2015 (2) TMI 192 - AT - Service Tax

Waiver of pre deposit - Supply of tangible goods - Held that - Clause 27 (b) provides the lessee (applicant) certifies that lessee is responsible for operational control of the aircraft under this lease during the term hereof. Lessee further certifies that lessee understands its responsibility for compliance with applicable Federal Aviation Regulations. Prima facie, it is noted that the maintenance of the aircraft lies with the applicant except change of engine as contended by the Ld. AR. The definition of supply of tangible goods provides that to any person, by any other person in relation to supply of tangible goods including machinery, equipment and appliances for use without transferring right of possession and effective control of such machinery, equipment and appliances. The adjudicating authority observed that the applicant had availed aircraft on lease basis only without any legal possession. Prima facie, we find that the applicant acquired the aircraft on the basis of the lease agreement, which is the legal possession. Clause 14 of the agreement would be invoked in the event of default, that the right accrues with the owner. On the other hand the Ld. AR also contended that the maintenance is also on the applicant except replacement of the engine. The Commissioner has also accepted that the maintenance is provided by the applicant. The adjudicating authority emphasized that there is no sale in this case - appellants has a good prima facie case in its favour. - we dispense with the condition of pre-deposit of service tax confirmed against the applicants and penalties imposed upon them - Stay granted.

Summary

Issues:
Interpretation of lease agreement for service tax liability under "Supply of tangible goods" category.

Analysis:
The judgment revolves around a lease agreement between an applicant and a foreign company for acquiring an aircraft, leading to a dispute regarding service tax liability under the "Supply of tangible goods" category. The adjudicating authority confirmed a substantial demand of service tax along with interest and penalty for the lease period. The applicant contended that they had effective control over the aircraft's maintenance and operation during the lease term, supported by clauses in the lease agreement and relevant circulars. The applicant also highlighted precedents where the Tribunal had granted stays in similar cases.

On the other hand, the Revenue argued that it was an operational lease, and the applicant only had operative control, with the lessor retaining overall control. The Revenue emphasized that the applicant provided maintenance services but could not change the engine without the lessor's consent.

Upon examining the lease agreement and arguments from both sides, the Tribunal noted that the applicant was responsible for the operational control of the aircraft as per the agreement. The Tribunal found that the applicant had legal possession of the aircraft under the lease agreement, contrary to the adjudicating authority's observation. The Tribunal referenced a previous case to support the applicant's position and noted that the maintenance responsibility lay with the applicant, except for engine replacement.

Further, the Tribunal delved into the legal aspects of the transaction, considering whether the transfer of the right to use the aircraft constituted a "deemed sale" under relevant constitutional provisions. The Tribunal acknowledged the prima facie case in favor of the applicant based on the arguments presented, leading to the unconditional grant of a stay on the service tax demand and penalties. Consequently, the Tribunal waived the pre-deposit requirement for the tax, interest, and penalty until the appeal's final disposal.

In conclusion, the judgment carefully analyzed the lease agreement terms, control over the aircraft, maintenance responsibilities, and the legal implications of the transaction to determine the service tax liability under the "Supply of tangible goods" category, ultimately granting a stay on the tax demand and penalties in favor of the applicant.