Custom, Excise & Service Tax Tribunal
Krishna Infrastructure vs Rajkot on 6 August, 2024
Customs, Excise & Service Tax Appellate Tribunal
West Zonal Bench At Ahmedabad
REGIONAL BENCH- COURT NO. 3
Service Tax Appeal No. 10860 of 2016-DB
(Arising out of OIO-RAJ-EXCUS-000-PRCOM-17-15-16 Dated 27/01/2016 passed by
Commissioner of Central Excise, Customs and Service Tax-RAJKOT)
Krishna Infrastructure ........Appellant
Village-katkola, Taluka-bhanvad,
JAMNAGAR
GUJARAT
VERSUS
Commissioner of C.E. & S.T.-Rajkot ........Respondent
CENTRAL EXCISE BHAVAN, RACE COURSE RING ROAD...INCOME TAX OFFICE, RAJKOT, GUJARAT-360001 With Service Tax Appeal No. 11069 of 2016-DB (Arising out of OIO-RAJ-EXCUS-000-PRCOM-18-15-16 Dated 10/02/2016 passed by Commissioner of Central Excise, Customs and Service Tax-RAJKOT) Krishna Infrastructure ........Appellant Village-katkola, Taluka-bhanvad, JAMNAGAR GUJARAT VERSUS Commissioner of C.E. & S.T.-Rajkot ........Respondent CENTRAL EXCISE BHAVAN, RACE COURSE RING ROAD...INCOME TAX OFFICE, RAJKOT, GUJARAT-360001 APPEARANCE:
Shri Jigar Shah, Advocate and Shri Amber Kumrawat, Advocate appeared for the Appellant Shri Rajesh Nathan, Assistant Commissioner (AR) appeared for the Respondent CORAM: HON'BLE MR. RAMESH NAIR (JUDICIAL) HON'BLE MR. C L MAHAR, MEMBER (TECHNICAL) FINAL ORDER NO. 11711-11712/2024 DATE OF HEARING:22.03.2024 DATE OF DECISION:06.08.2024 RAMESH NAIR The present two appeals are filed by the Appellants against two Orders in Original passed by Ld. Commissioner of Central Excise, Rajkot. Since the facts are identical in both the appeals, both the appeals are taken up for disposal together.
2 ST/10860, 11069/2016 1.2 The details of appeals are as under:-
Sr. Appeal No. Show Cause Notice Period
Order in Amount of
No. number of Original Service tax
dispute
number
01. ST/10860/2016 F. No. V.ST/AR- FY RAJ- Rs.53,81,491/-
JMR/168/COMMR/2012 2009- EXCUS-
dated 21.10.2014 10 000-
PR.COM-
017-15-16
dated
27.01.2016
02. ST/11069/2016 F. No. V.ST/AR- FY RAJ- Rs.1,68,50,207/-
JMR/167/COMMR/2012 2009- EXCUS-
dated 21.10.2014 10 to 000-
2012- PR.COM-
13 018-15-16
dated
01.02.2016
1.3 The brief facts leading to the present dispute are that the Appellants was engaged in providing construction services, supply of tangible goods for use, site formation services, business auxiliary services, works contract services etc. The Appellants was a proprietorship concern during the period FY 2009-10 and later on converted in to a partnership firm. The projects which were being undertaken by the proprietorship concern were continued in the partnership firm.
1.4 A search was conducted at the registered premises of the Appellants. After the investigation it was alleged that the Appellants has provided services in the nature of site formation services, supply of tangible goods for use services, mining services etc. to various service recipients and demand of service tax as mentioned above was raised by issuing two separate show cause notices.
1.5 After considering the reply filed by the Appellants, Ld. Commissioner has confirmed the demand of service tax as raised in the show cause notices along with interest and penalties.
2. We have heard Ld. Advocates Shri Jigar Shah and Shri Amber Kumrawat for Appellants and Shri Rajesh Nathan, Assistant Commissioner, Authorized Representative of the revenue department and perused the records.
2.1 Ld. Advocate has submitted that the demand of service tax under the category of mining services is not sustainable as it would amount to manufacture. During the period of dispute the Appellants were supposed to extract boulders and after sizing them was to supply to the recipients. He submits that in that view of the matter the services are consumed by self what is supplied is boulders after sizing. In such circumstances there is no supply of services by the Appellants. For the demand of service tax under the category of supply of tangible goods for use services, he submits that Ld. Commissioner has not examined the work orders issued to the Appellants. He further submits that there is no discussion or finding by Ld. Commissioner that how the activity of the Appellants would be falling within the definition of supply of tangible goods for use. According to Ld. Advocate 3 ST/10860, 11069/2016 the effective control and possession of the equipment was transferred to the recipient and therefore, the present transaction cannot be subject to service tax. He further submits that the demand of service tax is calculated on the basis of TDS statement in the form of 26-AS statements under the provisions of the Income Tax Act which is not conclusive of rendition of services without examining the details of such statements. He also submits that for the part of the demand of service tax the Appellants have already filed application under the amnesty scheme VCES declaring the service tax of more than Rs. 3 Crores which is accepted by the revenue authorities and that is not subject matter of the present dispute. He further submits that considering such circumstances the extended period of limitation is not applicable in the facts of the present case.
3. Ld. Authorized Representative of the Revenue reiterated the findings of Ld. Commissioner.
4. We have considered the submissions made by both sides. We find that for the demand of service tax under the taxable category of mining services, Ld. Commissioner has recorded his findings in Para 29 as under
(ST/11069/2016) of the impugned Order in Original dated 10.02.2016 as under:
"29. I find that M/s. Krishna in their reply/ written submissions dated 25.01.2016 have contended that M/s. Hi Tech Rock Products & Aggregates Ltd. had awarded work order to them for supply of crushed stones of specified size for that they had carried out various activities such as mining of boulders/ stones and crushing the same in required size, that mining activity widely covers all activities relating to extraction of minerals from mines; that thus, under Section 65(105)(zzzy) of the Finance Act, 1994, any service provided in relation to extraction of minerals, falls under the definition of mining service; that they had carried out various activities like mining of boulders, cutting, crushing the boulders and loading the same for transportation; that the demand of service tax under the category of mining service as defined in Section 65(105)(zzzy) of the Finance Act, 1994 is not sustainable as they had not carried out any activity like drilling, blasting, excavation and raising boulders/ stone which are directly or indirectly in relation to mining activity; that the activity undertaken by them of crushing of boulders in to smaller size stones amount to manufacture; that in the present case, they were engaged in business of mining of boulders and crushing of stone to a particular size and the said sized stones were supplied to M/s. Hi-tech Rock Products & Aggregates Ltd. and others; that the boulders/ stones extracted from the mines were crushed and sized in the crusher plant by them which is ancillary to the completion of manufactured products; that therefore, it is submitted that the operation carried out by them is nothing but the manufacturing that are excisable goods attracting NIL rate of duty; that as per the provisions of Section 66D(f) of Finance Act, 1994, any process amounting to manufacture of production of goods is listed in the negative list and therefore, no service tax is payable. 29.1 In this regard, I find that M/s. Krishna themselves have admitted that they have provided mining services, as they have undertaken work 4 ST/10860, 11069/2016 of mining of stones/ boulders, extracted from mines. Moreover, on perusal of copies of various contracts available with the seized documents and also copies of some of contracts submitted by M/s. Krishna, alongwith their reply dated 25.01.2016, I find that the work allotted to them pertains to extraction/ mining of stones/ boulders from mines. Moreover, I find from the copies of the seized Bills that the description of work has been mentioned as excavation Charges. Thus, I find that the services provided by M//s. Krishna are correctly classifiable under the category of Mining Services, and the same are classifiable under Section 65(105)(zzzy) of the Finance Act, 1994."
4.1 From the above it is clear that the Appellants were engaged in supply of sized stones/ boulders, Ld. Commissioner has not denied this fact. We find that the demand of service tax under the taxable category of mining services is not sustainable in view of the decision of coordinate bench in case of Integrated Coal Mining Ltd. reported in 2021 (1) TMI 179 - CESTAT Kolkata wherein it was observed as under:
"7.2 Section 65(19)(v) of the Finance Act includes, as "Business Auxiliary Service", production or processing of goods "for and on behalf of client".
The requirement for application of this clause is that the goods in question has to belong to the client of the Appellantsassessee, on which production or processing which does not amount to manufacture of goods within the meaning of Section 2(f) of the Central Excise Act is carried out by the Appellantsassessee. This requirement is not satisfied in the instant case. At the time when the sizing of coal takes place, they continue to remain ICML's property and not that of either CESC or CPL. The sale of coal and consequently the title thereof passes on to CESC/CPL only at the delivery point specified in the respective agreements, which is after completion of sizing of the coal. There is therefore no production or processing of goods for and on behalf of any client or customer, as required under Section 65(19)(v) of the Act.
8. In terms of Section 65(19) of the Finance Act, 1994 any activity that amounts to "manufacture" within the meaning of Section 2(f) of the Central Excise Act is excluded therefrom. Section 2(f) of the Central Excise Act defines the term "manufacture" to include, inter alia, any process "incidental or ancillary to the completion of a manufactured product". This Bench of the Tribunal in the case of Avian Overseas Pvt. Ltd. Vs. CCE,C&ST, BBSR-II, 2009 (15) STR 540 (T-Kol) has held that activity of mining and producing coal is covered under the definition of "manufacture" under Section 2(f) of the Central Excise Act and demand of service tax thereon under the Act is not sustainable. 8.1 Sizing of coal is an incidental and ancillary process to make coal marketable and thus complete "manufacture" of coal and to make it into "excisable goods" as per Section 2(d) of the Central Excise Act. The process of sizing of coal is also therefore outside Section 65(19) of the Act since it is a process in the manufacture of the final product, sized coal."
4.2 We further find that in case of S.N. Sunderson (Minerals) Ltd. reported in 1995 (75) ELT 273 (MP) it is observed as under:
"9. On a plain reading of Section 2(f)(ii) with Chapter Note 2 of Chapter 25 of the Central Excise Tariff Act, 1985 it is clear that `manufacture' includes any process which is specified in relation to any goods as amounting to manufacture under any section of the Act or Chapter Notes of the Schedule to the Central Excise Tariff Act, 1985. If any process is specified in the section or Chapter Note to be a manufacture then under
5 ST/10860, 11069/2016 the definition it shall be a `manufacture', otherwise not. By artificial definition of the word `manufacture' the Legislature have retained the power to equate any process with `manufacture' by providing accordingly in the section or Chapter Notes of the Schedule to the Central Excise Tariff Act, 1985. Chapter Note 2 of Chapter 25 does not equate the process of crushing as amounting to manufacture but merely enumerated the forms of products falling under the Headings Nos. 25.01, 25.03 and 25.05 in which they can be taxed. The intention of the Legislature is clearly not to equate the process of crushing as amounting to manufacture.
10. The intention of the Legislature can be further seen on a comparison of Chapter Note 2 of Chapter 25, Chapter Note 2 of Chapter 9, Chapter Note 3 of Chapter 2, Chapter Note 2 of Chapter 26, Chapter Note 6 of Chapter 2 Chapter Note 4 of Chapter 33, Chapter Note 6 of Chapter 2 and Chapter Note 2 of Chapter 83. Chapter Note 2 of Chapter 25 does not provide that the process of crushing referred to therein shall amount to manufacture, whereas in the aforesaid Chapter Notes it has been expressly provided that the process referred therein shall amount to manufacture in respect of the specified goods. The Legislature has expressly made provision where the process undergone shall amount to manufacture wherever it is intended to extend the artificial definition. On the aforesaid view, we are of the opinion that Note 2 of Chapter 25 does not by artificial extension of the definition of the word `manufacture' extend the process of crushing of lime stone to be a manufacturing process.
11. It is open for the revenue to establish that the process involved in the present case, i.e. crushing of lime stone, extracted from the mines, into lime stone chips is a process of manufacture. The question whether a particular process is a manufacture or not has to be judged and determined having regard to the facts and circumstances of each case and having regard to the well-known test laid down by the Supreme Court in a number of decisions. The Supreme Court in Union of India v. Delhi Cloth and General Mills Co. Ltd. [1977 (1) E.L.T. (J 199) (SC) = AIR 1963 SC 791], Empire Industries Ltd. v. Union of India [1985 (20) E.L.T. 179 (SC) = AIR 1986 SC 662), South Bihar Sugar Mills v. Union of India [1978 (2) E.L.T. (J 336) (SC) = AIR 1968 SC 922] has held that taxable event under the excise law is manufacture and liability to duty is attracted, the moment there is transformation of goods in new commodity commercially known as distinct commodity, on account of one process or several processes. Manufacture would certainly cover transformation, but where transformation brings about a fundamental change, brings a new substance into existence or a new and different article having distinct name, character or use results from a particular process or particular activity depends on the facts and circumstances of each case because every change in the raw material is not manufacture.
12. Shri Shyamlendu Kumar Chaterjee, Law Officer of M/s. S.N. Sunderson (Minerals) Ltd., Maihar was examined and his statement was recorded under Section 14 of the Act by the Superintendent of Central Excises and Salt Act on 31-8-1989. In answer to questions he has stated that the company is manufacturing lime stone in a particular size by crushing the lime stone in lump form. According to him, the company purchases lime stone in lump form or excavates it from their mines and then crushes it by putting it in crusher machine to obtain the desired sizes of lime stone chips, as per the requirement of the buyer by screening. He has further stated that the company had purchased lime stone in lump form from M/s. R.S. Minerals, Maihar and M/s. Diwan Lime 6 ST/10860, 11069/2016 Co. Pvt. Ltd., Maihar. According to him, prior to 1-4-1989 the company had no crusher, so they used to get the lime stone crushed into particular size by supplying lime to Subash Stone Crusher, Maihar; Rakesh Stone Crusher, Katni, Vijay Stone Crusher, Maihar and MaaSharda Stone Crusher, Baraiya and thereafter by their own crusher at Reusa. Apart from their own crusher, they are getting the lime stone crushed from M/s. Subash Stone Crusher. They were selling crushed lime stone of particular size to Durgapur Steel Plant only. It is further stated that he did not know that the crushing of lime stone falls under Heading 25.05 and attracts excise duty at 12 per cent.
13. The statement of the Law Officer of the petitioner No. 1 company clearly establishes that lime stone crushed by processing through crusher to a particular size, as per the order placed by the buyer and the buyer is supplied lime stone after it is crushed; the lime stone as it is extracted or purchased from other persons is not supplied to the buyer; it is only after it is converted to a particular size by application of mechanical process, it is supplied to the buyer. The crushing operation is meant for the purpose of supply of particular size of lime stone chips, as per the order placed by the buyer.
14. The aforesaid facts establish that lime stone chips of a particular size are prepared as per the order placed by the buyer. The concept of manufacture has to be viewed considering the emergence of a new marketable product. The lime stone chips of specific size is a new product brought about by crushings of lime stone lumps. The operation of crushing brings into existence a new product which has a different name, character and use. Process in this case is `manufacture' of lime stone chips which are excisable goods liable for duty under Chapter 25 of the Central Excise Tariff Act, 1985 at the rate of 12 per cent. The Collector, Central Excise, is right in levying duty on lime stone chips." The above decision of Hon'ble High Court of Madhya Pradesh is affirmed by Hon'ble Supreme Court as reported in 2002 (143) ELT 483 (SC).
4.3. Therefore, in view of above we hold that the demand of service tax under the taxable category of mining is not sustainable in the present case. 4.4. For the demand of service tax under the category of supply of tangible goods for use is concerned, we find that Ld. Commissioner has not examined the terms of the work orders issued to the Appellants. Ld. Commissioner has confirmed the demand of service tax despite of the fact that he has categorically recorded the submission of the Appellants that effective control and possession of the equipment was transferred to the recipient. 4.5. We find that in case of Air Liquide India Holdings Pvt. Ltd. vide order number A/12032-12036/2023 dated 13.09.2023 it is held as under:
"4. We have carefully considered the submission made by both the sides and perused the records. In the present case the demand of service tax was raised under the head of supply of tangible goods service. The definition of the same during the relevant period is reproduced below:
"(zzzzj) supply of tangible goods services" means any services provided or to be provided to any person, by any other person in relation to supply of tangible goods including machinery, equipment and appliances for use, without transferring right of possession and effective control of such machinery, equipment and appliances."
7 ST/10860, 11069/2016 4.1 From the reading of the above definition it is clear that the service under supply of tangible goods service will qualify not only by supply of the tangible goods for use simplicitor but with that the important rider attached is the said supply should be without transferring right of possession and effective control of machinery, equipment and appliances. In the fact of the present case though the machinery equipments were supplied for use by the customer but right to possession and effective control has been transferred. 4.2 The Appellants have supplied and installed the equipments in the premises of the customers thereafter the customer was at full liberty to possess and use the equipments for production of gas which is further used in their production activity during the lease period the possession of equipment and effective control is undoubtedly with the customers as the same was operated and used by the customer only during the lease period. this fact also gets reinforced on the basis that the Appellants for such supply registered under VAT Act and discharging the VAT on the same transactions on which the revenue has demanded the service tax. The present nature of the transaction has been included as a deemed sale under Article 366 (29A) of the constitution of India which is reproduced below:
[(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 instalments;
(d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration;
(e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration;
(f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made;]" 4.3 From the above Article of the Constitution particularly under clause
(d), the transfer of the right to use any goods for any purpose for cash, deferred payment or other valuable consideration is qualified as sale of goods and there is a liability of sales tax. Therefore, the transaction of the Appellants since clearly falls under 366(29A) of the Constitution of India the State Government correctly levied the sales tax and collected the same. it is a settled position that when the transaction is in the nature of sale no service tax can be demanded.
This issue has been considered by the board and clarified under circular No. 334/01/2008-TRU dated 29 February 2008 as reproduced below:
"4.4 Supply of tangible goods for use:
8 ST/10860, 11069/2016 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."
4.4 From the above circular it is abundantly clear that in a case where there is a transfer of right of use in any goods the same is leviable to Sale Tax / VAT as deemed sale of the goods where the transfer of right to use involves transfer of both possession and control of the goods to the user of the goods, the same is not excigible to service tax under the category of supply of tangible goods service. This issue has been considered in various judgments time and again. Some judgments are cited below:
Quippo Energy Pvt. Ltd Vs CST 20220-VIL-937-CESTAT-AHM-ST "4. Heard both the sides and perused the records. To appreciate the rival contentions, it would be appropriate to first reproduce Section 65(105) (zzzzj) of the Act, which defines the Taxable Service -"Supply of Tangible Goods" which is as follows :-
"Section 65(105)(zzzj) - "Taxable Service" means 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 was introduced w.e.f. 16.05.2008 vide Notification No. 18/2008-ST. 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. 4.1 In view of both i.e. before 01.07.2012 and after, supply of tangible goods or transfer of goods without transferring the right of possessions or by way of hiring, leasing, licensing or any such manner without transfer of right to use such goods, were liable to service tax. 4.2 To fall within the definition of taxable service, fallowing three conditions are required to be satisfied -
(1) there should be a supply or transfer of goods for use; 9 ST/10860, 11069/2016 (2) The transfer must be by way of hire or lease or licences for using the goods; and (3) The right of possession and effective control of such goods must not have passed on to the transferee.
Once these above three conditions are satisfied, the provisions of the said entry will be attracted.
4.3 We find that in the present matter there is no dispute related to the above first two conditions. The disputes, centres around the third conditions, that 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 agreement entered into between the Appellants and its customers. As noted, the Appellants supplies Power Generating Equipments / gas genset (Plant) to Customers on standby charges and variable charges basis under the agreement. We find that during the subsistence of the agreement, the lessee alone has the right to use the Plant and even the Appellants cannot trespass that right of the lessees/ customers. The Lessees fix the pattern in which the plant is to be used and the time when it will function. All the permission to be obtained from the statutory authorities to be obtained such as Electrical, Pollution, CCR have to be taken by the Customers, the lessee shall ensure the safety of the plant in a manner similar to its own plant. Customers have to provide fuel, Jacket water & feed water, the site and other facilities. Further, as per clauses of lease agreements, the customers will also indemnify the Lessor against the loss or damage arising to or in connection with plant for the reason other than Lessor's personnel. We also find that the clause 8.6 of agreement between the Appellants and Shah Pulp & Paper Mills Ltd. (Customer) provide as under : -
"8.6 By virtue of the agreement, the lessee 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 gas genset are purely in the hands of customers of the Appellants, as the customers is at his liberty to use the equipments hired by him. It is seen from the agreements that there is no dispute as to the fact that the goods are in the possession of the lessee and is being used by him for the intended purpose without any interference or hurdle from the Appellants. On going through the clauses of agreement, as produced before us, we find that the Appellants had handed over the "Goods" possession to the lessee as also the right to use. Therefore we are of the 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".
4.4 Being identical issue involved, we take support from Hon'ble Supreme Court's decision in the case of BSNL v. Union of India - 2006 (2) S.T.R. 161 (S.C.) = 2006-TIOL-15-SC-ST-LB, which mentions - '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 10 ST/10860, 11069/2016 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;
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 therefor 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."
4.5 In the light of above discussion and observations of Hon'ble Supreme Court, we note 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 gas genset. Thus the activity is not in the nature of 'service' under the Finance Act in both during the period prior to negative list regime and thereafter as held in the impugned orders. 4.6 We find that the adjudicating authority has held that since as per contract the equipment will remain sole property of equipment provider and skilled manpower supplied by the Appellants are responsible for maintenance operations of gas genset/plant, it is clear that the legal right and effective controls rests with the Appellants. 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 condition of the agreement are its essence and is deciding factor for determination of nature of contract/agreement. As per agreement the equipment is delivered to the customers ; in terms of Clauses of agreements as discussed above customers are required to get all permissions for installation of equipments; Clause of agreements also provide that customers shall be responsible for all injuries, losses and damages cause to the equipment and shall also indemnify the Appellants against any loss or damage arising to or in connection with the; Further the skilled manpower is not supplied by the Appellants under the Lease agreement. There is sperate service agreement entered between the Appellants and customer under which various services are provided on which service tax has been discharged by the Appellants. Once the control and possession of gas genset/equipments 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 finding of the impugned orders in present matters legally not correct.
4.7 We further find that a reading of the definition of 'sale' under the provisions of Gujarat VAT Act, 2003 and Central Sales Tax Act, 1956 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 Section of the said Act also provides levy of tax on the transfer of the right to use 11 ST/10860, 11069/2016 any goods. Article366(29A)(d) inserted by the Constitution (46th Amendment) Act, 1982 on 2-2-1983 also reads as under :
"366. (29) "tax on income" includes a tax in the nature of an excess profits tax;
(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 instalments;
(d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration;
(e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration;
(f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made;"
In view of the Article 366(29A) (d) of the constitution, 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 a tax on the sale or purchase of goods includes a tax for transfer of right to use goods as that is deemed sale.
4.8 It is observed that the Appellants 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 Appellants 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 Appellants in the present matter.
12 ST/10860, 11069/2016 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.
5. Accordingly, the impugned orders are set aside. The appeals are allowed with consequential relief if any, as per law." 4.5 More or less similar issue in the Appellants?s group company?s case that is Air Liquid North India Pvt Ltd. (supra) was considered wherein though the demand was raised under business support service but the transaction was identical and the demand was set aside considering the transaction is a deemed sale in terms of Article 366 (29A) (d) of Constitution Of India. In another judgment of UFO Movies Ltd reported at 2017-VIL-774-CESTAT Mumbai ST = 2017-TIOL-33 38
-CESTAT-MUM the tribunal has passed the following order. The relevant order is reproduced as below which was upheld by the Hon'ble Supreme Court:
"5. We have carefully considered the arguments and written submissions made by both sides,
6. We find that the first demand of service tax is on lease rentals collected by the Appellants from the Theatre owner. The Appellants 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 Appellants to deliver the digital content in movie Theaters and to monitor the number of shows exhibited. The Appellants 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 Appellants has leased such equipments to some of the Theaters. The Appellants 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 Appellants, hence the 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 Appellants. 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 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 leads to the conclusion on the basis of this vital aspect. The Appellants before the adjudicating authority and in their appeal memo has made submission on clause of agreements i.e:
in terms of clause 18 of the agreement the equipment is delivered to the Theatre owner; in terms of clause 10 the Theatre owner would put a person well versed with handling of equipment: Clause 53 where the Theatre owner is required to get all permissions for installation of DCE. 13 ST/10860, 11069/2016 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 Appellants 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 Appellants has transferred the right to use of DCE exclusively to the The at 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 Appellants 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 Appellants. None of these submissions has been taken into account while passing the impugned order. We also find that in addition the Appellants had made various other submissions which do not find mention in order and are discussed in later part of this order. The Appellants 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 Appellants 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 Appellants 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 Appellants or has no bearing on the agreement between the Theatre owner and Appellants in case of leasing of DCE Equipments. As far as insurance of the DCE equipment is concerned the Appellants were owners of the equipments and the nature of leasing agreement does not change for the reason that the insurance was done by the Appellants. For bringing any service under the category of "supply of supply of tangible goods for use" in terms of Section 65 (105) (zzz)) 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 Appellants 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 consideration while determining the nature of service. It is observed that the Appellants 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 dt. 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 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 14 ST/10860, 11069/2016 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 Appellants to interfere or to be forced by the Appellants to run the Equipments as per their directions or control. The Appellants has also relied upon the order of Tripura HC in case of Bharti Telemedia Ltd. Vs The State of Tripura- 2015-TIOL-2983-HC- TRIPURA-VAT 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 Appellants had regularly been filing their returns and even the department from time to time had initiated enquiry with the Appellants which was properly responded. The DGCEI also investigated the issue in 2008-2009 and after response by the Appellants vide their letter dt. 17.06.2009 no further action was taken which shows that even the revenue appears to have satisfied regarding non applicability of tax on activities of the Appellants. Further it is also not in dispute that the Appellants 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 Appellants's part. It is also observed that the Appellants obtained DDQ (Determination of Disputed Question) dt. 26.6.2008 from Commissioner of Sales Tax, who held that lease rental is liable for VAT. The Appellants 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 Appellants. Therefore we hold that the demand for extended period is clearly time barred. 6.3. As regard demand of service tax on merit for the normal period, we observed in our above discussions that various vital facts and submissions of the Appellants were not properly verified by the Adjudicating Authority, therefore we remand the case relating to lease rentals & registration fees for the normal period with direction to Adjudicating Authority to verify whether the contentions made by the Appellants are correct with regard to the theatre owners having freedom to choose movie, number of shows, timing of shows, to determine whether to play a movie or not and have operational control of the equipment through their own men or not. Also to verify weather play out of IPL matches or Local advertisements have happened in the past and pass a speaking order after giving an opportunity of being heard. The Appellants is at liberty to make all submissions before the adjudicating authority.
6.4. With regard to CENVAT Credit on Capital goods we find that it is not disputed that the Appellants and Theatre had joint partnership agreement to exhibit the advertisement and the proceeds were to be shared in the ratio of 75: 25 or as the case may be. The advertisers were into agreement with the Appellants for such advertisement. Further we find that as per Rule 2(a) of CENVAT Credit Rules, 2004 specified capital goods used for providing output service would be eligible for credit. In this case the capital goods are specified capital goods and has been used for providing the output services of the 15 ST/10860, 11069/2016 Appellants namely content delivery services and sale of space for advertisement service. It is not in dispute that equipments are used for output services of the Appellants. We also find that there was no contract or agreement between the Theatre owners and the persons whose advertisements were exhibited in cinema theaters. Only the Appellants had an agreement with such persons to exhibit the advertisements. Thus there is no ground to hold that the Appellants were providing any business supports service to Theater owner. The DCE equipment at the most can be said to have been jointly used by the Appellants and the Theater owner to provide the services of Sale of Space for Advertisement. The DCE Equipment being specified Capital goods as defined under Rule 2 (a) and having been used for providing output service are eligible for availment of credit. In terms of Rule 3(1) of Cenvat Credit Rules and proviso to Rule 3 (5) it transpires that the credit is available even if the Capital goods are removed outside the premises of the provider of output service for providing the output service. As regard a submission of Ld. AR that while removing capital goods to theatre, the Appellants was supposed to reverse the cenvat credit as said capital goods was purportedly sold to Cinema theatres. In this regar we find that though the DCE was deemed sold to Cinema Theatre but ultimate ownership of DCE remains with the Appellants. The DCE admittedly used for exhibiting advertisement. The Appellants paid service tax on service of sale of space for advertisement which was provided through the said DCE. It therefore leaves no doubt that credit on Capital goods is available even if they are removed outside from the premises of the Appellants for providing output service. We are therefore of the view that there is no ground for denial of cenvat credit on Capital goods to the Appellants.
6.5. We also find that while invoking extended period for demand of Cenvat Credit on DCE, in para 33 of the order in Original, Adjudicating Authority has admitted that the Appellants have disclosed CENVAT Credit on Capital goods in the return, despite recording this, he has given adverse finding on limitation. Considering the fact that Appellants have been paying VAT from 2006 that too at higher rate than the service tax rate, even before SOTGU Services became taxable service, no malafide can be attributed to invoke extended period for denying cenvat credit. Placing reliance on Dalmia Cements case of the Madras High Court and in view of our above observations, we are of the view that CENVAT credit on Digital Cinema equipment has to be allowed, independent of taxability on lease Rentals of DCE. Accordingly we set aside the demand of Cenvat Credit on Digital Cinema Equipment on merit as well as on limitation.
7. As a result, we pass following order:
(i) Demand of Cenvat Credit and consequential interest and penalty conmmensurate to said demand on capital goods L.e. Digital Cinema Equipments is set aside on merit as well as on limitation.
(ii) The matter relating to demand of service tax for normal period on lease rentals of Digital Cinema Equipments is remanded for reconsideration, on merit to the Adjudicating Authority. The demand of service tax on lease rentals and corresponding interest and penalty for the extended period is set aside being time bar.
The Appeal is disposed of in the above terms. (Pronounced in court on 17/08/2017) From the above decision and board circular cited (supra) also from various judgments on the similar issue cited by the Appellants, the issue is no longer res-Integra with consequential relief. 16 ST/10860, 11069/2016
5. Accordingly the demand under supply of tangible goods service in the present case is not sustainable. Hence, the impugned orders are set aside appeals are allowed."
4.6. On the basis of above, we hold that the demand of service tax under the taxable category of supply of tangible goods for use is not sustainable and the same is set aside.
4.7. We also find that it is on record that (Para 5 of order in Original dated 01.02.2016 in appeal No. ST/10860/2016) that the Appellants filed VCES application on27.12.2013 declaring the service tax liability of more than Rs.3 Crores which was accepted by the revenue department. From this fact it is evident that the revenue authorities were aware of the activities of the Appellants. In that view of the matter both the appeals succeed on the ground of limitation as well as suppression or wilful misstatement of fact cannot be alleged on the part of the Appellants as revenue authorities were well within the knowledge of the activities of the Appellants.
5. In view of the above discussion, the appeals filed by the Appellants are allowed with consequential relief, if any.
(Pronounced in the open court on 06.08.2024) (RAMESH NAIR) MEMBER (JUDICIAL) (C L MAHAR) MEMBER (TECHNICAL) Bharvi