2025 (1) TMI 937 - AT - Service Tax

Classification of services - Supply of Tangible Goods Service or not - transfer of right to possession and effective control of the cranes to the Municipal Corporation Bhopal (MCB) - demand confirmed on the basis of presumptions - HELD THAT - MCB had all legal rights to use the same exclusively during the period of agreement. Since the cranes were taken at instance of Traffic Police those used to be parked in the premises of the jurisdictional police stations. The appellant had no control on the movement of the crane nor upon the driver thereof except that the cost of driver and cost of maintenance of the crane was being paid by the appellant. During the period of contract the appellant was not supposed to give that crane to anybody else - the effective control and possession with respect to cranes given to MCB was not with the appellant. The appellant getting paid a fixed price per crane from MCB. Resultantly we hold that the impunged activity was that of giving cranes on Hire instead of it being wrongly classified as Supply of Tangible Goods . The Commissioner (Appeals) has not given any reason on which basis the effective control and possession was held to be with the appellant. Apparently and admittedly appellant has not collected any tax from Municipal Corporation Bhopal on the invoices raised to MCB. There are no reason to consider the invoice amount to be inclusive of service tax. Conclusion - The effective control and possession with respect to cranes given to MCB was not with the appellant. The right to possession and effective control are crucial in determining service tax liability under Supply of Tangible Goods Service. The demand is held to have been wrongly confirmed - appeal allowed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the services provided by the appellant fall under the category of "Supply of Tangible Goods Service" as taxable under the Finance Act, 1994.
Whether the appellant had transferred the right to possession and effective control of the cranes to the Municipal Corporation Bhopal (MCB).
Whether the appellant is liable to pay service tax on the services provided to MCB.
Whether the demand for service tax and penalties imposed by the Adjudicating Authority is justified.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Classification under "Supply of Tangible Goods Service"

Relevant Legal Framework and Precedents: The service of "Supply of Tangible Goods" is defined under Section 65(105)(zzzzj) of the Finance Act, 1994, which includes supply without transferring the right to possession and effective control.
Court's Interpretation and Reasoning: The court examined whether the appellant transferred the right to possession and effective control of the cranes to MCB. The court referred to the Supreme Court's decision in Bharat Sanchar Nigam Limited vs. Union of India, which outlines the attributes necessary for transferring the right to use goods.
Key Evidence and Findings: The court found that the cranes were used by the traffic police for impounding vehicles and were parked at police stations. The appellant bore the costs of maintenance and drivers, indicating no transfer of effective control.
Application of Law to Facts: The court concluded that the appellant did not transfer effective control and possession of the cranes to MCB, thus the service provided was not "Supply of Tangible Goods."
Treatment of Competing Arguments: The appellant argued that they did not transfer control, while the department claimed that the service was taxable. The court sided with the appellant based on the evidence.
Conclusions: The service was incorrectly classified as "Supply of Tangible Goods." The appellant provided a service akin to hiring, not taxable under the said category.

Issue 2: Liability to Pay Service Tax

Relevant Legal Framework and Precedents: The Finance Act, 1994 mandates service tax on certain services. The appellant argued for exemption based on the nature of control and possession.
Court's Interpretation and Reasoning: The court analyzed whether the appellant should have collected service tax from MCB. Given the nature of the agreement and lack of control transfer, the court found no liability.
Key Evidence and Findings: No service tax was collected from MCB, and the appellant operated under the belief that their services were non-taxable.
Application of Law to Facts: The court determined that the appellant's services did not meet the criteria for taxable services under the Finance Act.
Treatment of Competing Arguments: The department's argument of suppression was countered by the appellant's bona fide belief of non-taxability, which the court found credible.
Conclusions: The appellant is not liable to pay service tax for the services provided to MCB.

Issue 3: Justification of Demand and Penalties

Relevant Legal Framework and Precedents: Sections 73, 75, 76, 77, and 78 of the Finance Act, 1994, deal with service tax demands and penalties.
Court's Interpretation and Reasoning: The court scrutinized the basis for the demand and penalties, considering the appellant's non-collection of service tax and the nature of the service.
Key Evidence and Findings: The appellant did not collect service tax, and the department's demand was based on an incorrect classification of services.
Application of Law to Facts: The court found the demand and penalties unjustified as the service was not taxable under the claimed category.
Treatment of Competing Arguments: The court dismissed the department's claims of suppression, citing the appellant's reasonable belief of non-taxability.
Conclusions: The demand and penalties were wrongly imposed and are set aside.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "The effective control and possession with respect to cranes given to MCB was not with the appellant."
Core Principles Established: The right to possession and effective control are crucial in determining service tax liability under "Supply of Tangible Goods Service."
Final Determinations on Each Issue: The appellant's services were not taxable under the claimed category, and the demand for service tax and penalties was unjustified. The appeal is allowed, and the order is set aside.

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