2016 (12) TMI 394 - AT - Service Tax

Levy of tax - renting of earthmoving equipment, such as Caterpillar, Excavators, etc. - the activity of renting of earthmoving equipment would come under the purview of service tax under the taxable service category of business auxiliary service for the period prior to 16-5-2008 and under the category of supply of tangible goods for use with effect from 16-5-2008? - While the assessee contends that what they have transferred is right to use which is a deemed sale, the Revenue s contention is that the right of possession and effective control remained with the assessee and hence, the transaction has to be treated as service. Held that - A similar issue arose for consideration before the Hon ble High Court of Andhra Pradesh in the case of G.S. Lamba & Sons v. State of A.P. 2011 (1) TMI 1196 - Andhra Pradesh High Court , where it was held that the transaction involved was a transfer of right to use Transit Mixers and not transport service and the petitioners had transferred the right to use goods to Grasim - If we apply the ratio of the above decision to the facts of the present case, the transaction involved herein is transfer of right to use which is a deemed sale and not supply of tangible goods for use service. The assessee s activity of giving various equipments on hire does not fall under the category of Supply of tangible goods for use , hence the same is not liable to service tax w.e.f. 16.05.2008. Now coming to the Revenue s appeal, we find that the Ld. Commissioner dropped the demand for the period prior to 16.05.2008 mainly on the ground that the service is of Supply of tangible goods for use which came into effect on 16.05.2008, therefore prior to that date the service was not taxable. However, we, in our above findings, held that the service in question is not the service of Supply of tangible goods for use . In this position the main ground of the Ld. Commissioner for dropping of demand does not exist and not relevant. Though the Ld. Commissioner in a passing reference mentioned in the impugned order that the service prior to 16.05.2008 does not fall under the Business Auxiliary Service but not given the detailed findings. Therefore when the main ground for dropping of demand does not exist. The issue relates to demand prior to the period 16.05.2008 needs reconsideration. Appeal allowed by way of remand.

Summary

Issues Involved:
1. Demand of Service Tax under "Supply of Tangible Goods for Use" post 16.05.2008.
2. Demand of Service Tax under "Business Auxiliary Service" prior to 16.05.2008.
3. Imposition of penalties and interest under various sections of the Finance Act, 1994.

Issue-wise Detailed Analysis:

1. Demand of Service Tax under "Supply of Tangible Goods for Use" post 16.05.2008:

The assessee, engaged in renting earthmoving equipment, was charged Service Tax under the category "Supply of Tangible Goods for Use" for the period post 16.05.2008. The assessee argued that their activity constituted a "deemed sale" under the Maharashtra Value Added Tax Act, 2002, as they discharged VAT liability on the transaction. They cited the Finance Minister’s speech and the C.B.E. & C. circular clarifying that if VAT is payable, Service Tax is not attracted. The tribunal examined the agreement clauses and found that the hirer had effective control and possession of the equipment, indicating a "transfer of right to use" rather than a service. The tribunal referenced the Andhra Pradesh High Court's decision in G.S. Lamba & Sons v. State of A.P., concluding that the transaction was a deemed sale and not liable to Service Tax under "Supply of Tangible Goods for Use."

2. Demand of Service Tax under "Business Auxiliary Service" prior to 16.05.2008:

The Revenue contended that the assessee's activity involved various services, including erection, installation, and commissioning, thus falling under "Business Auxiliary Service." The tribunal noted that the Commissioner had dropped the demand for this period, stating that the service of "Supply of Tangible Goods for Use" was not taxable before 16.05.2008. However, the tribunal found that the Commissioner did not provide detailed findings on why the service did not fall under "Business Auxiliary Service." The tribunal remanded the issue for reconsideration, instructing the original adjudicating authority to pass a fresh order on the demand for the period prior to 16.05.2008.

3. Imposition of penalties and interest under various sections of the Finance Act, 1994:

The Commissioner had imposed penalties and interest on the assessee under Sections 75, 77, and 78 of the Finance Act, 1994, for contravening provisions and suppressing the value of taxable services with an intent to evade payment. Given the tribunal's findings that the assessee's activity constituted a deemed sale and not a service, the imposition of penalties and interest for the period post 16.05.2008 was not upheld. However, the tribunal left the imposition of penalties and interest for the period prior to 16.05.2008 open for reconsideration upon remand.

Conclusion:

The tribunal allowed the assessee's appeal, concluding that their activity did not fall under "Supply of Tangible Goods for Use" and was not liable to Service Tax post 16.05.2008. The Revenue's appeal was allowed by way of remand for reconsideration of the demand for the period prior to 16.05.2008 under "Business Auxiliary Service." The tribunal instructed the original adjudicating authority to pass a fresh order on this issue, keeping all related matters open for further consideration.