2019 (6) TMI 452 - AT - Service Tax

Classification of services - respondent assessee have been supplying the machines like excavators and other earth moving equipments to their various clients on rental basis and that the clients hiring such equipments have managed and operated these machines themselves - whether the service would be classified under site preparation services or under supply of tangible goods service? - HELD THAT - The adjudicating authority has reached to the conclusion that the respondent-assessee have not been engaged in the activity of Site Formation and Clearances, Excavation and Earth moving service as alleged in the impugned show cause notice, rather they have been only supplying earth moving machines like excavators etc. on rental basis and the physical control and possession of these machines have always remained with the clients who have actually hired such machines - the department in their appeal has not adduced any evidence to controvert the finding of the learned adjudicating authority. We are in full agreement with the finding of the adjudicating authority with regard to the determination of classification of activity undertaken by the respondent-assessee which has been determined by him on the basis of detailed examination of agreement, invoices and other documents - appeal dismissed - decided against Revenue.

Summary

Issues:
Appeal against order dropping demand for service tax on "site preparation services" - Classification of services under Site Formation and Clearances, Excavation, and Earth moving - Possession and control of earth moving machines - Department's evidence to substantiate claims - Classification of activity as supply of tangible goods.

Analysis:
The appeal was filed by the department challenging the order of the Commissioner dropping the demand for service tax against the respondent-assessee. The department alleged that the respondent was providing "site preparation services" falling under the taxable category of Site Formation and Clearances, Excavation, and Earth moving services as per the Finance Act, 1994. The Commissioner, after detailed examination of agreements and invoices, found that the respondent was actually supplying earth moving machines like excavators on a rental basis. The Commissioner concluded that the clients hiring these machines managed and operated them themselves, retaining effective control over the equipment. The adjudicating authority dropped a major part of the service tax demand, confirming only a small amount against the respondent.

During the appeal hearing, it was noted that the department failed to provide any evidence to challenge the findings of the adjudicating authority. The Commissioner also determined that the activity of the respondent did not constitute the supply of tangible goods since the possession and control of the machines remained with the clients who hired them. The department's claims under the category of Site Formation and Clearances, Excavation, and Earth moving services were not substantiated with evidence. The adjudicating authority's classification of the activity undertaken by the respondent was based on a thorough examination of agreements, invoices, and other documents.

Ultimately, the Tribunal found no merit in the department's appeal and upheld the Order-in-Original, dismissing the appeal. The possession and control of the earth moving machines by the clients hiring them played a crucial role in determining the classification of the activity, which was deemed not to fall under the taxable category of site preparation services. The decision was based on a detailed analysis of the contractual agreements and invoices, highlighting the importance of effective control and possession in such transactions.