2016 (1) TMI 888 - AT - Service Tax

Supply of tangible goods - revenue was of the view that allowing use of such capital assets amounts to providing of services, namely, supply of tangible goods service. - Held that - It is not disputed that the appellants have already discharged VAT on the transaction. The terms of the agreement have been examined in the Order in Appeal in detail. Hon ble High Court of AP in case of Rashtriya Ispat Nigam Ltd. vs Commercial Tax Officer 1989 (12) TMI 325 - ANDHRA PRADESH HIGH COURT - The contract needs a detailed examination vis a vis the decisions of the courts interpreting this constitutional provision. Considering that the appellants have paid VAT on the transaction it will be in the interest of justice to allow stay of the recovery subject to deposite of Rs Three Lakhs only within eight weeks of this order. - stay granted partly.

Summary

Issues:
Interpretation of Asset Licensing Agreement for taxable service of Scientific and Technical Consultancy, demand of service tax, liability under Sales Tax regime, definition of "tax on sale or purchase of goods" post 46th amendment, transfer of the right to use goods, analysis of licensing agreement provisions, legal principles of bailment and hire of chattel, determination of tax base under section 5-E, examination of contract terms, applicability of VAT payment, stay of recovery.

Analysis:
The judgment by the Appellate Tribunal CESTAT ALLAHABAD involved a case where M/s Dabur Research Foundation, engaged in Scientific and Technical Consultancy services, entered into an Asset Licensing Agreement with another entity. The issue revolved around whether allowing the use of capital assets under the agreement constituted a service, specifically "supply of tangible goods" service attracting service tax. The Revenue contended for service tax, while the appellants argued their liability under the Sales Tax regime, citing the definition of "tax on sale or purchase of goods" post the 46th amendment in Article 366(29A)(d) of the Constitution of India.

The Commissioner (Appeal) confirmed the demand for service tax after examining the provisions of the licensing agreement and referring to legal precedents, including the case of Rashtriya Ispat Nigam Ltd. vs Commercial Tax Officer. The Commissioner emphasized the importance of determining whether there was a transfer of the right to use goods, as per section 5-E of the Act, highlighting the need for a factual analysis based on the contract terms. The appellants argued that the transaction met the attributes of a "transfer of right to use goods" as per legal requirements and relied on tribunal decisions in similar cases where stay from recovery was granted.

The judgment further delved into the essence of transfer, emphasizing the passage of control over economic benefits and distinguishing between possession and custody. It reiterated that the determination of whether there is a transfer of the right to use goods is a question of fact, necessitating a detailed examination of the contract terms in light of relevant legal interpretations. Additionally, the judgment considered the VAT payment made by the appellants and, in the interest of justice, allowed a stay of recovery subject to a specified deposit within a stipulated timeframe, with compliance to be reported on a designated date.

In conclusion, the judgment provided a comprehensive analysis of the issues surrounding the interpretation of the Asset Licensing Agreement, the applicability of service tax versus Sales Tax regime, the legal principles of transfer of the right to use goods, and the significance of VAT payment in the overall assessment of the case.