DG Set leasing ruled as deemed sale under Article 366(29A), not taxable service from July 2012 onwards

CESTAT Ahmedabad held that leasing of DG Sets does not constitute taxable service under "supply of tangible goods for use" category for the period from 01.07.2012 onwards. The tribunal ruled that such transactions qualify as deemed sale under Article 366(29A) of the Constitution, which remains excluded from service tax purview despite definitional changes post-01.07.2012. Following its earlier decision in appellant's case for pre-01.07.2012 period, the tribunal set aside the impugned order and allowed the appeal, determining the leasing activity is not liable to service tax.

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Issues Involved:
1. Taxability of renting DG Sets under the category of "supply of tangible goods for use service" for the period from 01.07.2012 onwards.

Issue-wise Detailed Analysis:

1. Taxability of Renting DG Sets Post 01.07.2012:

The central issue in this case revolves around whether the renting of DG Sets falls under the category of "supply of tangible goods for use service" and is thus subject to service tax for the period starting from 01.07.2012.

Arguments by the Appellant:

- The appellant's representative, Shri Rahul Patel, argued that a previous order by the Tribunal for the period before 01.07.2012 had already determined that leasing DG Sets does not constitute a service under the "supply of tangible goods for use" category.
- Post 01.07.2012, the entire service tax framework changed with the introduction of the negative list, which excluded transactions of sale of goods, including deemed sales as per Article 366 (29A) of the Constitution of India.
- The appellant contended that since VAT was paid on the leasing of DG Sets, it should not be liable for service tax. He supported his arguments with several judgments and board circulars, including Circular No. 334/1/2008-TRU and Circular No. 198/8/2016-S.T.

Arguments by the Respondent:

- The respondent's representative, Shri Anoop Kumar Mudvel, reiterated the findings of the impugned order, which classified the service under "supply of tangible goods for use."

Tribunal's Findings:

- The Tribunal reviewed the previous order and noted that the terms of the agreement indicated a transfer of right to use, possession, and effective control of the DG Sets to the client. This arrangement did not fall under the definition of "supply of tangible goods for use" as per clause 65(105)(zzzzj) of the Finance Act.
- The Tribunal emphasized that the supply of tangible goods, where VAT is paid, is considered a deemed sale under Article 366 (29A) of the Constitution and is not subject to service tax.
- The Tribunal cited several judgments, including those of Quippo Energy Pvt Ltd and UFO Moviez India Limited, which supported the view that transactions involving deemed sales are excluded from the purview of service tax.

Conclusion:

- The Tribunal concluded that the appellant's activity of leasing DG Sets is not liable to service tax, as it falls under the category of deemed sale, which is excluded from service tax under Article 366 (29A) of the Constitution.
- The impugned orders were set aside, and the appeals were allowed.

Final Pronouncement:

- The judgment was pronounced in the open court on 16.07.2024, affirming that the supply of DG Sets by the appellant is not liable to service tax for the period post 01.07.2012.

This detailed analysis highlights the Tribunal's reasoning and reliance on previous judgments and statutory provisions to determine the non-taxability of the appellant's service under the changed legal framework post 01.07.2012.

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