2024 (2) TMI 516 - AT - Service Tax

Demand of service tax - Supply of tangible goods for use - transfer of right to use goods - deemed sale - HELD THAT - The ld. Commissioner (Appeals) has observed that in the instant case the custody of the assets was given to FKOL, as they were granted Exclusive Licence to use the goods, but they had no possession and effective control of the goods and neither were free to make use of the said assets in the manner and purpose other than as specified in the said agreement. Nor FKOL were free to allow/assign or licence the goods for use by others. Further, FKOL was not free to remove these assets from the premises of the Appellant. Further observed as per Clause 2.7 of the agreement, that during the terms of the agreement the Appellant can sell its right or interest on the said assets. This agreement only allows FKOL to use the laboratory infrastructure developed by the Appellant for a specific purpose of oncological research, without transferring the possession or control. The exclusive possession with right to use the goods was given by the Appellant to M/s. FKOL, who were free to use the goods. It is further found from the Clause 2.7 of the agreement, which provides that even if the Appellant decides to sell or transfer its right, title or interest in the goods during the term or the extended term for right to use granted, the Appellant shall take prior consent from FKOL and further ensure that right to use of FKOL under the agreement are not disturbed/preserved and their interest is not prejudicially effected. Thus, evidently, the Appellant had granted exclusive right to use without disturbance or encumbrance to their clients FKOL and accordingly, it is held that they have rightly paid the Sales Tax/VAT on transfer of right to use the goods, to their customers, which is a transaction of deemed sale. Accordingly, it is held that service tax is not attracted. The impugned order is set aside - appeal allowed.

Summary

Issues involved:
The issues involved in the judgment include the interpretation of taxable service related to the supply of tangible goods, the application of service tax on transactions involving the transfer of right to use goods, and the determination of whether the transaction in question constitutes a deemed sale.

Interpretation of taxable service related to the supply of tangible goods:
The Appellant, a non-profit organization, entered into an Asset Licensing Agreement with a pharmaceutical company. The dispute arose when the Department observed that payments received by the Appellant were for the service of 'Supply of Tangible Goods' under the agreement. The Appellant contended that the transaction was not taxable under service tax as VAT had already been paid, considering it a transfer of right to use goods. The Appellant relied on legal provisions and a previous Tribunal decision to support their argument.

Application of service tax on transactions involving the transfer of right to use goods:
The Appellant argued that the transaction involved the transfer of the right to use goods, which constitutes a deemed sale and not subject to service tax. They highlighted that the customer did not acquire the title of the goods, and the Appellant retained ownership, indicating a transfer of right to use goods rather than a sale. The Appellant also disputed the findings of the Commissioner (Appeals) regarding the custody and control of the assets during the agreement.

Determination of whether the transaction constitutes a deemed sale:
The Tribunal analyzed the terms of the agreement, specifically Clause 2.7, which protected the customer's right to use the goods in case of any transfer by the Appellant. The Tribunal concluded that the Appellant had granted exclusive right to use the goods to the customer without disturbance, indicating a transaction of deemed sale. Consequently, the Tribunal held that service tax was not applicable, setting aside the impugned order and allowing the appeal in favor of the Appellant.

*(Separate Judgement delivered by the Judges)*