2024 (8) TMI 789 - AT - Service Tax

Earth moving equipment monthly rent charges qualify as deemed sale under Article 366(29A)(d), not taxable service

CESTAT Ahmedabad held that monthly rent charges for earth moving equipment constituted deemed sale under Article 366(29A)(d) of the Constitution, not a ... Supply of tangible goods for use - deemed sale under Article 366(29A)(d) of the Constitution of India - definition of service excluded by Section 65B(44)(a)(ii) of the Finance Act, 1994 - exclusion from service of transfers deemed to be sale - payment of VAT evidencing deemed saleSupply of tangible goods for use - deemed sale under Article 366(29A)(d) of the Constitution of India - definition of service excluded by Section 65B(44)(a)(ii) of the Finance Act, 1994 - payment of VAT evidencing deemed sale - Whether rent charges for hiring earth moving equipment constitute a taxable service as 'supply of tangible goods for use' or are excluded as a deemed sale under Article 366(29A)(d) and Section 65B(44)(a)(ii). - HELD THAT: - The Tribunal found that the appellant transferred the right to possession and effective control of earth moving equipment to the lessee and invoiced the transaction with State VAT charged and paid, establishing the transaction as a deemed sale. Under the post negative list definition of 'service' in Section 65B(44) of the Finance Act, 1994, an activity which constitutes a transfer, delivery or supply of goods that is deemed to be a sale under Article 366(29A)(d) is expressly excluded from 'service'. Applying that exclusion to the facts, the renting arrangement falls within sub clause (ii) of clause (a) of Section 65B(44) and thus is not a taxable service. The Tribunal also relied on the appellant's earlier consistent decisions on identical contracts, which examined contractual terms (including hirer's covenants, responsibilities, and charging of VAT) and concluded the arrangement effected a transfer of right to use amounting to deemed sale, not a service of supply of tangible goods for use. For these reasons the impugned demand for service tax was unsustainable. [Paras 4, 5]Renting of earth moving equipment is a deemed sale and not a taxable service under 'supply of tangible goods for use'; impugned order set aside and appeal allowed.Final Conclusion: The Tribunal held that the hiring of earth moving equipment constituted a deemed sale under Article 366(29A)(d) and, being excluded from the definition of 'service' by Section 65B(44)(a)(ii), is not liable to service tax; the impugned order is set aside and the appeal is allowed. Issues Involved:1. Whether rent charges collected towards hiring of Earth Moving Equipment are chargeable to service tax under 'Supply of Tangible Goods Service'.2. Whether the transaction constitutes a deemed sale under Article 366 (29A)(d) of the Constitution of India.3. Applicability of service tax post the negative list regime effective from 01.07.2012.4. The relevance of VAT payment in determining the nature of the transaction.Issue-wise Detailed Analysis:1. Chargeability to Service Tax under 'Supply of Tangible Goods Service':The primary issue is whether the rent charges for hiring Earth Moving Equipment fall under the 'Supply of Tangible Goods Service'. The appellant argued that the transaction should not be classified under this service category because the right to possession and effective control of the equipment was transferred to the lessee, making it a deemed sale. The Tribunal examined the nature of the transaction and concluded that the right to possession and use of the equipment had indeed been transferred to the lessee, thus constituting a deemed sale.2. Deemed Sale under Article 366 (29A)(d) of the Constitution of India:The Tribunal found that the transaction in question is a deemed sale as per Article 366 (29A)(d) of the Constitution of India. This conclusion was based on the fact that the appellant had transferred the right to possession and use of the Earth Moving Equipment to the lessee and had paid VAT on the transaction. The Tribunal noted that the relevant invoices indicated VAT payment, which substantiated the claim that the transaction was a deemed sale.3. Applicability of Service Tax Post Negative List Regime (Effective from 01.07.2012):The appellant contended that post the negative list regime effective from 01.07.2012, the transaction does not fall under the definition of service as per Section 65B(44) of the Finance Act, 1994. The Tribunal agreed, citing that the definition of service excludes activities that constitute a deemed sale within the meaning of Article 366 (29A)(d) of the Constitution. Since the transaction was a deemed sale and VAT was paid, it was excluded from the definition of service and thus not subject to service tax.4. Relevance of VAT Payment in Determining the Nature of the Transaction:The Tribunal emphasized that the payment of VAT by the appellant was a critical factor in determining the nature of the transaction. The VAT payment indicated that the transaction was treated as a sale rather than a service. The Tribunal referred to previous judgments, including the appellant's own case, where similar transactions were classified as deemed sales and not taxable services. The Tribunal also cited various judgments to support the view that if VAT is payable on a transaction, service tax is not applicable.Conclusion:The Tribunal concluded that the renting of Earth Moving Equipment to various clients does not fall under the category of 'Supply of Tangible Goods for Use' service. The transaction was deemed a sale under Article 366 (29A)(d) of the Constitution of India, and since VAT was paid, it was excluded from the definition of service as per Section 65B(44) of the Finance Act, 1994. Consequently, the impugned order was set aside, and the appeal was allowed.Pronouncement:The judgment was pronounced in the open court on 13.08.2024, setting aside the impugned order and allowing the appeal.