2013 (7) TMI 150 - AT - Service Tax

Nature of service supply of tangible goods for use Section 65(105) (zzzzj) - the appellant is engaged in renting of earthmoving equipment to various customers - the appellant did not discharge any service tax liability - Held that - The transaction involved herein is transfer of right to use which is deemed sale and not supply of tangible goods for use service - the transaction involved was a transfer of right to use Transit Mixers and not transport service and the petitioners had transferred the right to use goods the said transaction is not the transfer of the property in goods - but it is right to use property in goods. Article 366 (29A)(d) r.w. clause (29A) uses the words, and such transfer, delivery or supply shows that the tax is not on the delivery of the goods used, but on the transfer of the right to use goods regardless of when or whether the goods are delivered - subject to the condition that the goods should be in existence for use - Delivery of goods is not condition precedent but the delivery may be one of the elements of the transaction for the transfer of the right to use goods. Control over the Goods Held that - the effective or general control does not mean always physical control but it would be under the effective or general control over the goods - the approvals, concessions, licence and permits would also be available to user of the goods - during the period of contract exclusive right to use goods along with permits, licence, etc., vests with the lessee. Stay application - Held that - Prima facie the appellant has made out a strong case in his favour for grant of waiver of pre-deposit of the dues and stay recovery - The petition is allowed in the favour of the assessee.

Summary

Issues:
1. Whether the activity of renting earthmoving equipment constitutes a taxable service under service tax laws.
2. Whether the transaction involving leasing of machinery/equipment is subject to service tax or deemed sale under VAT laws.
3. Whether the right of possession and control in the equipment lies with the lessor or lessee, determining the tax liability.

Analysis:

Issue 1:
The appellant, engaged in renting earthmoving equipment, contested a service tax demand for the period 2005-2010. The department claimed the activity falls under service tax categories, leading to a demand of Rs. 2,13,10,930. The Commissioner confirmed a demand of Rs. 67,39,694 under the category of "supply of tangible goods for use" post-16-5-2008, imposing penalties under relevant sections. The appellant challenged this order, leading to the present appeal.

Issue 2:
The appellant argued that the leasing activity constitutes a "deemed sale" under VAT laws, hence not subject to service tax. Referring to Budget Speech and Circulars, they contended that service tax is not applicable when VAT is leviable. The appellant emphasized that the transaction is a transfer of the right to use, not a service. The appellant cited a High Court case to support their position.

Issue 3:
The Revenue argued that the lessor retains possession and control of the equipment, making it a service contract subject to service tax. They highlighted clauses in the agreement indicating control by the lessor. The Revenue relied on a CBEC circular stating that transactions allowing the use of goods without transferring possession are considered services. The Revenue sought to uphold the tax liability on the appellant.

The Tribunal analyzed the agreement clauses, responsibilities of the parties, and legal precedents. They noted that the terms indicated a transfer of the right to use, akin to a deemed sale under VAT laws. Citing a High Court case, the Tribunal concluded that the transaction involved was a transfer of the right to use goods, not a service. Consequently, the Tribunal granted a waiver of pre-deposit and stayed the recovery of dues during the appeal, favoring the appellant.

This detailed analysis of the issues involved in the legal judgment provides a comprehensive understanding of the arguments presented by both parties and the Tribunal's decision in favor of the appellant.