2018 (9) TMI 1721 - AT - Service Tax

Reverse Charge Mechanism - Supply of Tangible Goods Service or deemed sale - Department took the view that the foreign lessor has supplied tangible goods to appellants on lease; that lessor therefore rendered Supply of Tangible Goods Service as per section 65 (105) (zzzzj) of Finance Act, 1994; hence appellant as recipient of service are liable to pay service tax on reverse charge basis - Section 66A read with Rule 2 (1) (d) (iv) of Service Tax Rules, 1994 - non-inclusion of TDS amount in taxable value - wrong availment of Credit in respect of excise duty paid on motor vehicles - penalties. Held that - The lease agreement between EAT and the appellant is one wherein the right of possession and control of the aircraft has been bestowed on the appellant and not retained with the lessor. This being so, the ingredients of Supply of Tangible Goods Service requiring exigibility to service tax by the Finance Act, 1994 are not present in this transaction. In consequence, the monetary consideration paid by the appellants to EAT cannot be considered as value of Supply of Tangible Goods Service and tax demanded on the same as has been done in the impugned orders. - service tax levy is not attracted. Reliance placed in the case of POWER MAK INDUSTRIES, POWER MAK PVT. LTD. VERSUS CCE, C&ST, HYDERABAD-I 2018 (2) TMI 1415 - CESTAT HYDERABAD , where it was held that the impugned transaction involving supply of DG sets on hire basis to various hirers is nothing but supply of tangible goods with transfer of both possession and control of the goods to the users of the goods. These transactions have been ruled as deemed sale of goods for the purpose of APVAT Act by the concerned Advance Ruling Authority. Appellants have also been discharging VAT on the hire charges under APVAT Act. Hence, this is the case of supply of tangible goods for use, with legal right of possession and effective control vesting with the hirer, required to be treated as deemed sale of goods, hence cannot be considered as supply of tangible goods for use of service for the purposes of Section 65(105) (zzzz) of the Finance Act, 1994 for the period upto 01-07-2012 or as taxable service for the purpose of Section 65B (44) of the Finance Act, 1994 after 01-07-2012. It was also held in the case that the terms and conditions stipulated in the agreement, lead to the conclusion that the transaction envisaged in the agreement is one of transfer of right to use which is a deemed sale under Section 2(24) of the Maharashtra Value Added Tax Act, 2002. The Finance Ministers speech and the budget instructions issued by the C.B.E. & C. also clarify that if VAT is payable on the transaction, then service tax levy is not attracted. The assessees 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. Penalties in respect of non-inclusion of TDS amount in taxable value and wrong availment of cenvat credit on motor vehicles - Held that - There is no malafide in these inadvertencies by the appellants. Hence while not interfering with these tax demands, we hold that imposition of penalties in all these tax demands are therefore an overkill and requires to be set aside. Appeal allowed in part.

Summary

Issues Involved:
1. Service tax liability under "Supply of Tangible Goods Service" for leased aircraft.
2. Service tax on TDS amount.
3. Wrongful availment of CENVAT Credit on motor vehicles.
4. Imposition of penalties.

Issue-wise Detailed Analysis:

1. Service Tax Liability under "Supply of Tangible Goods Service" for Leased Aircraft:
The appellants leased aircraft from a foreign company to transport cargo. The department argued that the foreign lessor provided "Supply of Tangible Goods Service" as per Section 65(105)(zzzzj) of the Finance Act, 1994, making the appellants liable to pay service tax on a reverse charge basis. The appellants contended that the lease agreement granted them possession and control of the aircraft, thus not fitting the definition of "Supply of Tangible Goods Service." The Tribunal examined the lease agreements and concluded that the appellants had effective possession and control of the aircraft, making the transaction a transfer of right to use the goods, which is a deemed sale and not a service. Consequently, the service tax demands under this category were set aside.

2. Service Tax on TDS Amount:
The department demanded service tax on the TDS amount for the period October 2003 to September 2008, totaling ?27,37,927/-. The adjudicating authority accepted the appellants' plea that the actual liability was ?2,71,106/- with interest, which had already been paid. The Tribunal found that the appellants' failure to include TDS in the taxable value was due to a bona fide belief and not malafide intent. Therefore, the penalty imposed under Section 78 was deemed unjustified and set aside.

3. Wrongful Availment of CENVAT Credit on Motor Vehicles:
The appellants availed CENVAT credit of ?4,92,474/- on motor vehicles, which the department contested. The appellants admitted the mistake and clarified that they believed they were entitled to credit on vehicles other than motor cars. They had not availed credit on motor cars purchased during the same period. The Tribunal noted the absence of malafide intent and set aside the penalty imposed under Rule 15(2) of the CENVAT Credit Rules, 2004.

4. Imposition of Penalties:
Penalties were imposed for various infractions, including non-inclusion of TDS in the taxable value and wrongful availment of CENVAT credit. The Tribunal found that these infractions were due to bona fide beliefs and not intentional evasion of tax. Given that the appellants had paid the tax liabilities with interest, the Tribunal deemed the imposition of penalties excessive and set them aside.

Conclusion:
The Tribunal allowed the appeals, setting aside the service tax demands under "Supply of Tangible Goods Service" and the penalties related to TDS and CENVAT credit issues. The appellants were granted consequential benefits as per law.