Custom, Excise & Service Tax Tribunal
Standard Belex India Pvt Ltd vs Vadodara-I on 10 December, 2024
Customs, Excise & Service Tax Appellate Tribunal
West Zonal Bench at Ahmedabad
REGIONAL BENCH-COURT NO. 3
Service Tax Appeal No. 12877 of 2018 - DB
(Arising out of OIA-VAD-EXCUS-001-APP-286-2018-19 dated 30/08/2018 passed by
Commissioner ( Appeals ) Commissioner of Central Excise, Customs and Service Tax-
VADODARA-I)
Standard Belex India Pvt Ltd ........Appellant
Plot No. 463, GIDC. Estate,
Por-Ramangamdi,
Vadodara, Gujarat
VERSUS
Commissioner of C.E. & S.T.-Vadodara-I ......Respondent
1st Floor...Central Excise Building, Race Course Circle, Vadodara, Gujarat- 390007 APPEARANCE:
Ms. Shamita Patel, Advocate for the Appellant Shri A K Mudvel, Superintendent (AR) for the Respondent CORAM: HON'BLE MEMBER (JUDICIAL), MR. RAMESH NAIR HON'BLE MEMBER (TECHNICAL), MR. C L MAHAR Final Order No. 13122/2024 DATE OF HEARING: 29.08.2024 DATE OF DECISION: 10.12.2024 RAMESH NAIR The brief facts of the case are that during the period 2012-13 to 2016- 17, the Appellant had given on lease, scaffolding items such as U head, Base Jack, Plank etc to various parties against payment of rent by the lessees to the Appellant on which VAT was being discharged on the lease rent, however, no service tax was being paid by the appellant.
1.1 In the course of audit of the Appellant's records by the Service tax department, wherein the said transactions of lease on payment of VAT were reflected, the audit department entertained the view that the same were liable to service tax and accordingly, by letter dated 27.01.2017, sought the Appellant's explanation.
2|Page ST/12877/2018-DB 1.2 By letter dated 21.02.2017, the Appellant responded to the audit department and explained that since there was a transfer of right of use/possession and effective control, there was a deemed sale on which VAT was being discharged and therefore there was no service. 1.3 Despite the said explanation, a Show Cause Notice dated 28.04.2017 was issued to the Appellant for the period 2012-13 to 2016-17, whereby it was contended that since the ownership of the goods has not changed, there was no deemed sale. It was further contended that though the lessee was going to use the goods, that does not imply that there was transfer of right to use. On that basis, it was contended that the transaction was liable to service tax as a service in relation to supply of tangible goods without transfer of right of possession and effective control under Section 65 (105) (zzzzj) prior to July 2012 and thereafter as declared service under Section 66E (f). Based on the said contentions, the Notice demanded service tax of Rs. 47,95,539/- for the said period under the Proviso to Section 73(1) of the Finance Act, 1994 with interest at appropriate rate under Section 75 of the Finance Act, 1994. The said Notice further proposed imposition of penalty under Section 77 and 78 of the Finance Act, 1994.
1.4 The Appellant replied to and contested the said Show Cause Notice, both on merits and on limitation, by letter dated 27.05.2017. 1.5 The Assistant Commissioner Central Excise, Custom & Service Tax, Division-VI, Vadodara passed Order-in-Original dated 12.04.2018 whereby he confirmed the demand of duty under Section 73(2) of the Finance Act, 1994 with interest under Section 75 of the said Act. He further imposed a penalty of Rs. 10,000/- Section 77(2) of the Finance Act, 1994. He further imposed penalty under Section 78 of the said Act. The Assistant Commissioner held that since the ownership of the goods has not changed, there was no deemed
3|Page ST/12877/2018-DB sale. He further held that though the lessee was going to use the goods, that does not imply that there was transfer of right to use. 1.6 The Commissioner (Appeals) upheld the said Order-in-Original dated 12-4-2018 by Order-in-Appeal dated 30.08.2018. The Commissioner (Appeals) has also proceeded on the basis that since the ownership of the goods had not been transferred there was no transfer of right to use. The present appeal has been preferred by the Appellant against the said Order-in-
Appeal dated 30.08.2018.
2. Ms. Shmita Patel, Learned Counsel appearing for the appellant, submitted that it is evident from the Lease Contract, that there was transfer of right to use, possession and effective control of leased scaffolding material in favour of the Lessee, there was thus deemed sale in favour of the Lessee, on which VAT is admittedly paid and therefore same does not attract service tax; that the contention in Show Cause Notice and finding in Order-in-Original and Order-in-Appeal that though use was to be of lessee, however, since there was no change of ownership, it cannot be said that there was transfer of right to use, is totally misconceived and untenable in law. In support of the above submissions, reliance is placed on the following decisions:-
• MSPL Ltd v Commissioner-2023 (69) GSTL 289, upheld in Commissioner v MSPL Ltd.-2023 (69) GSTL 225 (SC) • Gujarat Gas Ltd v CCE- 2024 (1) TMI 137 CESTAT AHMEDABAD • GIMMCO Ltd v Commissioner-2017 (48) STR 476, followed by GIMMCO Ltd v CST-2024 (1) TMI 182-CESTAT AHMEDABAD • Express Engineers & Spares P. Ltd v Commissioner-2022 (64) GSTL 112 • SHV Energy P. Ltd v Commissioner-2021 (51) GSTL 402 • Nayana Premji Savala v UOI-2022 (66) GSTL 417
4|Page ST/12877/2018-DB 2.1 It was further submitted that demand is barred by limitation and hence impugned order cannot be sustained both on merits and on limitation.
3. Shri A K Mudvel, Learned Superintendent (AR), appearing for the Revenue relied upon the judgement in the case of State of Andhra Pradesh v Rashtriya Ispat Nigam Ltd - 2002 (3) TMI 705-Supreme Court. He further reiterated the findings given in the impugned Order.
4. Heard both sides and perused records. The principal issue that arise for consideration in this appeal is whether the leasing of "Scaffolding items" by the Appellant, on which, admittedly VAT has been paid as Deemed sale within meaning of Article 366 (29A) (d) of the Constitution of India, is liable to service tax. We have noticed the following clauses appearing in the lease contracts, as reproduced in the Order-In-Original:-
a) Clause 6 of the contract, as per which the lessee got the right to use the Scaffolding materials and the Appellant did not have any direct or indirect control over the Scaffolding material,
b) Clause 7 of the contract, as per which the material should be returned by the Lessee to the Appellant's workshop and as per Clause 12, if the Lessee fails to so return the material to the Appellant, the Appellant will have the authority to bring back the material at the Lessee's cost,
c) Clause 8 of the contract provided that the material shall be insured by the Lessee and that the Lessee shall be liable for theft, damage, fire of/to the material and will have to bear its cost.
4.1 It is observed from the above clauses that there was transfer of the right to use, possession and effective control in favour of the lessees in respect of the scaffolding items so leased to the lessees. It is thus clear that the Lessee had the right to use the material, the material was to be in possession and effective control of the Lessee and the Appellant did not have any direct or indirect control over the material. Further, since the material was in the use,
5|Page ST/12877/2018-DB possession and control of the Lessee, the same was required to be insured by the Lessee and in case of theft or damage to the material, the cost thereof was to be borne by the Lessee. Lastly, upon expiry of the lease, the Lessee had to return the material to the Appellant's workshop, which itself means that during the term of the lease, the material was in use, possession and control of the Lessee. In case of Lessee's failure to return the material on expiry of the lease, the Appellant had the authority to bring back the material at the Lessee's cost.
4.2 Since there was clearly a transfer of the right to use the materials in favour of the Lessee, the same was liable to Sales Tax/ VAT, being a deemed sale within the meaning of Article 366 (29A) (d) of the Constitution of India and accordingly, VAT was being discharged on the lease rent, which is apparent from the Invoices raised by the Appellant on the lessees. 4.3 Since there was transfer of right to use the materials in favour of the Lessee and the possession and effective control was with Lessee and VAT was accordingly paid as Deemed Sale, in our view, the transaction does not amount to Declared Service under Section 66E (f) as in force from July 2012, nor does it amount to the service of supply of tangible goods without transfer of right of possession and effective control under Section 65 (105) (zzzzj) prior to July 2012. In support of the above, reliance is placed on the following decisions:-
i. MSPL Ltd v Commissioner-2023 (69) GSTL 289: In this case, the Appellant had given Wagons on lease to the Railway and it would be apparent from Para 3 of the judgment that Railway was at liberty to use the Wagons as per their Schedule and further as per Para 3.1, VAT was paid on the transaction as Deemed Sale. In these facts, it was held that the lease is not liable to service tax as service of supply of tangible goods
6|Page ST/12877/2018-DB without transfer of right to possession and effective control. The Hon'ble Supreme Court upheld the aforesaid decision of Tribunal. ii. Gujarat Gas Ltd v CCE- 2024 (1) TMI 137 - CESTAT AHMEDABAD: In this decision, the Appellant had given lease of the equipment "Gas Genset" to Gujarat Agrochem Ltd. As apparent from Para 4 of the judgment, under the Lease agreement, the ownership and title was to remain with the Appellant, however, the lessee had possession of the equipment during the term of lease and upon expiry of the lease the equipment was to revert to the Appellant. VAT was paid on the transaction as Deemed Sale. This Tribunal held in Para 4.2 that in view of payment of VAT on the lease as Deemed Sale, no service tax is payable.
iii. GIMMCO Ltd v Commissioner-2017 (48) STR 476: In this decision, the Appellant had granted lease of earth moving equipment to various customers. It is mentioned in Para 3 of the decision that VAT was paid on the lease. The Tribunal in Para 5.2 noted that as per the agreement, the lessee was to be responsible for the safety of the equipment and liable for any loss or damage to the equipment while in use by the lessee, which showed that the use, possession and control was of the lessee. It was held that the lease was accordingly not service of supply of tangible goods without transfer of possession and effective control. This decision was followed by this Tribunal in GIMMCO Ltd v CST-2024 (1) TMI 182-CESTAT AHMEDABAD.
iv. Express Engineers & Spares P. Ltd v Commissioner-2022 (64) GSTL 112:
In this decision, the Appellant gave on hire, diesel generators to customers and as noted in Para 39 of the decision, VAT was being paid. The Tribunal referred to Board Circular in Para 40, which clarified that payment of VAT on a transaction indicates that it is a sale and not a service. Accordingly, the Tribunal held that service tax was not payable.
7|Page ST/12877/2018-DB v. SHV Energy P. Ltd v Commissioner-2021 (51) GSTL 402: In this
decision, the Appellant gave on lease, Super Gas System, to its customers. As noted in Para 4, VAT was being paid on the lease rentals. It was accordingly held to be a deemed sale and not a service. vi. Nayana Premji Savala v UOI-2022 (66) GSTL 417: In this decision, containers were given on lease and during the term of the lease, the same could not be given to any other lessee. VAT was paid on the lease rentals. Hon'ble High Court held that the same was therefore Deemed sale and not service.
4.4 We find that the Show Cause Notice and the Order-In-Original accept that the materials were to be in use of the Lessee and yet contend that there was no transfer of right to use only on the ground that there was no change of ownership. Similarly, the Commissioner (Appeals) has held against the Appellant on the ground that there was no change of ownership. We find that the said ground is totally misconceived and untenable in law because in case of a Deemed Sale, which is liable to VAT, there would in fact be no change of ownership and only transfer of right to use. If there were to be change of ownership, it would be outright sale and not Deemed sale. In all the cases referred herein above, which are cases of Deemed sale, there was no change of ownership.
4.5 It is further noticed that the decision in State of Andhra Pradesh v Rashtriya Ispat Nigam Ltd - 2002 (3) TMI 705-Supreme Court relied upon by the Commissioner (Appeals) has no application to the facts of the present case. In that case, the Respondent, Rashtriya Ispat Nigam Ltd had appointed a Contractor for the Respondent's Steel Project and provided machinery to the Contractor for executing the contract. As recorded in Para 4 of the judgment, the Contractor was required to use the machinery only for the said Project of the Respondent and the contractor was not free to use the machinery for any
8|Page ST/12877/2018-DB other work. It was accordingly held that there was no transfer of right to use in favour of the contractor and therefore no Sales tax was payable. Such is not the case here. In the present case, the Appellant gives on lease the Scaffolding equipment to the Lessee for the Lessee's use and not for use in the Appellant's project and the Lessee is free.
5. In view of above discussions and findings, impugned order cannot be sustained, hence the same is set aside. Accordingly, appeal is allowed with consequential relief, if any, as per law.
(Pronounced in the open court on 10.12.2024) (RAMESH NAIR) MEMBER (JUDICIAL) (C L MAHAR) MEMBER (TECHNICAL) Raksha