2025 (11) TMI 196 - AT - Service Tax

Appeal allowed: tanker supply held hiring to internal GTA vertical; transfer not of goods, limitation extension rejected

CESTAT allowed the appeal and set aside the appellate order. It held the supply of tankers was a service (tenancy/hiring) to an internal GTA vertical of ... Classification of services - hiring/letting of tankers to an entity that operates goods transport agency (GTA) services - supply of tangible goods services or not - extended period of limitation - HELD THAT:- There are no evidence to support this contention of the Revenue except for the difference in nomenclature. The Appellant has emphatically submitted that Dev Goods Carriers was an independent vertical of Dev Rubbers. In support of which they have also enclosed certificate of the Chartered Accountant clearly stating Dev Goods Carriers has a business vertical engaged in rendering services including transport of goods and further certifying it not being a separate legal entity but a part of the company (Dev Rubber). There are also force in this proposition from the balance sheet and profit and loss account statement enclosed with the appeal papers clearly indicating the financial dealing in business rendered by Dev Goods Carriers as under a consolidated head of the Profit & Loss Account Statement of Dev Rubber Factory. We are also not convinced with the Revenue’s contention that pursuant to agreement entered with Dev Rubber Factory by the Appellant for the supply of tankers, right to possession and effective control of Dev Rubber on such tankers was lost. There is nothing in the wording of the agreement to support this proposition of the Revenue. It is categorical in the said agreement that the impugned tenancy was for a specified time period of two years, as extendable by mutual consent. The agreement categorically states that they are required to be returned in good condition as delivered and any breakage etc. will be borne by the lessee (Dev Rubber). The impugned agreement is purely in the nature of service of goods on payment of rent. Extended period of limitation - HELD THAT:- There are force in the plea of the Appellant that extended period of limitation was not invokable in the present matter as though the audit had pointed out the said objection vide its letter dated 13.09.2013 the show cause notice was issued to the Appellant well after two years on 16.04.2015 - This Tribunal in the case of Commissioner of Service Tax, New Delhi Spicejet Ltd. [2023 (7) TMI 198 - CESTAT NEW DELHI] has held that 'audit of the statutory records of the respondent was conducted from 2-5-2012 to 8-5-2012. The same issues and demand were suggested in the audit report. The respondent had also been filing ST-3 returns. However, the show cause notice was only issued on 21-10-2014, i.e. after more than two years of the facts coming to the knowledge of the department. The department could have issued the show cause notice within the normal period of limitation. The extended period of limitation could, therefore, not have been invoked by the department.' There are no merit in the order passed by the learned Appellate Authority and therefore set aside - appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the transaction of giving tankers on hire to an entity that operates goods transport agency (GTA) services amounts to supply of tangible goods attracting service tax, or is a service exempt under the Notifications exempting supply of tangible goods to a GTA or services by way of giving on hire to a GTA. 2. Whether the arrangement with the recipient (a business vertical/department of a registered GTA) transferred right to possession and effective control of the tankers such that the transaction constitutes transfer of right to use goods (taxable) rather than a hire/service (exempt). 3. Whether the department could invoke the extended period of limitation where audit pointed out the issue earlier but the show cause notice was issued after more than two years from that audit communication. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Taxability vs. Exemption of supply of tankers on hire to a GTA Legal framework: Notifications exempting (a) supply of tangible goods provided to a goods transport agency for use by the GTA and (b) services by way of giving on hire to a goods transport agency (as per the Mega Exemption Notification and earlier Notification No.01/2009-ST and subsequent SI. No.22 of Notification No.25/2012-ST). Precedent treatment: Tribunal precedent recognizing that hiring vehicles to GTA or where GTA issues consignment notes can be exempt; decisions cited treat hiring of vehicles to GTA and transfer of right to use in certain configurations as non-taxable or exempt. Interpretation and reasoning: The Court examined the contractual terms, statutory notifications and factual matrix (consignment notes, ST-2 registration, self-certificates, consolidated financial statements and CA certificate showing the recipient as a business vertical). The agreement expressly described a tenancy for a specified period with return obligations, liability for breakage by lessee, and did not transfer full possession/effective control. The Tribunal concluded the supply was in the nature of giving tankers on hire to a GTA, which falls within the exemption notifications in force during the relevant period. Ratio vs. Obiter: Ratio - where goods are given on hire to a GTA and the contract and surrounding facts indicate retention of ownership and limited transfer of possession/control, the transaction falls within the exemption and is not taxable as supply of tangible goods service. Obiter - ancillary remarks comparing nomenclature differences between corporate verticals and separate legal entities. Conclusion: The demand of service tax on income from hiring tankers to the GTA was not sustainable; the service was exempt under the relevant notifications and relief was warranted. Issue 2 - Whether the arrangement transferred the right to possession and effective control (tests for 'transfer of right to use') Legal framework: Tests for constituting a transfer of right to use goods (as articulated by the Apex Court): availability of goods for delivery; consensus ad idem as to identity of goods; transferee's legal right to use (including permissions/licenses); exclusion of transferor's right of use during the period; and inability of owner to transfer same right to others during that period. Precedent treatment: The Court applied the cited authoritative criteria to distinguish mere hire/lease from transfer of right to use amounting to taxable transfer. Interpretation and reasoning: Applying the criteria, the Tribunal found absence of transfer of full possession and effective control: drivers, day-to-day operations, maintenance, repairs and related costs were borne by the lessee; agreement required return of tankers in good condition; there was no language indicating exclusive transfer of legal consequences or permissions to the lessee for the relevant period; owner retained the residual rights. Financial and documentary evidence (consignment notes, consolidated accounts, CA certification) supported that the recipient was a vertical of the same company but not an independent legal transferee that obtained exclusive control. Therefore, the transaction did not meet the tests for transfer of right to use as per the authoritative test and was not a taxable supply of tangible goods. Ratio vs. Obiter: Ratio - application of the established multi-factor test shows that absence of exclusive transfer of possession/control and retention of ownership features indicates a hire/exempt service, not a taxable transfer of right to use. Obiter - observations on internal corporate structure and nomenclature distinctions, insofar as they do not alter the legal test. Conclusion: The contractual terms and factual matrix show only a hire/licence arrangement; the right to possession/effective control was not transferred so as to attract service tax on supply of tangible goods. Issue 3 - Invocability of extended period of limitation Legal framework: Limitation rules governing issuance of show cause notices and demands; principle that extended period can be invoked only where facts justify it and within permissible time; prior Tribunal decisions addressing delayed issuance of show cause notices after audit noti?cation. Precedent treatment: The Tribunal relied on a prior Tribunal decision holding that where the issue was in audit and the show cause notice was issued after more than two years, extended limitation could not be invoked and the demand for extended period must be set aside. A similar Tribunal decision dealing with hiring of vehicles and classification was also relied upon to demonstrate consistency in approach. Interpretation and reasoning: The Tribunal noted audit observations were communicated earlier (letter dated 13.09.2013) while the show cause notice was issued on 16.04.2015 (more than two years later). Applying the cited Tribunal ratio, the department could not properly invoke the extended period of limitation; consequently the demand proposed for the extended period could not be sustained irrespective of merits. Ratio vs. Obiter: Ratio - where a show cause notice is issued beyond the normal period despite audit having put the department on notice and without justification for extended period, the demand for the extended period is not maintainable. Obiter - detailed comparison of timelines in other cases cited for illustration. Conclusion: Extended period of limitation could not be invoked; the department's demand for the extended period is invalid and must be set aside. Cross-references and Overall Conclusion Cross-reference: Issues 1 and 2 are interlinked - factual characterisation (possession/control) drives classification under the exemption notifications discussed in Issue 1; Issue 3 is a separate procedural bar that independently defeats the extended-period demand. Both lines of reasoning were applied cumulatively. Final disposition (ratio): The demand of service tax in respect of income from hiring tankers to the GTA is unsustainable on substantive classification (exempt service/giving on hire to a GTA) and procedurally on limitation grounds; the appellate order upholding the demand on these grounds was set aside and the appeal allowed to that extent.