TaxTMI 
TaxTMI 
2024 (10) TMI 1799
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.... classifiable under 'supply of tangible goods' under section 65(105)(zzzzj) for the period before 01.07.2012 and under 'taxable services' under Section 65B(44) read with section 65(51) or declared services under Section 66E(f) of the Finance Act, 1994 for period post 01.07.2012 or the transactions are in the nature of transfer of right to use which is a deemed sale under Article 366(29A)(d) of the Constitution of India and not liable to service tax. 3. The brief facts of the case are Appellant is registered under various categories of service tax and on scrutiny of the records for the period from October 2011 to September 2016, the Audit team observed that the Appellant had received income under the head 'lease income' and further observed that they had entered into 'home base lease' agreements with different Airlines in India for providing the right to use the home base components for a consideration as contracted in the respective agreements and the appellant had raised invoices for the home based lease for handing over the home based components to M/s. GoAir Airlines and other Airlines. Since such consideration received was shown as 'lease ....
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....es leasing in a manner which involves transfer of right to use such goods. Therefore, it is clear the Appellant's transactions are in the nature of transfer of right to use and are "Deemed Sale" under Article 366 (29A)(d) of the Constitution of India and the same cannot be classified under "taxable service" under Section 65B (51) or as 'Declared Service' under Section 66E (f) of the Finance Act, 1994. 6. The Learned Counsel further submits that; the components supplied by the Appellant are leased by the Appellant and it forms a part of the aircraft and its internal engine and mechanism; the Appellant transferred the right to use of these 'home based components' to Airline customers; once the Appellant delivers possession of these components the customers are free to use home based components in any air station of their preference; the limited condition imposed in the contract is that the customer cannot further incumber or sell the 'home based components'; and on termination of the agreement, possession of the home based components has to be handed over by the respective Airlines to the Appellant; further, after delivery of the possession, Appellant d....
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....st in or encumbrance on, loan or otherwise transfer in any manner whatsoever any Home Base Component to a third party" f. The transfer of right to use the Home Base Component is limited right and the Airline Customer cannot further encumber or sell the Home Base Component. g. Upon termination of the agreement, possession of the Home Base Components is to be handed over by the Airline to the Appellant. The Relevant Clause 3.3. Home Base Agreement between Appellant and M/s. QuickJet; "3.3......Immediately upon the expiry of the Term or earlier termination of this Agreement in terms of Article 10 hereunder, Customer shall hand over possession of the Home Base Components listed in Annex:..... Such Components shall be either the same or fully interchangeable Home Base Components which are airworthy, operational and free from defects." h. After the delivery of possession, the Appellant does not incur any responsibility or liabilities with respect to these components: Relevant Clause 5.1.3. of Home Base Agreement between Appellant and M/s. Jet Airways reads as under; "3.2 Upon LTSI giving JET the right to use the Home Base Components, ....
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....t Regulations issued by the Appellant but shall not be entitled to and shall not under any circumstances whatsoever sell, lease, hypothecate or create a charge on these components. The learned counsel submits that the above said conditions are very common, and it doesn't give any rights or control over the goods till they are in the custody of the customer. 10. The learned counsel also submitted that the allegation in the show cause notice (SCN) is that the Airlines have mere physical custody of the lease asset during the period of tenure and has right only to extent of using of the equipment for day-to-day operations is factually incorrect, also the findings that the Appellant have transferred merely the physical possession of the goods and have retained the legal rights of usage and control and the said finding is also factually incorrect, as evident from the contract entered by the Appellant, the right is transferred to the clients during the period of lease deed and Appellant have no control over the goods during the lease period. The learned counsel also draws our attention to the definition of 'supply of tangible goods' service and service under Section 65B(44), de....
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....t again transfer the same rights to others." 11. Thus, following the law laid down by the Hon'ble Apex Court, the transaction carried out by the Appellant with the customer is a deemed sale and it is not a service as alleged. Further the issue was considered by the Apex Court in the matter of M/s. Adani Gas Ltd in Civil Appeal No. 2633/2020 and as per the judgment dated 28.08.2020 wherein, it is held that:- "20. The taxable service is defined as a service which is provided or which is to be provided by any person to another "in relation to supply of tangible goods" The provision indicates that the goods may include machinery, equipment or appliances. The crucial ingredient of the definition is that the supply of tangible goods is for the use of another, without transferring the right of possession and effective control "of such machinery, equipment and appliances". Hence, in order to attract the definition of a taxable service under sub-clause (zzzzj), the ingredients that have to be fulfilled are: (i) The provision of a service; (ii) The service is provided by a person to another person; (iii) The service is provided in relation to the supply....
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.... same issue, suppression of facts cannot be alleged to invoke the extended period of limitation. 14. The learned counsel also draws our attention to the Circular No. 334/1/2008/TRU dated 29.02.2008, where it is specifically stated that; "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 [Article 366(29A)(d) of the Constitution of India]. Transfer of right to use involves transfer of both possession and control of the goods to the user of the goods. 4.4.2 Excavators, wheel loaders, dump trucks, crawler carriers, compaction equipment, cranes, etc., offshore construction vessels & barges, geo-technical vessels, tug and barge flotillas, rigs and high value machineries are supplied for use, with no legal right of possession and effective control. Transaction of allowing another person to use the goods, without giving legal right of possession and effective control, not being treated as sale of goods, is treated as service. 4.4.3 Proposal is to levy service tax on such services provided in relation to supply of tangible goods, including machinery, equipment and ap....
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....y. In the instant case, the vessel was available for delivery and in fact, had been delivered. There is no dispute as to the vessel and the charterer has a legal right to use the goods, and the permission / licence has been made available to the charterer to the exclusion of the contractor. Thus, there is complete transfer of the right to use. It cannot be said that the agreement and the conditions subject to which it has been made, is not a transfer of right to use the goods, during the period of six months, the contractor has no right to give the vessel for use to anyone else. Thus, in view of the provisions inserted in Article 366(29A)(d), section 5C, and definition of 'sale' in section 2 of the KST Act, there is no room for doubt that there is a transfer of right to use the vessel." 16. The learned counsel also relied on the decision of the Hon'ble Apex Court in the matter of State of Andhra Pradesh Vs. Rastriya Inspat Nigam (AIR 2002 SC 1305) and CC Vs. M/s. Quick Heal Technology Ltd (2022 SCC Online SC 976) and submits that the principle governing transfer of right to use under Article 366)(29-A)(d) of the Constitution is settled in the above matter and the tra....
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....ithin the meaning of Clause 29A(d) of the Article 366 of the Constitution or transaction in money or actionable claim. Further, declared service is defined under section 65E(f) reads as "transfer of goods by way of hiring, leasing, licensing or in any such manner without transfer of right to use such goods;" However, in Appellant's case the goods were transferred to the customer and as per the conditions of the agreements, Appellant retained the control over the goods by incorporating different clauses in the contracts entered by the Appellant with the respective Airlines. Therefore, the transaction carried out by the Appellant cannot be considered as sale of goods. Further, there is no evidence produced by the Appellant that they have paid applicable VAT to confirm the sale of the goods as falling under the category of sale. Moreover, on perusal of records it is evident that the remuneration received for the supply of the home based components for use from the respective Airlines is only a nominal amount compared to the import price of the goods. Also considering this fact, the transaction carried out by the Appellant with the respective airlines cannot be considered as classifiab....