Tribunal overturns tax demand, finds service tax unjustified. Appeal allowed on Feb 1, 2021.

The Tribunal allowed the appeal, setting aside the Principal Commissioner's order and finding the demand for service tax under the contested issues unjustified. The order was pronounced on February 1, 2021.

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Issues Involved:
1. Availment of CENVAT credit on invoices issued on premises other than registered premises.
2. Provision of tool kits to associated companies under the category of "supply of tangible goods for use" (STGU).
3. Provision of service to SEZ, incorrect availment of exemption, and lack of supporting documents.
4. Foreign currency expenditure as rental charge for bake oven and services received from GE Energy Services INC USA under STGU.

Detailed Analysis:

First Issue: Availment of CENVAT credit on invoices issued on premises other than registered premises

The demand for CENVAT credit amounting to Rs. 3,34,35,238 was dropped by the Principal Commissioner. This issue was not contested further in the appeal.

Second Issue: Provision of tool kits to associated companies under the category of "supply of tangible goods for use" (STGU)

The Principal Commissioner confirmed the demand of Rs. 6,16,723 on the ground that the ownership of the tool kits remained with the Appellant, even though VAT was paid on the transaction. The Appellant contended that the transaction qualified as a "transfer of right to use goods," which is not exigible to service tax. The Appellant argued that during the possession period, the associated companies had exclusive legal rights to use the kits, and VAT was paid on the transaction, indicating it was a sale.

The Tribunal examined Section 65(105)(zzzzj) of the Finance Act and Article 366 (29A)(d) of the Constitution, which outlines the criteria for a transaction to qualify as a deemed sale. The Tribunal found that the Principal Commissioner’s basis for confirming the demand was incorrect as it focused solely on the ownership aspect, which is not relevant for service tax. The Tribunal emphasized that the transaction involved the transfer of possession and effective control, qualifying it as a deemed sale, thus not liable for service tax.

Third Issue: Provision of service to SEZ, incorrect availment of exemption, and lack of supporting documents

The demand of Rs. 5,85,611 was confirmed and paid with interest by the Appellant. This issue was not contested further in the appeal.

Fourth Issue: Foreign currency expenditure as rental charge for bake oven and services received from GE Energy Services INC USA under STGU

The Principal Commissioner confirmed the demand of Rs. 3,15,781 on the ground that the ownership of the bake ovens remained with the foreign supplier, classifying the transaction under STGU. The Appellant argued that they had discharged customs duty and paid freight charges, and the baking ovens were in their exclusive possession, qualifying the transaction as a deemed sale by the foreign companies.

The Tribunal found that the Principal Commissioner did not provide sufficient reasoning for why the possession and control remained with the foreign supplier. The Tribunal concluded that since the baking ovens were in the exclusive possession and control of the Appellant, the transaction qualified as a deemed sale and was not liable for service tax under STGU.

Conclusion:

The Tribunal set aside the order dated July 28, 2016, passed by the Principal Commissioner, and allowed the appeal. The confirmation of demand of service tax under the two contested issues was found to be unjustified.

Order Pronounced:

The appeal was allowed, and the order of the Principal Commissioner was set aside on February 1, 2021.

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