2016 (2) TMI 1044 - AT - Service Tax

Leasing of capital goods - whether the transaction between the appellants and the joint venture company for leasing out the capital goods would fall under the category of supply of tangible goods for use service? - Held that - the capital goods are in the possession of the lessee and is being used by him for the intended purpose without any interference or hurdle from the appellants. On going through the clauses of agreement, it is found that the appellants had handed over the capital goods possession to the lessee as also the right to use. These two important factors that determine the requirement as to whether the service is a taxable service or otherwise under supply of tangible goods for use services - demand set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
Whether the transaction between the appellant and the joint venture company for leasing out capital goods falls under the category of "supply of tangible goods for use service."

Analysis:
The appellant, engaged in the manufacture of CDI & PCB assembly, provided services of supplying tangible goods to their joint venture company. The appellant received an amount for renting out capital goods and premises to the joint venture company, on which VAT was paid instead of service tax. A show cause notice was issued proposing recovery of service tax, interest, and penalties. The Additional Commissioner confirmed the demand, stating that the transaction fell within the scope of supply of tangible goods services. The first appellate authority rejected the appeal, citing the transfer of capital goods with the right of use to the appellant's customer.

The appellant argued that circulars of the Board and previous tribunal decisions favored their case. The issue revolved around whether the transaction constituted "supply of tangible goods for use service." The records showed that the lessee had possession and was using the capital goods without interference. The agreement indicated that the appellant handed over possession and the right to use the capital goods, crucial factors in determining the taxability of the service. The Tribunal found merit in the appellant's contentions, noting that the case did not fall under the category of supply of tangible goods for use service. Previous tribunal decisions supported this interpretation.

Considering the submissions and judicial pronouncements, the Tribunal held that the impugned orders were unsustainable. The Tribunal set aside the impugned order and allowed the appeal in favor of the appellant. The judgment was pronounced in court, setting aside the impugned order and allowing the appeal.