2024 (7) TMI 1582 - AT - Service Tax

Levy of service tax - Supply of Tangible Goods Services under Section 65(105)(zzzzj) of the Finance Act, 1994 upto 30.06.2012 - lease rentals paid by the appellant to the foreign company (Lessor) for hiring the containers - activity would fall under definition of Service as per Section 65B(44) for the period w.e.f. 01.07.2012 or not - HELD THAT - The five-fold test put forward in the BSNL 2006 (3) TMI 1 - SUPREME COURT case stands satisfied. There is indeed transfer of possession as well as effective control of the containers to the appellant by the foreign supplier. In such circumstances, the activity cannot fall under Supply of Tangible Goods Services as defined under Section 65(105)(zzzzj). As the above five-fold test for transfer of right to use the goods being satisfied, the transaction has to be construed as a deemed sale. It cannot be a 'Service' as defined under 65B(44) of the Finance Act, 1994. The Tribunal in the case of Universal Dredging and Reclamation Corporation Ltd. 2020 (6) TMI 619 - CESTAT CHENNAI had considered the issue for the period post 01.07.2012 also. After adverting to the declared services listed under Section 66E, the Tribunal observed that if the transfer is in the nature of deemed sale, it would be outside the purview of taxability under Finance Act, 1994. There is a transfer of possession and effective control of the goods, and the activity being transfer of right to use goods, the demand of service tax cannot sustain for the period upto 30.06.2012 and post 01.07.2012 also. Conclusion - The five-fold test put forward in the BSNL case stands satisfied. There is indeed transfer of possession as well as effective control of the containers to the appellant by the foreign supplier. The lease of containers was a deemed sale, not subject to service tax under either the 'Supply of Tangible Goods Services' category or the definition of 'service' post-01.07.2012. The impugned order is set aside. The appeal is allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

• Whether the lease rentals paid by the appellant for hiring containers from a foreign company are subject to service tax under the category of 'Supply of Tangible Goods Services' under Section 65(105)(zzzzj) of the Finance Act, 1994, for the period up to 30.06.2012.
• Whether the activity would fall under the definition of 'Service' as per Section 65B(44) of the Finance Act, 1994, for the period from 01.07.2012 onwards.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Service Tax Liability under 'Supply of Tangible Goods Services'

• Relevant Legal Framework and Precedents: The definition of 'Supply of Tangible Goods Services' under Section 65(105)(zzzzj) involves the provision of tangible goods for use without transferring the right of possession and effective control. The appellant argued that the transaction is a 'transfer of right to use goods' or a deemed sale, not subject to service tax, as per Article 366(29A)(d) of the Constitution of India.
• Court's Interpretation and Reasoning: The court applied the five-fold test from the Supreme Court's decision in the Bharath Sanchar Nigam Ltd. case to determine whether the transaction constituted a 'transfer of right to use goods'. The court found that the transaction satisfied all five criteria, indicating a transfer of possession and effective control.
• Key Evidence and Findings: The court examined the lease agreements and found that the appellant had exclusive possession and control over the containers, satisfying the conditions for a deemed sale.
• Application of Law to Facts: The court concluded that the transaction involved a transfer of right to use the containers, thus constituting a deemed sale outside the purview of 'Supply of Tangible Goods Services'.
• Treatment of Competing Arguments: The court rejected the Department's argument that the conditions in the lease agreement, such as restrictions on the use of hazardous materials, indicated a lack of transfer of possession and control.
• Conclusions: The court held that the transaction was a deemed sale, not subject to service tax under Section 65(105)(zzzzj).

Issue 2: Definition of 'Service' under Section 65B(44)

• Relevant Legal Framework and Precedents: The definition of 'service' excludes transactions that are deemed sales under Article 366(29A) of the Constitution. Section 66E(f) of the Finance Act, 1994, considers the transfer of goods by leasing without transferring the right to use as a declared service.
• Court's Interpretation and Reasoning: The court applied the same five-fold test to determine whether the transaction constituted a service under the revised legal framework post-01.07.2012.
• Key Evidence and Findings: The court found that the appellant had exclusive possession and control over the containers, indicating a transfer of right to use, thus constituting a deemed sale.
• Application of Law to Facts: The court concluded that the transaction did not fall under the definition of 'service' as it was a deemed sale.
• Treatment of Competing Arguments: The court dismissed the Department's reliance on the Adani Gas Ltd. case, distinguishing it based on factual differences.
• Conclusions: The court held that the transaction was not a service under Section 65B(44) and was not subject to service tax.

3. SIGNIFICANT HOLDINGS

• Preserve Verbatim Quotes of Crucial Legal Reasoning: The court quoted, "The five-fold test put forward in the BSNL (supra) case stands satisfied. There is indeed transfer of possession as well as effective control of the containers to the appellant by the foreign supplier."
• Core Principles Established: The judgment reinforced the principle that a transaction involving the transfer of possession and effective control of goods constitutes a deemed sale, not subject to service tax.
• Final Determinations on Each Issue: The court set aside the impugned order, concluding that the lease of containers was a deemed sale, not subject to service tax under either the 'Supply of Tangible Goods Services' category or the definition of 'service' post-01.07.2012.

The judgment provides a detailed analysis of the legal framework surrounding service tax liability for transactions involving the leasing of tangible goods, emphasizing the distinction between deemed sales and services. The court's application of the five-fold test from the BSNL case serves as a critical precedent for similar cases involving the transfer of right to use goods.