TaxTMI 
TaxTMI 
2026 (4) TMI 1513
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.... of tangible goods for use' under section 65(105)(zzzzj) of the Finance Act said to have been rendered by the appellant during the period from 28.05.2008 to 31.03.2010 with interest and penalty. 2. Service Tax Appeal No. 50634 of 2013 has been filed by the appellant to assail the same order 27.09.2013 passed by the Commissioner confirming the demand of service tax under section 73 of the Finance Act on the amount received against the taxable services of 'supply of tangible goods for use' rendered during the period from 01.04.2011 to 31.03.2012 with interest and penalty. 3. Service Tax Appeal No. 70076 of 2016 has been filed by the appellant to assail the order 17.08.2015 passed by the Commissioner confirming the demand of service tax upon the appellant under section 73 of the Finance Act on the taxable service of 'supply of tangible goods for use' for the period from April 2012 to September 2013 with interest and penalty. 4. The following chart gives details of the three Service Tax Appeals: Appellant 50642/2014 50634/2014 70076/2016 Impugned Order date 27.09.2013 27.09.2013 17.08.2015 Show Cause Notice date 13.02.2012 (SCN-I) 13.02.2012 (S....
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....nd during such period the responsibility of the equipments would rest entirely and exclusively with the customers. According to the appellant, effective possession and control of the equipments was transferred to the customers, but the ownership of the equipments remained with the appellant. 8. The relevant terms of the Agreement entered into with various customers are summarized below: (a) The equipments shall be under the possession, control and custody of the customers during the tenure of the agreements; (b) An operator for operating the equipments may either be deputed by the customer itself or by the appellant, at the request of the customer. However, in both cases, the responsibility for any claim arising in connection with the operation of the equipments would vest with the customer; (c) The equipments delivered on rent by the appellant, shall be at the sole risk of the customers. The customers shall indemnify the appellant against any losses, damages, or destruction to the equipments or any component thereof; (d) The equipments will be returned to the appellant on the expiry of the contract period; (e) The appellant, upon del....
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....inance Act. The Commissioner also ordered for recovery of interest under section 75 of the Finance Act and penalty under section 78 of the Finance Act. The Commissioner also held that the extended period of limitation in the first show cause notice was correctly invoked. However, penalty proposed under section 76 of the Finance Act was dropped. 14. Feeling aggrieved, the appellant has filed three appeals before this Tribunal to the extent the orders are prejudicial to the interest of the appellant. 15. The relevant portions of the order passed by the Commissioner regarding levy of service tax on the renting of the equipments are reproduced below: "3.7. I find that it is an admitted fact that M/s TIL and M/S TIPL have supplied tangible goods including machinery, equipments and appliances to various parties under "Agreement of Hiring" entered with the said parties for their use. The foremost issue to be decided in the instant case, therefore, is whether 'the right of possession and effective control' over the tangible goods supplied by them was also transferred so as to construe it to be "transfer of right to use" as envisaged under Article 366(29A)(d) of the C....
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....the customer may also operate the equipments through own skilled and trained operators but before doing so, the Customer has to obtain prior concurrence of M/S TIL in writing. Thus, even if the customer wishes to get the equipments operated by an operator other than the operated provided by M/s TIL, such operator cannot operate the equipments without written concurrence of M/S TIL. I further observe that the responsibilities of the Customer to whom the equipments has been supplied, are to provide storage space for parts, consumables & tools of the equipments with locking facility, to arrange fuel, safe parking space for the equipments, accommodation, messing & food for Machine operator & crew and other basic facilities. In view of the above terms & conditions stipulated in the said "AGREEMENT OF HIRING OF EQUIPMENTS" subject to which the supply of equipments has been made by M/s TIL, I find that M/s TIL retained the effective control of the equipments supplied to their customer all along during the entire running period of the Agreement and the customer was getting/making use of the said equipments under the command & effective control that M/s TIL exercised over the equip....
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....y and applicability of Service tax. The enforceability and applicability of a particular Taxing Statute is to be determined in each case having regard to terms of contract under which transfer takes place, intention of parties and their attendant circumstances." (emphasis supplied) 17. Shri B.L. Narasimhan, learned counsel for the appellant assisted by Ms. Sukriti Das and Shri Ashutosh Chaudhary made the following submissions. (i) The issue involved in the present case has been decided by the Tribunal in the own case of the appellant involving identical issue in the order dated 22.07.2025; (ii) The present transaction is in the nature of 'deemed sale' under article 366(29A) of the Constitution of India and subject to levy of Sales Tax/VAT; (iii) The activity of 'supply of tangible goods' became taxable w.e.f. 16.05.2008. Therefore, the agreements/contracts entered with customers prior to the taxable event would not be leviable to service tax; (iv) Service tax and VAT are mutually exclusive and in the instant case demand of service tax is not sustainable since VAT was undisputedly paid on the transaction; (v) The extended period of ....
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....y 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 transaction in money or actionable claim" 24. Section 66E(f) of the Finance Act was also inserted with effect from 01.07.2012 and sub-section (f) of Section 66E is as follows : "66E. The following shall constitute declared services, namely:- (f) transfer of goods by way of hiring, leasing, licensing or in any such manner without transfer of right to use such goods;" 25. In this connection, 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: "54. Taxes on the sale or purchase of goods other than newspaper, subject to the provisions of Entry 92 A of List I" 26. The forty-sixth amendment to the Constitution extended the meaning of "sale or purchase of goods" by giving an inclusive definition of the phrase "tax on the sale or purchase of goods" under article 366(29A) of the Constituti....
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....o use the goods during the period for which it is to be transferred, the owner cannot again transfer the same rights to others." (emphasis supplied) 29. It can safely be said that under Sales Tax, there is transfer of possession and effective control in goods, while there is no such transfer of possession and effective control under service tax. 30. The nature of the transaction between the appellant and the customer would, therefore, have to be examined. The appellant had entered into agreements with various customers for renting out of equipments for specific periods on terms and conditions specified therein. Under the conditions, the equipments were to remain under the possession, control and custody of the customers during the tenure of the agreement. The operator for operating the equipments could either be deputed by the customers or by the appellant, if such a request was made by the customers. However, in both cases, the responsibility for any claim arising in connection with the operation of the equipments was to vest with the customers. The equipments delivered on rent by the appellant to the customers were at the sole risk of the customers and the customers were....
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.... held that service tax could not be levied upon the appellant. 33. These two decisions of the Kolkata Bench of the Tribunal in the matter of the appellant clearly hold that: (a) The appellant transferred the right of possession and the effective control of the equipments of the customers. Thus, no service tax is payable; (b) The appellant paid VAT and, therefore, service tax cannot be demanded from the appellant; and (c) Post 01.07.2012, the provisions of the negative regime has not been invoked the thus, the demand of service tax is not sustainable against the appellant. 34. Learned authorised representative appearing for the department has not placed any decision setting aside the aforesaid two decisions of the Kolkata Bench of the Tribunal. In this view of the matter, it has to be held that the appellant had transferred effective, control and possession of the equipments to the customers and, therefore, it would amount to deemed sales, for which VAT was paid by the appellant. It has also to be held that the appellant was not liable to pay service tax under the head of 'supply of tangible goods service'. 35. It would also be useful to refer to ....
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....he vehicles through out the day or painting them with brand name of Grasim is required keeping in view the possible hurdles in logistics, and to ensure customer satisfaction of getting the required branded RMC. According to him, these clauses by themselves do not warrant an inference of transfer of the right to use Transit Mixers. ******* 42. In addition to the above clauses, we have thoroughly perused and analysed the agreement between the petitioners and Grasim. ******* 45. Reading the recitals and various clauses, indeed there is a transfer of the right to use Transit Mixers. All the tests as indicated hereinabove exist in the contract between the petitioners and Grasim. The vehicles are maintained by the petitioners. They appoint the drivers and fix their roster. The licences, permits and insurances are taken in their names by the petitioners, which they themselves renew. The Transit Mixers go to Grasim's batching plants in Miyapur and Nacharam, where they are loaded with 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 cos....
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....red as a whole, mere employment of the personnel and crew by owners does not derogate from the reality of transfer of possession to and effective control by the assessee over the tankers, for the use of these tangible goods." (emphasis supplied) 38. In Gimmco Limited vs. Commissioner of Central Excise and Service Tax, Nagpur [2017 (48) S.T.R. 476 (Tri.- Mum.)] the Tribunal observed 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 can not 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 Hirer's 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 ....
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.... ONGC and its authorities. Therefore, under the contract though the normal operational time is 10 hours in a day, the ONGC is entitled to deploy the cranes, if required, to the entire period of 24 hours to perform duties the kind of which and the locations whereof is to be decided by the ONGC. The mere fact that after the operation of the crane is over on any given day the crane may come back to the owner/contractor will hardly be material to decide as to who has dominion over the crane inasmuch as the crane can be recalled for duty by the ONGC at any time. Under the contract the crane is to be operated for 26 days in a month and the remaining four days are to be treated as maintenance off days. Though the crane is not operational on the maintenance off days, yet, 50% of the operational charges is paid by the ONGC for the maintenance off days and the terms of the contract make it clear that even on the off days the crane can be called for operation by the ONGC at its sole discretion. 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 th....
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.... the agreement is not correct. It cannot be inferred from the aforesaid terms and conditions that the effective control and possession was retained by the appellant. The ownership of the equipments was with the appellant and the equipments had to be returned to the appellant after the expiry of the term of the agreement. The appellant, therefore, had to maintain the equipments. However, as noted above, the customers had to indemnify the appellant against any losses, damages, or destruction to the equipments or any component thereof. Even if the operator was provided by the appellant, the responsibility for any claim arising in connection with the operation of the equipments was to vest with the customer. The fact that the appellant did not have any authority to use the equipments for any other purpose or withdraw the same from the customer is a defining factor which indicates that the effective control and possession of the equipment was with the customer and not with the appellant. These conclusions find support from the decision of the Gauhati High Court in Dipak Nath and of the Tribunal in Petronet LNG. 43. What also needs to be noticed is that payment of VAT is also a factor....