Custom, Excise & Service Tax Tribunal
Tel Exports vs Ltu Chennai on 16 April, 2025
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
CHENNAI
REGIONAL BENCH - COURT No. III
Service Tax Appeal No. 41380 of 2015
(Arising out of Order-in-Appeal No.38/2015 dated 01.06.2015 passed by
Commissioner (Appeals-I), Chennai)
M/s TEL Exports .... Appellant
(Now part of M/s. Turbo Energy Private Ltd.,
Pulivalam Village, Banavaram via,
Vellore-632505
Versus
The Commissioner, CE & ST, .... Respondent
Chennai Outer Commissionerate, Newry Towers, No.2054 I Block, II Avenue, 12th Main Road, Anna Nagar, Chennai-600 040 APPEARANCE :
Shri S. Murugappan, Advocate, for the Appellant Shri Harendra Singh Pal, Authorised Representative for the Respondent CORAM :
HON'BLE MR. M. AJIT KUMAR, MEMBER (TECHNICAL) HON'BLE MR. AJAYAN T.V. MEMBER (JUDICIAL) FINAL ORDER No.40441/2025 DATE OF HEARING : 04.03.2025 DATE OF DECISION :16.04.2025 Per AJAYAN T.V.
The appellant has preferred this appeal being aggrieved by the impugned order in appeal (OIA) by which the learned appellate authority has rejected the appeal preferred by the appellant against the order in original(OIO) confirming the demand of duty of Rs.4,68,678/-made on the appellant on 'Supply of Tangible Goods' service rendered during the period April 2008 to March 2010 along with demand of interest at appropriate rates and equivalent penalty imposed.
2. The facts are that the appellants are manufacturers of Turbo Chargers. During verification of their accounts, it was noticed that the 2 appellants had given on lease certain machineries in terms of a lease agreement dated 25.03.2001 to M/s. ABI Showatech India Ltd. The Department being of the view that the activity of lease-renting of the machineries amounted to providing taxable service of 'Supply of Tangible Goods' classified under sub-clause (zzzzj) of clause (105) of Section 65 of the Finance Act, 1994 (Act) with effect from 16-05-2008 vide Notification No.18/2008-ST dated 10.05.2008, issued a show cause notice No.LTUC/153/2012-(DC) dated 27.04.2012 invoking extended period of limitation and calling upon the appellant to pay the service tax demand along with appropriate interest thereon and proposing imposition of penalties. The show cause notice came to be adjudicated vide OIO No. LTUC/149/2013-AC dated 29-04-2013 confirming the demand along with appropriate interest and imposing equivalent penalty. Aggrieved by the OIO, the appellant preferred an appeal before the Commissioner Appeals, who vide the impugned OIA stated that no infirmity was found in the impugned OIO and rejected the Appeal. Aggrieved by the impugned OIA, the appellant has preferred this appeal and is before the Tribunal.
3. Shri. S. Murugappan, Advocate, appeared and argued for the appellant. The Ld. Counsel submits that the demand is barred by limitation as the SCN dated 27-04-2012 was issued for the period pertaining to April 2008 to March 2010 and the demand being made consequent to audit of the records maintained by the appellant, the question of suppression or intention to evade payment of tax will not arise. He would submit that during the relevant period the taxable service of supply of tangible goods as per Section 65(105)(zzzzj) is attracted only when the right to use the tangible goods is provided 3 without right of possession and right of effective control. Taking us through the subject lease agreement it is submitted by the Ld. Counsel that the agreement demonstrates that the lessee had the right to use the goods along with effective control in operating and maintaining them. He further submits that treating such supply as deemed sale the appellants have also paid applicable VAT to the State Government during the relevant period. He relies on the CBEC Letter D.O.F. No. 334/1/2008-TRU, dated 29-2-2008 in this regard and also states that a certificate dated 18.02.2014 has been obtained from a Chartered Accountant in this connection to substantiate the VAT payment. Ld. Counsel places reliance on the following decisions in support of his submissions:
i. Shelf Drilling Ron Tappmeyer Ltd v Commissioner of CGST and Central Excise, (2023) 12 Centax 1 (Tri-Bom) ii. Commissioner of CGST and Central Excise v. Shelf Drilling Trident XII Ltd, (2023) 12 Centax 100 (SC) iii. MSPL Ltd v CCE and Customs, Belgaum, (2023) 2 Centax 311 (Tri-Bang) affirmed in CCE and Customs v MSPL Ltd, (2023) 2 Centax 312 iv. Welspun Steel Ltd v CCE & ST, Rajkot, (2024) 24 Centax 250 (Tri-Ahmd), v. Technical Dying Services Pvt Ltd v CCE & ST, Vadodara-II, (2024) 18 Centax 70 (Tri-Ahmd) vi. Krishna Infrastructure v CCE & ST, Rajkot, (2024) 22 Centax 32 (Tri-Ahmd) and vii. Amol Dicalite Ltd v CST, Ahmedabad, (2024) 25 Centax 47 (Tri-
Ahmd) 4
4. Shri. Harendra Singh Pal, Authorised Representative for the Respondent, reiterated the findings of the Appellate Authority.
5. Heard both sides and perused the records as well as the decisions submitted as relied upon.
6. We find that the only issue that arises for determination is whether the demand made vide SCN dated 27-04-2012 on the appellant alleging that the appellant has rendered "'Supply of Tangible Goods' service during the period April 2008 to March 2010 and calling upon the appellant to pay the service tax thereon, is tenable or not.
7. It is seen that as per Section 65(105)(zzzzj), 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 effective control of such machinery, equipment and appliances.
8. Thus, given that in this instance the appellant is leasing out certain machinery, it is only when the right to use the machinery is provided to the service recipient, without giving right of possession and right of effective control, the service would come within the ambit of the aforementioned service of supply of tangible goods.
9. What would constitute a transaction of the transfer of right to use goods was stated in the decision of Bharat Sanchar Nigam Ltd v. Union of India, 2006 (2) STR 161 (SC) by the Honourable Supreme Court, in the course of deciding the question of the nature 5 of the transaction by which mobile phone connections are enjoyed, whether is it a sale or is it a service or is it both? The Hon'ble Apex Court has, inter-alia, dwelling on Article 366(29A), the legislative competence of the state to levy sales tax under Entry 54 List II of the Seventh Schedule and the powers of Central Government to levy service tax under Entry 97 of List I, elaborated upon a transaction of the transfer of right to use goods, as under:
"70. In our opinion, the essence of the right under Article 366(29A)(d) is that it relates to user of goods. It may be that the actual delivery of the goods is not necessary for effecting the transfer of the right to use the goods but the goods must be available at the time of transfer must be deliverable and delivered at some stage. It is assumed, at the time of execution of any agreement to transfer the right to use, that the goods are available and deliverable..."
Thereafter, the attributes of a transaction of the transfer of right to use goods was elucidated as under:
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 6 concomitant of the plain language of the statute - viz. a "transfer of the right to use" and not merely a licence to use the goods; e. Having transferred the right to use the goods during the period for which it is to be transferred, the owner cannot again transfer the same rights to others.
10. Bearing the above position in law in mind, we have perused the relevant Lease agreement dated 25th March 2001, made between the Appellant as Lessor and ABI Showatech (I) Ltd, as the Lessee, as available in the Appeal records. We have examined the terms therein based on which the machineries are being let on lease to the lessee upon the Lessee agreeing to pay lease rentals therefor. Some of the terms are seen to be as under:
"3) Lessee shall hold and retain possession and custody of the Machineries at all times during the period of lease at the location shown in the Schedule hereto annexed and shall not remove it without obtaining the Lessor's prior written consent.
4) The lessee acknowledges, confirms and declares that it holds the Machineries as a mere bailee of the Lessor and that it shall not have any proprietary right, title, or interest in the machineries or any part thereof and shall, at all times, protect and defend as bailee/licensee of the machineries the Lessor's absolute and paramount ownership right and title thereto and that he shall not at any time, advance or make any claim adverse to or in derogation of the Lessor's absolute and permanent ownership right and title.
The Lessee further agrees and covenants that he shall not claim 7 any benefits under the Tax Laws associated with the ownership of the equipment such as depreciation, investment, allowance etc.
5) The Lessee shall install, keep operate, maintain and store the machineries with utmost care and in the correct and appropriate manner and method in which and strictly in accordance with the manuals, instructions advices of Manufacturer/Suppliers and the Lessor, the Lessee agrees that Machineries shall be installed/kept/operated/used/maintained/stored and shall cause it to be used/operated by competent and duly technically qualified personnel and shall not have them or any of them/used/operated for any purpose other than for which they are to be used/operated.
6) The Lessee shall, at all times, hold, keep in custody, possess and maintain the Machineries and everyone of its component parts in good and substantial repair working order and condition and in the event of any of its parts developing any defect or going out of action or order or working condition, the Lessee shall, at his cost, have it or such part as the case may be, repaired/reconditioned/rectified by the person nominated by the Lessor and have such part restored to their original working order and condition. In the event of the Lessee failing to do so, the Lessor may (without being bound to do so), have such repair/reconditioning/rectification carried out, the cost of which shall, in full, be borne by and recovered from the Lessee."
11. It is pertinent to note that while the SCN merely states that from the lease agreement it can be seen that the lessee has no legal right 8 of possession and effective control of the machinery taken on lease from the taxpayer, yet it fails to put the appellant to notice as to which term exactly is being interpreted by the SCN issuing authority in this fashion, thereby rendering the charge vague and lacking in details. The Honourable Supreme Court in its decision in CCE, Bangalore v. Brindavan Beverages, 2007 (213) ELT 487 (SC), has held that the show cause notice is the foundation on which the department has to build up its case and if the allegations in the show cause notice are not specific and are on the contrary vague, lack details and/or unintelligible that is sufficient to hold that the noticee was not given proper opportunity to meet the allegations indicated in the show cause notice. It is seen that the Adjudicating Authority has in the OIO, thereafter extracted from the terms at para (4) of the agreement, reproduced supra to hold that it evidences that the effective control of these machineries is retained by the appellant. We are of the view that this finding of the adjudicating authority is untenable firstly for the reason that it has traversed beyond the SCN as this interpretation of the adjudicating authority was not put to the appellant's notice and secondly it is based on a misconception that equates the retention of absolute and permanent ownership right and title with the appellant as effective control. The adjudicating authority failed to appreciate that it is only because the title of the goods remains with the service provider that such a transfer of right to use of goods is deemed as a sale under Article 366(29A)(d) of the Constitution of India, as has also been elucidated by the Honourable Apex Court in its decision in Bharat Sanchar Nigam Ltd v. Union of India, 2006 (2) STR 161 (SC),wherein, while explaining the said clause (d) of Article 366(29A), the Apex Court in para 39 has stated :... "Similarly the title 9 to the goods under Clause (d) remains with the transferor who only transfers the right to use the goods to the purchaser....."
12. It is evident from a plain reading of the above terms which are self-explanatory, that the appellant as Lessor has not only let out the machineries, but also have provided the Lessee along with the right to use the machinery, the right to hold and retain possession and custody at all times during the subsistence of the lease along with right of effective control. Thus, to our mind, the very terms of the lease agreement, clearly indicates that the said service of letting out of the machinery by the appellant to the service recipient does not amount to "supply of tangible goods" service as defined in Section 65(105)(zzzzj).
13. We also note that the CBEC in its Letter D.O.F. No. 334/1/2008- TRU, dated 29-2-2008, while explaining the salient features of the changes in service tax proposed in the Finance Bill, 2008, has stated as under:
"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 10 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)
14. It is seen that right from their reply to SCN, the appellants have contended that they have been paying VAT on the lease rental amounts received from the lessee, enclosing a sample invoice in this regard. Further, the appellant has also evidenced such VAT payment by furnishing a CA certificate to this effect. We are therefore of the view that when the CBEC Circular, which is binding on the Departmental officers, itself provides 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 service of supply of tangible goods and that this is ascertainable from the fact whether or not VAT is paid, the lower authorities grossly erred in failing to controvert the said contention of the appellant, which too renders the demand of service tax made on the appellant untenable.
15. We also find that the appellant has consistently taken a plea before the lower authorities that the issue was that of interpretation and that the appellant was of the view that since they have paid VAT the 11 transaction itself was not within the scope of service tax law. Therefore, in such circumstances, coupled with the fact that there has been no evidence let in of any positive act of willful suppression or misstatement of facts with intent to evade payment of duty that has been made by the appellant, the SCN dated 27-04-2012 for the period from April 2008 to March 2010 is also barred by limitation having been issued beyond the normal period.
16. We note that the decisions on which the appellant has placed reliance, listed supra, also adopt a similar line of reasoning on merits, and thus bolster our findings on merits rendered above.
17. In view of the discussions and findings above and in light of the aforementioned decisions, we find that the demand of duty along with appropriate interest thereon and penalty imposed by the original authority, as upheld by the learned appellate authority, are untenable and cannot sustain. Accordingly, we set aside the impugned Order in Appeal No.38/2015 dated 01.06.2015.
The Appeal is allowed with consequential benefits in law, if any.
(Order pronounced in the open court on 16.04.2025) (AJAYAN T.V.) (M. AJIT KUMAR) Member (Judicial) Member (Technical) MK