, from the findings arrived by the Adjudicating Authority (has been reproduced by Learned Member (Judicial) in his order in para No.3, hence is not being reproduced again) that the provider of these goods/ services i.e. appellant was interested in the goods during the entire period till the time they were either used by the recipient of the services.
Applying the test as laid down by Hon‟ble Supreme Court in above case. I find that as appellant had continuous interested in the goods provided till there consumption by the recipient the services provided would qualify in the category of Supply of Tangible Goods Services. The various conditions listed by learned Member (Judicial) for treating a transaction for transfer of right to use the goods has been listed without referring to any legal and sound basis.
15 Accordingly, by following the ratio of above decisions by Hon‟ble Supreme Court, I do not find myself in agreement with the order recorded by the Member (J).
16. Appeal to be dismissed.
Sd/-
(SANJIV SRIVASTAVA) MEMBER (TECHNICAL) POINTS OF DIFFERENCE In view of the above, taking note of the facts that Member (Judicial) has opined for setting aside the impugned order and Member (Technical) has held against upholding the impugned order, following questions have referred to Hon‟ble President for referring the matter to Third Member for resolution in difference of opinion recorded:-
Service Tax Appeal No.70470 of 2016 24 Whether the services provided by the appellant would be classifiable as Supply of Tangible Goods Services as defined by Section 65 (105) (zzzz) of Chapter No.5 of the Finance Act, 1994 for the purpose of levy of service tax as held by Member (Technical) or otherwise as held by Member (Judicial).
Can payment of sales tax/ vat be the necessary test for non levy of service tax, Member (J) has held so whereas Member (T) do not agree with the said preposition.
(Order pronounced in open court on-20.01.2025) Sd/-
(P.K. CHOUDHARY) MEMBER (JUDICIAL) Sd/-
(SANJIV SRIVASTAVA) MEMBER (TECHNICAL) akp CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL ALLAHABAD REGIONAL BENCH - COURT NO.I Service Tax Appeal No.70470 of 2016 (Arising out of Order-in-Original No.36/Commissioner/NOIDA-I/2015-16 dated 29.01.2016 passed by Commissioner of Central Excise, Noida-I) M/s Rockwell Automation India Pvt. Ltd., .....Appellant (A-66, Sector-64, Noida, U.P.) VERSUS Commissioner of Service Tax, Noida ....Respondent (Noida) APPEARANCE:
Shri Vishal Kumar, Advocate for the Appellant Smt. Chitra Srivastava, Authorized Representative for the Respondent CORAM: HON'BLE MR. R. MURALIDHAR, MEMBER (JUDICIAL) INTERIM ORDER NO.- 14/2025 DATE OF HEARING : 05.06.2025 DATE OF PRONOUNCEMENT : 05.06.2025 R. MURALIDHAR:
In respect of this appeal the Point of Difference and point referred made to me as third Member, as under:-
"POINTS OF DIFFERENCE In view of the above, taking note of the facts that Member (Judicial) has opined for setting aside the impugned order and Member (Technical) has held against upholding the impugned order, following questions have referred to Hon‟ble President for referring the matter to Third Member for resolution in difference of opinion recorded:-
Whether the services provided by the appellant would be classifiable as Supply of Tangible Goods Service Tax Appeal No.70470 of 2016 2 Services as defined by Section 65 (105) (zzzz) of Chapter No.5 of the Finance Act, 1994 for the purpose of levy of service tax as held by Member (Technical) or otherwise as held by Member (Judicial).
Can payment of sales tax/ vat be the necessary test for non levy of service tax, Member (J) has held so whereas Member (T) do not agree with the said preposition."
2. The learned Advocate Shri Vishal Kumar appearing on behalf of the Appellant makes the following submissions:-
2.1. The Appellant is manufacturer of Automation Controls Systems falling under Chapter Heading No.90.32. They kept several of their components at the end of their buyers in order to ensure that there is no disruption of manufacturing process at their end. For this, Agreements were entered into with the buyers. For keeping the components at the disposal of the buyers, the Appellant was given certain consideration amount per quarter on which VAT was being paid by them. He submits that on such consideration received from their buyers, Service Tax has been demanded and confirmed in the impugned order.
He submits that without any dispute, the Appellant is paying VAT on such transactions. He takes me through to the copy of the agreement entered into by the Appellant with Orchid Chemicals and Pharmaceuticals Limited annexed at page 63-69 of the appeal paper book. He submits this is also relied upon documents (RUD-5) while issuing show cause notice. He also takes me through to the copy of the invoices raised by the Appellant to their customer Apollo Tyres Ltd. He submits a copy of the invoice dated 20.09.2016. He submits that under these invoices for the consideration given by the buyer, VAT/CST stands paid. He further submits that the CBIC, vide Circular No.334/1/2008-TRU dated 29.02.2008 has clarified at Para 4.4.3 that where VAT is payable or paid, no service tax will be Service Tax Appeal No.70470 of 2016 3 attracted. He also relies on the case laws of G.S. Lamba & Sons vs. State of Andhra Pradesh 2015 (324) E.L.T. 316 (A.P.), Express Engineers & Spares Pvt. Ltd. vs. Commissioner of CGST, Ghaziabad - 2022 (64) G.S.T.L. 112 (Tri.-All.).
2.2 In view of the submissions he prays that appeal may be allowed as has been held by the Hon‟ble Member (Judicial).
3. Learned Authorized Representative Smt. Chitra Srivastava appearing on behalf of the Revenue, submits that the Appellant is keeping their components at the premises of their buyers. They are retaining control of such spare parts. When such spare parts are being used by the buyer, the Appellant is paying VAT required on such goods. This shows that the Appellant is retaining full control over the components kept at the premises of their buyers. For taking up this activity, the Appellant is getting consideration on a quarterly basis as can be observed from the agreement relied upon by the Department. Therefore, she submits that the Adjudicating Authority has correctly confirmed the demand and supports the view taken by the Hon‟ble Member (Technical). Accordingly, she prays that the appeal may be dismissed as has been held by the Hon‟ble Member (Technical).
4. Heard both the sides and perused the appeal paper and submissions made by both the sides during the course of hearing.
5. On the first day of hearing i.e. 03.06.2025, I came across some documentary evidence to the effect that identical issue arose in respect of the same Appellant for the period 2003-2008 and for the period 2008-2009 to September, 2012. The issue in this proceeding had reached this Tribunal. Vide Final Order Nos.70660-70662/2019 dated 25.03.2019 this Bench had held as under:-
Service Tax Appeal No.70470 of 2016 4
"6. Having considered the submissions from both the sides and on perusal of record we note that it was submitted before the original authority that the said consideration on which Service Tax was demanded was subjected to sales tax and original authority has not relied upon any evidence to establish that the said contention was unfounded. Further we have also perused the invoices which were available on record which clearly indicated that the entire transactions in such invoices was subjected to sales tax. We therefore are of the opinion that the impugned orders are not sustainable. We therefore set aside the impugned orders and allow all the three appeals. Miscellaneous Application also stands disposed of."
6. Noting that the present proceedings emanate due to the periodical notice being issued, I had directed the office of Authorized Representative for the Revenue to find out as to whether these final orders have been accepted by the Department or any further action has been taken by way of filing any appeal before the Hon‟ble High Courts/Hon‟ble Supreme Court.
7. Today at the time of virtual hearing the learned Authorized Representative submits a copy of the communication received from the jurisdictional officials which is extracted below:-
Service Tax Appeal No.70470 of 2016 5
8. From the above letter it is seen that the identical issue for the period April, 2008 to September, 2012 already stands decided in favour of the Appellant and no further appeal has been filed by the Revenue. Therefore, the issue has reached finality since the Revenue is agreeing with the decision passed by the Tribunal.
9. In the present case Revenue has not been able to bring in any other specific factual data to the effect that the facts in the Service Tax Appeal No.70470 of 2016 6 present case are different from the facts in respect of earlier show cause notice proceedings. Therefore, on this ground itself I find that the appeal filed by the Appellant is required to be allowed. I do so.
10. However, here I must make a mention of the lackadaisical approach to the appeal by the Appellant when the matter was being argued before the Divisional Bench of the Tribunal. It was incumbent upon them to bring to the knowledge of Division Bench that identical issue in case of the same Appellant already stands decided by the Allahabad Bench. From the records, I do not find that this was done by the Appellant at the time of arguments since this is not coming up in the written synopsis filed at the time of final arguments. Had this important and relevant information been brought to the knowledge of the Division Bench, they would taken up necessary action to verify as to whether any further proceedings have been initiated against the earlier Final Order or not.
11. Since arguments have been made on merits, I also take up the same for giving to my conclusion. The relevant portion of the agreement is extracted below:-
Service Tax Appeal No.70470 of 2016 7 Service Tax Appeal No.70470 of 2016 8 Service Tax Appeal No.70470 of 2016 9 Service Tax Appeal No.70470 of 2016 10
12. From the above extracts, it can be seen that CST @ of 2% is required to be paid by the Appellant which the buyer has confirmed that it will be paid by them to the Appellant. It can also be seen that on the payment for quarterly consideration Rs.99,634/-, 2% CST is applicable.
13. A copy of the invoices raised by the Appellant is extracted below:-
Service Tax Appeal No.70470 of 2016 11 Service Tax Appeal No.70470 of 2016 12
14. From the above invoice, it is seen that the Appellant has billed for the services provided for the period 01.07.2016 to 30.09.2016. On an amount of Rs.7,33,231/- the Appellant has charged CST/VAT @ 2% amounting to Rs.14,664.62.
15. The relevant portion of CBIC Circular No.334/1/2008-TRU dated 29.02.2008, is extracted below:-
"4.4 SUPPLY OF TANGIBLE GOODS FOR USE :
4.4.1 Transfer of the right to use any goods is leviable to sales tax / VAT as deemed sale of goods [Article 366(29A)(d) of the Constitution of India]. Transfer of right to use involves transfer of both possession and control of the goods 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 Service Tax Appeal No.70470 of 2016 13 and other material facts. This could be ascertainable from the fact whether or not VAT is payable or paid."
16. From the above extract it gets clarified that so long as the VAT is paid or is payable on the transaction, treating the same as deemed sales, no service tax is chargeable.
17. In the cited case law of Express Engineers & Spares Pvt. Ltd. vs. Commissioner of CGST, Ghaziabad - 2022 (64) G.S.T.L. 112 (Tri.-All.), the Tribunal has held as under :-
"40.Reference also needs to be made to another Circular dated 23-8-2007 issued by the Department that clarifies that the payment of VAT/Sales Tax on a transaction has to be treated as sales of goods and levy of service tax on such transaction would not arise. The relevant portion of the Circular reproduced below :
Reference Issue Clarification
Code
(1) (2) (3)
036.03/ Whether Service station during the servicing of
23-8-07 spare parts vehicles is liable to payment of service
sold by a tax? Whether exemption can be
service claimed on the cost of consumables
station that get consumed during the course
during the of providing service? Service tax is
servicing of not leviable on a transaction
vehicles is treated as sale of goods and
liable to subjected to levy of sales
payment of tax/VAT. Whether a given
service tax? transaction between the service
Whether station and the customer is a sale or
exemption not, is to be determined taking into
can be account the real nature and material
claimed on facts of the transaction. Payment of
Service Tax Appeal No.70470 of 2016
14
the cost of VAT/sales tax on a transaction
consumables indicates that the said transaction that get is treated as sale of goods.
consumed
during the
course of
providing
service?
(Emphasis supplied)
41.Thus, for all the reasons stated above, it is more than apparent that the supply of diesel generator sets to the customers would not amount to STGU service for the period from 1-4-2011 to 30-6-2012, or a declared service from 1-7-2012 to 2014-15. The orders passed by the Commissioner (Appeals), therefore, cannot be sustained."
18. The above factual evidence clarifies that as per the Agreement, the Appellant is required to pay VAT/CST of deemed sales basis and the Appellant is raising invoices accordingly. The CBEC Circular clarifies when the VAT is paid, the same is not liable for service tax payment. The cited case law holds that no service tax is payable when VAT is discharged or deemed sales basis. All the above details make me come to the conclusion that the Appellant is not required to pay any Service Tax in respect of the service in question.
19. I find that even in the earlier Final Orders Nos.70660- 70662/2019 dated 25.03.2019, pertaining to the present Appellant in respect of the demand raised during the earlier period, the Tribunal has allowed the Appeals on these grounds.
20. In view of the above detailed discussions, I hold that the services rendered by the Appellant is not classifiable under Service Tax Appeal No.70470 of 2016 15 „supply of tangible goods service‟ and no service tax is required to be paid by them.
21. I remit the matter to the Division Bench for passing the necessary orders.
(Order pronounced in open court on 05.06.2025) (R. MURALIDHAR) MEMBER (JUDICIAL) LKS Service Tax Appeal No.70470 of 2016 16 In view of the majority order, the appeal is allowed with consequential relief, as per law.
(Order pronounced in open court - 10.07.2025) (P. K. CHOUDHARY) MEMBER (JUDICIAL) (SANJIV SRIVASTAVA) MEMBER (TECHNICAL) LKS