2024 (5) TMI 777 - AT - Service Tax

Levy of service tax - Sale of Bought-Out Spares - contracts with a lifetime spares supply mandate - rendering service under the category of Business Auxiliary Service or not - act of selling/supplying bought out goods(spares) by the Appellant for their buyers, while selling drilling rigs and ancillary equipment produced by them - principal agent relationship or not - HELD THAT - In the instant case supplies were made on Principal to Principal basis. There is nothing on record to show that any commission was being paid or the transaction were purely on commission basis without title to the goods undergoing a change like in case of intermediary services. These were purchased by the appellant in their name from the spare parts market and same were in turn sold of to their customers purely as obligatory facilitation measure without any charge for such facilitation. There was no existence of agency relationship between them and their buyer. A simple requisition by the customer of the spare parts as may be required by them and delivering the same by them was as per contractual requirement or warranty obligation by the appellant. It would not tend to bring the transaction within the ambit of Business Auxiliary Service . As sale and purchase of goods was involved without any element of commission and the transaction was not on Principal to Agent basis. The goods sold will not come within the ambit of service even in the post negative list period - the impugned transactions were in the nature of sale and not within the ambit of any services, simply because the goods were supplied on Principal to Principal basis, but as per pre-existing stipulation of facilitation at the time of sale of rigs to prospective customers. The impugned order is liable to be set aside. Appeal is allowed.

Issues involved:
The issue involved in the present appeal is whether service tax is payable on the act of selling/supplying bought out goods (spares) by the Appellant for their buyers, while selling drilling rigs and ancillary equipment produced by them, and whether it amounts to rendering service under the category of "Business Auxiliary Service."

Details of the Judgment:

Issue 1: Applicability of Service Tax on Sale of Spares
The Tribunal had previously dropped the demand towards sale of bought out spares where it was not mandatory to provide life-time spare supply. The Notification No.12/03-ST is similar to Section 66D(e) of the Finance Act, 1994, stating that trading or mere sale of goods is outside the purview of "service" and not liable for Service Tax. The Adjudicating Authority in the remand proceedings dropped the demand on all counts, which was accepted by the revenue department. The Tribunal held that for contracts without stipulations for lifetime spares, no service tax can be demanded. The Revenue Authorities did not appeal against this portion of the order.

Issue 2: Appeal Against Adverse Findings
The appellant filed the present appeal against adverse findings by the Commissioner (Appeals) on various grounds. The appellant relied on several case laws to support their arguments. During the hearing, the appellant emphasized that the goods were supplied on a principal-to-principal basis and not as part of Business Auxiliary Service. The appellant argued that the demand was based on goods purchased and sold with a profit margin, without any element of service tax for the sale of spares.

Conclusion:
The Tribunal found that the transactions were made on a principal-to-principal basis without an agency relationship, and there was no element of commission. The goods were sold without any charge for facilitation, and the transactions were not on a "Principal to Agent" basis. Therefore, the impugned transactions were considered as sales and not within the ambit of any services. The Tribunal held that the impugned order is liable to be set aside, and the appeal was allowed with consequential relief.

(Pronounced in the open Court on 15.05.2024)

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