Tribunal Rules in Favor of Appellant on Service Tax for Modem Rental

The Tribunal ruled in favor of the appellant, setting aside the demand for service tax on renting Modem along with Online Information and Data Base Access service. The Tribunal found that since the appellant pays VAT on the Modem rental, making it a deemed sale, service tax cannot be levied on the same transaction. The decision clarified the distinction between service tax and VAT, emphasizing that when a transaction is deemed a sale and VAT is paid, service tax cannot be imposed. The Tribunal's reliance on relevant case law and constitutional provisions supported the appellant's argument, leading to the judgment in their favor.

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Issues:
- Whether the appellant is liable to pay service tax on renting Modem along with Online Information and Data Base Access service.

Analysis:

Issue 1: Liability of service tax on renting Modem
The appellant provided Online Information and Data Base Access service along with renting Modem on a rental basis. The Commissioner (Appeals) upheld the demand of service tax on the transaction of Modem. The appellant argued that they pay service tax on Internet Service provided to customers and collect rent for Modem, on which State VAT is paid, making it a deemed sale transaction. The appellant relied on the judgment of the Supreme Court in Imagic Creative Pvt. Limited vs. Commissioner of Commercial Taxes, emphasizing that payment of service tax and VAT are mutually exclusive. The Tribunal examined the nature of the transaction and found that the appellant pays VAT on the Modem rental, making it a deemed sale under Article 366(29)A of the Constitution. Citing various judgments, including UFO Moviez India Limited vs. CST Mumbai and BSNL vs. UOI, the Tribunal concluded that a transaction deemed as a sale does not attract service tax. Therefore, the Tribunal set aside the demand for service tax, ruling in favor of the appellant.

This judgment clarifies the distinction between service tax and VAT on transactions involving the rental of Modems along with Online Information and Data Base Access services. It establishes that when a transaction is deemed a sale and VAT is paid, service tax cannot be levied on the same transaction. The Tribunal's reliance on relevant case law and constitutional provisions strengthens the appellant's argument and provides a clear legal basis for the decision in this case.

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