Scaffolding lease constitutes deemed sale under Article 366(29A)(d), liable to VAT not service tax

CESTAT Ahmedabad held that leasing of scaffolding items constituted a deemed sale under Article 366(29A)(d) of the Constitution, making it liable to VAT rather than service tax. The tribunal found that lessees had complete right to use, possession, and effective control over the scaffolding materials, including responsibility for insurance and damage costs. The revenue authorities' contention that absence of ownership transfer negated deemed sale status was rejected as legally misconceived, since deemed sales specifically involve transfer of usage rights without ownership change. The appeal was allowed and the original order set aside.

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Issues:
1. Whether the leasing of scaffolding items by the Appellant, on which VAT has been paid as Deemed sale, is liable to service tax.
2. Whether the demand is barred by limitation.

Analysis:

Issue 1:
The Appellant leased scaffolding items to various parties against rent, on which VAT was paid but no service tax was paid. The Service tax department contended that the transactions were liable to service tax. The Appellant argued that there was a transfer of right to use, possession, and effective control to the lessees, constituting a deemed sale on which VAT was discharged. The authorities issued a Show Cause Notice demanding service tax, interest, and penalties. The Assistant Commissioner and Commissioner (Appeals) upheld the demand. The Appellant appealed, citing various decisions supporting their position. The tribunal analyzed the lease contracts and found clauses indicating transfer of right to use, possession, and control to the lessees. As VAT was paid on the lease rent, it was considered a deemed sale, not a service. The tribunal referred to precedents where similar transactions were treated as deemed sales not liable to service tax. The tribunal held that the impugned order was not sustainable and allowed the appeal.

Issue 2:
The Appellant contended that the demand was barred by limitation. The tribunal did not delve into this issue explicitly in the judgment. However, since the tribunal set aside the impugned order on the primary issue of liability to service tax, the demand being time-barred might have been considered irrelevant in this context.

In conclusion, the tribunal ruled in favor of the Appellant, holding that the leasing of scaffolding items constituted a deemed sale on which VAT was paid, and thus was not liable to service tax. The tribunal set aside the demand, allowing the appeal. The judgment did not explicitly address the limitation issue, as the primary issue of tax liability was resolved in favor of the Appellant.

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