TaxTMI 
TaxTMI 
2024 (11) TMI 615
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....mmovable property" services. 3. A License Agreement was also executed between the appellant and Skol on 30.01.2008[the License Agreement] whereby the appellant endorsed the brewery license in favour of Skol. This License Agreement was renewed from time to time and a License Agreement dated 01.03.2014 was executed between the appellant and Sab Miller India Limited [Sab Miller] (earlier known as Skol). The appellant treated the execution of the License Agreement to be a "deemed sale" under article 366(29A)(d) of the Constitution and paid VAT. 4. The department believed that the amount paid to the appellant under the License Agreements dated 30.01.2008 and 01.03.2014 should be included 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. 5. Accordingly, a show cause notice dated 11.10.2013 was issued to the appellant. The appellant has been referred to as "TAL" in the show cause notice. The relevant portion of the show cause notice is reproduced below: "18. As discussed above on the basis of details/information....
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.... period 01.04.2008 to 31.01.2013 by contravening the provisions of the Finance Act, 1994 and Rules made thereunder. Thus, the service tax not paid by TAL on the value of taxable services suppressed by them is recoverable from them by invoking the extended period under proviso to Sub-section(1) of Section 73 of the Finance Act 1994 along with interest at the appropriate rate as per Section 75 of the Finance Act 1994." (emphasis supplied) 6. The appellant filed a reply to the show cause notice and denied allegations made therein. 7. The Commissioner, by the impugned order dated 27.04.2018, confirmed the demand proposed in the show cause notice with interest and penalty. The appellant has been referred to as "TAL" in the order. The relevant portions of the order are reproduced below: "18.3.2 ******** In the instant case, M/s SKOL has taken the plant, machinery and premises of M/s TAL, situated at Village Mahtoli, Banmore along- with the brewing license on rent for the purpose of brewing beers of their own brand. The License to manufacture/brew the alcoholic beverage in the said premises has been issued by the M.P State Excise Deptt. to TAL. M/s SKOL is not having the....
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....e sub-leasing of the license by TAL to SKOL was not 'sale' and would not attract VAT/sales tax. 18.4. In view of the above discussion, I find that the party was liable to include their receipts, against the 'License agreement', in the taxable value of 'rental income' and the party was liable to pay service tax on the same. By not including it, in the taxable value, during the period April, 2008 to June, 2016, the party has short-paid service tax (including cesses) amounting to Rs. 4,57,12,389/- as detailed above. Said amount of service tax is recoverable form them." (emphasis supplied) 8. It is this order dated 27.04.2018 passed by the Commissioner that has been assailed in this appeal. 9. Shri Kamal Sawhaney, learned counsel for the appellant assisted by Ms. Akansha Wadhwani and Shri Deepak Thakur made the following submissions: (i) The License Agreements dated 30.01.2008 and 01.03.2014, by which the appellant endorsed the brewery license issued in its name to Skol/Sab Miller, is a deemed sale under article 366(29A)(d) of the Constitution and, therefore, service tax could not have been demanded on the amount received by the appellant. To support this con....
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....; and (iii) The transfer of license does not amount to a "deemed sale" under article 366(29A)(d) of the Constitution; and (iv) The extended period of limitation was correctly invoked in the facts and circumstances of the case. 11. The submissions advanced by the learned counsel for the appellant and the learned authorized appearing for the department have been considered. 12. The issue that arises for consideration in this appeal is as to whether a "deemed sale" under article 366(29A)(d) of the Constitution had taken placed under the License Agreement. 13. As noticed above, 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. The relevant clauses of the Lease Deed are reproduced below: "A. The Lessor is in lawful possession and has a clear, absolute unrestricted registered title and ownership rights with respect to wall compounded plot of land bearing Survey Numbers 1285, 1311, 1309, 1315, 1312, 1306, 1317, 1301 and 1303 admeasuring approximate....
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....asis supplied) 14. It also transpires that a License Agreement dated 30.01.2008 was executed between the appellant and Skol. This License Agreement was renewed from time to time and ultimately a License Agreement dated 01.03.2014 was executed between the appellant and Sab Miller (the name of Skol was changed to Sab Miller). The appellant has been referred to as "Tripti" in the Agreement. The relevant clauses of the said License Agreement dated 01.03.2014 are reproduced below: "A. Tripti has a license to work a brewery which has been sub-licensed to SABMiller. The current licensing agreement between the Parties is valied till 31st January, 2014. Both the Parties intend to renew the agreement for the period from 1st February 2014 to 31st March 2018. B. Tripti has represented to SABMiller that it will procure the necessary approvals from the relevant governmental authorities for a valid endorsement or sub-license of the Brewery License in favour of SABMiller such that SABMiller can brew and manufacture beer utilizing the Brewery License and the capacity permitted therein from time to time ("Proposed Transaction"). C. Parties have agreed to record the....
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....enses and damages arising out of or in connection with any claim that would constitute a breach of any of warranties and/ or obligations set out herein, relating to the period prior to the commencement of the License Agreement dated 30th January, 2008. 5.7 The Promoters shall not do or cause to be done any act that will result in breach of this Agreement or the Lease Deed and shall cause the Company to perform all its obligations hereunder. The obligations of the Promoters and the Company under this Agreement shall be joint and several. ***** 6. This Agreement shall terminate only in accordance with the following provisions: ***** 6.2 This Agreement shall be co-terminus with the lease deed executed on even date between the Parties (the "Lease Deed") and shall automatically terminate upon the termination of the said Lease Deed, unless otherwise mutually agreed in writing. ***** 7. The promoters who hold 100% of the issued and paid up share capital of Tripti hereby grant the option and right of first refusal to SABMiller to acquire upto the entire equity share capital of Tripti at the end of the Term, upon the terms ....
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.... brewing beer." (emphasis supplied) 18. It is for this reason that the Commissioner held that the amount paid by Skol/Sab Miller to the appellant under the License Agreement would be includable in the rental income and by not including it, the appellant short paid service tax. 19. The contention of the appellant that the License Agreement is "a deemed sale" under article 366(29A)(d) of the Constitution was repelled by the Commissioner for the reason that: "from the facts of the case and conditions laid down in the agreements, it is clear that leasing of the license in the instant case is also subject to certain restrictions and TAL have not only sub-leased the license, they have also provided a bunch of services along-with it, as discussed above. Hence, in view of the above ruling, no 'sale' has taken place in the present case and the party was not liable to pay VAT on it." (emphasis supplied) 20. To appreciate the issue that has been raised in this appeal, it would be pertinent to refer to Entry 54 of List II of the Seventh Schedule to the Constitution. It empowers State to levy tax on sales and purchase of goods. The relevant Entry is reproduced below....
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.... other valuable consideration and includes,- (i) a transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; (ii) a transfer of property in goods whether as goods or in some other form, involved in the execution of works contract; (iii) a delivery of goods on hire purchase or any system of payment by instalments; (iv) a supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (v) a 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; (vi) a transfer of the right to use any goods including leasing thereof for any purpose (whether or not for a specified period) 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....
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....ivities by enlarging the scope of "tax on sale or purchase of goods" so that it may include within its scope, the transfer, delivery or supply of goods that may take place under any of the transactions referred to in sub- clauses (a) to (f) of clause (29-A) of Article 366. The works contracts, hire purchase contracts, supply of food for human consumption, supply of goods by association and clubs, contract for transfer of the right to use any goods are some such economic activities. 53.2. The transfer of the right to use goods, as distinct from the transfer of goods, is yet another economic activity intended to be exigible to State tax. 53.3. There are clear distinguishing features between ordinary sales and deemed sales. 53.4. Article 366(29-A)(d) of the Constitution implies tax not on the delivery of the goods for use, but implies tax on the transfer of the right to use goods. The transfer of the right to use the goods contemplated in sub-clause (d) of clause (29-A) cannot be equated with that category of bailment where goods are left with the bailee to be used by him for hire. 53.5. In the case of Article 366(29-A)(d) the goods are not required....
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....ner (transferor) of the goods. 54.6. During the period of contract exclusive right to use goods along with permits, licenses, etc. vests in the lessee." (emphasis supplied) 29. The Andhra Pradesh High Court in Rashtriya Ispat Nigam Ltd. vs. Commercial Tax Officer, Company Circle, Vishakhapatnam [1989 (12) TMI 325- Andhra Pradesh High Court] observed that whether there is a transfer of right to use or not is a question of fact which has to be determined in each case having regard to the terms of the contract under which there is transfer of right to use and in this connection, observed as follows: "Whether there is a transfer of the right to use or not is a question of fact which has to be determined in each case having regard to the terms of the contract under which there is said to be a transfer of the right to use. In the instant case, the petitioner - Rashtriya Ispat Nigam Limited owning Visakhapatnam Steel Project, for the purpose of the steel project allotted different works of the project to contractors. To facilitate the execution of work by the contractors with the use of sophisticated machinery, the petitioner has undertaken to supply the machinery ....
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.... clauses 10 and 12 clearly show that there is a transfer of right and, therefore, tax is validity levied. In our view, whether the transaction amounts to transfer of right or not cannot be determined with reference to a particular word or clause in the agreement. The agreement has to be read as a whole, to determine the nature of the transaction. From a close reading of all the clauses in the agreement, it appears to us that the contractor in entitled to make use of the machinery for purposes of execution of the work of the petitioner and there is no transfer of right to use as such in favour of the contractor. We have reached this conclusion because the effective control of the machinery even while the machinery is in the use of the contractor is that of the petitioner-company. The contractor is not free to make use of the same for other works or move it out during the period the machinery is in his use. The condition that he will be responsible for the custody of the machinery while the machinery is on the site does not militate against the petitioners' possession and control of the machinery. For these reasons, we are of the opinion that the transaction does not involve tran....
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....chinery was in the use of the contractor, was that of the company that had given the machinery on hire, sales tax could not have been charged from the appellant therein under the provisions of the State Sales Tax Act. 32. In G.S. Lamba & Sons and others vs. State of Andhra Pradesh [2012-TIOL-49-HC-AP-CT], the issue that arose before the Andhra Pradesh High Court was whether the contract with M/s. Grasim Industries Limited for transporting the Ready Mix Concrete was for transfer of the right to use Transit Mixers and the following principles were summarised: "40. That brings us to the construction of the agreement between the parties which indisputably came into force on 01.10.2002. The intention of the parties as noticed supra has to be understood by reading the entire agreement; reading a word here or a clause there is not sufficient. Grasim was looking for a transporter to take care of the transporting need of their RMC plants in Hyderabad. The petitioners, who are owners of Transit Mixers, were looking for advancing their business interest in Hyderabad. The latter approached the former offering their Transit Mixers to take care of all transporting solution needs. The....
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.... RMC and then proceed to the construction sites of customers. The product carried is manufactured by Grasim, which is delivered to the customers and the customers pay the cost of the RMC to Grasim and the petitioners nowhere figure in the process of putting the property in Transit Mixers to economic use. The entire use in the property in goods is to be exclusively utilised for a period of 42 months by Grasim. The existence of goods is identified and the Transit Mixers operate and are used for the business of Grasim. Therefore, conclusively it leads to the only conclusion that the petitioners had transferred the right to use goods to Grasim. For these reasons, we are not able to countenance any of the submissions made by the petitioners' counsel." (emphasis supplied) 33. In Petronet LNG Ltd. vs. Commissioner of Service Tax, New Delhi [2016 (46) STR 513 (Tri.-Delhi)], the Tribunal observed as follows: "25. The issue that therefore falls for our consideration is whether the transactions involving the two long-term charters and one short-term charter (of the vessels Disha, Rahi and Trinity Glory, respectively) amount to a transfer of the right of possession and effective....
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....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 specifically provides that "equipment is offered by GIMMCO Ltd. only on "rights to use‟ basis". Cl. 15 relating to damages provides for compensation to be paid by the hirer to the assessee in case of damage to the equipment during the period of use. These responsibilities cast on the hirer clearly show that the right of possession and effective control of the equipment rest with the hirer; otherwise the hirer cannot be held responsible for misuse/abuse, safe custody/security, liability to settle disputes with third parties in relation to use etc. Further Cl. 4.3 of the agreement provides for charging of VAT at 12.5% on the monthly invoice value which shall be payable by the hirer. These terms and conditions stipulated in th....
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.... The above features of the contract, in our considered view, makes it abundantly clear that it is the ONGC and not the contractor who has exclusive control and dominion over the crane during the subsistence of the contract, though, during the aforesaid period, at times, physical possession of the crane may come back to the contractor. Such temporary physical possession of the contractor, according to us, would hardly be relevant as under the contract the ONGC is vested with the authority to requisition the crane for operational purposes at any time. Besides, such temporary possession of the crane by the contractor does not mitigate against the transfer of the right to use the crane which event, as already indicated on the authority of the decision of the Apex Court in 20th Century Finance Corpn. Ltd. (supra), constitutes the taxable event under article 366(29A)(d) of the Constitution." (emphasis supplied) 36. From the decisions referred to above, it clearly transpires that: (i) Whether there is a transfer of right to use or not is a question of fact which has to determined in each case having regard to the terms of the contract under which there is a transfer of....
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....titute a breach of any of warranties and/or obligations, relating to the period prior to the commencement of the License Agreement dated 30th January, 2008; and (vii) The promoters shall not do or cause to be done any act that will result in breach of the License Agreement. 39. It is, therefore, clear from the aforesaid 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 capcity 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 wou....