2024 (1) TMI 182 - AT - Service Tax

Earth moving equipment rental constitutes deemed sale under Article 366(29A), not taxable service, exempting from service tax

Gmmco Limited Versus C.S.T. -Service Tax - Ahmedabad

CESTAT Ahmedabad held that renting of earth moving equipment constitutes deemed sale rather than supply of tangible goods for use service, exempting it ... Levy of Service Tax - Supply of Tangible Goods for Use of Service - renting of Earth Moving Equipment - deemed sale - right to possession and effective control of such equipment transferred to the lessee - HELD THAT:- From the decision in M/S. GIMMCO LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE & SERVICE TAX, NAGPUR (VICE-VERSA) [2016 (12) TMI 394 - CESTAT MUMBAI], it can be seen that the terms and condition in the above case are identical to the terms and condition of the contract in the present case, and it is also fact that the appellant have paid the VAT on the transaction being a deemed sale in terms of Article 366 (29A) of Constitution of India. Therefore, the renting of the equipment does not fall under the category of ‘supply of tangible goods for use service’. Following the above decision in the appellant’s own case - the impugned order set aside - appeal allowed. Issues:Whether renting of Earth Moving Equipment by the appellant is liable to be taxed under the category of 'Supply of Tangible Goods for Use of Service.'Analysis:The judgment revolves around the issue of whether the renting of Earth Moving Equipment by the appellant should be taxed under the category of 'Supply of Tangible Goods for Use of Service.' The appellant argued that the right to possession and effective control of the equipment were transferred to the lessee, making it a deemed sale under Article 366 (29A) of the Constitution of India. They cited various judgments to support their stance, emphasizing that they had paid VAT on the transaction. The Tribunal noted that in a previous case with identical contract terms, it was held that such renting did not fall under the category of 'supply of tangible goods for use' services. The Tribunal analyzed the clauses in the agreement, highlighting that the responsibilities placed on the hirer indicated the transfer of the right to use the equipment, constituting a deemed sale. The Tribunal also referred to a High Court case where it was established that the transfer of the right to use goods does not necessarily require physical delivery but involves exclusive control and use by the lessee. Consequently, the Tribunal concluded that the appellant's activity of renting equipment did not fall under the taxable category of 'Supply of tangible goods for use' services.In their detailed analysis, the Tribunal scrutinized the terms of the contract, emphasizing the responsibilities and rights of the hirer, which indicated a transfer of the right to use the equipment. They highlighted that the transaction should be viewed as a deemed sale rather than a service, as the hirer had exclusive control over the equipment. The Tribunal referenced a High Court decision that outlined the essential requirements for a transaction to be considered a transfer of the right to use goods, emphasizing that physical delivery is not a prerequisite. Based on these principles and the specific terms of the agreement, the Tribunal concluded that the renting of equipment constituted a transfer of the right to use, exempting it from service tax. The Tribunal also addressed the issue of demand prior to a specific date, noting that the service in question was not taxable even before that date. Therefore, they allowed the appellant's appeal and remanded the revenue's appeal for reconsideration of the demand prior to the specified date.In the final order, the Tribunal allowed the appellant's appeal, citing the similarity of terms and conditions to a previous case where the renting of equipment was deemed a sale. The judgment emphasized that the appellant had paid VAT on the transaction, further supporting the conclusion that the renting of equipment did not fall under the taxable category of 'supply of tangible goods for use service.' Consequently, the impugned order was set aside, and the appeal was allowed.