2019 (11) TMI 382 - AT - Service Tax

Classification of services - Services under the dealership agreement - respondent herein entered into dealership agreement in the nature of rental outlet dealership agreement and were collecting charges in the name of service station license fee from their dealers towards various outfits and facilities installed/provided in retail outlet premises - whether classified under the category of Supply of tangible property service or would fall under the category of business support services? - Circular No. 334/1/2008-TRU-dated 29.02.2008 - extended period of limitation. HELD THAT - It is brought out from the facts that the respondent has been paying service tax on the licence fee charges collected by them under the category of supply of tangible goods services. These services became taxable with effect from 16.05.2008. The present show-cause notice has been issued proposing to demand service tax on the very same licence fee charges under the category of business support services which were introduced with effect from 01.05.2006. The department has been accepting the tax under supply of tangible goods services for a very long time. Further on analysing the definition of business support service in Section 65 (104c) of the Finance Act, it can be seen that the infrastructural support services are for running an office - In the present case the facilities are provided mainly for storage and supply of the products. Both the dealer and the respondent are acting independently within the terms of the agreement. From the agreement ii is clear that there is no service provided by the respondent in the transaction in the nature of business support service. The Board in Circular No. 334/1/2008-TRU-dated 29.02.2008 has clarified the scope and nature of supply of Tangible Goods Service. A transaction which allows another person to use the goods without transferring legal right of possession or effective control is brought into the levy of service tax under this category when machinery, equipment etc. though fixed to earth is allowed to be used by another without transfer of possession and effective control, the activity would be taxable as service under supply of tangible goods service - From the agreement, the right to possession of the outfits remains with the respondents. It is for the respondents to carry out maintenance of these outfits and facilities and respondent can remove these outfits without assigning any reasons. The effective control of the outfits also thus remains with respondents and there is only right to use such outfits and facilities. The activity is more akin to supply of Tangible Goods Service. Extended period of limitation - HELD THAT - From the various proceedings initiated on the license fee charges it can be seen that department has been entertaining different views. Thus evidently being an interpretational issue the invocation of extended period cannot sustain - SCN fails on the ground of limitation. Appeal dismissed - decided against Revenue.

Summary

Issues:
Classification of services under dealership agreement; Taxability under business support services or supply of tangible goods services; Invocation of extended period of limitation.

Classification of services under dealership agreement:
The case involves M/s Indian Oil Corporation Ltd, engaged in refining and sale of petroleum products, entering into dealership agreements for retail sale. The issue is whether license fee collected from dealers for facilities provided falls under business support services or supply of tangible goods services. The department argues the services are infrastructure support taxable under business support services from 1.05.2006. The respondent contends they correctly paid tax under supply of tangible goods services from 16.05.2008. The Tribunal analyzes the dealership agreement and finds the facilities mainly for storage and supply, not office-related infrastructural support. The agreement grants only the right to use, not possession or control, indicating a supply of tangible goods service.

Taxability under business support services or supply of tangible goods services:
The department claims license fee charges are taxable under business support services, contrary to the respondent's tax payment under supply of tangible goods services. The respondent cites prior consistent tax acceptance and legal precedents to argue against reclassification. The Tribunal notes the department's inconsistent views in other cases and supports the respondent's tax classification under supply of tangible goods services. The Board's circular clarifies the taxability criteria for supply of tangible goods services, emphasizing the right to use without transfer of possession or control, which aligns with the respondent's case.

Invocation of extended period of limitation:
The show-cause notice invokes an extended limitation period, which the respondent challenges as unfounded due to interpretational issues and departmental inconsistencies. The Tribunal agrees, highlighting the department's varied views on classification and the interpretational nature of the issue. The notice fails on the limitation ground, reinforcing the correctness of the respondent's tax classification under supply of tangible goods services. The Tribunal dismisses the department's appeal, upholding the Commissioner's analysis and decision.

This detailed judgment by the Appellate Tribunal CESTAT HYDERABAD addresses the classification of services under dealership agreements, the taxability under business support services or supply of tangible goods services, and the invocation of the extended period of limitation. The Tribunal's thorough analysis of the dealership agreement, tax payment history, legal precedents, and taxability criteria supports the respondent's tax classification under supply of tangible goods services, rejecting the department's attempt to reclassify under business support services. The decision emphasizes consistency, interpretational issues, and the lack of basis for invoking the extended limitation period, ultimately dismissing the department's appeal.