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One stop solution for Direct Taxes and Indirect Taxes https://www.taxtmi.com/caselaws?id=761629 https://www.taxtmi.com/caselaws?id=761629 Service tax liability - deemed sale under article 366(29A)(d) of the Constitution had taken placed under the License Agreement - inclusion of amount paid to the appellant under the License Agreements in the assessable value of renting of immovable property service because without the license endorsement the plant and machinery leased to the appellant could not have been put to use by Skol for brewing beer HELD THAT:- A Lease Deed was executed between the appellant and Skol for renting of land, building plant and machinery by the appellant to Skol. The appellant has been described as the Lessor and the Skol has been described as the Lessee in the said Lease Deed. As clear from the terms of the License Agreement that it is not merely the use of the License that has been transferred to Skol/Sab Miller by the appellant. What has been transferred by the appellant is the right to use the License. As can be seen from the Agreement, Skol/Sab Miller have been transferred the right to use the brewery license and the permitted capacity for a period of 4 years free from any charges, encumbrances, liens or third party rights. Skol/Sab Miller shall also enjoy the freedom to utilize the brewery license and operate during the entire term without any hindrance, obstruction or limitation from the appellant. In fact, the appellant also agreed to indemnify, defend and hold Skol/Sab Miller harmless from any actions, causes of actions, claims, demands, costs, liabilities, expenses and damages arising out of or in connection with any claim that would constitute a breach of any of warranties and/ or obligations, relating to the period prior to the commencement of the License Agreement dated 30.01.2008. The agreement also provides that the promoters shall not do or cause to be done any act that will result in breach of the License Agreement. The appellant does not, with the transfer of the right to use by Skol/Sab Miller, have any right to itself use the brewery license. There is, therefore, no manner of doubt that a deemed sale under article 366(29A)(d) of the Constitution had taken place when the appellant granted the right to use the License to Skol/Sab Miller. The findings to the contrary recorded by the Commissioner cannot be sustained. Commissioner placed much emphasis on the Lease Deed executed between the appellant and Skol for renting of land, building, plant and machinery and in particular to clause 3 which provides that the appellant shall procure a valid endorsement/sub-license of the brewery license in favour of Skol. According to the Commissioner, the License Agreement that was subsequently executed was only to complete or validate the Lease Deed and, therefore, renting of the factory along with the brewery license is an integral part of the renting of immovable property services. Two documents, namely, the Lease Deed and the License Agreement have to be separately examined and merely because there is a recital in the Lease Deed that the appellant shall procure a valid endorsement/sub-license of the brewery license in favour of Skol does not mean that the subsequently executed License Agreement becomes an integral part of the Lease Deed. Contention of the appellant that a deemed sale had taken place has also been repelled by the Commissioner for the reason that leasing of brewery license was subject to certain restrictions. Only a bald statement had been made. In fact, the terms of the License Agreement give complete freedom to Skol/Sab Miller to operate the brewery and the License Agreement does not cause any hindrance. A finding had also been recorded by the Commissioner that no sale had taken place. The contention of the appellant was that a deemed sale contemplated under article 366(29A)(d) of the Constitution had taken place. There is a marked difference between sale and a deemed sale as was pointed out by the Supreme Court in Quick Heal Technologies [ 2022 (8) TMI 283 - SUPREME COURT] A deemed sale had taken place when the appellant transferred the right to use the brewery license issued to the appellant in favour of Skol/Sab Miller on execution of the License Agreement. The consideration received by the appellant on the execution of the License Agreement cannot, therefore, be subjected to service tax nor can such consideration be clubbed with the consideration received by the appellant under the Lease Deed so as to be subjected to service tax under renting of immovable property service. The impugned order passed by the Commissioner adjudicating the three show cause notices, therefore, deserves to be set aside. It will, therefore, not be necessary to examine the contention of the learned counsel for the appellant that the extended period of limitation contemplated under the proviso to section 73(1) of the Finance Act could not have been invoked. The impugned passed by the Commissioner is, accordingly, set aside and the appeal. Case-Laws Service Tax Tue, 12 Nov 2024 00:00:00 +0530