2017 (8) TMI 637 - AT - Service Tax

Classification of service - taking two helicopters on lease from the two foreign lessors ADA, Abu Dhabi and BLFIL, Ireland on dry lease basis - activity is in the nature of sales (deemed sale) or service - Business Support Service or activity as supply of tangible goods for use without transfer of right of possession and effective control - Held that - for the period prior to 01.07.2012, inspite of the transactions, in question, being deemed sale and, hence, not covered by the section 65(105)(zzzzj) pertaining to Supply of Tangible Goods for use without involving transfer of right of possession and effective control over the goods, the Commissioner has still gone on to subject them to service tax by classifying the same as Business Support Service (infrastructure support service u/s 65(105)(zzzq) r/w section 65(104c)) of the Act The Commissioners findings for the period w.e.f. 01.07.2012 holding that the leasing of helicopters by the Appellant from the two lessors located abroad is a service not covered by the Negative List or any exemption, is absurd, as he has not even discussed the definition of service given in Section 65B(44) r/w definition of declared service in Section 66E of the Finance Act 1994, and how the transactions, in question, which admittedly involve transfer of right of possession and effective control over the goods during the period of lease would be covered by the above mentioned definition of service. As discussed above, since the leasing of helicopters by the Appellant from the two lessors abroad involves transfer of right of possession and effective control over the helicopters/transfer of right to use the helicopters from the lessors to the Appellant during the period of lease, these transactions being deemed sale covered by Article 366 (29A)(d) of the Constitution ,are not covered by the definition of service as given in Section 65B(44) read with Section 66E of the Finance Act, 1994 and, hence, there is no question of levying Service Tax on these transactions. As per the agreements with lessors, the transaction is of deemed sale within the manning of Article 366 (29A) of Constitution. Therefore mere non payment of sales tax will not alter the status of deemed sale in the facts of the present case. Demand of service tax, interest and penalty set aside - Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Whether the leasing of helicopters by the appellant from foreign lessors constitutes a deemed sale or a taxable service.
2. Whether the appellant is liable to pay service tax under reverse charge mechanism for leasing helicopters from foreign lessors.
3. Whether the delayed payment of service tax by the appellant for certain months constitutes tax evasion warranting penalty under Section 78 of the Finance Act, 1994.

Detailed Analysis:

1. Leasing of Helicopters: Deemed Sale or Taxable Service
The appellant, engaged in providing helicopters on charter hire basis, leased two helicopters on a dry lease basis from foreign lessors, ADA and BLFIL. The department contended that the leasing constituted receiving infrastructure support service, taxable under Section 65(105)(zzzq) read with Section 65(104c) of the Finance Act, 1994. However, the appellant argued that these leases were deemed sales under Article 366(29A)(d) of the Constitution and thus not subject to service tax.

The Commissioner found that the legal right of possession and effective control over the helicopters was with the appellant during the lease period, implying a transfer of right to use, making the transactions deemed sales. This finding was based on the lease agreements' terms, which indicated exclusive use by the appellant and non-interference by the lessors. Consequently, these transactions were outside the purview of service tax.

2. Service Tax Liability Under Reverse Charge Mechanism
The Commissioner held that the leasing of helicopters constituted business support service, taxable under Section 65(105)(zzzq) for the period prior to 01.07.2012, and as a service not covered by the negative list post 01.07.2012. However, the Tribunal disagreed, stating that the leasing of helicopters, involving transfer of right to use, was deemed sale and not a service. Therefore, no service tax could be levied under the Finance Act, 1994, either before or after 01.07.2012.

The Tribunal emphasized that the term "infrastructure" was misinterpreted by the Commissioner. Helicopters used in air transportation are tangible goods, not infrastructure. The Tribunal also noted that the supply of tangible goods involving transfer of right to use could not be classified as business support service, as it is a core business activity, not a peripheral one.

3. Delayed Payment of Service Tax: Tax Evasion and Penalty
The department alleged that the appellant evaded service tax amounting to ?1,68,01,844/- during January 2011 to July 2011. The appellant contended that this was a case of delayed payment due to financial difficulties, not tax evasion. The Tribunal found that the appellant had paid the short-paid amounts along with interest for the delay before the issuance of the show cause notice.

The Tribunal held that for imposing a penalty under Section 78, there must be evidence of fraud, collusion, willful misstatement, suppression of facts, or intent to evade tax. In this case, none of these elements were present, and it was simply a delay in payment without any intent to evade tax. Therefore, the penalty imposed by the Commissioner was not justified and was set aside.

Conclusion:
The Tribunal set aside the impugned order, confirming service tax demands totaling ?18,84,25,686/- along with interest and penalties totaling ?6,34,01,884/- for the lease of helicopters and the penalty of ?1,68,01,844/- for alleged tax evasion. The appeal was allowed, and the memorandum of cross-objection filed by the revenue was disposed of accordingly.

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