Custom, Excise & Service Tax Tribunal
Quippo Energy Pvt Ltd vs Service Tax - Ahmedabad on 6 December, 2022
Customs, Excise & Service Tax Appellate Tribunal
West Zonal Bench At Ahmedabad
REGIONAL BENCH- COURT NO. 3
Service Tax Appeal No. 11566 of 2016
(Arising out of OIO-AHM-EXCUS-001-COM-001-ST-16-17 dated- 20/01/2016 passed by
Commissioner of Service Tax-SERVICE TAX - AHMEDABAD)
Quippo Energy Pvt Ltd ........Appellant
Plot No, 427/P, Mahagujarat Industrial Estate,
Sarkhej-Bavla Highway, Changodar,
Ahmedabad, Gujarat
VERSUS
C.S.T.-Service Tax - Ahmedabad ......Respondent
7 Th Floor, Central Excise Bhawan, Nr. Polytechnic Central Excise Bhavan, Ambawadi, Ahmedabad, Gujarat - 380015 WITH Service Tax Appeal No. 11162 of 2017 (Arising out of OIO-AHM-SVTAX-000-COM-006-16-17 dated- 20/12/2016 passed by Commissioner of Service Tax-SERVICE TAX - AHMEDABAD) Quippo Energy Pvt Ltd ........Appellant Plot No, 427/P, Mahagujarat Industrial Estate, Sarkhej-Bavla Highway, Changodar, Ahmedabad, Gujarat VERSUS C.S.T.-Service Tax - Ahmedabad ......Respondent 7 Th Floor, Central Excise Bhawan, Nr. Polytechnic Central Excise Bhavan, Ambawadi, Ahmedabad, Gujarat - 380015 AND Customs Appeal No. 10643 of 2020 (Arising out of OIO-AHM-EXCUS-002-COMMR-09-10-2020-21 dated- 30/06/2020 passed by Commissioner of Central Excise, Customs and Service Tax-SERVICE TAX - AHMEDABAD) QUIPPO ENERGY PVT LTD ......Appellant Plot No. 184-185-186 P, Village Chacharwadi- Vasa, Sarkhej Sarkhej Bavla Highway, Taluka: Sanand Ahmedabad Ahmedabad, Gujarat VERSUS C.S.T.-Service Tax - Ahmedabad ......Respondent 7 Th Floor, Central Excise Bhawan, Nr. Polytechnic Central Excise Bhavan, Ambawadi, Ahmedabad, Gujarat - 380015 Appearance:
Shri V. Sridharan, Senior Advocate, Shri Jigar Shah, Shri Anand Nainawati, Shri Ambarish Panday, Shri Ishan Bhatt & Shri Amber Kumrawati, Advocates appeared for the Appellant Shri Dinesh Prithiani, Assistant Commissioner (AR) for the Respondent
2|Page CORAM: HON'BLE MEMBER (JUDICIAL), MR. RAMESH NAIR HON'BLE MEMBER (TECHNICAL), MR. RAJU Final Order No. A / 11873 - 11875 /2022 DATE OF HEARING: 08.08.2022 DATE OF DECISION: 06.12.2022 RAMESH NAIR The appellant have filed these three appeals against the following impugned orders. Since the issue involved in all the three appeals are identical hence all the three appeals are being taken up together for the purpose of disposal. The details of all the three appeals are given here in below :
Appeal SCN & date OIO Period Demand
No.
ST/11566/ F.No. STC/4- AHM- May 2008 Service
2016 31/O&A/13-14 EXCUS- to June tax
dated 001-COM- 2012 demand
23.10.2013 001(ST)- of Rs.
16-17 13,71,97,
dated 241/-
20.01.201 along
6 with
interest
and
Penalty
ST/11162/ F.No. STC/4- AHM- July 2012 Service
2017 24/O&A/2014- SVTAX- to March tax
15 dated 000-COM- 2014 demand
23.09.2014 006-16-17 of Rs.
dated 5,12,47,9
20.12.201 05/-
6 along
with
interest
and
penalty
ST/10643/ F.No. STC/4- AHM- April Service
2020 19/O&A/16-17 EXCUS- 2015 to tax
dated 002- March demand
08.03.2017 COMMR- 2016 of Rs.
09- 2,10,20,1
10/2020- 16/-
21 dated. along
30.06.202 with
0 interest
and
penalty
3|Page
1.2 Briefly the facts of the present cases are that the appellant is engaged in providing of services classified under the category of Management, Maintenance or Repair Service, Erection, Commissioning or Installation Service, Manpower Recruitment or Supply Agency‟s Services etc. and is registered under the Service Tax. During the course of Audit, it was observed by the department that Appellant had leased out Power Generating and Heat Recovery Equipments to various parties under various Lease Agreements. For the same, Appellant charged rent termed as „Lease Charges‟ under the head - Standby Charges and Variable Charges, for which lessee Parties pay an advance and Bank Guarantee to the Appellant. For that the VAT was collected from the lessee on the lease charges and paid by the Appellant (Lessor) but no service tax is being discharged thereon. Further it was also observed that the Appellant has also made separate „Manpower Service Agreement‟ with the respective lessee parties, which reveal that the Appellant had supplied skilled/ semi-skilled manpower in the premises of the respective parties to run and operate effectively the aforesaid leased equipments, for which the Appellant is raising bills to respective lessee parties and service tax is being discharged thereon.
1.3 The department was of the view that the lease charges collected by the Appellant were nothing but it was received for providing supply of Tangible goods Service. Therefore, the service provided by the Appellant was required to be classifiable under Supply of Tangible Goods Service; as defined under Section 65(105)(zzzzj) of the Finance Act, 1994 and the service tax on the said income was required to be charged and recovered from the Appellant under proviso to Section 73(1) of Finance Act, 1994.Accordingly, show cause notices were issued to the Appellant demanding service tax on such Lease Charges under the category of „Supply of Tangible Goods Service‟. Notices also proposed to recover interest on the service tax demanded and to impose penalties under the provisions of the Finance Act, 1994.The said Show Cause Notices were adjudicated vide above impugned orders and service tax demands as mentioned above were confirmed. Aggrieved by such orders, the appellant have filed these appeals before this Tribunal.
2. Shri V. Sridharan, Learned Senior Counsel alongwith Shri Jigar Shah, Shri Anand Nainawati, Shri Ambarish Panday, Shri Ishan Bhatt & Shri Amber Kumrawati, Learned Advocates appearing on behalf of the appellant submits that the Appellant have paid VAT in the present case as the transaction
4|Page amount to deemed sale and effective control and possession was transferred to their customers. Hence, VAT was rightly applied on the transactions and service tax cannot be imposed on such transactions. The provisions relating to transfer of right to use the goods is covered under the provisions of Gujarat Vat Act, 2003 / Central Sales Tax Act, 1956. Section 2 (23) read with Section 3 of the Gujarat Vat Act, 2003 makes it amply clear that in cases where the dealer who is registered or liable to be registered under this Act and where the goods are transferred by a person to other for their right to use to goods for a period, the same shall be liable for payment of VAT at the rates specified in the Schedules. Since the Appellant have leased the goods /equipments to customers for their use, the same is subjected to the provisions of the Gujarat Vat Act, 2003 and Appellant are not liable to pay Service tax on the right to use to goods.
2.1 He also submits that appellant are the owner of the gas genset/ plant. The Appellant have leased the plant to their Customers for their use for the purpose of manufacture of their final products, and collected rent from the Customers as standby charge and variable charge basis under the agreement. Once the plant / goods are transferred by the Appellant to their customers for their use, the rights to use as existing with the Appellant terminate when the plant/ goods are transferred and vest with customers.
The customers have to provide (i) fuel (ii) jacket water & feed water (iii) the site and (iv) other facilities, and the entire control of the plant therefore vests with the customers and not with the Appellant. Further, the customers will also indemnify the appellants against any loss or damage arising to or in connection with the plant for the reason other than commissioning and maintenance of the plant by the Appellant‟s personnel. Moreover, the Appellants under the terms of the agreement have agreed not to sell the Plant which becomes the property of the Customers to any party during the term of the agreement and up to renewal, if any. Thus, during the period, the plant is used by a particular customer, it cannot be used by another person during such period including the appellant. The transaction between the Appellant and customers is purely a transfer of right to use the goods and no element of service is involved. The Adjudicating authority has completely misinterpreted the clauses of the agreement. The entire proceedings initiated by the revenue demanding service tax under the category of "Supply of Tangible Goods" service is not proper and without jurisdiction and is liable to be dropped.
5|Page 2.2 He further submits that definition of Service inserted in the Finance Act, 2012 w.e.f. 01.07.2012 under Section 65B (44) of the Service tax Act makes it clear that such transactions in which supply of goods is a deemed sale within the meaning of Article 366 (29A) of the Constitution of India, would not be termed as service. Further, the definition of „service‟ provided under Section 65B(44) of the Finance Act, 1944 includes a declared service. The term „declared service‟ has been defined under Section 65B(22) of the Finance Act, 1994 to mean any activity carried out by a person for another person for consideration and declared as such under Section 66E. Thus the provisions of Service tax laws, as enacted post negative list regime also substantiate the position that when a transaction is deemed as sales within the meaning of clause (29A) of article 366 of the Constitution, the same would not be treated as service and in this regard, the definition of declared service has also further clarified that the transaction involving right to use is not covered in the ambit of levy of service tax. This position in the negative list regime is aligned with the position of law as prevailing during the earlier periods and further justifies the stand of the Appellant that the present transaction, being deemed sale under the provisions of clause (29A) of the article 366 of the constitution read with provisions of GVAT Act and CST shall not be treated as Service.
2.3 In support of above views, he placed reliance on the following judgments:
(i) Rashtriya Ispat Nigam Ltd. Vs. Commercial Tax Officer -1989 (12) TMI 325-Andhra Pradesh High Court
(ii) State of Andhra Pradesh Vs. Rashtriya Ispat Nigam Ltd. - 2002 (3) TMI 705 - Supreme Court.
(iii) G.S. Lamba & Sons, Vs. State of Andhra Pradesh - 2015 (324) ELT 316 (AP)
(iv) CST Vs. UFO Movies India Ltd. - 2022 -VIL-07-SC-ST
(v) CST Vs. UFO Moviez India Ltd, - 2021-VIL-11-SC-ST
(vi) UFO Moviez India Ltd. Vs. CST - 2017-VIL-774-CESTAT-ST
(vii) Subhash Light House Vs. CGST - 2022-VIL-106-CESTAT-ST
(viii) Express Engineers & Spares Pvt. Ltd. Vs. CGST - 2022 (1) TMI-
564-CESTAT- ALLAHABAD
(ix) You Broadband & Cable India Ltd. Vs. CCE 2020(2) TMI 187-
CESTAT Ahmedabad
6|Page
(x) GE Power Services India Pvt. Ltd. Vs. PCCST 2021(2)TMI 83- CESTAT
(xi) Computation Software Ltd. Vs. CST - 2019(25)GSTL 75 (T)
(xii) GIMMCO Ltd. Vs. CCE 2017(48)STR 476 (T)
(xiii) Lindstrom Service India Pvt. Ltd. Vs. CCE- 2020 (33) GSTL 391 (T)
(xiv) Century Pulp and Paper Vs. CCE - 2019 (29) GSTL 42 (T)
(xv) CCE Vs. Brindavan Bottlers Ltd. - 2019 (27) GSTL 354 (T) (xvi) Satish Crane Services Vs. CCE 2019 (25) GSTL 115(T) (xvii) Bharat Sanchar Nigam Ltd. Vs. Union of India - 2006 (2) STR 161 (SC) (xviii) Petronet LNG Ltd. Vs. CST 2016(46)STR 337 (SC) (xix) Imagic Creative Pvt. Ltd. Vs. CCT 2008 (9) STR 337(SC) (xx) Heligo Charters Pvt. Ltd. Vs. CST - 2017-TIOL-2831-CESTAT -
MUM (xxi) CST Vs. Adani Gas Ltd. 2020(8) TMI-789- Supreme Court (xxii) Power Mak Industries Vs. CCE - 2018(2) TMI 1415-CESTAT Hyderabad (xxiii) The Great Eastern Shipping Co. Ltd. Vs. State of Karnataka 2019-TIOL-524-SC-CT-LB (xxiv) GPL Polyfils Vs. CGST 2019(27)GSTL 568 (T)
3. Shri Dinesh Prithiani, Assistant Commissioner (AR) appearing on behalf of the Revenue reiterates the finding on the impugned orders and submits that even if the VAT is paid does not entitle the Appellant to escape from Service tax liability. He placed reliance on the following decisions.
(i) Association of Leasing and Financial Service Companies Vs. Union of India -2010(20)STR 417 (SC)
(ii) Indian Hotels and Restaurants Vs. Union of India 2014 (34) STR 522 (Bom)
(iii) Ballal Auto Agency Vs. Union of India -2015 (40) STR 51 (Kar,)
(iv) Commissioner of Service tax Vs. Adani Gas Ltd. 2020 (40) GSTL 145 (SC)
4. Heard both the sides and perused the records. To appreciate the rival contentions, it would be appropriate to first reproduce Section
7|Page 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. dtd. 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; (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 Appellant 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 appellant and its customers. As noted, the appellant suppliesPower Generating Equipments / gas genset (Plant) to
8|Page 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 Appellant 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 Appellant 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 Appellant, 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 appellant. 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 appellant 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.), 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 :-
9|Page "90. The entire infrastructure/instruments/appliances and exchange are in the physical control and possession of the petitioner at all times and there is neither any physical transfer of such goods nor any transfer of right to use such equipment or apparatuses.
91. To constitute a transaction for the transfer of the right to use the goods the transaction must have the following attributes:
a. There must be goods available for delivery;
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 Appellant 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 Appellant are responsible for maintenance operations of gas genset/plant, it is clear that the legal right and effective controls rests with the appellant. We find that except the above findings the Commissioner has not dwelled upon any of the submission and facts made by the appellant. The terms and condition of the agreement are its essence and is deciding factor for determination of nature of contract/agreement. As 10 | P a g e per agreement the equipment is delivered to the customers ; in terms of Clauses ofagreements 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 appellant against any loss or damage arising to or in connection with the; Further the skilled manpower is not supplied by the Appellant under the Lease agreement. There is sperate service agreement entered between the Appellant and customer under which various services are provided on which service tax has been discharged by the Appellant. 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 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;
11 | P a g e
(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 appellant have been paying VAT on such leasing of equipments since year 2007-08. We also find that DOF No. 334/1/2008- TRU, dated 29-2-2008 Circular in Para 4.4 also states that "Supply of tangiblegoods for use and leviable to VAT/Sales tax as deemed sale of goods, is not covered under the scope of the proposed service. Whether a transaction involves transfer of possession and control is a question of facts and is to be decided based on the terms of the contract and other material facts. This could be ascertainable from the fact whether or not VAT is payable or paid". It is not in dispute that the appellant were paying VAT since 2007-08 and the services of "supply of tangiblegoods" 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,
12 | P a g e as held in various judgments and relied upon by the Appellant in the present matter.
4.9 Following the cited decisions and our independent observations in the facts of the present cases, we are of the considered opinion that the demand raised cannot sustain and requires to be set aside.
5. Accordingly, the impugned orders are set aside. The appeals are allowed with consequential relief if any, as per law.
(Pronounced in the open court on 06.12.2022 ) RAMESH NAIR MEMBER (JUDICIAL) RAJU MEMBER (TECHNICAL) Geeta