2018 (3) TMI 193 - AT - Service Tax

Supply of tangible goods for use - renting of immovable property service - demand of service tax - Held that - the appellant has supplied various tangible equipments and assets for use for renting the restaurant to Encore Hotels Pvt. Ltd. for which they were charging royalty mutually agreed from time to time - From the MOU it is observed that the various equipments were supplied by the appellant to Encore Hotels Pvt. Ltd. In such transaction, the only right to use of the equipment has been transferred, but the right in the possession and effective control remained with the appellant. Therefore, such transaction does not fall under the head of supply of tangible goods for use as provided in the Finance Act, 1994 - Moreover, the Board also clarified that in case of supply of tangible goods where the sales tax/VAT is chargeable, the same shall not be leviable to service tax. The adjudicating authority has clearly stated that no documentary evidence was produced to establish that in respect of the transactions, the VAT payment has been made. In such a situation, the matter needs to be reconsidered for verification of the actual payment of VAT. Appeal allowed by way of remand.

Summary

Issues involved:
1. Confirmation of demand of service tax under supply of tangible goods for use and renting of immovable property.
2. Applicability of service tax on deemed sale transactions.
3. Discharge of VAT liability in transactions involving supply of tangible goods.
4. Consideration of relevant judgments and circulars in determining tax liability.
5. Remand to adjudicating authority for fresh order based on verification of facts.

Issue 1: Confirmation of demand under supply of tangible goods and renting of immovable property:
The appellant filed an appeal against the confirmation of demand of service tax under the head of supply of tangible goods for use and renting of immovable property. The Tribunal remanded the matter to the adjudicating authority for fresh consideration. In the subsequent adjudication, a demand was confirmed under renting of immovable property service and supply of tangible goods service, along with penalties and interest imposed. The appellant challenged this order-in-original, leading to the present appeal.

Issue 2: Applicability of service tax on deemed sale transactions:
The appellant argued that the transaction involving supply of tangible goods for use should be considered a deemed sale as they had discharged the VAT liability. They contended that only the right to use the goods was transferred, while possession and control remained with them, making it a deemed sale not liable for service tax. Citing relevant judgments and circulars, the appellant emphasized that in cases of deemed sale, service tax is not applicable under the head of supply of tangible goods for use.

Issue 3: Discharge of VAT liability in transactions involving supply of tangible goods:
The Tribunal examined the Memorandum of Understanding between the parties, noting that the appellant supplied tangible goods to another entity for use in a restaurant, charging royalty for the same. The appellant claimed to have discharged the VAT liability on these transactions, arguing that the right in possession and control remained with them, making it a deemed sale not subject to service tax. The Tribunal stressed the importance of verifying the actual payment of VAT to determine the tax liability accurately.

Issue 4: Consideration of relevant judgments and circulars:
Both parties presented their arguments, with the appellant relying on specific judgments and circulars to support their position regarding the applicability of service tax on deemed sale transactions involving supply of tangible goods. The Tribunal considered these references, including cases like Heligo Charters Pvt. Ltd., GS Lamba & Sons, and Gimmco Ltd., which highlighted that in cases of deemed sale, service tax is not leviable under the relevant provisions.

Issue 5: Remand for fresh order based on verification of facts:
After careful consideration of the submissions, the Tribunal allowed the appeal by remanding the matter to the adjudicating authority for a fresh order. The Tribunal emphasized the need for verifying the facts related to VAT payment and directed the appellant to provide all necessary documents to establish the discharge of VAT liability in the transactions involving supply of tangible goods. The fresh order was to be passed after thorough verification of the facts.

This detailed analysis of the judgment highlights the key issues involved, the arguments presented by both parties, the legal principles applied, and the ultimate decision to remand the matter for further verification and consideration by the adjudicating authority.