2022 (2) TMI 141 - AT - Service Tax

Appellant prevails in 'deemed sale' ruling for mobile gensets under Article 366 (29A)

The Tribunal ruled in favor of the appellant, determining that the supply of mobile gensets constituted a 'deemed sale' under Article 366 (29A) of the ... Deemed sale under Article 366(29A)(d) - transfer of right to use goods - Supply of Tangible Goods Service - mutual exclusivity of VAT and service tax - extended period of limitation - concealmentDeemed sale under Article 366(29A)(d) - transfer of right to use goods - Bharat Sanchar Nigam Ltd. criteria - Whether supply of mobile/transportable gensets (hired for short periods and supplied with technicians/operators and fuel) constituted a 'deemed sale' by transfer of right to use under Article 366(29A)(d) of the Constitution. - HELD THAT: - The Tribunal applied the five-fold test articulated by the Apex Court in Bharat Sanchar Nigam Ltd. to determine whether there is a transfer of the right to use goods. It found that the gensets were available for delivery, their identity was agreed by contract, the clients had the legal right to use them (including consequences of such use), the right to use during the hire period was to the exclusion of the owner, and the owner could not transfer the same right to others during that period. The Tribunal observed that the gensets were dedicated to the clients and remained under the clients' effective control and possession because the clients could decide when to run them, even though operators and fuel were supplied by the appellant. The CBEC circular distinguishing sale and service by reference to transfer of right to use was held to support this conclusion. On these findings the Tribunal concluded that the transactions in question are sales/deemed sales under Article 366(29A)(d). [Paras 15, 16, 17, 18]Supply of mobile gensets as described constituted a 'deemed sale' by transfer of the right to use under Article 366(29A)(d).Supply of Tangible Goods Service - mutual exclusivity of VAT and service tax - Whether the confirmed service tax demand on the consideration for supply of mobile gensets was sustainable where the same transactions were treated as sales and VAT/Sales Tax had been discharged. - HELD THAT: - Having held that the transactions were deemed sales, the Tribunal noted that the appellant had discharged liability under the VAT/Sales Tax law as reflected in returns and the Adjudicating Authority's records. The Tribunal treated VAT and service tax as mutually exclusive for the same transaction and, therefore, held there remained no service tax liability on the appellant for the periods in question. Consequently, the impugned demand and penalties in the original order were set aside and the appeal was allowed with consequential reliefs as per law. [Paras 19, 20]Service tax demand (and related penalties) on those transactions could not be sustained where they amounted to deemed sales and VAT/Sales Tax had been paid.Extended period of limitation - concealment - Whether the department could invoke the extended period of limitation under the facts of the case. - HELD THAT: - The Tribunal observed that the dispute was one of interpretation of law and that there was no case of concealment or suppression made out against the appellant. In that factual and legal context the Tribunal held that the extended period of limitation was not available to the revenue. [Paras 21]Extended period of limitation cannot be invoked; only normal limitation would apply.Final Conclusion: The appeal was allowed: supplies of mobile/transportable gensets (supplied for short periods with technicians/operators and fuel) were held to be 'deemed sales' by transfer of right to use under Article 366(29A)(d), service tax demands and penalties thereon were set aside in view of VAT/Sales Tax having been paid, and the extended period of limitation was held inapplicable. Issues:1. Whether the supply of mobile gensets by the appellant falls under the definition of 'deemed sale' in terms of the Article 366 (29A) of the Constitution of India, read with the Sales Tax Law.Analysis:The appellant was engaged in supplying generator sets on a rental basis to clients in two ways: fixed gensets and mobile gensets. The Ld. Commissioner held that supply of fixed gensets qualified as 'deemed sale' and was not liable for service tax, while mobile gensets were considered under the category of 'Supply of Tangible Goods Service' and were subject to service tax. The appellant contended that the mobile gensets also constituted 'deemed sale' under Article 366 (29A) and thus should not attract service tax.The legal framework regarding the taxation of tangible goods and services was discussed. The Ld. SDR supported the service tax demand, while the appellant argued that the activity of supplying mobile gensets constituted 'deemed sale' and should not attract service tax. The appellant cited precedents and legal provisions to support their argument, emphasizing the distinction between VAT and service tax.The issue at hand was whether the supply of mobile gensets constituted a service or a sale under the relevant legal provisions. The Constitution of India's Article 366 (29A)(d) defines 'deemed sale' as the transfer of the right to use goods for consideration. The Tribunal analyzed the nature of the supply of mobile gensets by the appellant and concluded that the clients had effective control and possession of the gensets during the rental period, meeting the criteria of 'deemed sale' as per legal precedents.The Tribunal referred to the Apex Court's judgment in Bharat Sanchar Nigam Ltd. case, outlining the criteria for a transaction to be considered a transfer of the right to use goods. It found that all criteria were met in favor of the appellant, indicating that the clients had the legal right to use the gensets to the exclusion of the appellant. The Tribunal also considered a relevant CBEC circular and the appellant's compliance with VAT laws, concluding that the supply of mobile gensets should be treated as a sale of goods, not a taxable service.In light of the analysis and findings, the Tribunal allowed the appeal, setting aside the Ld. Commissioner's order. It ruled that the appellant was not liable for service tax on the supply of mobile gensets and was entitled to consequential relief. The Tribunal also determined that the extended period of limitation was not applicable in this case due to the interpretational nature of the issue and absence of concealment.