2017 (5) TMI 822 - AT - Service Tax

Reverse charge mechanism - Supply of tangible goods for use - deemed service provider - It was the case of the appellant before the lower authorities that this activity of paying rent would not be covered under STGU services and that the repacking of helium gas from the containers to small containers, is amounting to manufacture and hence the cost paid by the appellant is towards the manufacturing cost - Held that - once the appellant has discharged the central excise duty on the very same gas which is transferred into smaller packs and considering the same as the activity of manufacturing, the question of rendering of service by the supplier under the category of STGU rentals, goes into the cost of manufacturing, on which duty is discharged. The containers which are transporting helium gas from the supplier situated abroad to the appellant herein are in the effective control and possession of the appellant till the helium gas is unloaded in equally specialized containers and the empty containers are re-exported to the foreign supplier. The question of revenue neutrality would arise in this case as if appellant discharges the service tax under STGU under reverse charge mechanism, is undisputedly consuming the said services for supply of raw materials / inputs which are for manufacturing of repacked gas and cleared by discharging central excise duty; accordingly tax paid under service tax would be available as credit to the appellant hence no necessity arises for any tax avoidance. Demand set aside - Appeal allowed - decided in favor of appellant.

Issues involved:
- Taxability of services under reverse charge mechanism for non-payment of service tax liability
- Interpretation of service provided in relation to supply of tangible goods without transferring right of possession and effective control
- Applicability of Section 66A of the Finance Act, 1994
- Classification of activity as service under the category of "supply of tangible goods for use" (STGU)
- Determination of tax liability under Rule 3 of Taxation of Services (Provided from outside India and Received in India) Rule, 2006
- Consideration of revenue neutrality in tax liability assessment

Analysis:
1. Taxability of services under reverse charge mechanism: The case involved a dispute regarding the demand of service tax under reverse charge mechanism for non-payment of service tax liability under the category of "supply of tangible goods for use" (STGU). The appellant argued that the activity of paying rent for specialized containers should not be covered under STGU services as it pertains to manufacturing costs. The lower authorities confirmed the demands raised, leading to an appeal.

2. Interpretation of service provided in relation to tangible goods: The Tribunal considered whether the appellant's activities fell within the taxable services category defined in Section 65(105)(zzz) of the Finance Act, 1994. The appellant's manufacturing process involved receiving gases in specialized containers, repacking, and supplying them domestically. The Tribunal analyzed the nature of the services provided and the control and possession of the containers during the process.

3. Applicability of Section 66A: Section 66A of the Act was invoked, where service provided by a person outside India makes the recipient liable to pay service tax. The Tribunal examined whether the appellant, as the deemed service provider under Section 66A, was liable to pay service tax on the transactions involving specialized containers and gas supply.

4. Classification under STGU category: The Tribunal assessed whether the appellant's activities could be classified under the category of "supply of tangible goods for use" (STGU). The appellant argued that the repacking of gases amounted to manufacturing, and thus, the service tax liability should be re-determined according to specific rules.

5. Determination of tax liability: The Tribunal considered the arguments presented by both parties regarding the tax liability on the services provided. The appellant contended that the activities did not constitute a taxable service under STGU, citing previous tribunal decisions and legal provisions related to the transfer of right to use goods.

6. Consideration of revenue neutrality: The Tribunal evaluated the concept of revenue neutrality in the context of the appellant's tax liability. It analyzed whether the tax paid on services, if applicable, would be offset by the central excise duty paid on the repacked gas, leading to no tax avoidance. Previous tribunal decisions were cited to support the argument of revenue neutrality.

7. Judgment: After considering the submissions and legal precedents, the Tribunal held that the impugned order was unsustainable for various reasons. It found that the appellant had effective control over the containers, the activities constituted manufacturing, and tax paid under service tax would not lead to tax avoidance due to revenue neutrality. Consequently, the impugned order was set aside, and the appeal was allowed, highlighting the unsustainable nature of the tax demand under the reverse charge mechanism.

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