2020 (11) TMI 580 - AT - Service Tax

Tribunal rules in favor of manufacturer on service tax dispute over glass bottle charges

M/s. Bengal Beverages Private Limited Versus Commissioner of CGST & Excise, Howrah Commissionerate

M/s. Bengal Beverages Private Limited Versus Commissioner of CGST & Excise, Howrah Commissionerate - TMI Issues:Service tax demand on glass bottles and crate rentals under Supply of tangible goods service, applicability of VAT on rental charges, validity of demand notice, limitation period for raising demand.Analysis:The appellant, a manufacturer of aerated water, transferred possession and control of glass bottles and plastic crates to customers against rental charges included in the sale price. The dispute arose when the Commissioner demanded service tax on these rental charges for the period 2011-12 to 2014-15. The appellant contended that VAT was already paid on these charges under the West Bengal Value Added Tax Act, treating the transfer as a deemed sale of goods. The appellant argued that since VAT was applicable, service tax could not be levied as it falls under the State List. The Commissioner issued a show cause notice in 2017, alleging 'supply of tangible goods for use' service under the Finance Act, 1994. The appellant challenged the demand, citing statutory provisions and previous judgments supporting VAT applicability on similar charges.The appellant's representative argued that the rental charges were already subject to VAT, citing judgments and VAT assessment orders supporting this position. The demand notice issued in 2017 for the period 2011-12 to 2014-15 was challenged on grounds of limitation, as it was issued after the expiry of five years. The representative highlighted that the department was aware of the facts since 2014, questioning the invocation of an extended limitation period. The department acknowledged acceptance of similar orders for other assesses.The Tribunal analyzed the case, noting that the effective control and possession of glass bottles and crates were transferred to customers, making it a deemed sale liable to VAT. The Tribunal referred to a judgment by the Andhra Pradesh High Court supporting VAT applicability on such rentals. It observed that transactions deemed as sales cannot be subject to service tax. The Tribunal also found that the department failed to consider the appellant's VAT payments on rentals. Additionally, the Tribunal rejected the department's argument that possession and control were not transferred, citing legal definitions and precedents.The Tribunal further dismissed the demand based on the limitation period, noting a significant delay between the spot memo issued in 2014 and the demand notice in 2017. The Tribunal concluded that the demand for service tax on glass bottles and crate rentals was unsustainable both on merits and limitation grounds. Consequently, the penalty and interest were also deemed not sustainable. The appeal was allowed in favor of the appellant, providing consequential relief as per the law.