Tribunal rules in favor of appellants, sets aside service tax demand on tangible goods. Partially upholds input service credit disallowance.

The tribunal set aside the demand and penalties related to the service tax on 'Supply of Tangible Goods', ruling that the appellants did not fall under this category as they had transferred both possession and effective control of the equipment. The disallowance of credit on input services was partially upheld, with credit allowed for most services except club services. The appeals were disposed of accordingly, providing relief to the appellants.

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Issues Involved:
1. Demand of service tax under the head 'Supply of Tangible Goods'.
2. Disallowance of credit on input services.

Detailed Analysis:

Issue 1: Demand of Service Tax under 'Supply of Tangible Goods'
The appellants are engaged in services such as Advertising, Online Information, Video Tape Production, and Sound Recording. They own "Qube Digital" video format and provide Digital Projector Systems to theatre owners either on a sale basis or on a right-to-use basis. The department contended that the income from "Right to Use" fee and "Per Show Fee" was taxable under section 65(105)(zzzzj) of the Finance Act, 1994, as 'Supply of Tangible Goods'. The appellants argued that they transferred possession and effective control of the equipment, thus not falling under 'Supply of Tangible Goods'. They also contended that they paid VAT on the right-to-use fee, making them exempt from service tax due to the mutual exclusivity of VAT and service tax. The tribunal referred to the decision in G.S. Lamba & Sons Vs. State of Andhra Pradesh, which clarified that effective control does not necessarily require physical control. The tribunal concluded that the appellants had transferred both possession and effective control, thus their activities did not fall under 'Supply of Tangible Goods'. Consequently, the demand for service tax and related penalties were set aside.

Issue 2: Disallowance of Credit on Input Services
The appellants also contested the disallowance of credit on various input services such as club or association services, travel insurance, group mediclaim insurance, personal accident insurance, directors and officers liability insurance, and employees deposit linked insurance. The tribunal noted that these services were availed before 1.4.2011, when the definition of input service under Rule 2(l) of CENVAT Credit Rules, 2004, had a broader scope, including all activities relating to business. The tribunal upheld the disallowance of credit for club services, as conceded by the appellants, but allowed credit for the other services. Consequently, the related penalties were also set aside.

Conclusion:
The tribunal modified the impugned order by setting aside the demand and penalties related to 'Supply of Tangible Goods' service and the disallowance of credit on input services, except for club services. The appeals were disposed of with consequential relief, if any.

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