2019 (2) TMI 491 - AT - Service Tax

Liability of service tax - supply of tangible goods service - activity of leasing of machinery - Held that - The appellant has delivered the effective possession and control of the machinery on the said machinery, which have been delivered to the lessee and admittedly, the said machinery was installed in the promises of the lessee at Sonepat, Haryana. The workers of lessee are entitled to operate such machinery and the lessee is required to take care of the said machinery. Further, pursuant to circular from the CBSE, wherein clearly explaining the scope of the service, it was clarified that transactions, where the supply of tangible goods for use and leviable to VAT/sales tax is a deemed sales of goods and not covered under the scope of the proposed service. The appellant have failed to lead evidence as regards payment of VAT on the said transaction, the said finding is vague as the invoice itself shows charging of VAT and appellant had contended in the very 1st reply to the show cause that they have paid VAT - appeal allowed - decided in favor of appellant.

Summary

Issues involved:
Whether the appellant is liable to pay service tax under the category of "SOTG" on their activity of leasing machinery.

Analysis:
The case involved a dispute regarding the liability of the appellant to pay service tax on leasing machinery under the category of "SOTG." The agreement between the parties stated that certain machineries were leased for 18 years to the lessee for repacking tissue paper. The machinery was located at the lessee's plant in Haryana, and the lessee was responsible for maintenance and repair. The lessee offered to process and convert tissue paper into finished products. A show cause notice was issued demanding service tax, which was confirmed along with a penalty. The appellant contended that they had paid VAT on the transaction and should not be liable for service tax. The appellant provided evidence of VAT payment through invoices, ST-3 returns, and a certificate from their Auditor.

The Tribunal found that the machinery was effectively possessed and controlled by the lessee, who operated and maintained it. Referring to a circular from the CBSE, it was clarified that transactions involving the supply of tangible goods for use, and subject to VAT/sales tax, are deemed sales of goods and not covered under the proposed service tax. The appellant had raised the issue of VAT payment in their response to the show cause notice and had evidence of VAT payment through invoices and returns. The Tribunal noted that the impugned order incorrectly stated that the appellant had not provided evidence of VAT payment, whereas the invoices clearly showed VAT charges. Therefore, the Tribunal allowed the appeal, setting aside the impugned order, and granted the appellant consequential benefits.

In conclusion, the Tribunal ruled in favor of the appellant, holding that they were not liable to pay service tax on the leasing of machinery as they had already paid VAT on the transaction. The Tribunal emphasized the importance of providing evidence of VAT payment, which the appellant had successfully demonstrated through invoices and returns.