2025 (1) TMI 606 - AT - Service Tax

Levy of service tax - Supply of Tangible Goods Service - whether the rights of possession and effective control of the packaging material in this case vest in Volvo or in the Appellant? - HELD THAT - There is nothing on the record which regulates the manner in which the Appellant may use the packaging material once it has been delivered to the Appellant. By means of the operative data system, it is true that Volvo has information in its position as to the status of the packaging material. However, this information does not appear to rise to the level of conferring upon Volvo either control or possession over the packaging material. Once the packaging material is delivered to the Appellant, the Appellant is free to use such packaging material in such manner as it thinks fit for packing such goods as it thinks fit and for transporting such goods from such places as it thinks fit. It would also appear that there is nothing that saves the Appellant from liability in respect of any damage that occurs to the packaging material when such material is in the use of the Appellant. Therefore, it cannot be said that the Appellant merely has custody over the goods. It has both possession and control over them in addition to the right of use. It is found that a similar view has been taken by a coordinate bench of this Tribunal in comparable facts in the case of CARAVEL LOGISTICS PVT. LTD. VERSUS COMMISSIONER OF GST AND CENTRAL EXCISE, CHENNAI. 2024 (7) TMI 1582 - CESTAT CHENNAI where the five-fold test formulated by the Hon ble Supreme Court in Bharath Sanchar Nigam Ltd. (BSNL) Vs. Union of India 2006 (3) TMI 1 - SUPREME COURT was applied, to hold that the supplier of the containers in that case had transferred possession and control to the recipient thereof. Conclusion - The transactions in question do not constitute the service of the Supply of Tangible Goods as defined in Section 65(105)(zzzzj) of the Finance Act, 1994. Appeal allowed.

1. ISSUES PRESENTED and CONSIDERED

The core legal question in this judgment is whether the provision of packaging materials by Volvo to the Appellant constitutes a "Supply of Tangible Goods Service" under Section 65(105)(zzzzj) of the Finance Act, 1994. Specifically, the issue is whether the rights of possession and effective control of the packaging materials vest in Volvo or the Appellant.

2. ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents

The relevant legal framework is Section 65(105)(zzzzj) of the Finance Act, 1994, which defines the taxable service of "Supply of Tangible Goods." The definition requires that tangible goods be supplied without transferring the right of possession and effective control.

The Tribunal referenced the five-fold test from the Supreme Court case Bharath Sanchar Nigam Ltd. (BSNL) vs. Union of India, which is used to determine the transfer of possession and control.

Court's Interpretation and Reasoning

The Tribunal analyzed whether the Appellant had possession and control over the packaging materials. It concluded that the operative data system, which provides Volvo with information about the status of the packaging materials, does not confer possession or control to Volvo. The Appellant is free to use the materials as it sees fit, indicating possession and control rest with the Appellant.

Key Evidence and Findings

The Tribunal found no evidence regulating how the Appellant may use the packaging materials post-delivery, supporting the argument that the Appellant has both possession and control. Furthermore, the Appellant is liable for any damage to the materials, reinforcing this conclusion.

Application of Law to Facts

The Tribunal applied the legal definition of "Supply of Tangible Goods" and concluded that since the Appellant has possession and control, the transaction does not meet the criteria for this service under the Finance Act.

Treatment of Competing Arguments

The Tribunal addressed the Revenue's reliance on CST Ahmedabad vs. Adani Gas Ltd., distinguishing it on the grounds that the facts differed, particularly regarding the transfer of ownership or possession.

Conclusions

The Tribunal concluded that the transactions do not constitute the service of "Supply of Tangible Goods" as defined in the Finance Act, 1994. Consequently, the impugned order was not sustainable.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning

"Once the packaging material is delivered to the Appellant, the Appellant is free to use such packaging material in such manner as it thinks fit for packing such goods as it thinks fit and for transporting such goods from such places as it thinks fit."

Core Principles Established

The Tribunal established that possession and control are key determinants in classifying a transaction as a "Supply of Tangible Goods Service." The mere provision of information via an operative data system does not equate to possession or control.

Final Determinations on Each Issue

The Tribunal determined that the rights of possession and effective control of the packaging materials vest with the Appellant, not Volvo. Therefore, the transactions do not constitute a "Supply of Tangible Goods Service" under the Finance Act, 1994, leading to the allowance of the appeals with consequential benefits as per law.

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