Aircraft dry leasing constitutes deemed sale under Article 366(29A), excluded from service tax provisions

The CESTAT New Delhi allowed the appeal, setting aside the service tax demand. The tribunal held that dry leasing of aircraft constitutes deemed sale under Article 366(29A) of the Constitution, thus excluded from service tax under relevant provisions. The Raipur Commissionerate lacked territorial jurisdiction to issue show cause notice for services provided by the Delhi unit. The tribunal found no suppression of facts as the appellant regularly filed returns and maintained proper documentation, with tax already discharged by the Delhi unit. The extended limitation period was wrongly invoked, and the entire demand was barred by limitation.

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Issues Involved:
1. Validity of the Show Cause Notice (SCN)
2. Bifurcation of Aviation Income
3. Jurisdiction of the Principal Commissioner, Raipur
4. Invocation of Extended Period for Demand

Summary:

1. Validity of the Show Cause Notice (SCN):

The appellant argued that the SCN was vague, as it demanded service tax from the Raigarh Unit based on the consolidated balance sheet, which included aviation income from the Delhi Unit. The Delhi Unit was separately registered and had discharged its service tax liability under "Supply of Tangible Goods" (STGU) u/s 65(105)(zzzzj) of the Finance Act, 1994. The appellant claimed that the SCN was based on presumption and ignored the bifurcation of income provided.

2. Bifurcation of Aviation Income:

The appellant provided detailed bifurcation of aviation income, including ST-3 Returns and invoices for chartering services and dry leasing agreements. The adjudicating authority ignored these documents, leading to the confirmation of the demand. The Tribunal found that the income included amounts from both chartering services and dry leasing, the latter being a deemed sale u/s Article 366(29A) of the Constitution, thus outside the service tax net.

3. Jurisdiction of the Principal Commissioner, Raipur:

The Tribunal observed that the Principal Commissioner, Raipur, lacked jurisdiction to issue the SCN for income received by the Delhi Unit. The Tribunal cited the case of Commissioner of Central Excise, Jaipur-I Vs. Tahal Consulting Engineers Ltd., holding that the Raipur Commissionerate had no jurisdiction over services rendered by the Delhi Unit. The order was set aside on this ground.

4. Invocation of Extended Period for Demand:

The SCN, issued in October 2015, covered the period from April 2010 to March 2013. The Tribunal held that the appellant had regularly filed returns and maintained proper documents, proving that the amount in question was received by the Delhi Unit. Since the tax was already discharged by the Delhi Unit, there was no case of tax evasion or suppression. The invocation of the extended period was deemed incorrect, and the demand was barred by limitation.

Conclusion:

The Tribunal set aside the order under challenge, allowing the appeal. The order was pronounced in the open court on 03.05.2024.

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