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2018 (10) TMI 217 - AT - Service TaxBanking and Other Financial Services - Financial lease/Operational lease - leasing of oxygen plant equipment - Lease Rentals - Circular DOF No.334/1/2007-TRU dt.28.2.2007 - Whether the lease rentals received by the appellants from M/s. UML would fall within the definition of Banking and Other Financial Services or would fall within the meaning of Operating Lease ? - Held that - On going through the agreement, for establishment of VPSA based oxygen plant between M/s. Usha Beltron Ltd. (M/s. UML) and the appellants, we find at para 1.7 that subject to other provisions of this agreement, title to all oxygen plant equipment will remain vested in Praxair. Praxair shall remain at all times the sole and absolute owner thereof and no right, ownership, title or interest therein (save and accept for the lease hold rights aforesaid) shall pass to USAD. Praxair shall be entitled to put its name plates or markings on any part of the oxygen plant or oxygen plant equipment indicating Praxair s title and interest therein. USAD shall at no time contest or challenge Praxair s sole and exclusive ownership of the oxygen plant equipment or any part thereof - the demands raised against the appellants for leasing the oxygen plant equipment are not sustainable in law. Management, Maintenance or Repair Services - Whether the service tax demanded on Management, Maintenance or Repair Service is sustainable in law? - Held that - The appellants have entered into an agreement dated 30.12.2006 for establishment of VPSA based oxygen plant with M/s. UML. Para 2 of the agreement deals with operation and maintenance of the plant. As per the agreement, for OM service rendered by the appellants, M/s. UML will pay the appellant the amounts specified in Schedule 4 of the agreement - the appellants are rendering OM services to the plant which is under lease to M/s. UML. The appellants are also charging M/s. UML for this particular O&M services. If it were the case of the appellant that the service rendered was to themselves, there was no need whatsoever for M/s. UML to pay the appellants for O&M charges in terms of the agreement - Demand upheld. Storage and Warehousing Service - Whether the service tax demanded on Storage and Warehousing Service is sustainable? - Held that - The appellants have entered into an agreement dated 1.8.1999 with M/s. UML. As per the agreement, PIPL deliver liquid oxygen into the storage installations and would permit the buyer (UML) to use the storage facility subject to clause 10 of the agreement regarding the use of the installation exclusively by M/s. UML. It is evident that the appellants have not rendered any warehousing services. It is not the case where the appellants hold a storage facility in their own premises and customers will come with their goods to the facility to deposit /store the goods for a period of time. No warehousing activities are involved as the appellants have built an oxygen tank in the premises of their customers and have leased the same to the customers. The appellants are not concerned with the receipt, storage and clearance of the goods stored in the tanks. They do not maintain any accounts for that matter in this regard. They have only leased out the tanks for a certain period of time for a consideration. This in itself will not constitute warehousing and storage operations, therefore, the demands raised against the appellants on this count are not maintainable - demand not sustainable. Penalties - Held that - As the issue relates to interpretation of the provisions of service tax, penalties are set aside. The impugned orders are sustained only to the extent of demand of service tax on Management, Maintenance or Repair Services - Appeal allowed in part.
Issues Involved:
1. Whether the lease rentals received by the appellants fall within the definition of 'Banking and Other Financial Services' or 'Operating Lease'. 2. Whether the service tax demanded on 'Management, Maintenance or Repair Service' is sustainable in law. 3. Whether the service tax demanded on 'Storage and Warehousing Service' is sustainable. Issue-wise Detailed Analysis: 1. Lease Rentals and 'Banking and Other Financial Services': The Revenue contended that the appellants' lease agreements fall under 'Banking and Other Financial Services'. The appellants argued that their agreements were operating leases, not financial leases. The appellants cited several documents and previous agreements to substantiate that the plant was installed before the effective date of 16.7.2001. The Tribunal found that the plant was indeed installed before the effective date, supported by documents such as the Detention Certificate dated 1.2.2001 and a letter from the Superintendent of Central Excise dated 13.7.2001. The Tribunal concluded that the appellants' lease agreements did not fall under 'Banking and Other Financial Services' but were operating leases. The Tribunal referenced the Accounting Standards AS-19 and several judicial precedents to differentiate between financial and operating leases. Consequently, the demands raised under this heading were not sustainable. 2. Management, Maintenance, or Repair Services: The appellants entered into an agreement dated 30.12.2006 for the operation and maintenance of the oxygen plant. They contended that since they owned the plant, they were providing services to themselves, and thus, no service tax was leviable. However, the Tribunal found that the appellants were indeed providing operation and maintenance services to M/s. UML and were charging for these services as per the agreement. Therefore, the Tribunal upheld the demand for service tax under 'Management, Maintenance or Repair Services'. 3. Storage and Warehousing Service: The appellants argued that they did not provide storage and warehousing services but merely leased storage tanks to M/s. UML. The Tribunal found that the appellants did not engage in warehousing activities as they did not handle the receipt, storage, and clearance of goods. They only leased the tanks, which did not constitute warehousing services. The Tribunal referenced judgments in the cases of Indian Oil Corporation Ltd. vs. CCE, Goa and CCE, Ghaziabad vs. Goyal MG Gases Pvt. Ltd., concluding that the demands for service tax under this heading were not maintainable. Conclusion: The Tribunal sustained the impugned orders only to the extent of the demand for service tax on 'Management, Maintenance or Repair Services'. However, penalties were set aside due to the interpretative nature of the service tax provisions. The demands under 'Banking and Other Financial Services' and 'Storage and Warehousing Service' were set aside.
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