2023 (1) TMI 150 - AT - Service Tax

Recovery of service tax alongwith tax and penalty - Non-payment of service tax - appellant had received supply of tangible goods for use (STGU) service from foreign suppliers - reverse charge mechanism - whether the transaction between the appellant and the foreign buyer would involve the transfer of right of possession and effective control or a transfer of right to use? - HELD THAT - The Constitution empowers the State to levy Sales Tax/VAT on transactions in the nature of transfer of right to use goods, which were earlier not exigible to sales tax as such transactions were not covered by the definition of sale as given in the Sales of Goods Act, 1930 - the term transfer of right to use goods has neither been defined in the Constitution nor in any of the State VAT Acts or Central Sales Tax Act. The transaction between the appellant and the foreign buyer would qualify as a transfer of right to use goods with the control and possession over the ISO Tanker passing on to the appellant. The Andhra Pradesh High Court in RRASHTRIYA ISPAT NIGAM LTD. VERSUS COMMERCIAL TAX OFFICER, COMPANY CIRCLE, VISAKHAPATNAM 1989 (12) TMI 325 - ANDHRA PRADESH HIGH COURT observed that the transaction does not involve transfer of the right to use the machinery in favour of the contractor. As the fundamental requirement of section 5-E is absent, the hire charges collected by the petitioner from the contractor are not exigible to sales tax. The impugned order notices that the appellant had taken the ISO containers on lease/rental basis and it had paid an amount of Rs. 4,60,67,566/- to the foreign supplier who did not have any office in India for supply of the containers - The Commissioner fell in error in not appreciating the difference between a sale and a deemed sale contemplated under article 366 (29A) of Constitution. In a deemed sale it is necessary to examine who has the possession and effective control over the goods. Even the Circular dated 29.02.2008, on which reliance has been placed by the Commissioner, emphasises that in the case of a deemed sale under article 366 (29A) of Constitution, transfer of right to use involves both transfer of possession and control over the goods. The Commissioner also fell an error in holding that since sales tax/VAT was not paid by the appellant, it would not amount to a deemed sale . The Commissioner failed to appreciate that since the translation involved sale or purchase of goods in the course of import of goods into India, no sales tax/VAT was required to be paid even if the transaction qualified as a deemed sale . The supply of ISO Tankers on lease/rental basis by foreign suppliers to the appellant would amount to a deemed sale under article 366 (29A) of Constitution as the appellant throughout had effective control and possession over the ISO Tankers. The order dated 29.07.2016 passed by the Commissioner, therefore, cannot be sustained - Appeal allowed.

Summary

Issues Involved:
1. Whether the supply of ISO Tankers on lease to the appellant by foreign suppliers amounts to 'Supply of Tangible Goods for Use' (STGU) service.
2. Whether the transaction qualifies as a 'deemed sale' under Article 366(29A) of the Constitution.
3. Applicability of service tax under Section 65(105)(zzzzj) of the Finance Act, 1994.
4. Whether the extended period of limitation could be invoked.
5. Eligibility for cum-tax benefit under Section 67(2) of the Finance Act.
6. Imposition of penalty and eligibility for waiver under Section 80 of the Finance Act.

Detailed Analysis:

1. Supply of ISO Tankers as STGU Service:
The core issue was whether the lease of ISO Tankers from foreign suppliers to the appellant constituted an STGU service. The Commissioner confirmed the demand for service tax, stating that the effective control and possession over the tankers remained with the foreign suppliers, thus qualifying the transaction as an STGU service under Section 65(105)(zzzzj) of the Finance Act, 1994. The Tribunal, however, found that the appellant had effective control and possession of the tankers, which were used exclusively by the appellant, thereby negating the classification as an STGU service.

2. Deemed Sale under Article 366(29A) of the Constitution:
The appellant argued that the transaction should be considered a 'deemed sale' as per Article 366(29A) of the Constitution, which would exempt it from service tax. The Tribunal agreed, noting that the appellant had exclusive control and possession of the ISO Tankers during the lease period. The Tribunal cited several judgments, including Bharat Sanchar Nigam Ltd. vs. Union of India, to establish that the transfer of right to use goods with effective control and possession qualifies as a deemed sale.

3. Applicability of Service Tax:
The Tribunal analyzed the statutory provisions and concluded that for a transaction to be taxable as a service under Section 65(105)(zzzzj), the right of possession and effective control must not pass to the transferee. Since the appellant had both possession and effective control over the ISO Tankers, the transaction did not meet the criteria for service tax under the said section.

4. Extended Period of Limitation:
Given the Tribunal's decision on the primary issues, it found it unnecessary to address the contention regarding the invocation of the extended period of limitation.

5. Eligibility for Cum-Tax Benefit:
The appellant's eligibility for cum-tax benefit under Section 67(2) of the Finance Act was not specifically addressed in the Tribunal's final decision, as the primary issues resolved the matter in the appellant's favor.

6. Imposition of Penalty and Waiver:
The Tribunal did not find it necessary to delve into the issues of penalty imposition and waiver under Section 80 of the Finance Act, given the resolution of the primary issues in favor of the appellant.

Conclusion:
The Tribunal set aside the order dated 29.07.2016 passed by the Commissioner, holding that the supply of ISO Tankers on lease by foreign suppliers to the appellant amounted to a deemed sale under Article 366(29A) of the Constitution. Consequently, the transaction was not subject to service tax. The appeal was allowed, and the impugned order was quashed.