2022 (1) TMI 564 - AT - Service Tax

Diesel generator hire not taxable as service: Tribunal rules in favor of appellant

The Tribunal held that the supply of diesel generators on hire basis did not amount to 'supply of tangible goods for use' (STGU) service liable to service ... Recovery of service tax - supply of tangible goods for use [STGU] service or not - supply of diesel generators to customers on hire basis - period 01.04.2011 to 30.06.2012 - declared service involving “transfer of goods by way of hiring, leasing, licensing, or in any such manner without transfer of right to use such goods” under section 66E(f) of the Finance Act for the period 01.07.2012 to 31.03.2015 - whether the transaction between the Appellant and its customers would involve the transfer of right of possession and effective control or a transfer of right to use? - extended period of limitation - HELD THAT:- It can safely be said that under Sales Tax, there is transfer of possession and effective control in goods, while there is no such transfer of possession and effective control under service tax - the transaction between the Appellant and the customers would qualify as a transfer of right to use goods with the control and possession over the diesel generator sets passing on to the customers. The transportation and installation of diesel generator sets at the site of the customers cannot lead to a conclusion that the Appellant was rendering STGU service. The Agreement itself provides that the Appellant would be responsible for providing diesel generator sets to the customers. It was, therefore, imperative for the Appellant to ensure that the diesel generator sets were transported and installed at the site of the customer - Though, the Appellant may be providing operators to the customer, but these operators were working entirely under the direction and control of the customers and the Appellant had no control over them. Thus, so long as the effective control over the diesel generator sets remained with the customers, the mere providing of operators who were also under the direction and control of the customers, would not mean that the transaction was not that of sale. It is more than apparent that the supply of diesel generator sets to the customers would not amount to STGU service for the period from 01.04.2011 to 30.06.2012, or a declared service from 01.07.2012 to 2014-15. The orders passed by the Commissioner (Appeals), therefore, cannot be sustained. Extended period of limitation - HELD THAT:- It would not be necessary to examine the contention raised by the Appellant that the extended period of limitation could not have been invoked. Appeal allowed - decided in favor of appellant. Issues Involved:1. Whether the supply of diesel generators on hire basis by the Appellant amounts to 'supply of tangible goods for use' (STGU) service liable to service tax.2. Whether the extended period of limitation could be invoked for the demand.3. Whether the penalties and interest imposed were justified.Issue-Wise Detailed Analysis:1. Supply of Tangible Goods for Use (STGU) Service:The core issue was whether the Appellant's activity of supplying diesel generators on hire constituted an STGU service liable to service tax under section 65(105)(zzzzj) of the Finance Act for the period up to June 30, 2012, and under section 66E(f) for the period from July 1, 2012, to 2014-2015.The Commissioner (Appeals) held that the Appellant retained possession and effective control over the diesel generators, thus satisfying the criteria for STGU service. However, the Appellant contended that the legal right to use the generators was transferred to the customers, making it a deemed sale, not a service.The Tribunal analyzed the nature of the transaction, noting that:- Specific equipment was agreed upon for hire.- The Appellant received a fixed monthly amount.- Customers complied with statutory regulations and provided fuel.- Operators provided by the Appellant worked under the customer's direction.- Effective control over the equipment was with the customer.The Tribunal referred to several judicial precedents, including Rashtriya Ispat Nigam Ltd. and G.S. Lamba, which emphasized that the transfer of right to use goods, along with possession and effective control, constituted a deemed sale, not a service. The Tribunal concluded that the transaction between the Appellant and its customers involved the transfer of right to use the generators, thus falling outside the purview of service tax.2. Extended Period of Limitation:The Appellant argued that there was no suppression of facts, and thus, the extended period of limitation could not be invoked. The Tribunal, having concluded that the transaction was not liable to service tax, found it unnecessary to examine this contention in detail.3. Penalties and Interest:Given the Tribunal's finding that the supply of diesel generators did not amount to an STGU service, the imposition of penalties and interest was also deemed unsustainable.Conclusion:The Tribunal set aside the orders passed by the Commissioner (Appeals), holding that the supply of diesel generators did not constitute an STGU service liable to service tax. Consequently, the appeals filed by the Appellant and its Director were allowed, and the demands for service tax, penalties, and interest were quashed.