TaxTMI 
TaxTMI 
2025 (4) TMI 66
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....f Rs.22,30,596/-(Rupees Twenty-Two Lakhs Thirty Thousand and Four Hundred Ninety Six Only) i.e. 10% of the confirmed demand, upon the party under Section 76 of the Finance Act, 1994 on the amount of tax confirmed at (i) above as discussed supra, (iv) I further impose a total penalty of Rs.10,000/- (Rupees Ten Thousand Only) upon the party under Section 77(2) of the Finance Act, 1994. However, I do not impose penalty upon the party under Section 77(1)(a) of the Finance Act, 1994 as discussed supra." The above adjudged dues should be paid henceforth. 2.1 Acting on the intelligence that the party were evading service tax payment on supply of the tangible goods services, the premises of the appellant were searched. 2.2 During the course of search proceedings, it was noticed that the party has leased out earth station and other equipment and related infrastructure having uplinking facility of T.V Programs to their sister concern namely M/s Sahara India Commercial Corporation Limited (herein after referred to as "the SICCL"). The proceedings were detailed in Panchnama recorded on the spot. In her statement recorded on the spot, Smt. Santosh Khandelwal, the Cost accou....
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....ed on the same. Further, vide Order no. 70554/2024 dated 30% August 2024 (Appeal No. 70218 of 2018), the appeal for the period 2014-15 to 2015-16 has been decided. In Para 4.6 of the said order, benefit of cum-tax has been granted to the appellant. We submit that although the demand is not sustainable on the basis of submissions made in our appeal. However, if the demand is upheld, the benefit of cum-tax must be allowed. 3.3 Learned authorized representative reiterates the findings recorded in the impugned order. 4.1 We have considered the impugned order along with the submissions made in appeal and during the course of arguments. 4.2 Impugned order records following findings: "5.0 I have gone through the show cause notice as well as submissions made by the party at the time of personal hearing, defence reply dated 24.10.2017 submitted for the earlier show cause notice dated 12.04.2017 and which the party reiterated for the statement of this demand also and other case records. I find the issues to be decided in this case are that as to whether:- i) the leasing out of earth station and related equipment would qualify as taxable service under the "....
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....al of these clauses and the definition of "Supply of Tangible Goods Services", it was found that the said agreement fulfilled the condition of taxable service by way of supply of tangible goods including machinery equipment and appliances for use (earth station and related equipment in instant case), without transferring right of possession and effective control of such machinery equipment and appliances. Further, at the time of visit of the premises of the party on 20.03.2015, the copy of registration certificate of the utility van, which was a part of the equipment leased out to M/s. SICCL, was in the name of M/s. Sahara Sanchar Limited at the time of registration on 29.12.2008 and remained under the control of M/s. SICCL as on that date, as shown in the fitness certification issued by the Transport Department of Uttar Pradesh on 26.06.2014.. Thus, it was deduced that the party owned their properties which are part of the leased out equipment and thus, the legal right of possession and effective control was still in the hands of the party i.e. M/s. Sahara Sanchaar Limited. Accordingly, the party was found to be liable to pay service tax on lease income/ rental income received by ....
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....d that if by an act of God or human being the assets are damaged, destroyed or lost partially or wholly, M/s. SICCL would be bound to pay compensation and damages to the party which showed that the possession has been transferred. In support of their contention, the party has relied upon the Hon'ble Supreme Court in the case of 20th Century Finance Corporation and Anr. Vs State of Maharashtra (2000) 6.SCC.12. where it has been held that the levy of (sales) tax is not on the use of goods but on the transfer of the right to use goods. Thereafter, the party have stated that Clause 2 & Clause 3 of the said agreement show that the 'right to use' has been transferred to the lessee. 5.4 also observe that the party forwarded their arguments by stating that VAT has been paid by them, and hence, no service tax is leviable in terms of Circular No. 334/1/2008-TRU dated 29.2.2008. They further stated that they had been discharging the VAT liabilities on such transaction which was evident from the VAT challans and has not been disputed even in the show cause notice. They further submitted that the levy of service tax under supply of tangible goods service is alternate in nat....
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....r consent before sub-letting. This clause does not affect the control or possession of the lessee over the assessee 5.6.1 Thus, it becomes pertinent that the "Supply of Tangible Goods Services" is required to be examined in terms of taxability, coverage & scope as provided in the Finance Act & the various service tax laws. As per Section 65(105) [(zzzzj) of the Finance Act, 1994- "Taxable Service" means any service provided or to be provided to any person, by any other person in relation to supply of tangible goods including machinery, equipment and appliances for use, without transferring right of possession and effective control of such machinery, equipment and appliances;" I observe that with effect from 01.07.2012, Section 66B of the Finance Act, 1994 provided that there shall be levied a tax (hereinafter referred to as the service tax) at the rate of twelve per cent, on the value of all services, other than those specified in the negative list, provided or agreed to be provided in a taxable territory by one person to another and collected in such manner as may be prescribed. Further, under Section 66E(f) of the Finance Act, 1994, transfer of goods by....
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....e goods during the period for which it is to be transferred, the owner cannot again transfer the same right to others. 3.1 This criterion must invariably be followed and applied to cases involving hiring, leasing or licensing of goods. The terms of the contract must be studied carefully vis- a- vis the criteria laid down by the Supreme Court in order to determine whether service tax liability will arise in a given case. It is not possible to either give an exhaustive list of illustrations or judgements on this issue. Cases decided under the Sales Tax /VAT legislations have to be considered against the background of those particular legislative provisions and terms of contract in that case. 3.2 The following case law may also be referred to. These should not be applied mechanically but their applicability to the facts of a given case, the terms of the contract in the given case and the criteria laid down by the Supreme Court should be examined carefully. 3.2.1 Commissioner VAT vs International Travel House Ltd - Delhi High Court judgement dated 8-9-2009 in ST Appeal 10/2009 3.2.2 Rashtriyalspat Nigam Limited vs Commercial Tax Officer reported in 1....
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....n of taxable services, the intention of the statue is made clear regarding the essential ingredients that will distinct the transfer of right to use from sales. The Hon'b/e Supreme Court in the case of Bharat Sanchar Nigam Limited vs Union of India, reported in 2006(2) STR 161 SC, has laid down the following criteria to determine whether a transaction involves transfer of the right to use goods, namely, a. There must be goods available for delivery; b. There must be a consensus ad idem as to the identity of the goods; c. The transferee should have a legal right to use the goods - consequently all legal consequences of such use, including any permissions or licenses required therefor should be available to the transferee, d. For the period during which the transferee has such legal right, it has to be to the exclusion to the transferor this is the necessary concomitant of the plain language of the statute - viz. a "transfer of the right" to use and not merely a licence to use the goods, e. Having transferred the right to use the goods during the period for which it is to be transferred, the owner cannot again transfer the same right t....
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....lements of the finance lease or loan transaction are quite different from those in equipment leasing/hire-purchase agreements between owner (lessor) and the hirer (lessee). There are two independent transactions and what the impugned tax seeks to do is to tax the financial facilities extended to its customers by the NBFCs under Section 66 of the 1994 Act (as amended) as they come under "banking and other financial services" under Section 65(12) of the said Act. "The finance lease" and "the hire-purchase finance" thus squarely come under the expression "financial leasing services" in Section 65(12) of the Finance Act, 1994 (as amended)." Thus, on perusal of the above judgement, I observe that 'operational lease' is purely a service activity where substantial risk and owner ship of the equipment remains with the lessor (i.e. owner of the equipment). However, I observe that service in relation to supply of tangible goods where the right of possession and effective control of such machinery, equipment and appliances stands transferred by the service provider to the receiver of such service, has been kept out of the purview of the scope of taxable service under Section ....
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....se' and not merely a license to use the goods. I further observe that the Hon'ble Supreme Court in the case of Bharat Sanchar Nigam Ltd. (supra) also laid down the principle that the transferee should have legal right to use the goods consequently all legal consequences of use including any permissions or licenses required therefor should be such available to the transferee. I find that contrary to this principle, allegation in the present case is that license/permission n the present case is in the name of the party which has not been refuted by the party in their defence submissions by bringing on records the terms of license/permission issued in the case for having the possession/operation of impugned leased equipment. Thus, 1 find that the impugned show cause notice quite conspicuously and unequivocally has left no stone unturned in scrutinizing the said agreement. The investigation has indeed kept its focus on various clauses of the said agreement and has got into the insight of each of the clauses vis-à-vis the taxability under the service tax provision. Since. the said agreement is critical in defining the taxability, the investigation draws inference on the s....
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....s were not exigible to sales tax. On a careful reading and analysis of the various clauses contained In the agreement and, particular, looking to clauses 1, 5, 7, 13 and 14, it In becomes clear that the transaction did not involve transfer of right to use the machinery In favour of contractors. The High Court was right in arriving at such a conclusion. In the impugned order, it is stated, and rightly so in our opinion, that the effective control of the machinery even while the machinery was in use of the contractor was that of the respondent company,; the contractor was not free to make use of the machinery for the works other than the project work of the respondent or move it out during the period the machinery was in his use; the condition that the contractor would be responsible for the custody of the machinery while it was on the site did not militate against respondent's possession and control of the machinery. It may also be noticed that even the Appellate Deputy Commissioner, Kakinada in the order dated 15.11.1999 in regard to assessment years 1986-87 and 1987-88 held that under the terms and conditions of the agreement. there was no transfer of right to use the machiner....
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....one is subject to state jurisdiction while other is the matter covered under the Union List subject to Central Government jurisdiction. I also notice that every case is different from the other case as the facts and circumstances are different and moreover when there is very thin line to demarcate one activity from other, the terms of agreement plays pivotal role in defining the taxability of an event. court pronouncement relied have gone through the various and quoted by the party IN their defence but do not - find any relevance as the investigation and the allegations of the SCN are water tight. The terms and conditions of the said agreement clearly state the nature of transaction of the supply of tangible goods without transferring the rights to use and the same cannot be construed as sales (deemed sales). The Hon'ble Supreme Court in the case of Idea Mobile Communication Ltd. VS CCE Cochin [2011 (23)STR 433(S.C.)] held that "It also cannot be disputed that even if sales tax is wrongly remitted and paid that would not absolve them from the responsibility of payment of service tax, if otherwise there iS a liability to pay the same. If the article is not susceptible to tax und....
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....the same at their own and the benefit of cum tax value cannot be extended in the facts and circumstances of the case. Moreover, the said party has not adduced any evidence so as to, even remotely, suggest that the gross amount paid was inclusive of service tax and accordingly, the contention of the party fails to hold ground on statutory terms also In this regard, reliance is placed upon the ratio of pronouncement made in the following cases : (i) CCE, Aurangabad Vs Rudra Galaxy Channel Ltd. [2015(38)STR445 (Trib- Mumbai)] : Held ::"Valuation (Service Tax) - Cum tax value - Cum tax benefit not extendable in absence of documentary evidence to show consideration received inclusive of Service Tax"; and (ii) Shakti Motors Vs Commissioner of Service Tax, Ahmedabad [2008(12)STR710(Trib-Ahmd)] :: Held :: "Valuation (Service tax) - Cum-tax value - Plea of treatment of amount received as cum-tax to scale down the quanturn of demand In terms of Section 67(2) of Finance Act, 1994 if invoice specifically not says that gross amount charged includes Service tax, it cannot be treated as cum-service tax price - Cum-tax benefit not extendable in absence of evidence to sho....
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....am Thekedar ELT 185 [SC] that interest is payable on belated payment of tax and no specific notice is required to be given for the same I also find that the Hon'ble CESTAT in the case of INMA International Security Academy (P) Ltd Vs CCE [2005] 1 STT 31 (Chennai-CESTAT) held that the liability to pay interest at prescribed rates was inescapable as the law did not confer any discretion in the matter of levying interest In view of above, since the party is liable to pay service tax as demanded from them by the impugned Statement of Demand for the reasons as discussed supra, they are also liable to pay interest on the amount demand in view of the aforesaid provisions of Section 75 of the Finance Act, 1994 as leviable thereon. Penalty under Section 76 of the Finance Act, 1994 5.8 As regards the penalty under Section 76 of the Finance Act. 1994, the party has submitted that the same is not imposable as they were under bonafide belief that the transaction involved transfer of right to use the goods and hence chargeable to VAT: and that the issue involved interpretation of statute. They have placed reliance on some case laws also. On the issue, I fi....
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....ia, wherein it was held that courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed. The relevant paras of the said case are reproduced below for sake of reference, "11. Courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed Observations of Courts are neither to be read as Euclid's theorems nor as provisions of the statute and that too taken out of their context. These observations must be read in the context in which they appear to have been stated Judgments of Courts are not to be construed as statutes. To interpret words, phrases and provisions of a statute, it may become necessary for judges to embark into lengthy discussions but the discussion is meant to explain and not to define Judges interpret statutes, they do not interpret judgments. They interpret words of statutes, their words are not to be interpreted as statutes In London Graving Dock Co. Ltd v Horton (1951 AC 737 at p. 761), Lord Mac Dermot observed "The matter c....
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....ious orders/ judicial pronouncements passed in this regard I have gone through these cases and find that facts & circumstances of those cases are different from this case, therefore the ratio of the decisions of those cases are not applicable in this case On the other hand, I place reliance upon the pronouncement made in the case of Bellary City Cable Vs CCE, Belgaum 2015 (39) STR 687 (Trib-Bang.)] wherein it was, interalia, held that "the intention behind introduction of provisions of Section 80 of Finance Act, 1994 was to ensure assessee failing to pay tax to make payment with interest and lenient view can be taken as regards penalty in cases of lack of knowledge and reasonable cause" 5.11 I also observe that w.e.f. 1st July 2017, the Chapter V of the Finance Act, 1994 was omitted by virtue of Section 173 of the CGST Act, 2017 notified vide Notification No. 9/2017 Central Tax dated 28th June, 2017 However, by virtue of saving clause provided under Section 174 of the CGST Act, 2017 all past investigation, inquiry, verification (including scrutiny and audit), assessment proceedings and adjudication had no effect of such repeal/amendment. Section 174 (2) (e) of the CGST Act....
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....angible goods for use, without transferring right of possession and effective control over such goods, as a 'taxable service'. Section 65(105)(zzzzj) of the Finance Act, 1994 reads as follows : "65(105) "taxable service" means any service provided or to be provided - xx xx xx (zzzzj) to any person, by any other person in relation to supply of tangible goods including machinery, equipment and appliances for use, without transferring right of possession and effective control of such machinery, equipment and appliances." 14. Section 65(105)(zzzzj) of the Finance Act, 1994 was introduced by Notification No. 18/2008-S.T. with effect from 16 May, 2008. Section 65(105)(zzzzj) levies a service tax on the use of tangible goods. On the other hand, the transfer of the right to use any goods is treated as a 'deemed sale' and is subject to sales tax under Article 366(29-A)(d) of the Constitution of India. It is necessary to distinguish the applicability of these two provisions. Article 366(29A)(d), provides : "366(29A) tax on the sale or purchase of goods includes - xx xx xx (d) a tax on the transfer of the right to use any goods fo....
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....e goods. Recently, this Court in Great Eastern Shipping Company Limited v. State of Karnataka and Others [2020 (3) SCC 354 = 2020 (32) G.S.T.L. 3 (S.C.)] considered whether the transfer of a vessel under a charter party agreement was a 'deemed sale', subject to sales tax. The Court, after analysing the terms of the charter party agreement, held : "43. We are not turning our decision upon the terms used like 'let', 'hire', 'delivery' and 'redelivery' but on the other essential terms of the Charter Party Agreement entered in the instant case which clearly makes out that there is a transfer of exclusive right to use the vessel which is a deemed sale and is liable to tax under the KST Act. In the instant case, full control of the vessel had been given to the charterer to use exclusively for six months, and delivery had also been made. The use by charterer exclusively for six months makes it out that it is definitely a contract of transfer of right to use the vessel with which we are concerned in the instant matter, and that is a deemed sale as specified in Article 366(29A)(d). On the basis of the abovementioned decision, it was urged that all Charter Party Agreements are servi....
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....x on an activity. That, service tax is a value added tax. The value addition is on account of the activity which provides value addition...Thus, service tax is imposed every time service is rendered to the customer/client...Thus, the taxable event in each exercise/activity undertaken by the service provider and each time service tax gets attracted." (emphasis supplied) 18. The introduction of Section 65(105)(zzzzj) in the Finance Act, 1994, was with the intention of taxing such activities that enable the customer's use of the service provider's goods without transfer of the right of possession and effective control. This provision creates an element of taxation over a service, as opposed to a 'deemed sale' under Article 366(29A)(d). For the purpose of clarification, the Department of Revenue issued a Circular, D.O.F. No. 334/1/2008-TRU, dated 29 February, 2008. The said circular clarified the applicability of Section 65(105)(zzzzj) vis-a-vis Article 366(29A)(d). The relevant portions of the circular are as follows : "4.4 SUPPLY OF TANGIBLE GOODS FOR USE : 4.4.1 Transfer of the right to use any goods is leviable to sales tax/VAT as deemed sale of goods [Ar....
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....onal Shipowners' Association and Anr. [2010 (14) SCC 438 = 2011 (21) S.T.R. 3 (S.C.)]. This Court explicitly restricted itself to the interpretation of Section 65(105)(zzz) while leaving the other observations on interpretation of the law, "open to be considered at length at an appropriate stage" [2010 (14) SCC 438, para 7]. We note however, the analysis of Section 65(105)(zzzzj) of the Bombay High Court, where the High Court observed : "38. Entry (zzzzj) is entirely a new entry. Whereas Entry (zzzy) covers services provided to any person in relation to mining of mineral, oil or gas, services covered by Entry (zzzzj) can be identified by the presence of two characteristics namely (a) supply of tangible goods including machinery, equipment and appliances for use, (b) there is no transfer of right of possession and effective control of such machinery, equipment and appliances. According to the members of the 1st petitioner, they supply offshore support vessels to carry out jobs like anchor handling, towing of vessels, supply to rig or platform, diving support, fire fighting etc. Their marine construction barges support offshore construction, provide accommodation, crane supp....
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....s would be constructed and maintained by the Seller at the Buyer's cost." (emphasis supplied) Clause 5.3 states that the 'Measurement Equipment' is to be supplied, installed and maintained by the seller at the cost of the buyer : "5.3 The Measurement Equipment shall be supplied, installed and maintained by the Seller at the Buyer's cost. Ownership of equipment will rest with AEL [respondent herein] forever. Buyer shall provide free of cost adequate land and power connection in its premise for the installation of Measurement Equipment. Buyer shall pay for providing gas pipeline connection including pipeline from distribution mains upto the measurement equipment; and measurement equipment to its unit as per the proposal submitted by the Seller." (emphasis supplied) Clause 5.4 provides that : "5.4 Gas pipeline from nearest Distribution Mains to the Measurement equipment shall be constructed and maintained by the Seller at Buyer's cost. The Buyer agrees to let the Seller or his authorised representative to supply, construct, install commission and maintain the supply pipeline from main distribution line upto the Measurement Equipment and Mea....
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....route of pipeline upto all consumption points and gas consuming facilities inside the Buyer's premises." Under clause 7.1, 'title and risk' in the gas passes from the seller to the buyer at the Delivery Point. Clause 8.1 defines the expression 'Daily Contract Quantity'. Clause 9.2 of the agreement deals with measurement and calibration : "9.2 Measurement and Calibration 9.2.1 Quantity of Gas supplied under this Agreement shall be measured at the Delivery Point in SCM. The measurement shall include all corrections in installation practices recommended for accurate metering of Gas by the American Gas Association (AGA) Gas Measurement Committee report No. 3, 7 and 8. 9.2.2 The Measurement Equipment shall be supplied, installed, owned and maintained by the Seller at the Buyer's cost. 9.2.3 Working of the Measurement Equipment shall be verified periodically by the Parties. 9.2.4 ....... 9.2.5 ....... 9.2.6 ...... 9.2.8 Notwithstanding anything contained in this Agreement, pending the result of any check/re-calibration, the Buyer shall not withhold payments to the Seller under this Agreement on this account.....
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....ment in the form of a cash deposit is required to be maintained by the buyer equivalent to the DCQ ["Daily Contract Quality"] multiplied by thirty and by the contract price. If the seller draws upon the payment security, the buyer has to make good the amount withdrawn. Clause 14 of the Agreement further provides for the representations and warranties of the buyer and seller. Clause 14.3 reads as follows : "14.3 Buyer's Warranties and Undertakings The Buyer warrants and undertakes to the Seller that throughout the term of this Agreement : (a) the Buyer's Facilities will be technically and operationally compatible with the Seller's Facilities at the Delivery Point and fit for purpose for off take of gas from the Delivery Point; (b) the Buyer's Facilities will be maintained in good working order and condition and so operated as to be compatible with the fulfilment of the obligations of the Buyer under this Agreement;..." Under the above clause 14.3, the buyer warrants to maintain the "Buyer's Facilities", which includes the 'measurement equipment', in good working order and condition and technically and operationally comp....
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....on of the seller is to deliver gas to the buyer at the Delivery Point. The gas pipeline from the nearest distribution main to the buyers' metering station is constructed and maintained by the seller at the cost of the buyer. The measurement equipment is supplied, installed and maintained by the seller at the cost of the buyer, in spite of ownership of the equipment resting with the respondent as the seller. The measurement equipment is installed and maintained exclusively by the seller. Clause 5.6 indicates that the buyer has no right to adjust, clean, handle, replace, maintain, remove or modify it in any manner. Clause 5.10 guarantees the seller's access to the Measurement Equipment at the buyer's premises at all hours. Ownership, control and possession of the measurement equipment is with the respondent. The measurement equipment comprises not only of electronic meters that are useful for determining the quantity of gas supplied to the purchaser at the Delivery Point, but also of isolation valves, filters and regulators that are crucial for regulating the pressure of gas and ensuring safe operation of the buyer's facilities. In order to maintain the sanctity of the equipment, the....
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....in an end. State v. Howard, 221 Kan. 51, 557 P. 2d 1280, 1281. Non-technical sense. The "use" of a thing means that one is to enjoy, hold, occupy or have some manner of benefit thereof. Use also means usefulness, utility, advantage, productive of benefit." 27. The expression "use" does not have a fixed meaning. The content of the expression must be based on the context in which the expression is adopted. The use of an article may or may not result in a visible change in its form or substance. Moreover, the nature of use is conditioned by the kind of article which is put to use. Section 65(105) of the Finance Act, 1994 envisages myriad interpretations of the expression "use", in a variety of services such as telecommunication [Section 65(105)(zzzzb), Finance Act, 1994], renting of immovable property [Section 65(105)(zzz-z), Finance Act, 1994], and services related to art, entertainment, and marriage [Section 65(105)(zzzzr), Finance Act, 1994]. In the case of some articles, use may be signified by a physical operation of the article by the person who uses it. In such a case, actual physical use is what is meant by the supply of the goods for the use of another. In t....
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....ubserves the contractual rights of both the seller and the purchaser of gas. Indeed, without the SKID equipment there would be no gas supply agreement. In fact, in the GSA, the buyer has also provided a warranty to ensure that the "Buyer's Facilities" remain technically and operationally compatible with the "Seller's Facilities", both of which include the 'measurement equipment'. This warranty would not have been provided if the measurement equipment was not of 'use' to the buyer. The equipment is thus a vital ingredient of the agreement towards protecting the mutual rights of the parties and in ensuring the fulfilment of their reciprocal obligations as seller and buyer in regulating the supply of gas. As an incident of regulating supply, it determines the correct quantity of gas that is supplied. The obligation to supply, install and maintain the equipment is cast upon the seller as an incident of control and possession being with the seller. Section 65(105)(zzzzj) applies precisely in a situation where the use of the goods by a person is not accompanied by control and possession. 'Use' in the context of SKID equipment postulates the utilization of the equipment for the purpose of....
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....th in the case of 'canned' and 'uncanned' software all these are possible (sic para 16). Associated Cement Companies Ltd. v. Commissioner of Customs, (2001) 4 SCC 593 = 2001 (128) E.L.T. 21 (S.C.), was heavily relied on by this Court. It was held :- "27. In our view, the term "goods" as used in Article 366(12) of the Constitution and as defined under the said Act is very wide and includes all types of movable properties, whether those properties be tangible or intangible. We are in complete agreement with the observations made by this Court in Associated Cement Companies Ltd. A software program may consist of various commands which enable the computer to perform a designated task. The copyright in that program may remain with the originator of the program. But the moment copies are made and marketed, it becomes goods, which are susceptible to sales tax. Even intellectual property, once it is put on to a media, whether it be in the form of books or canvas (in case of painting) or computer discs or cassettes, and marketed would become "goods". We see no difference between a sale of a software program on a CD/floppy disc from a sale of music on a cassette/CD or a sale of a fi....
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.... and/or whether the contract is a service contract may arise". 43. Associated Cement Companies Ltd. (supra) considered the question whether the drawings, designs, etc. relating to machinery or industrial technology were goods, leviable to duty of customs on their transaction value at the time of import. It was argued that the transfer of technology or know-how though valuable was intangible. The technology when transmitted to India on some media does not get converted from an intangible thing to tangible thing or chattel and that in a contract by supply of services there is no sale of goods, was the argument. Reading Section 2(22) of the Customs Act, 1962 which defines the word "goods", including clause (c) "baggage" and clause (e) "any other kind of moveable property", it was held that any moveable article brought into India by a passenger as part of his baggage can make him liable to pay customs duty as per the Customs Tariff Act, 1975. Any media whether in the form of books or computer disks or cassettes which contain information technology or ideas would necessarily be regarded as "goods" under the aforesaid provisions of the Customs Act, these items being moveable goo....
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....plicable, used in the various sub-clauses. Thus, the transfer of goods will be a deemed sale in the cases of sub-clauses (a) and (b), the delivery of goods will be a deemed sale in case of sub-clause (c), the supply of goods and services respectively will be deemed sales in the cases of sub-clauses (e) and (f) and the transfer of the right to use any goods will be a deemed sale in the case of sub-clause (d). Clause (29A) cannot, in our view, be read as implying that the tax under sub-clause (d) is to be imposed not on the transfer of the right to use goods but on the delivery of the goods for use. Nor, in our view, can a transfer of the right to use goods in sub-clause (d) of clause (29A) be equated with the third sort of bailment referred to in Bailment by Palmer, 1979 edition, page 88. The third sort referred to there is when goods are left with the bailee to be used by him for hire, which implies the transfer of the goods to the bailee. In the case of sub-clause (d), the goods are not required to be left with the transferee. All that is required is that there is a transfer of the right to use the goods. In our view, therefore, on a plain construction of sub-clause (d) of Clause ....
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....e a transfer of right to use the "goods" as defined in the providing of access or telephone connection by the telephone service provider to a subscriber. Justice Ruma Pal, speaking for the Bench in her separate judgment, took the view that a subscriber to a telephone service could not reasonably be taken to have intended to purchase or obtain any right to use electromagnetic waves or radio frequencies when a telephone connection is given. Nor does the subscriber intend to use any portion of the wiring, the cable, the satellite, the telephone exchange, etc. At the most, the concept of the sale in a subscriber's mind would be limited to the handset that might have been purchased for the purposes of getting a telephone connection. As far as the subscriber is concerned, no right to the use of any other goods, incorporeal or corporeal, is given to him with the telephone connection. In such circumstances, it was held that the electromagnetic waves or radio frequencies are not "goods" within the meaning of the words "either in Article 366(12) or for the purpose of Article 366(29A)(b)". Emphasis was laid on the fact, whether there are any deliverable goods or not. If there are no deliverab....
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....was purely one of service as there was no transfer of right to use the goods at all. 51. The following principles to the extent relevant may be summed up :- (a) The Constitution (Forty-sixth) Amendment Act intends to rope in various economic activities 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 (29A) 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. (b) 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. (c) There are clear distinguishing features between ordinary sales and deemed sales. (d) Article 366(29A)(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....
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....s of the transaction; (iv) the effective or general control does not mean always physical control and, even if the manner, method, modalities and the time of the use of goods is decided by the lessee or the customer, it would be under the effective or general control over the goods; (v) the approvals, concessions, licences and permits in relation to goods would also be available to the user of goods, even if such licences or permits are in the name of owner (transferor) of the goods; and (vi) during the period of contract exclusive right to use goods along with permits, licenses, etc., vests in the lessee." 4.5 From the above decisions it is evident that in terms of the definition as per Section 65 (105) (zzzzj) of the Finance Act, 1994, the taxable service is in respect of supply of goods for use by one person to another person without transferring the ownership, control and possession of the goods to the other person. Before we further proceed in the matter what is necessary is to take the note of the appellant and the parties involved in the transactions undertaken by the appellant. It is the submission of the appellant M/s SICC has a unit "Sa....
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....adequate insurance cover for the assets given on lease to second party. 5. That the first party shall bear the entire license fees etc. to be paid to Govt authorities in respect of usage of such assets. 6. That the maintenance charges, whatever, which may be incurred for the use of the assets given on lease, shall be borne by the second party only and no part of such maintenance charges shall be defrayed by the first party, subject to clause 4. 7. That if by any act of God or human being the assets are damaged, destroyed or lost, partially or wholly, the second party is bound to pay compensation and damages to the first party and the first party shall be only judge to decide compensation and damages for the same. However, it shall not exceed the original cost of the assets so destroyed, damaged or lost after taking into consideration the insurance claim, if any receivable. 8. That the first party shall have right to inspect all the assets given on lease to the second party by the Engineers/ Authorised representative at any time in order to ensure the condition of the assets so given on lease and its proper utilization. 9. That the second....
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.... charges for the operation of assets will be borne by the lessee subject to the provisions of clause 4. e) Appellant shall charge compensation in case of any damage (Clause 7). f) Appellant shall have right to inspect all the assets through their Engineers/ authorized representatives at any time to ensure the condition of the assets (Clause 8). g) That the second party shall not be entitled to sub-let to any one, wholly or partially, any part of the assets without the prior consent of the first party (Clause 9). 4.6 On perusal of these clauses and the definition of "Supply of Tangible Goods Services", it is evident that the instant agreement fulfils the condition of taxable service by way of supply of tangible goods including machinery, equipment and appliances for use (earth station and related equipment in the instant case), without transferring right of possession and effective control of such machinery, equipment and appliances. The registration certificate of the utility van, which was a part of the equipment leased out, was registered in the name of appellant on 29.12.2008 and remains under their control, as shown in the fitness certificate....
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....ts is not at the demise of the right of the appellant to transfer the same right to third party. In case of Association Of Leasing & Financial Service Companies [2010 (20) S.T.R. 417 (S.C.)] Hon'ble Supreme Court observed: 21. ..........That, in substance a finance lease, unlike an operating lease, is a financial loan (assistance/facility) by the lessor to the lessee. That, in the bailment termed "hire" the bailee receives both possession of the chattel and the right to use it in return for remuneration. On the other hand, equipment leasing is long term financing which helps the borrower to raise funds without outright payment in the first instance. Here the "interest" element cannot be compared to consideration for lease/hire which is in the nature of remuneration (consideration) for hire. Thus, financing as an activity or business of NBFCs is different and distinct from operating lease/hire-purchase agreements in the classical sense. The elements of the finance lease or loan transaction are quite different from those in equipment leasing/hire-purchase agreements between owner (lessor) and the hirer (lessee). There are two independent transactions and what the impugned ta....
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....n particular, looking to clauses 1, 5, 7, 13 and 14, it becomes clear that the transaction did not involve transfer of right to use the machinery in favour of contractors. The High Court was right in arriving at such a conclusion. In the impugned order, it is stated, and rightly so in our opinion, that the effective control of the machinery even while the machinery was in use of the contractor was that of the respondent company; the contractor was not free to make use of the machinery for the works other than the project work of the respondent or move it out during the period the 'machinery was in his use; the condition that the contractor would be responsible for the custody of the machinery while it was on the site did not militate against respondent's possession and control of the machinery. It may also be noticed that even the Appellate Deputy Commissioner, Kakinada in the order dated 15-11-1999 in regard to assessment years 1986-87 and 1987-88 held that under the terms and conditions of the agreement, there was no transfer of right to use the machinery in favour of the contractor. Although it cannot be said that the appellant was estopped from contending otherwise in regard to....
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....se, but the assets have been provided for use against a "lease amount" agreed. It is settled law that if there was transfer of the right to use, then it would have been at the demise of the same right to to the appellant. It is not the case here as is evident from the clause 2 of the agreement dated 01.04.2009. In case of the AGS Entertainment [2013 (32) STR 129 (Mad)] Hon'ble Madras High Court has held as follows: "35. Article 366(29A) no doubt served to extend the meaning of the word "sale". The taxable event under Article 366(29A) is the transfer of right to use the goods regardless of whether the goods are delivered for use. Levy of tax is not on use of goods, but on the transfer of the right to use the goods. Article 366(29A) of the Constitution permits tax on "sale of goods" and within its ambit, "transfer of right to use the goods". While completing transfer or right to use any goods (where the original owner relinquishes his copyright) may be considered as "sale of goods", "temporary transfer of right" or "a mere transfer of right to use or enjoy copyright for specified purpose(s)", is certainly a "service" provided by the person, who is the holder of copyright. As....
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....he transfer of right. In other words, right to use arises only on the transfer of such a right and unless there is transfer of right, the right to use does not arise. Therefore, it is the transfer which is sine qua non for the right to use any goods. If the goods are available, the transfer of the right to use takes place when the contract in respect thereof is executed. As soon as the contract is executed, the right is vested in the lessee. Thus, the situs of taxable event of such a tax would be the transfer which legally transfers the right to use goods. In other words, if the goods are available irrespective of the fact where the goods are located and a written contract is entered into between the parties, the taxable event on such a deemed sale would be the execution of the contract for the transfer of right to use goods. But in case of an oral or implied transfer of the right to use goods it may be effected by the delivery of the goods." 37. Section 65(105)(zzzzt) seeks to tax viz., "temporary transfer or permitting the use or enjoyment" of copyright which is a service provided by the producer/distributor/exhibitor. Service Tax is a levy not on the "transfer of right ....
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....by the appellant in respect of the penalties imposed under Section 76 and 77 of the Finance Act, 1994. The penalties under these Sections are not the penalties under section 78 which were to be imposed for various offences which required a guilty mind or intent to evade payment of tax. The penalties under these section are for failure to comply with the legal obligations. Hon'ble Supreme Court has in case of Gujarat Travancore Agency [1989 (42) E.L.T. 350 (S.C.)] observed as follows: "4. Learned Counsel for the assessee has addressed an exhaustive argument before us on the question whether a penalty imposed under Section 271(1)(a) of the Act involves the element of mens rea and in support of his submission that it does he has placed before us several cases decided by this Court and the High Courts in order to demonstrate that the proceedings by way of penalty under Section 271(1)(a) of the Act are quasi criminal in nature and that, therefore, the element of mens rea is a mandatory requirement before a penalty can be imposed under Section 271(1)(a). We are relieved of the necessity of referring to all those decisions. Indeed, many of them were considered by the High Court a....
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....the element of mens rea was not required to be proved in the proceedings taken by the Income Tax Officer under Section 271(1)(a) of the Income-tax Act against the assessee for the assessment years 1965-66 and 1966-67." 4.8 As we uphold the demand of Service Tax, demand for interest under Section 75 follows." 4.5 The view taken by us in the said order is on the basis of the decision of Hon'ble Supreme Court in the case of M/s Adani Gas Ltd. This decision of Adani Gas Ltd. has been followed by Hon'ble Supreme Court in the case of M/s K.P. MOZIKA Versus OIL AND NATURAL GAS CORPORATION LTD. 2024 (388) ELT 11 (SC) wherein following has been held:- "30. There is another decision of this Court in the case of BSNL. This case was decided by a bench of three Hon'ble Judges of this Court. The question decided in this case was about the nature of the transaction by which mobile phone connections were provided. The question was whether it was a sale of goods that would attract sales tax or a service that would attract service tax under Entry 97 of List-I of the Seventh Schedule to the Constitution of India. There were several issues, including an issue of whether there is a....
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.... (Underline supplied) Thus, this Court held that to attract sub-clause (d) of clause (29A) of Article 366, the goods must be available at the time of transfer, must be deliverable and delivered at some stage. If the goods are not deliverable at all by the service provider to the subscriber, the question of the right to use those goods would not arise. 31. What is relevant in the case of BSNL is the concurring view taken by Dr. A.R. Laxmanan, J. In Paragraph 97, Dr. A.R. Laxmanan, J. held thus : To constitute a transaction for the "97. transfer of the right to use the goods, the transaction must have the following attributes : (a) there must be goods available for delivery; (b) there must be a consensus ad idem as to the identity of the goods; (c) the transferee should have a legal right to use the goods-consequently all legal consequences of such use including any permissions or licences required therefor should be available to the transferee; (d) 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 of the ....
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....ods 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 (29A) cannot be equated with that category of bailment where goods are left with the bailee to be used by him for hire. In the case of Article 366(29A)(d) the 53.5 goods are not required to be left with the transferee. All that is required is that there is a transfer of the right to use goods. In such a case taxable event occurs regardless of when or whether the goods are delivered for use. What is required is that the goods should be in existence so that they may be used. The levy of tax under Article 366(29-A)(d) 53.6 is not on the use of goods. It is on the transfer of the right to use goods which accrues only on account of the transfer of the right. In other words, the right to use goods arises only on the transfer of such right to use goods. The transfer of right is the 53.7 sine qua non for the right to use any goods, and such transfer takes place when the contract is executed under which the right is vested in the lessee. The agreement or the contract between the 53.8 parties would dete....