2020 (9) TMI 125 - AT - Service Tax

Tribunal rules lease rentals not subject to service tax under Finance Act, 1994

The tribunal allowed the appeal of the assessee and dismissed the appeal of the revenue. It held that the lease rentals, classified as 'deemed sale', were ... Levy of Service tax - Rent-a-cab Service - deemed sale or not - empowerment vested in the adjudicating authority to expand the scope of the taxable service by encroaching on taxing power vested in the several states by parliamentary enactment. HELD THAT:- Impliedly, neither did the taxing powers vested in the Union extend either to ‘sale’ or ‘deemed sale’ nor did all of the several ‘deemed sales’ incorporated in the constitutional amendment include some component that was not ‘deemed sale’ outside the pale of taxation in List II in the Constitution of India. The impugned order has erred in presuming so. In ‘works contracts’, there is an aspect that is beyond the taxing powers of the states which could, under Parliamentary sanction, be taxed by the Union. In both ‘sales’ and ‘services’, the taxable event is determined by the existence of ‘buyer/recipient’ and ‘seller/provider’ with the conclusion of the contractual obligation as the definitive event to be taxed. In the absence of concurrent jurisdiction, the vivisection of such enumerations in Article 366 (29A) of the Constitution of India alone can confer the authority under List I of the Seventh Schedule in the Constitution of India. Agreements/contracts of ‘lease’ are, acknowledgedly, taxable as ‘deemed sale’; it is not the case of Revenue that any portion of the consideration for ‘lease’ is not ‘deemed sale’. As the entire rental is subject to tax as ‘deemed sale’, there is no scope for any portion thereof to be leviable to tax by the Union and, thereby, under Finance Act, 1994. The scope for subjecting ‘lease rental’ to tax, as proposed in the show cause notice, cannot sustain in the absence of a valid machinery provision recognized in the taxing statute - Appeal allowed - decided in favor of appellant. Issues Involved:1. Taxability of lease rentals under service tax.2. Application of the extended period of limitation.3. Grant of abatement under notification no.1/2006-ST.4. Classification of the transaction as 'rent-a-cab' service versus 'deemed sale'.Issue-wise Detailed Analysis:1. Taxability of Lease Rentals under Service Tax:The core issue revolves around whether the lease rentals received by the assessee-company for providing motor vehicles to corporate customers can be subjected to service tax under the Finance Act, 1994. The assessee contended that the lease rentals should be classified as 'deemed sale' and thus not liable to service tax. The impugned order upheld the taxability of the lease rentals, excluding the period beyond the normal limitation period. The tribunal examined the contractual obligations and statutory provisions, emphasizing the distinction between 'rent-a-cab' services and 'deemed sale'. The tribunal referred to the Supreme Court's decision in Bharat Sanchar Nigam Ltd v. Union of India, which laid down the 'five test' ascertainment for determining the nature of transactions. The tribunal concluded that the lease rentals, being subject to sales tax as 'deemed sale', could not be taxed again as a service under the Finance Act, 1994.2. Application of the Extended Period of Limitation:The revenue challenged the adjudicating authority's decision to discard the extended period of limitation for the tax demand. The tribunal noted that the impugned order confirmed the tax demand only for the normal period of limitation, rejecting the proposal to invoke the extended period. The tribunal upheld this decision, finding no grounds for applying the extended period of limitation.3. Grant of Abatement under Notification No.1/2006-ST:The revenue also contested the grant of abatement of sixty percent available under notification no.1/2006-ST dated 1st March 2006. The tribunal examined the provisions and found that the abatement granted was in accordance with the notification and did not warrant any interference.4. Classification of the Transaction as 'Rent-a-Cab' Service versus 'Deemed Sale':The tribunal delved into the classification of the transaction, determining whether it fell under 'rent-a-cab' service or 'deemed sale'. The adjudicating authority had held that the lease, though a 'deemed sale', could still be subject to central tax. The tribunal, however, relied on the principles laid down in various Supreme Court decisions, including Commissioner of Service Tax v. Vijay Travels and Association of Leasing & Financial Services Companies v. Union of India. The tribunal emphasized the need to distinguish between services and sales, noting that the legislative competence for taxing 'deemed sales' rested with the states. The tribunal concluded that the lease rentals, being entirely subject to sales tax as 'deemed sale', could not be subjected to service tax by the Union under the Finance Act, 1994.Conclusion:The tribunal set aside the impugned orders, allowing the appeal of the assessee and dismissing the appeal of the revenue. The tribunal held that the lease rentals, classified as 'deemed sale', were not liable to service tax under the Finance Act, 1994, and the extended period of limitation and abatement provisions were correctly applied by the adjudicating authority. The tribunal's decision underscored the mutually exclusive nature of taxing powers between the Union and the states, reaffirming the constitutional limitations and principles governing the levy of taxes on sales and services.