Service tax demand on aircraft lease payments set aside due to lack of wilful suppression evidence

CESTAT Kolkata ruled in favor of appellant regarding service tax liability on aircraft lease arrangements. Department failed to prove wilful suppression of facts for extended limitation period invocation, as appellant filed returns regularly without concealing information. Demand beyond normal limitation period was set aside. For lease rental payments to non-resident entity, tribunal found no service tax liability under supply of tangible goods category since appellant had both possession and effective control of aircraft. Service tax demand, interest, and penalty were deemed unsustainable and set aside. Appeal was disposed of in appellant's favor.

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Issues Involved:
1. Demand of service tax of Rs. 2,39,21,555/- under the category of 'supply of tangible goods service'.
2. Demand of service tax of Rs. 1,68,57,681/- under the category of 'supply of tangible goods service' for lease rental paid to a Non-resident entity.

Summary:

1. Demand of service tax of Rs. 2,39,21,555/- under the category of 'supply of tangible goods service':

The appellant argued that the Show Cause Notice is barred by limitation, as it was issued on 18.10.2013 for the period 2008-09 to 2011-12, invoking the extended period of limitation. The appellant had consistently classified their services under 'Transport of Passenger by Air Service' and filed returns regularly. The Tribunal observed that the Department initiated the investigation in June 2010 and again in 2012, but the Show Cause Notice was issued after three years, invoking the extended period. It was held that the dispute involves interpretation of statutory provisions, and suppression of fact with intent to evade tax cannot be alleged. The Tribunal cited several judicial pronouncements, including EIH LTD. Versus Commissioner of Central Excise, Delhi-I [2019 (24) G.S.T.L. 592 (Tri. - Del.)] and Adani Enterprise Ltd. Versus Commissioner of Service Tax, Ahmedabad [2022 (63) G.S.T.L. 465 (Tri. - Ahmd.)], supporting the view that the extended period of limitation is not applicable. Consequently, the demand of service tax for the extended period was set aside, but the appellant was held liable to pay service tax along with interest for the normal period of limitation.

2. Demand of service tax of Rs. 1,68,57,681/- under the category of 'supply of tangible goods service' for lease rental paid to a Non-resident entity:

The appellant contended that the lease rental paid to a Non-resident entity is outside the purview of service tax, as the transaction constitutes a 'deemed sale' of goods. The terms of the lease agreement indicated that the appellant had both possession and control of the aircraft, responsible for maintenance, licensing, crew employment, and operation. The Tribunal held that the transaction is a 'deemed sale' and thus outside the purview of service tax. The Tribunal also noted that the aircraft was assessed as 'goods' by the Customs authority at the time of import, aligning with the clarification issued by the Tax Research Unit (TRU). Therefore, the demand of service tax on this count was set aside.

Order:
1. The demand of service tax of Rs. 2,39,21,555/- under the category of 'supply of tangible goods service' by invoking the extended period of limitation is set aside. The appellant is liable to pay service tax along with interest for the normal period of limitation.
2. The demand of service tax of Rs. 1,68,57,681/- under the category of 'supply of tangible goods service' is set aside.
3. No penalty is imposable as there is no suppression of fact with intent to evade tax.
4. The appeal is disposed of on the above terms.

(Order pronounced in the open court on 23.04.2024)

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