AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2017 (8) TMI 637
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....equirements and directions. The Appellant, treating this activity as supply of tangible goods for use without transfer of right of possession and effective control are paying service tax in respect of this service. 1.2. For providing the above service, the Appellant have taken on lease two helicopters from M/s Abu Dhabi Aviations, Abu Dhabi (M/s ADA) and M/s BRICS Leasing & Finance International Limited, Ireland (BLFIL). 1.3. In the Appellants Helicopter Lease Agreement with M/s. ADA, the terms are as under: (a) The term of the lease is four years which can be extended with mutual consent; (b) The helicopters shall be available during the period of lease for exclusive use of the Lessee (Appellant) or its customers [Clause (III) (A)(3)]; (c) The helicopters shall be leased subject to a guaranteed minimum of 30 hours of flying each month by the Lessee [Clause (III)(A)(4)]; (d) Lessee shall ensure that the helicopters are inspected and maintained in accordance with the requirement of the manufacturer and of the DGCA [Clause (III)(C)(3)]; (e) The Lessee shall provide all the lubricants oils and greases required for the helicopters [Clause (III)(C)(4)]. (f) The L....
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.... and shall repair or replace the equipment at lessees expense. In such event, the lessee agrees to continue to meet all payments and other obligations under the agreement [ Clause 4.1 of the agreement]. 1.5. In both the lease agreements, the helicopters are required to be returned by the Appellant to the respective lessor on expiry of the lease term. 1.6. The department is of the view that while in terms of the Appellants lease agreements with ADA and BLFIL, the legal right of possession and effective control over the helicopters during the lease period is with HCPL (Appellant), but since the helicopters are infrastructure for the Appellants business of providing air transportation service to their clients in India, this leasing of the helicopters by the Appellant from the two lessors abroad amounts to receiving infrastructure support service from the lessors which is taxable as Support Service of Business or Commerce under Section 65(105)(zzzq) read with section 65(104c) of the Finance Act 1994, during the period prior to 01.7.2012 and as a service not covered by negative list of Section 66D of the Act during period w.e.f. 01.7.2012 and in respect of which the Appellant, as ....
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.... SCN towards the Service Tax demand and also imposition of penalty on them under Section 78. The Appellants contention in respect of this allegation of tax evasion during Jan 11 July 11 period is that due to genuine financial problems, they could not discharge full Service Tax liability by the due date for the months of January 11, February 11, March 11, May 11 and July 11, but the short paid amount for each of these months had been paid by them on their own along with the interest for the period of delay which was from 15 days to 45 days and that this is simply a case of delay in the payment of Service Tax for certain months without any intention, whatsoever, to evade the Tax. 1.8. The above four SCNs were adjudicated by the Commissioner of Service Tax, Mumbai VI by a Common Order in original No. MUM-SVTAX-006-CoM-56 to 59/2016-17 dated 26.12.16. In this Order, the Ld. Commissioner, on the question as to whether the lease of the helicopters by the Appellant from the two lessors abroad is a deemed sale under Article 366(29A)(d) or a taxable service, gave the following finding in Para 25 of the adjudication order. "....... No doubt the transfer of right to use any goods ....
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....read with Section 78 B of the Act; and (c) Penalty of Rs. 40,000/- under Section 77 of the Act. 1.10. In respect of the alleged evasion of Service Tax totaling Rs. 1,68,01,844/- on the Service of providing helicopters on charter hire basis to their clients in India, during January 2011, February 2011, March 2011, May 2011 and July 2011 and imposition of penalty for the same under Section 78, the Commissioner, in Para 13 of the impugned order held it to be a case of short payment of Service Tax which was detected after initiation of investigation and which stands admitted and paid by the Appellant. The Commissioner treating the short payment as deliberate short payment with intent to evade the tax, confirmed the Service Tax demand of Rs. 1,68,01,844/- by invoking proviso to Sec 73(1) of the Act along with interest on it, ordered appropriation of the amount of tax and the interest already paid by the Appellant and imposed penalty of Rs. 1,68,01,844/- on the appellant under Section 78 for this alleged evasion of Tax. 1.11. Being aggrieved by the above order of the Commissioner, this appeal has been filed. However in respect of allegation of evasion of Service Tax amounting to....
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.... were dry leases. (3) The Commissioner in Para 25 of the impugned order has held that the lease of helicopter by the Appellant for providing certain transportation services for their clients in India, from the lessors ADA and BLFIL located overseas amounts to receipt of infrastructure support service by the Appellant, as helicopters are the infrastructure for the Appellants business of providing air transportation. This reasoning of the Commissioner is fallacious, as what is taxable is providing infrastructure support service and not merely providing infrastructure. The support services for business or commerce covered by Sec 65(105)(zzzq) read with Section 65(104c) cover the supporting or peripheral activities of a business which the businessman may want to outsource in order to concentrate on his core business activities. The Section 65(105)(zzzq) read with Section 65(104c) does not cover the activities which are the core activities of a business. Lease of helicopters for use in the business of providing transportation is the core business activity and the same would not be covered by support services of business or commerce more so when the helicopters/aircrafts are tangible ....
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.... were to be operated as per the directions of M/s Petronet LNG and the Masters and the crew appointed by the ship owners were to function fully under the directions of the Petronet LNG, the time charter agreements involve transfer of right of possession and effective control from the owners to M/s Petronet LNG and, hence these transactions are deemed sale under Article 366(29A)(d) of the Constitution; and (b) Power to tax what is a deemed sale is outside the authorized legislative field of the Parliament and hence these transactions can not be taxed as supply of tangible goods service under section65(105)(zzzzj) of the Act. The ratio of this judgment of the tribunal is squarely applicable to the facts of this case - more so, when the Commissioner himself in Para 25 of the impugned order has given his finding that leasing of the helicopter by the appellant from the two lessors abroad involves transfer of right to use and this findings has not been challenged by the Department. (6) The Tribunal in its order in case of Blue Dart Aviation Ltd Vs CST, Chennai, reported as (2013)31 Taxman.com 77 Chennai CESTAT observing that lease of aircrafts by the Appellant from oversea....
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.... the definition of "service" given in Section 65B(44) read with the definition of "declared service" in Section 66E. Since in this case the lease of helicopters by the Appellant from the two foreign lessors involves transfer of right to use, these transactions being deemed sale, are not even covered by the definition of service as given in Section 65B(44) read with the definition of declared service in Section 66E of the Act. The Commissioner while giving his finding that during the period w.e.f. 01.7.2012 the leasing of helicopters by the Appellant from the overseas lessors is a service not covered by the negative list, has not even discussed the provisions of Sec 65B(44) and Section 66E of the Finance Act, 1994. (8) In view of the above, the Service Tax demand of Rs. 18,84,25,686/- for the period from 2008-09 to 31/3/15 is without any basis and confirmation of this demand by the impugned order is contrary to the provisions of law. Since the Service Tax demand itself is not sustainable, there is no question of demand of interest on Service Tax under Section 75 and imposition of penalty on the Appellant under Section 76/78 and 77 of the Act. (9) As regards the imposition of P....
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...."support services of business or commerce" under Section 65(105)(zzzq) read with section 65 (104c) of the Finance Act, 1994 during the period prior to 01.7.2012 and as service not covered by negative list of Section 66D of the Actduring the period w.e.f. 01/7/2012. He submits that the Commissioners observations in para 25 of the impugned order that during the lease period, the legal right of possession and effective control over the helicopters is with the appellant, is merely a passing remark, not a conclusive finding based on the detailed analysis of the terms and condition of the lease agreements and from this remark of the Commissioner, it would not be correct to conclude that the Department has accepted that in terms of the Appellants agreements with the foreign lessors, the legal right of possession and effective control of the helicopters during the period of lease stands transferred to the Appellant. He further submits that appellant claimed the lease of the Helicopters as deemed sale in terms of Clause 29A of Article 366 of Constitution, if it is so, the Appellant is liable to pay the sales tax. However in the present case in transaction of import of Helicopter, there is n....
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....gh the hearing had been concluded on 30thMay, 2017 and at that time, there was no intimation from the Respondent commissioner that he is filing a Memorandum Of Cross Objection under Sec 86(4) of the Finance Act, 1994 in respect of this Appeal, on 6th June, 2017, the Memorandum Of Cross Objection was filed by the Department which was registered by the Registry as ST/CO/91068/2017-MUM. Since the matter had not yet been decided, the Memorandum of Cross Objection filed by the Department has been taken on record. 7. The appellant filed a reply to the cross objection which has been taken on record. The cross objection was listed for hearing, on 4th July, 2017. At the time of hearing of cross objection Shri Aneesh Mittal the learned counsel for the appellant, reiterating the reply to the cross objection, pleaded that it is not a cross objection in terms of sec. 86(4) of the Finance Act, 1994, as it is merely a reiteration of the commissioners finding in the impugned order and no finding of the commissioners order have been disputed. In this regard he pointed out to para 4 of the cross objection. The learned departmental representative, however merely reiterated the departments comments....
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....structure of the Appellants area of business/commerce and, hence, the foreign lessors by supplying this infrastructure to the Appellant, have provided infrastructure support service to the Appellant, which is taxable as support services of business or commerce under Section 65(105)(zzzq) read with sections 65(104c) of the Finance Act, 1994 during period prior to 1.7.2012 and as taxable service not covered by negative list during period w.e.f. 1.7.2012. It is on this basis, that the Commissioner, in the impugned order, has confirmed service tax demands totalling Rs. 18,84,25,686/- against the Appellant under Section 73(1) of the Act along with interest on it under Section 75 of the Act and imposed penalties totalling Rs. 6,34,01,884 (Rs.4,94,65,906/- + Rs. 1,38,95,978/- + Rs. 40,000/-) under Section 76/78 and 77 of the Act. The Appellants contention, on the other hand, is that since leasing of helicopters from the two overseas lessors involves transfer of right to use from the lessors to the Appellant during the period of lease and since this fact stands accepted by the Department, a fact which is clear from the Commissioners findings in Para 25 of the impugned order, these transact....
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....d payment or other valuable consideration; (b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; (c) a tax on the delivery of goods on hire-purchase or any system of payment by installments; (d) a tax on the 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; (e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is ....
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...., as if a transaction is sale/deemed sale, only Sales tax can be levied in respect of the same and service Tax, which is a Central levy, cannot be levied. 12. While after 46th Constitutional Amendment and consequent amendments to the State Sales Tax Acts and Central Sales Tax Act, 1956, supply of any goods by a person to another person for some consideration which involves transfer of right to use became deemed sale subject to the Sales Tax, the supply of goods for some consideration where there was no transfer of right to use remained outside the purview of the terms "Sale" and, therefore, outside the purview of Sales Tax. For this reason only, when during the period prior to 1.7.2012, the Government inserted a Clause (zzzzj) in Section 65(105) of the Finance Act, 1994 w.e.f. 16/5/08 for levying Service Tax on supply of tangible goods for use, this levy was confined to only those transactions which were without transfer of the right of possession and effective control over the goods. 13. During the period w.e.f. 1.7.2012, negative list based Service Tax regime came into force. Sections 65B (44) of the amended Finance Act, 1994 contained the definition of "Service". Section 6....
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....volves transfer of right to use the goods, is not covered by the definition of Declared Service. Therefore, during period w.e.f. 1.7.2012, supply of any tangible good by a person for some consideration to another person for his use, and which involves transfer of right to use the goods, is not covered by the definition of "Service" under Section 65B(44) read with Section 66E. Thus, during period from 1.7.2012, when negative list based Service Tax Regime is in force, a transaction of supply of tangible goods by a person to another person for some consideration and which involves transfer of right to use, being not covered by definition of "service", cannot be subjected to Service Tax, as for this period, for subjecting an activity to Service Tax, first, it has to be determined as to whether it is covered by the definition of "service" and if the activity is not covered by the definition of "service", it cannot be subjected to Service Tax. 16. A transaction of supply of some tangible goods by a person to another person for some consideration which involved transfer of right of possession and effective control over the goods/transfer of right to use the goods could be subjected to ....
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....s and when required. The main point of dispute in this case was whether the Appellants time charter agreements with the consortium of owners with the above mentioned terms and conditions, represented supply of tangible goods (LNG Carrier Vessels) by the owners located abroad to the Appellant without transfer of right of possession and effective control and hence taxable under Section 65(105)(zzzzj) of the Finance Act, 1994. The Department was of the view that these time charter agreements represented supply of tangible goods from the owners located abroad without transfer of right to use and hence the Appellant would be liable to pay Service Tax under reverse charge. The Tribunal in this case, in Para 13 of its judgment, held that supply of tangible goods involving transfer of right of possession and effective control of the goods is outside the purview of the taxable service defined under Section 65(105)(zzzzj), that such exclusion is consistent with the Constitutional limitation upon the legislative field of the Parliament, that post 46th Amendment to the Constitution and introduction of Article 366 (29A(d), transfer of right to use goods is a deemed sale falling within the pu....
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.... period of transfer of right to use, the transferee must be free to use the goods for business. The Tribunal on the basis of the above principles and taking into account the terms of the Appellants time charter agreements with the consortium of owners and in particular, the clauses of the agreements which required that notwithstanding the owners being responsible for operation and maintenance of the LNG Carrier Vessels and hiring of the Masters, other officers and crew, the hiring of the Masters, other officers and crew must be to the satisfaction of the Appellant (Petronet LNG) and the Masters/Officers and the crew were required to work under direct control of the Appellant and were to follow the instructions of the Appellant for transportation of the LNG to any part of the World, held that the time charter agreements involve transfer of right of possession and effective control over the LNG vessels from the Consortium of owners located abroad to the Appellant and hence these transactions are deemed sale, not liable to the Service Tax. 17. The question as to whether leasing of helicopter by the Appellant on dry lease basis from the two overseas lessors - ADA, Abu Dhabi and B....
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....held that in every legal system, there is a hierarchy of laws and whenever there is conflict between a norm in a higher layer in this hierarchy and a norm in a lower layer, the norm in the higher layer will prevail and therefore in case of conflict between the provisions of an Act and the provisions of the Rules framed under that Act, it is the provisions of the Act which would prevail and the Rules would have to be interpreted in a manner so as to be in conformity with the provisions of the Act. Applying this principle to a case of conflict between the constitutional provisions and the provisions of an Act, it is the constitutional provisions which would prevail and the provisions of the Act would have to be given an interpretation which is in conformity with the constitutional provisions. 18. Thus, the key question to be decided in this case is as to whether the lease of helicopters by the Appellant from the two lessors located overseas involves transfer of right of possession and effective control over the goods/transfer of right to use the goods from the lessors to the lessee. We find that in this regard in the SCN dated 12.10.2012, Para 3 mentions the relevant terms and con....
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....ring the equipment lease term; and (c) The above clauses in the Appellants lease agreement imply that during the term of the lease, the Appellant had legal right of possession and control over the helicopters for use in their business; and ,thus, there is transfer of right to use the helicopters in terms of judgment of the Supreme Court and various High Court as mentioned in Para 7.6.1 above. Since the lease of the helicopters by the Appellant from ADA, Abu Dhabi and BLFIL, Ireland involves transfer of right to use from the lessors to the Appellant (lessee), the same are deemed sale and therefore as discussed in Para 7.4 to Para 7.6 above, the same cannot be taxed as Service under the provisions of the Finance Act, 1994 either during the period prior to 01.07.2012 or thereafter. 19. The Commissioner in para 25 of the impugned order, after giving the findings that (a) the transfer of the right to use any goods for any purpose (whether or not for specified period) for cash, deferred payment or other valuable consideration may fall under the purview of saleunder the VAT/Sales tax laws and, (b) it is clear that the legal right of possession and effective control over the he....
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....ply of Tangible Goods for use without involving transfer of right of possession and effective control over the goods', the Commissioner has still gone on to subject them to service tax by classifying the same as Business Support Service (infrastructure support service u/s 65(105)(zzzq) r/w section 65(104c)) of the Act and for the period w.e.f. 01.07.2012, the Commissioner, after holding that for this period there remains no issue of classification, has held that the transactions, in question, are service transactions not covered by the Negative List and not covered by any exemption. 20. The Commissioners findings for the period w.e.f. 01.07.2012 holding that the leasing of helicopters by the Appellant from the two lessors located abroad is a service not covered by the Negative List or any exemption, is absurd, as he has not even discussed the definition of 'service' given in Section 65B(44) r/w definition of declared service in Section 66E of the Finance Act 1994, and how the transactions, in question, which admittedly involve transfer of right of possession and effective control over the goods during the period of lease would be covered by the above mentioned defini....
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....hough involving transfer of right to use, is taxable as support services of business or commerce covered by Section 65(105)(zzzq), whose definition as given in Section 65(105)(c) covers infrastructure support servicesand since the helicopters leased by the Appellant are infrastructure for their area of business, the foreign lessors by providing helicopters to the Appellant have provided infrastructure support service to the Appellant. Even if the Tribunals judgment in case of Petronet LNG (Supra) which the Commissioner has not followed, is ignored, the Commissioners approach for classifying the transactions, in question, as an infrastructure support service and hence taxable as support service for business or commerce under Section 65(105)(zzzq) read with Section (104c) is totally wrong for the following reasons: (a) Firstly, the Commissioners observations that the helicopters construe the infrastructure for the area of business/commerce of the Appellant is totally wrong. The meaning of infrastructure based on Wikipedia Encyclopedia, Dictionary of Money and Investing, Campbell and Harvey etc., has been discussed in Para 19.1, 19.2 and 19.3 of the impugned order wherein the infra....
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....and this term would not cover the core business activities of a business. The Board vide its Circular No. 109/03/09 dated 23.2.09 further clarified the scope of term 'support services for business or commerce'. In this Circular the Board clarified that business support service is a generic service of providing support to business or commerce of the service receiver and that the principal activity has to be undertaken by the client while assistance of support being provided by the taxable service provider. In this Circular the Board clarified that the theatre owners who screen/exhibit the movies provided by the distributors and for which they receive some remuneration from the distributors, are not required to pay service tax on the amount being received by them from the distributors, as such screening of movies is not a support or assistance activity but is an activity on its own accord. In the present case, the leasing of helicopter by the Appellant for providing air transportation service to their clients in India is the core business activity of the Appellant and the same cannot to be said to an ancillary and peripheral activity of the Appellants business. Therefore, the....
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....saction as sale. In the present case as per the agreements with lessors, the transaction is of deemed sale within the manning of Article 366 (29A) of Constitution. Therefore mere non payment of sales tax will not alter the status of deemed sale in the facts of the present case. 23. The Ld. Counsel relied upon this Tribunals order in the case of (i) Blue Dart Aviation Ltd.- (2013) 13 Taxman.Com-77-Chennai and (ii) Huawei Telecommunication India Co. Pvt. Ltd. -2017-TIOL-211-CESTAT-CHD. In this regard, we find that both these orders are stay orders passed by the Tribunal to decide the waiver of pre-deposit. Being stay orders, any view taken by the Bench is only a prima facie view and no conclusion is drawn on the issue involved in the case. The stay order does lay down any precedence. Therefore we cannot take cognizance of the said stay orders for drawing the conclusion on the legal issue of the case in hand. However, we have already formed our view as discussed above on the merit of the case. 24. In view of above discussion, the impugned order (a) Classifying the leasing of the helicopters by the Appellant from ADA, Abu Dhabi and BLFIL, Ireland as 'support service for bu....
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....ever they were not discharging service tax liability appropriately. After initiation of investigation the service tax of Rs. 1,68,01,844/- and interest of Rs. 1,57,921/- was recovered from them for the period January, 2011 to July, 2011. The details of such recovery are tabulated further. Month Amount received Service Tax payable Service Tax paid on its due date Short payment Payment made on Jan 11 27105078 2791823 2778968 12855 21.03.11 Feb 11 75873717 7814992 3304839 4510153 21.03.11 Mar 11 92243636 9501094 3160405 6340689 21.04.11 May 11 98041682 10098293 7929503 2168790 05.07.11 July 11 107679811 11091021 7321664 3769357 05.09.11 TOTAL 41297223 2,44,95,379 1,68,01,844 From the above chart given in Para 16(A) of the SCN dated 12.10.2012, it will be seen that (a) In respect of the months of Jan 11, Feb 11, Mar 11, May 11 and July11, as against the service tax liability of Rs. 27,91,823/-,Rs.78,14,992/-, Rs. 95,01,094/-, Rs. 1,00,98,293/- and Rs. 1,10,91,021/- respectively which was to be discharged in full by 5.2.11, 5.3.11, 31.3.11, 5.....
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....ble for the months of Jan 11, Feb 11, Mar 11, May 11 and July 11 without any intention to evade the tax. Therefore, there was no need to show cause the Appellant for recovery of the allegedly evaded tax of Rs. 1,68,01,844/- by invoking proviso to Section 73(1) of the Act and similarly there was no justification for the Commissioner to confirm the above mentioned demand of Rs. 1.68,01,844/- along with interest by invoking proviso to Section 73(1) of the Act, ordering appropriation of the tax of Rs. 1,68,01,844/- along with interest of Rs. 1,57,921/- paid by the Appellant and then imposing penalty of Rs. 1,68,01,844/- on the Appellant under Section 78 as if this was a case of tax evasion. We, therefore, hold that this is simply a case of delayed payment of a part of service tax payable for the months of Jan 11, Feb 11, Mar 11, May 11 and July 11 which had been paid by the Appellant on their own along with the interest of the period of delay and since this is not a case of short payment of service tax involving fraud or wilful mis-statement or collusion or suppression of facts or contravention of the provisions of the Finance Act, 1994 or of the Rules made there under with intent t....