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2024 (8) TMI 789 - AT - Service TaxLevy of service tax - rent charges collected towards hiring of Earth Moving Equipment - transferring of right of possession and use of earth moving machinery - deemed sale or service - HELD THAT - The appellant have given earth moving equipment on monthly rent basis to their lessee and the right to possession and use of earth moving equipment has been transferred to the lessee. Accordingly, the same is the deemed sale under Article 366 (29A)(d) of Constitution of India. The transaction is whether deemed sale or service is established on the basis of invoice raised by the appellant whereby the appellant have paid State VAT therefore, the transaction is clearly a deemed sale. As per the above definition of service in the post 01.07.2012, in the negative list regime with effect from 01.07.2012 it is clear that activity which constitute transfer, delivery or supply of any goods which is deemed sale within the meaning of Article 366 (29A)(d) of the Constitution of India, is excluded from the definition of service. In the facts of the present case, since the transaction is deemed sale and appellant have paid VAT, the same is clearly covered under sub-clause (ii) of clause (a) of Section 65B(44) which is excluded from the definition of service itself. The activity of the appellant does not fall under any taxable service. Thus, it is clear that transaction of renting of Earth Moving Equipment to various clients firstly, does not fall under supply of tangible goods and secondly, the service prior to 01.07.2012 and subsequent thereto it does not fall under the definition of input service as mentioned above. Therefore, the activity of renting of Earth Moving Equipment to various clients is not a taxable service. The impugned order is not sustainable, the same is set-aside - Appeal allowed.
Issues Involved:
1. Whether rent charges collected towards hiring of Earth Moving Equipment are chargeable to service tax under 'Supply of Tangible Goods Service'. 2. Whether the transaction constitutes a deemed sale under Article 366 (29A)(d) of the Constitution of India. 3. Applicability of service tax post the negative list regime effective from 01.07.2012. 4. The relevance of VAT payment in determining the nature of the transaction. Issue-wise Detailed Analysis: 1. Chargeability to Service Tax under 'Supply of Tangible Goods Service': The primary issue is whether the rent charges for hiring Earth Moving Equipment fall under the 'Supply of Tangible Goods Service'. The appellant argued that the transaction should not be classified under this service category because the right to possession and effective control of the equipment was transferred to the lessee, making it a deemed sale. The Tribunal examined the nature of the transaction and concluded that the right to possession and use of the equipment had indeed been transferred to the lessee, thus constituting a deemed sale. 2. Deemed Sale under Article 366 (29A)(d) of the Constitution of India: The Tribunal found that the transaction in question is a deemed sale as per Article 366 (29A)(d) of the Constitution of India. This conclusion was based on the fact that the appellant had transferred the right to possession and use of the Earth Moving Equipment to the lessee and had paid VAT on the transaction. The Tribunal noted that the relevant invoices indicated VAT payment, which substantiated the claim that the transaction was a deemed sale. 3. Applicability of Service Tax Post Negative List Regime (Effective from 01.07.2012): The appellant contended that post the negative list regime effective from 01.07.2012, the transaction does not fall under the definition of service as per Section 65B(44) of the Finance Act, 1994. The Tribunal agreed, citing that the definition of service excludes activities that constitute a deemed sale within the meaning of Article 366 (29A)(d) of the Constitution. Since the transaction was a deemed sale and VAT was paid, it was excluded from the definition of service and thus not subject to service tax. 4. Relevance of VAT Payment in Determining the Nature of the Transaction: The Tribunal emphasized that the payment of VAT by the appellant was a critical factor in determining the nature of the transaction. The VAT payment indicated that the transaction was treated as a sale rather than a service. The Tribunal referred to previous judgments, including the appellant's own case, where similar transactions were classified as deemed sales and not taxable services. The Tribunal also cited various judgments to support the view that if VAT is payable on a transaction, service tax is not applicable. Conclusion: The Tribunal concluded that the renting of Earth Moving Equipment to various clients does not fall under the category of 'Supply of Tangible Goods for Use' service. The transaction was deemed a sale under Article 366 (29A)(d) of the Constitution of India, and since VAT was paid, it was excluded from the definition of service as per Section 65B(44) of the Finance Act, 1994. Consequently, the impugned order was set aside, and the appeal was allowed. Pronouncement: The judgment was pronounced in the open court on 13.08.2024, setting aside the impugned order and allowing the appeal.
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