2018 (8) TMI 246 - AT - Service Tax

Supply of Tangible Goods Services - non-payment of Service tax during the period 2006-07 to 2010-11 - demand on the ground that the terms of the lease were such that it amounts to deemed sale on which appropriate VAT has already been paid - Held that - It cannot be held that the leasing of the goods were covered by the Supply of Tangible Goods Service - Demand set aside. Valuation - inclusion of value of diesel supplied by service recipient - Held that - The issue is no longer res-integra and has been decided in favor of the respondent in the case of Gurmehar Construction V/s Commissioner of Central Excise, Raipur 2014 (7) TMI 849 - CESTAT NEW DELHI - demand set aside. Supply of machines by the respondent which were used in connection with mining by M/s ASI - demand for period 2006-07 to 2007-08 - Held that - The nature of the activity is Supply of Tangible Goods and such activity was made liable to payment of Service Tax only in w.e.f. 16/05/2008 - It is settled provision of law that the activity covered by a new service cannot be included in any other activity prior to such date - demand set aside. Appeal dismissed - decided against Revenue.

Summary

Issues:
- Dropping of Service Tax demand under the category of 'Supply of Tangible Goods' for the period 2009-10 and 2010-11.
- Dropping of demand for Service Tax on the value of diesel supplied by the service recipient.
- Demand for Service Tax on machines supplied for mining activities during 2006-07 and 2007-08.

Analysis:

1. Issue 1 - Dropping of Service Tax Demand for 'Supply of Tangible Goods' (2009-10 and 2010-11):
The Adjudicating Authority dropped the demand for Service Tax under the category of 'Supply of Tangible Goods' for the mentioned period as the terms of the lease agreement with M/s ASI amounted to a deemed sale on which VAT had already been paid. The Tribunal upheld this decision, stating that the leasing of goods did not fall under the ambit of Supply of Tangible Goods Service due to the nature of the lease agreement.

2. Issue 2 - Demand for Service Tax on Value of Diesel Supplied:
The appeal raised concerns about including the value of diesel in the lease charges for the machines supplied. However, the Tribunal referred to a precedent where it was established that the value of free supplies, such as diesel, is not to be included in the gross consideration received by the service provider for taxable service. Therefore, the demand related to the value of diesel was deemed unsustainable.

3. Issue 3 - Demand for Service Tax on Machines Supplied for Mining Activities (2006-07 and 2007-08):
Regarding the demand for Service Tax on machines supplied for mining activities during 2006-07 and 2007-08, the Revenue argued that the charges should be included under 'Site Preparation' services. However, the Tribunal noted that the activity of Supply of Tangible Goods became taxable only from May 16, 2008. As a result, the demand for Service Tax on the machines supplied for mining activities before this date was dismissed, as the activity was not taxable under the relevant category at that time.

In conclusion, the Tribunal upheld the Order-in-Original and rejected the appeal filed by the Revenue after considering and addressing each issue raised by both parties in detail.