Tribunal classifies services as "Supply of Tangible Goods for Use" not "Aircraft Operator Service"

The Tribunal classified the services provided by the appellant as "Supply of Tangible Goods for Use" instead of "Aircraft Operator Service" due to the appellant retaining control and possession of the aircraft. The demand for service tax was confirmed but limited to the normal one-year period as the extended period of limitation was deemed unjustified, as there was no evidence of wilful suppression by the appellant. The appeal was allowed in part, with the demand restricted to the one-year normal period.

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Issues Involved:
1. Classification of services provided by the appellant.
2. Applicability of extended period of limitation for demand.

Issue-wise Detailed Analysis:

1. Classification of Services Provided by the Appellant:

The primary issue was whether the services provided by the appellant were classified as "Aircraft Operator Service" or "Supply of Tangible Goods for Use." The appellant argued that they provided Aircraft Operator Services, which became taxable from June 1, 2010, and not during the disputed period. They claimed that their services fell under "transport of passengers by air service," which was not taxable during the relevant period. The Department, however, contended that the appellant was providing services under "supply of tangible goods for use," as they did not transfer the right of possession and effective control of the aircraft to the service receivers.

The Tribunal examined the definitions under Section 65(105)(zzzo) for Aircraft Operator Services and Section 65(105)(zzzj) for Supply of Tangible Goods for Use. It also referred to the Department's clarification in D.O.F. No.334/I/2008-TRU dated February 29, 2008, which stated that transactions allowing another person to use goods without transferring legal possession and effective control are treated as services.

The Tribunal analyzed an invoice dated December 28, 2009, which showed the aircraft was chartered with the appellant retaining effective control and possession, providing licensed pilots and engineering crew. This indicated that the service was not merely transporting passengers but chartering the aircraft, fitting the definition of "Supply of Tangible Goods for Use."

The Tribunal also referred to the case of Global Vectra Helicorp Ltd. vs. CC (Import) Mumbai, where similar services were classified under "Supply of Tangible Goods for Use." The Tribunal concluded that the appellant's services were rightly classifiable under this category, as the appellant retained control and possession of the aircraft.

2. Applicability of Extended Period of Limitation for Demand:

The second issue was whether the extended period of limitation could be invoked for the demand. The show cause notice dated December 21, 2010, demanded service tax for the period from May 2008 to May 2010, invoking the extended period under the proviso to Section 73 of the Act. The appellant argued that the extended period was not applicable as there was no intentional evasion of tax.

The Tribunal noted that for invoking the extended period, the Department must prove suppression of facts with intent to evade tax. The Supreme Court in Gopal Zarda Udyog vs. CCE, Delhi, and Cosmic Dye Chemical vs. CCE, Bombay, clarified that mere inaction or failure is insufficient; there must be conscious and deliberate withholding of information.

The Tribunal found no evidence of wilful suppression by the appellant. The appellant had a reasonable belief that their services were not taxable and had registered and discharged their liability once the services became taxable. Therefore, the extended period of limitation was not applicable.

Conclusion:

The Tribunal upheld the classification of the appellant's services under "Supply of Tangible Goods for Use" and confirmed the demand on merit. However, it set aside the demand for the period beyond one year preceding the show cause notice, as the extended period of limitation was not justified. The appeal was allowed, and the demand was confined to the normal period of one year.

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