TaxTMI 
TaxTMI 
2018 (9) TMI 1721
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.... lease; that lessor therefore rendered "Supply of Tangible Goods Service" as per section 65 (105) (zzzzj) of Finance Act, 1994; hence appellant as recipient of service are liable to pay service tax on reverse charge basis amounting to Rs. 1,53,13,956/- for the period May 2008 to October 2008. 2.2 Appellants were paying service tax on maintenance or repair service, Online information and Database retrieval service on reverse charge basis as recipient of service on a value net of TDS amount. Department took the view that for the purposes of payment of service tax under provisions of Section 66A read with Rule 2 (1) (d) (iv) of Service Tax Rules, 1994, appellants were liable to pay service tax of Rs. 27,37,927/- on the TDS amount for the period October 2003 to September 2008. 2.3 It also appeared that appellants have wrongly taken credit in respect of excise duty paid on motor vehicles amounting to Rs. 4,92,474/-. Accordingly a show cause notice dt. 22.06.2009 was issued to appellants, inter alia proposing demand of the said tax amount with interest thereon and also imposition of penalties under various provisions of law. 2.4. Another SCN dt. 12.04.2010 was issued proposing demand ....
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....il 2011, under Section 76 Supply of tangible goods No - Rs.100 per day or 1% of the service tax demand per month whichever is higher subject to maximum of service tax payable for period 8 April 2011 to 31 March 2012, under Section 76 Supply of tangible goods No Appeal No.ST/41211-212/2016 April 2012 to March 2014 18,55,94,522 Rs.1.85 crores under Section 76 and Rs. 10,000 under Section 77 Supply of tangible goods and declared services No Appeal No.41244/2018 April 2014 to September 2015 12,28,53,085 Rs.60 lakhs under Section 76 Transfer of goods by way of leasing without transfer of right to use such goods No Appeal No.41245/2018 October 2015 to June 2017 16,99,14,559 Rs.80 lakhs under Section 76 Transfer of goods by way of leasing without transfer of right to use such goods No 64,99,17,543 3. When the matter came up for hearing, on behalf of the appellants, Ld. Sr. Advocate Shri N. Venkatraman, assisted by Shri Akhil Suresh, Advocate submitted copy of the lease agreement between DHL Aviation, Netherlands (lessor) and the appellant (lessee) in respect of the lease of aircraft. Ld. Sr. Advocate took us through....
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....rmed. In this regard, the adjudicating authority concerned has accepted their plea in adjudication that actual liability works out only to Rs. 2,71,106/- together with interest of Rs. 41,886/- which is already paid up by them. However, the adjudicating authority has imposed penalty of Rs. 2,71,106/- under Section 78 of the Act. It is contended that there was considerable confusion on the taxability in respect of inclusability of TDS amount in the value of taxable service. Appellant had not discharged tax liability of Rs. 2,71,106/- only on the bonafide belief that the TDS amount is not required to be included in the value for assessment. For this reason, the imposition of penalty on that score is also not justified and may be set aside. 4.1 On the other hand, Ld. A.R supports the impugned order. He draws our attention to Article 5 of the lease agreement where it is mandated that "appellant" being lessee shall not sub-lease, assign or otherwise transfer or relinquish possession or control of any item of equipment or any part thereof without prior written consent of foreign lessor. This very clear condition laid down in the agreement indicates that the possession and control of the ....
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....etc. without prior consent of BCC. At the same time, it is also provided that if the EAT seeks consent from BCC for such a provision, such consent should not unreasonably be withheld or delayed provided that such sublease shall be expressly made subject and subordinate to the lease between BCC and EAT. Further, BCC have also been permitted to "wet lease" the aircraft in the ordinary course of EAT‟s business. Obviously, EAT was fully permitted and well within their rights to further lease the aircrafts to the appellant. Operating Lease agreement between EAT and the appellant dt. 27.02.2006 is for the same Boeing Model 756-236 Aircraft Sl.No. 24102. In fact, the very same conditions that were agreed upon between BCC and EAT have been reiterated in Article 5 of the agreement between EAT and the appellant. 8.1 Taking into account these aspects and also the other terms of agreement brought to our attention by the Ld. Sr.Advocate, in particular, the operation of the aircraft with the personnel of the appellant themselves, requirement of maintenance of aircraft by the appellants etc., we have no doubt in our mind that the lease agreement between EAT and the appellant is one wherein....
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....Supply of tangible goods for use and leviable to VAT/sales tax as deemed sale of goods, is not conveyed under the scope of the proposed service. Whether a transaction involves transfer of possession and control is a question of facts and is to be decided based on the terms of the contract and other material facts. This could be ascertainable from the fact whether or not VAT is payable or paid. 6.3) After 1.7.2012, consequent to change in service tax law, all services exempted any activity carried out by any person for consideration including a declared service, was made liable to service tax levy except certain activities which were specifically exempted or excluded from taxation. One such exclusion from service tax levy as per Section 65(B)(44) is an activity which constitutes merely (i) a transfer of title in goods or immovable property by way of sale, gift or in any other manner or (ii) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of Article 366 of the constitution or (iii) a transfer in money or actionable claim. At this stage, it will be useful to refresh ourselves with the said clause 29(A) of Article 366 of t....
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....declared as a service under section 66F of the Act). 6.5) For the post 01-07-2012 scenario, CBEC issued compendium of circulars on 20-06-2012 under the title TAXATION OF SERVICES AN EDUCATION GUIDE. In para 6.6.1, the CBEC clarified that transfer of right of goods involves transfer of possession and effective control over such goods and reproduced the following tests laid by Supreme Court in the case of Bharat Sanchar Nigam Limited vs. Union of India [2006(2)STR 161 (SC) to determine whether transaction involves transfer of right to use goods: - There must be goods available for delivery; - There must be a consensus ad idem as to the identity of the goods; - The transferee should have legal right to use the goods consequently all legal consequences of such use including any permissions or licenses required therefore should be available to the transferee; - For the period during which the transferee has such legal right, it has to be the exclusion to the transferor this is the necessary concomitant of the plain language 91 of the statute, viz., a transfer of the right to use and not merely a license to use the goods; - Having transferred, the owner cannot again transfer the sa....
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....ely on hire basis; that DG set is hired out to the hirer for his own use only and subletting is not allowed; DG set has to be returned in good condition to the owner upon termination of the agreement etc. v) It was also clarified that lessee shall run/operate the DG set for his exclusive use, therefore lessor hereby transfers the right to use the said DG set subject to fulfilment of all terms and conditions laid down in the lease agreement. vi) Total safety of machinery lay with lessee against any sabotage, misuse, damages, fire, accidents due to unauthorised operation/mishandling of the DG set by lessee personnel or outsider since DG set lies in the premises of the lessee. vii) In some agreements, it was laid down that DG technician shall be provided by the lessor to assist the lessee. 6.8) It then appears to reason that the transaction between the appellants and the hirers involves transfer of right to use goods and satisfy the tests laid by the Honble Apex Court in the BSNL judgment. DG sets are available for delivery. There is definitely a consensus between lessor and the lessee as to the identity of the goods. The hirers very much have legal right to use the goods. In fact....
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....e supplied by the hirer itself indicates that the hirers would use the equipments as per their own needs only and hence they have full control on the usage of the DG sets. Adjudicating authority has pointed out few other aspects of the agreements which, according to him, also prove that hirer does not have effective control. However, we find that these are only standard clauses on any lease agreements where hire charges are fixed, payment of freight by hirer, subletting of DG set is barred etc. 6.10) The agreements therefore only set out the terms of the hire and in no way put any shackles on the hirer for full enjoyment of the DG set hired by the hirers or for that matter, bring about less than complete transfer of possession and control. It is also noteworthy that the hirer pays hire charges and not service charges. We also find merit in the appellants contention that the deposit amount is also paid by the hirers, which is the practice only in cases of leasing contracts which are deemed sale transactions and not the cases where only service is provided or received. 6.11) We also find that the Advance Ruling Authority, Commercial Tax Department, Government of Andhra Pradesh in r....
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....er of both possession and control of the goods to the users of the goods. These transactions have been ruled as deemed sale of goods for the purpose of APVAT Act by the concerned Advance Ruling Authority. Appellants have also been discharging VAT on the hire charges under APVAT Act. Hence, this is the case of supply of tangible goods for use, with legal right of possession and effective control vesting with the hirer, required to be treated as deemed sale of goods, hence cannot be considered as supply of tangible goods for use of service for the purposes of Section 65(105) (zzzz) of the Finance Act, 1994 for the period upto 01-07-2012 or as taxable service for the purpose of Section 65B (44) of the Finance Act, 1994 after 01-07-2012. 7) In arriving at these conclusions, we draw sustenance from the ratio of the following case laws of higher Appellate Forums: i) In the case of Bharat Sanchar Nigam Ltd [2006(2)STR 161 (SC), which has also been referred to by CBEC in the TAXATION OF SERVICES AN EDUCATION GUIDE, para 6.6. As already discussed, Honble Apex Court had laid down certain tests to determine whether the transaction involves transfer of right to use goods which aspect has al....
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....liability to service tax on renting of earth moving equipments to various customers, the Tribunal inter-alia held as follows: 5.2) Revenue's contention is based on the clauses in the agreement relating to restrictions of use by the lessee, provision of skilled operator by the lessor and maintenance and repairs of the equipment by the lessor. Merely because restrictions are placed on the lessee, it cannot be said that there is no right to use by the lessee. Such a view of the revenue does not appear to be tenable when we read carefully the provisions of the agreement. Cl. 13 of the agreement provides for Hirers Covenants. As per Cl. 13.1, the hirer will use the equipment only for the purpose it is hired and shall not misuse or abuse the equipment. Similarly in Cl. 13.3, it is provided that the hirer will ensure the safe custody of the equipment by providing necessary security, parking bay, etc., and will be responsible for any loss or damage or destruction. Cl. 13.5 provides that the hirer shall be solely responsible and liable to handle any dispute entered with any third party in relation to the use and operation of the equipment. Further Cl. 14 dealing with title and ownership sp....