2024 (1) TMI 184 - AT - Service Tax

Levy of service tax - Supply of Tangible Goods Service - legal right of possession and effective control has been transferred by the appellant to WTCPL or not - HELD THAT - Merely because VAT is not paid, it cannot be said that the nature of transaction has changed. Payment of VAT or otherwise can only be an indicator, however the conclusion regarding transfer of right of possession and effective control can only be derive from the terms of agreement. It is seen that the terms and conditions are in the nature of the owner protecting his property and legal rights to ownership. These terms and condition by no stretch of imagination can be understood to mean that the appellant did not transfer the possession and effective control of the plant and machinery. The clause 5 of the agreement relates to the proper use of machinery and clause 6 is intended to protect the title of the appellant in the leased property. None of the clauses cited by the Commissioner indicate retaining of possession or effective control of the plant and machinery. Without any evidence to hold that effective control and possession has not been transferred, it could not held that any service in the nature of Supply of Tangible Goods has been provided. There are no merit in the impugned order, the same is set aside and appeal is allowed.

Summary

Issues:
The issues involved in the judgment are the demand of service tax and imposition of penalties under Section 77 & 78 based on the transfer of possession and effective control in a lease agreement.

Summary:
The appellant, Nath Industries Limited, filed an appeal against the demand of service tax under the category of "Supply of Tangible Goods Service" due to a lease agreement with Wexford Trading Company Private Limited (WTCPL). The Revenue demanded tax based on non-payment of VAT/Sales Tax, indicating non-transfer of possession and control. However, the appellant argued that possession and control were indeed transferred to WTCPL, supported by clauses in the lease agreement. The Commissioner's decision was primarily based on non-payment of VAT, which the Tribunal found insufficient to determine possession and control transfer. The terms of the agreement were examined, showing clauses aimed at protecting the owner's rights rather than retaining possession or control. As there was no evidence to support non-transfer of possession and control, the Tribunal set aside the impugned order and allowed the appeal.

In conclusion, the Tribunal found no merit in the Commissioner's decision, emphasizing that payment of VAT alone cannot determine the transfer of possession and effective control in a lease agreement. The terms of the agreement were analyzed to show they were intended to protect the owner's rights, not to retain possession or control. Therefore, the Tribunal set aside the order and allowed the appeal.