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2019 (5) TMI 240 - AT - Service Tax


Issues Involved:
1. Whether the supply of gas cylinders on lease constitutes a "deemed sale" or falls under "Supply of Tangible Goods Service" as per the Finance Act, 1994.
2. Applicability of Service Tax on the lease transaction.
3. Validity of the demand and penalties imposed under various sections of the Finance Act, 1994.

Detailed Analysis:

1. Nature of the Transaction:
The primary issue to be considered is whether the supply of gas cylinders on lease constitutes a "deemed sale" under Article 366 (29A) of the Constitution or falls under the "Supply of Tangible Goods Service" as per the Finance Act, 1994. The definition of "Supply of Tangible Goods" under Section 65 (105)(zzzzj) of the Finance Act, 1994, specifies that the service is taxable if the goods are provided for use without transferring the right of possession and effective control. The Memorandum of Understanding (MOU) between the appellant and the lessee was examined, revealing clauses that transferred the right of possession and effective control to the lessee. This included responsibilities such as maintenance, registration, and uninterrupted use of the cylinders by the lessee, indicating a transfer of effective control and possession.

2. Applicability of Service Tax:
The tribunal analyzed whether the transaction is subject to Service Tax under the "Supply of Tangible Goods Service." The appellant argued, citing multiple tribunal judgments and board circulars, that the transaction constitutes a "deemed sale" as it involves the transfer of both possession and control of the cylinders to the lessee. The tribunal agreed, referencing the board’s circular and previous judgments, including the Andhra Pradesh High Court's decision in the G.S. Lamba case, which clarified that a transaction involving the transfer of possession and control is a "deemed sale" and not a service.

3. Validity of Demand and Penalties:
Given the tribunal's conclusion that the transaction is a "deemed sale" and not a service, the demand for Service Tax under Section 73(1) of the Finance Act, 1994, along with interest and penalties under Sections 75, 77(1), 77(2), and 78(1) of the Finance Act, 1994, was found to be unsustainable. The tribunal referenced similar cases, such as Gimmco Ltd., where it was held that transactions involving the transfer of right to use goods with possession and control do not fall under "Supply of Tangible Goods Service" and are not liable for Service Tax.

Conclusion:
The tribunal concluded that the appellant's transaction of leasing gas cylinders to the group company does not fall under "Supply of Tangible Goods Service" and is instead a "deemed sale." Consequently, the demand for Service Tax and associated penalties were set aside, and the appeal was allowed.

Final Order:
The impugned order was set aside, and the appeal was allowed, with the tribunal pronouncing the judgment in the open court on 02/05/2019.

 

 

 

 

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