2013 (3) TMI 273 - AT - Service Tax

Service tax on lease of aircraft - Operating Lease Agreement - transfer or right to use the aircraft - appellant submitted that, in terms of sub-clause (d) of the Article 366(29A), tax on the sale or purchase of goods included a tax on transfer or right to use any goods for any purpose for cash. - appellant clarifies that no sales tax is being paid on the said deal, on account of import of the aircraft, which is covered by exemption in terms of provisions of Section 5 of the General Sales Tax Act, 1956. Nevertheless, he submits that inasmuch as the deal is required to be considered as deemed sale and the sales tax and service tax being mutually exclusive to each other, the confirmation of service tax against the appellants is not justified. The appellants has a good prima facie case in its favour. - stay granted.

Summary

Issues:
1. Dispensing with the condition of pre-deposit of service tax and penalties imposed.
2. Determining if the operation of the lease of aircraft amounts to providing services liable to service tax.
3. Interpretation of the definition of "supply of tangible goods" under the Finance Act, 1994.
4. Analysis of the clarification issued by the Board regarding service tax on chartering of aircraft.
5. Consideration of whether the transfer of the right to use the aircraft constitutes a "deemed sale" under Article 366(29A) of the Constitution of India.

Analysis:
1. The case involved an application to dispense with the pre-deposit of service tax and penalties confirmed against the appellants. The appellants were engaged in aviation cargo services under an operating lease agreement with M/s. EAT, Brussels. The Commissioner confirmed the tax and penalties, but the appellants argued that they did not satisfy the definition of service as there was no transfer of right of possession and effective control of the aircraft to them.

2. The Tribunal examined the definition of "supply of tangible goods" under the Finance Act, 1994, which requires no transfer of right of possession and effective control of the goods. The Commissioner found that the appellants operated the aircraft but did not have special rights of ownership. However, the Tribunal noted that the appellants were maintaining, operating, and controlling the aircraft, suggesting they did not fall under the definition of the service as per the Act.

3. The Tribunal considered a clarification issued by the Board regarding service tax on chartering of aircraft. The clarification highlighted that the effective control over the aircraft determines the tax liability. In this case, the appellants were exercising effective control over the aircraft, supporting their argument against the service tax imposition.

4. The Tribunal also analyzed the argument that the transfer of the right to use the aircraft should be considered a "deemed sale" under Article 366(29A) of the Constitution of India. The appellants argued that as no sales tax was paid due to an exemption, the confirmation of service tax was not justified. The Tribunal found merit in this argument, supporting the appellants' case.

5. Considering the arguments and the prima facie nature of the matter, the Tribunal granted a stay on the pre-deposit of service tax and penalties. The Tribunal acknowledged the recurring effect of the issue and allowed the appellants to file for early hearing. Additionally, a miscellaneous application by the Revenue for a name change was disposed of as it was already addressed by the appellants.

Conclusion:
The Tribunal, after thorough analysis of the lease agreement, definitions under the Finance Act, 1994, and relevant constitutional provisions, granted a stay on the pre-deposit of service tax and penalties, supporting the appellants' arguments regarding the nature of the lease agreement and tax implications.