2020 (2) TMI 187 - AT - Service Tax

Levy of service tax - Online Information and Data Base Access service - renting of Modem - HELD THAT - It is not under dispute that the appellant, on one hand paying the service tax on the Internet Service provided to the customers and, on the other hand they are giving Modem on rental basis. The transaction of providing Modem on rent basis is an independent transaction. In such transaction, they are paying VAT and therefore, the transaction of Modem is a deemed sale in terms of Article 366(29)A of the Constitution, which is exclusive from service. Since the nature of transaction is not under dispute that the same is deemed sale, no service tax can be demanded. The transaction of deemed sale will not attract service tax - Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Whether the appellant is liable to pay service tax on renting Modem along with Online Information and Data Base Access service.

Analysis:

Issue 1: Liability of service tax on renting Modem
The appellant provided Online Information and Data Base Access service along with renting Modem on a rental basis. The Commissioner (Appeals) upheld the demand of service tax on the transaction of Modem. The appellant argued that they pay service tax on Internet Service provided to customers and collect rent for Modem, on which State VAT is paid, making it a deemed sale transaction. The appellant relied on the judgment of the Supreme Court in Imagic Creative Pvt. Limited vs. Commissioner of Commercial Taxes, emphasizing that payment of service tax and VAT are mutually exclusive. The Tribunal examined the nature of the transaction and found that the appellant pays VAT on the Modem rental, making it a deemed sale under Article 366(29)A of the Constitution. Citing various judgments, including UFO Moviez India Limited vs. CST Mumbai and BSNL vs. UOI, the Tribunal concluded that a transaction deemed as a sale does not attract service tax. Therefore, the Tribunal set aside the demand for service tax, ruling in favor of the appellant.

This judgment clarifies the distinction between service tax and VAT on transactions involving the rental of Modems along with Online Information and Data Base Access services. It establishes that when a transaction is deemed a sale and VAT is paid, service tax cannot be levied on the same transaction. The Tribunal's reliance on relevant case law and constitutional provisions strengthens the appellant's argument and provides a clear legal basis for the decision in this case.