2024 (1) TMI 137 - AT - Service Tax

Gas Genset lease constitutes deemed sale under Article 366(29A), not taxable service under supply of tangible goods

Gujarat Gas Ltd Versus C.C.E. & S.T. -Surat-I

Gujarat Gas Ltd Versus C.C.E. & S.T. -Surat-I - TMI Issues Involved:1. Classification of the leasing activity under service tax.2. Transfer of possession and effective control.3. Applicability of VAT and service tax.4. Time-barred demand due to bona fide belief.Summary:1. Classification of Leasing Activity:The primary issue was whether the leasing of 'Gas Genset' by the appellant to M/s. Gujarat Agrochem Ltd. constituted a 'supply of tangible goods for use' service under Section 65(105)(zzzj) of the Finance Act, 1994, thereby attracting service tax. The department argued that since the ownership of the equipment remained with the lessor (appellant), the activity was taxable. However, the appellant contended that the right to possession and effective control was transferred to the lessee, making it a deemed sale liable to state VAT, not service tax.2. Transfer of Possession and Effective Control:The tribunal examined the lease agreement dated 07.09.2005, focusing on clauses indicating that the lessee had beneficial possession and effective control of the Gas Genset during the lease period. The tribunal concluded that the right to possession and effective control was indeed transferred to the lessee, aligning with the definition of a deemed sale under Article 366(29A) of the Constitution of India. This transfer excluded the transaction from the ambit of 'supply of tangible goods for use' service.3. Applicability of VAT and Service Tax:The appellant had paid state VAT on the transaction, supported by a Chartered Accountant's certificate. The tribunal referenced multiple judgments, including G.S. Lamba & Sons, Kalpataru Power Transmission Ltd., AIMS Pharma Pvt. Ltd., and GIMMCO Ltd., which held that transactions involving transfer of possession and effective control are deemed sales subject to VAT, not service tax. The tribunal reiterated that if VAT is paid on a transaction, it cannot be subjected to service tax under the 'supply of tangible goods for use' category.4. Time-Barred Demand:The appellant argued that the demand was time-barred as the issue was under litigation in various cases, and they had a bona fide belief that the transaction was a deemed sale liable for VAT. The tribunal did not explicitly address this argument in the final decision, focusing instead on the classification and applicability of taxes.Decision:The tribunal set aside the impugned order, ruling that the leasing of Gas Genset did not fall under 'supply of tangible goods for use' service and was not liable to service tax. The appeal was allowed in favor of the appellant.