2024 (12) TMI 607 - AT - Service Tax

Levy of service tax - leasing of Scaffolding items by the Appellant, on which, admittedly VAT has been paid as Deemed sale within meaning of Article 366 (29A) (d) of the Constitution of India - HELD THAT - There was transfer of the right to use, possession and effective control in favour of the lessees in respect of the scaffolding items so leased to the lessees. It is thus clear that the Lessee had the right to use the material, the material was to be in possession and effective control of the Lessee and the Appellant did not have any direct or indirect control over the material. Further, since the material was in the use, possession and control of the Lessee, the same was required to be insured by the Lessee and in case of theft or damage to the material, the cost thereof was to be borne by the Lessee. Lastly, upon expiry of the lease, the Lessee had to return the material to the Appellant s workshop, which itself means that during the term of the lease, the material was in use, possession and control of the Lessee. In case of Lessee s failure to return the material on expiry of the lease, the Appellant had the authority to bring back the material at the Lessee s cost. Since there was clearly a transfer of the right to use the materials in favour of the Lessee, the same was liable to Sales Tax/ VAT, being a deemed sale within the meaning of Article 366 (29A) (d) of the Constitution of India and accordingly, VAT was being discharged on the lease rent, which is apparent from the Invoices raised by the Appellant on the lessees. It is found that the Show Cause Notice and the Order-In-Original accept that the materials were to be in use of the Lessee and yet contend that there was no transfer of right to use only on the ground that there was no change of ownership. Similarly, the Commissioner (Appeals) has held against the Appellant on the ground that there was no change of ownership - the said ground is totally misconceived and untenable in law because in case of a Deemed Sale, which is liable to VAT, there would in fact be no change of ownership and only transfer of right to use. The impugned order cannot be sustained, hence the same is set aside - appeal allowed.

Summary

Issues:
1. Whether the leasing of scaffolding items by the Appellant, on which VAT has been paid as Deemed sale, is liable to service tax.
2. Whether the demand is barred by limitation.

Analysis:

Issue 1:
The Appellant leased scaffolding items to various parties against rent, on which VAT was paid but no service tax was paid. The Service tax department contended that the transactions were liable to service tax. The Appellant argued that there was a transfer of right to use, possession, and effective control to the lessees, constituting a deemed sale on which VAT was discharged. The authorities issued a Show Cause Notice demanding service tax, interest, and penalties. The Assistant Commissioner and Commissioner (Appeals) upheld the demand. The Appellant appealed, citing various decisions supporting their position. The tribunal analyzed the lease contracts and found clauses indicating transfer of right to use, possession, and control to the lessees. As VAT was paid on the lease rent, it was considered a deemed sale, not a service. The tribunal referred to precedents where similar transactions were treated as deemed sales not liable to service tax. The tribunal held that the impugned order was not sustainable and allowed the appeal.

Issue 2:
The Appellant contended that the demand was barred by limitation. The tribunal did not delve into this issue explicitly in the judgment. However, since the tribunal set aside the impugned order on the primary issue of liability to service tax, the demand being time-barred might have been considered irrelevant in this context.

In conclusion, the tribunal ruled in favor of the Appellant, holding that the leasing of scaffolding items constituted a deemed sale on which VAT was paid, and thus was not liable to service tax. The tribunal set aside the demand, allowing the appeal. The judgment did not explicitly address the limitation issue, as the primary issue of tax liability was resolved in favor of the Appellant.