2025 (2) TMI 956 - HC - Service Tax

Rental of cinematographic equipment with transfer of possession constitutes deemed sale under Article 366(29A), not taxable service under Section 66

Anandcine Service Pvt. Ltd, [Earlier was known as Anand Cine Service (Partnership Firm) ] Represented by its Director Mrs. A. Padma Manohar Versus Commissioner of Service Tax-II, Chennai

Anandcine Service Pvt. Ltd, [Earlier was known as Anand Cine Service (Partnership Firm) ] Represented by its Director Mrs. A. Padma Manohar Versus ... 1. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment were:a) Whether the activity of renting out cinematographic equipment by the appellant constituted a 'deemed sale' under sales tax law, thereby attracting Value Added Tax (VAT) instead of service tax under the Finance Act, 1994.b) Whether the appellant transferred the 'right to use' the equipment, thus excluding the transaction from service tax liability.c) Whether the demand for service tax was justified for the periods August 2010 to June 2012 and July 2012 to December 2015.d) Whether the adjudicating authority had jurisdiction to levy service tax on the transactions in question.2. ISSUE-WISE DETAILED ANALYSISa) Relevant Legal Framework and PrecedentsThe legal framework involved the interpretation of the Finance Act, 1994, specifically Section 65(105)(zzzzj) and Section 66, which define taxable services and the charge of service tax. The Constitution of India, Article 366(29A)(d), and the Maharashtra Value Added Tax (MVAT) Act were also pertinent, as they define the transfer of the right to use goods as a deemed sale subject to VAT. The Supreme Court's judgment in Bharat Sanchar Nigam Limited (BSNL) v. Union of India provided criteria for determining a transfer of the right to use goods.b) Court's Interpretation and ReasoningThe Court distinguished between the periods before and after July 1, 2012, noting that the Finance Act had a positive list before this date and a negative list thereafter. For the period after July 1, 2012, the Court applied the Bombay High Court's judgment in Nayana Premji Savala v. Union of India, which clarified that service tax is not applicable if there is a transfer of the right to use goods. The Court found that the appellant's transactions met the criteria for a transfer of the right to use as outlined in BSNL.c) Key Evidence and FindingsThe Court examined the agreement between the appellant and Chennai Cinema Private Limited, which indicated that the appellant transferred possession and effective control of the equipment to the hirer. The agreement included clauses that the hirer would maintain, insure, and bear the risk of loss or damage to the equipment, reinforcing the transfer of possession and control.d) Application of Law to FactsThe Court applied the principles from BSNL and the MVAT Act, concluding that the appellant's transactions constituted a deemed sale due to the transfer of the right to use the equipment. Consequently, the transactions were subject to VAT, not service tax. The Court also noted that the adjudicating authority failed to apply the correct legal framework and misinterpreted the agreement's provisions.e) Treatment of Competing ArgumentsThe appellant argued that the transactions were deemed sales under VAT law and not subject to service tax. The department contended that the transactions were taxable services. The Court sided with the appellant, finding that the transfer of possession and control excluded the transactions from service tax.f) ConclusionsThe Court concluded that the transactions were deemed sales and not subject to service tax. It quashed the order-in-original, which had imposed service tax, interest, and penalties on the appellant.3. SIGNIFICANT HOLDINGSThe Court held that:'There shall be a deemed sale where there is transfer of the right to use any goods for any purpose - whether or not for a specified period, for cash, deferred payment or other valuable consideration.'The Court established that the transfer of possession and effective control of equipment constitutes a deemed sale, thus excluding such transactions from service tax liability under the Finance Act, 1994.The Court quashed the order-in-original and directed the authorities to consider any refund applications by the appellant without raising limitation issues, as the matter was sub judice.