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2024 (8) TMI 1542 - AT - Service TaxRecovery of service tax with interest and penalty - Supply of Tangible goods services or not - leasing out of earth station and related equipment to M/s SICCL - cum tax benefit. HELD THAT - The facts and issues involved in the present case are on all fours identical to case in M/S SAHARA SANCHAAR LIMITED VERSUS COMMISSIONER OF SERVICE TAX NOIDA 2024 (1) TMI 451 - CESTAT ALLAHABAD . The Chartered accountant appearing for the appellant strenuously sought to distinguish the said order by stating that the said decision is not based on the amended provisions. However there are no merits in the said submission as the perod involved in the said case was upto 31.03.2014 and the Finance Act 1994 was amended to introduce new taxation regime with effect from 01.07.2014. It was held in the said case that From the terms of agreement and stipulations the assets were made available to the lessee for use without transferring the effective control and possession over the said assets to the lessee and hence the service tax under the category of Supply of Tangible Goods Services has been rightly demanded from them. The matter for the period after 01.07.2012 has been considered in para 4.10 of the above order and the amended provisions have been taken into account. Thus there are no merits in the submissions made by the appellant on the merits of the case. Cum tax benefit - HELD THAT - It is now settled position in law that benefit of cum tax benefit should have been allowed while computing the taxable value and the tax payable. For limited purpose of computing the tax demand after allowing the cum tax benefit to the appellant matter is remitted back to the original authority. Penalties u/s 76 and 77 of the Finance Act 1994 - HELD THAT - There are no merits in the submissions made by the appellant in respect of the penalties imposed under Section 76 and 77 of the Finance Act 1994. The penalties under these Sections are not the penalties u/s 78 which were to be imposed for various offences which required a guilty mind or intent to evade payment of tax. The penalties under these section are for failure to comply with the legal obligations - penalties upheld. Demand of interest - HELD THAT - As the demand of Service Tax upheld demand for interest under Section 75 follows. Conclusion - i) The agreement does not transfer the right to use tangible goods with effective possession and control to the lessee thus constituting a taxable service under Section 65(105)(zzzzj) of the Finance Act 1994. Demand of service tax with interest and penalties upheld. Appeal partly allowed and matter remanded to original authority for recalculating the tax demand with cum tax benefit.
ISSUES PRESENTED and CONSIDERED
The core issues considered by the Tribunal were: i) Whether the leasing of earth station and related equipment to M/s Sahara India Commercial Corporation Limited (SICCL) qualifies as a taxable service under "Supply of Tangible Goods Services" as per the Finance Act, 1994. ii) Whether the demand for service tax amounting to Rs. 3,19,54,030/- is recoverable from the appellant along with interest under Section 73(1) read with Section 75 of the Finance Act, 1994. iii) Whether penalties under Section 76 of the Finance Act, 1994 are applicable in this case. iv) Whether penalties under Section 77(1)(a) and Section 77(2) of the Finance Act, 1994 are imposable for not incorporating the taxable value of 'Supply of Tangible Goods Services' in the ST-3 returns and service tax registration. ISSUE-WISE DETAILED ANALYSIS Leasing Out Earth Station and Related Equipment to M/s SICCL The Tribunal examined the agreement between the appellant and SICCL, which stated that the appellant retained ownership and control over the leased assets. Key clauses indicated that the appellant could extend the right to use the assets to third parties with SICCL's consent, maintained responsibility for insurance and licensing, and retained inspection rights. These clauses suggested that the effective control and possession were not transferred to SICCL, qualifying the transaction as a taxable service under "Supply of Tangible Goods Services" without transferring the right of possession and effective control. Relevant Legal Framework and Precedents The Tribunal referred to Section 65(105)(zzzzj) of the Finance Act, 1994, defining taxable service as the supply of tangible goods for use without transferring possession and control. The Tribunal also considered precedents such as Bharat Sanchar Nigam Limited, which outlined criteria for determining the transfer of the right to use goods. Court's Interpretation and Reasoning The Tribunal concluded that the agreement's terms did not transfer effective control and possession to SICCL, thus falling under the taxable service category. The Tribunal emphasized that despite the appellant's contention of transferring the right to use, the agreement allowed the appellant to extend use rights to third parties, indicating retained control. Application of Law to Facts The Tribunal applied the legal framework to the facts, determining that the appellant's actions constituted a supply of tangible goods service due to the retention of control and possession over the assets. Treatment of Competing Arguments The appellant argued that VAT payment exempted them from service tax liability and that the transaction was a deemed sale. The Tribunal rejected these arguments, stating that VAT and service tax are mutually exclusive, and the agreement's terms did not support a transfer of the right to use. Conclusions The Tribunal concluded that the appellant was liable for service tax under the "Supply of Tangible Goods Services" category, as the agreement did not transfer effective control and possession to SICCL. Penalties under Sections 76 and 77 The Tribunal upheld penalties under Sections 76 and 77, stating that the appellant failed to comply with legal obligations, including incorporating taxable services in their registration and returns. The Tribunal found no reasonable cause to waive penalties, as the appellant did not disclose service provision to authorities and acted without bona fide belief. Application of Cum Tax Benefit The Tribunal agreed with the appellant's contention for cum tax benefit, stating that the benefit should be allowed while computing the taxable value and tax payable. The matter was remanded to the original authority for recalculation. SIGNIFICANT HOLDINGS The Tribunal affirmed the demand for service tax, interest, and penalties under Sections 76 and 77. The Tribunal's significant holdings included: "The agreement does not transfer the right to use tangible goods with effective possession and control to the lessee, thus constituting a taxable service under Section 65(105)(zzzzj) of the Finance Act, 1994." "VAT and service tax are mutually exclusive; payment of VAT does not absolve service tax liability." "The penalties under Sections 76 and 77 are for failure to comply with legal obligations, not requiring mens rea." The Tribunal remanded the matter for recalculating the tax demand with cum tax benefit.
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