TaxTMI 
TaxTMI 
2026 (8) TMI 1072
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....Finance Act, 1994 (Act), the Department commenced verification of the appellant's operations. In the course of such verification, the Department also conducted verification of the operations of their related concern, Orient Flights Pvt. Ltd (OFPL). From the documents submitted, the Department noticed that DGCA has renewed permit for the Aircraft King Air C 90A. It was also noticed that OFPL are engaged in "Air Charting" and providing the Aircraft King Air C 90A to its customers. The appellant and OFPL were enquired as to whether there is any agreement between them pertaining to the utilization of the aircraft and also were requested to furnish copies of invoices and details of amounts received. The Department, upon scrutinizing the appellant's balance sheet for 2008-09, trial balance for 2009-10 and invoices, observed that the appellant had accounted receipt of amounts towards "charter flying" and "other collections". The Department formed the view that the appellant had supplied the said aircraft to OFPL without transferring possession and effective control thereof, and has thereby rendered SOTG service taxable under Section 65(105) (zzzzj) of the Act, without registration or paym....
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.... c) SCN No.19/2010 dated 24.05.2010 had already been issued to OFPL proposing service tax on its entire receipts, which included the very lease payments made by OFPL to the appellant. Therefore, confirming the demand again on the appellant on the same receipts amounts to double taxation; d) Although a personal hearing was held on 14.12.2010 pursuant to the first notice, no order was passed thereon before the second notice, invoking the extended period once again, came to be issued; e) The "other collections" reflected in the balance sheet for 201011 represent receipts from joy rides, sale of scrap and renewal of commercial pilot/instrument rating, unconnected with the lease rend, and were wrongly added to the taxable value; f) The Appellate Authority erred in holding that clause 1 of the lease agreement did not satisfy condition (e) of the test laid down by the Supreme Court in Bharat Sanchar Nigam Ltd v. Union of India, and in doing so travelled beyond the findings of the Original Authority; g) The benefit of the Board's clarificatory circulars on the possession and control test was wrongly denied for want of proof of actual payment of VAT, tho....
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....the case laws submitted. 9. On a consideration of the rival submissions, the following issues arise for our determination: i) Whether the arrangement between the appellant and OFPL under the agreement dated 27.01.2008 constitutes "Supply of Tangible Goods Service" under Section 65(105)(zzzzj) of the Act, or does it involve transfer of possession and effective control of the aircraft, taking it outside the ambit of that taxable entry; ii) Whether the amounts shown as "other collections" are includible in the taxable value; iii) Whether confirmation of demand on the appellant, when the identical receipts had already been made the subject matter of SCN No.19/2010 issued to OFPL, results in double taxation; iv) Whether invocation of the extended period of limitation under the proviso to Section 73(1) is sustainable; and v) Whether the penalties imposed under Section 77 and 78 of the Act are sustainable? 10. We proceed to address these issues. As to the first issue, we find that the taxable entry under Section 65(105) (zzzzj) covers supply of tangible goods for use where possession and effective control are not transferred. Where they a....
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....ave approved and agreed to lease the Aircrafts to such persons who have marketing strength and whereas the leases have good contacts which would be utilized to use the excess capacity of the Leased Assets and have thus agreed to take on lease the Leased Assets on lease for a period of 5 years. And whereas the terms and conditions mutually agreed to between the parties governing the lease arrangements are put to writing as under:- 1. The lease of the Leased Assets will be for a period of five years commencing from 27.01.2008 and the Lessee shall be entitled to use the Leased Assets for itself and/or its nominees/ clients as and when required during the period of the Lease. Whenever the Leased Assets is not in use for the Lease or its nominees the lessor shall be entitled to use them for the training programme undertaken by the school for its students. 2. The leased asset on Lease charges given to the Lessee is on a dry lease of Rs 80,000/- per flying hour inclusive of all taxes and running cost for King Air Aircraft and Rs.40,000/- per flying hour inclusive of all taxes and running cost for Piper Seneca Aircraft. All expenses on the Leased Assets during the lease p....
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....ce level agreement for the supply of the aircraft. Further a typical asset lease carries heavy termination penalties because control has shifted whereas in the instant case, it is seen that a simple 30 days' notice period is sufficient for either party to terminate the lease agreement, which gives it the character of an ongoing service agreement of supply of tangible goods. In sum, though the agreement uses terms like "lease" and "lessee", the actual operational clauses show that the lessor retains effective control and legal possession of the aircraft and it is not a transfer of right to use with possession and effective control. When the appellant as the lessor retains the right to use the aircraft when idle, maintains financial responsibility for all running costs and takes back physical delivery after individual trip, effective control and legal possession is never transferred to their related concern, Orient Flights Pvt. Ltd. Therefore, we are of the considered view that the activity of the appellant is rightly classifiable as "supply of tangible goods" and the finding in the impugned order cannot be faulted on this count. 13. As regards the second issue, we find that the S....
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....cts constituting the alleged suppression were already within the knowledge of the Department at the time of an earlier SCN, the extended period cannot be invoked in a subsequent notice on the same or similar facts. Applying this ratio, no wilful suppression or intent to evade tax survives in the facts of this case. We also notice that there is no evidence of any positive act on the part of the appellant brought out in the show cause notices, that would qualify as the ingredients mandated, coupled with intent to evade payment of duty, essential for invocation of the extended period of limitation under the proviso to Section 73(1). Thus, we are of the firm view that the invocation of extended period of limitation in both the SCNs is unsustainable. Hence the demands, confined only to the normal period as applicable are liable to be upheld, and we do so. 16. Last, as we have already held that the ingredients of Section 78, fraud, collusion, wilful misstatement or suppression with intent to evade tax, also having not been established in these proceedings, the penalties imposed under Section 78 of the Act cannot be sustained. Given the facts and circumstances, we are of the view that ....