Work-wear rental activity not taxable service as items remain under client's exclusive possession and control

CESTAT Kolkata held that the appellant's work-wear rental activity does not constitute a taxable service under the Finance Act. The Tribunal found that rented work-wear remains under exclusive possession and effective control of clients, not the appellant. Following precedent from CESTAT Chandigarh in a similar case involving the appellant's Haryana unit, the court determined this activity falls outside the scope of taxable services both before and after the negative list regime. The impugned order was set aside and appeal allowed, with no service tax liability imposed.

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Issues Involved:
1. Classification of service provided by the appellant.
2. Demand of Service Tax for the period from 01.08.2014 to 31.03.2017.
3. Applicability of previous Tribunal decisions to the current case.
4. Determination of effective control and possession in the context of service tax liability.

Summary:

Issue 1: Classification of Service Provided by the Appellant
The appellant, M/s. Lindstrom Services India Private Limited, is engaged in leasing workwear to clients. The Revenue concluded that the service provided falls under "supply of tangible goods service" as per Section 65(105)(zzzzj) of the Finance Act, 1994 before 01.07.2012, and under Section 65B(44) read with Section 69(f) of the Act post 01.07.2012. It was alleged that the appellant supplied tangible goods without transferring the right of effective control, thereby providing a taxable service.

Issue 2: Demand of Service Tax for the Period from 01.08.2014 to 31.03.2017
A Show Cause Notice was issued to the appellant demanding Service Tax for the specified period, which was confirmed by the impugned order. The appellant contested this order.

Issue 3: Applicability of Previous Tribunal Decisions to the Current Case
The appellant's counsel argued that an identical issue had been decided in favor of the appellant's Haryana unit by the Tribunal in Final Order No. 60716 of 2019 dated 02.08.2019. The Tribunal had observed that the appellant's agreements with clients involved transfer of effective control, and thus, the service did not qualify as "supply of tangible goods service."

Issue 4: Determination of Effective Control and Possession in the Context of Service Tax Liability
The Tribunal examined the agreements and found that the appellant retained ownership and exclusive rights to wash and service the workwear. However, effective control was transferred to the clients, as they had the exclusive right to use the workwear during the lease period. The Tribunal referenced the Supreme Court's decision in Bharat Sanchar Nigam vs. Union of India, which outlined the attributes necessary for a transaction to constitute a transfer of the right to use goods. The Tribunal concluded that the appellant's activities did not retain effective control over the workwear, aligning with the criteria set by the Supreme Court and other relevant judgments.

Conclusion:
The Tribunal held that the appellant is not liable to pay Service Tax as the issue had been settled in favor of the appellant in previous cases. The impugned order was set aside, and the appeal was allowed with consequential relief.

Operative Part:
The operative part of the order was pronounced in open court.

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