2018 (5) TMI 887 - AT - Service Tax

Nature of activity - deemed sale or service? - Supply of Tangible Goods - appellants are engaged in supply, installation and operation of digital camera equipment having Qube digital technology to various theatre owners on right to use basis through an agreement entered with the parties - Department was of the view that the supply of digital camera equipment on higher basis to theatre owners would fall within the definition of service as under Section 65 B (44) of the Act, and the nature of the said service as defined under Section 66 E (f) of the Finance Act, 1994 is liable to levy of service tax. Held that - The sub-clause (f) of Section 66 E (declared services) refers to transfer of goods by way of hiring, leasing, licensing or in any such manner without transfer of right to use such goods - in the present case the supply of goods involves transfer of right of possession and effective control on such goods and therefore would fall under the category of deemed sale. The activity does not fall within the definition of service under the Finance Act, 1994 as amended in 2012. Appeal allowed - decided in favor of appellant.

Summary

Issues involved:
Confirmation of service tax under the heading 'Supply of Tangible Goods' - Applicability of service tax on the supply, installation, and operation of digital camera equipment to theatre owners.

Analysis:

Issue 1: Confirmation of service tax under 'Supply of Tangible Goods' heading
The appellants contested the imposition of service tax under the category of 'Supply of Tangible Goods' for supplying digital camera equipment to theatre owners. The department argued that the activity fell within the definition of service as per Section 65 B (44) of the Act and Section 66 E (f) of the Finance Act, 1994, making it liable for service tax. Three separate Show Cause Notices (SCNs) were issued for different periods, and the demands were confirmed by the original authority and upheld by the Commissioner (Appeals), leading the appellants to appeal before the Tribunal.

Issue 2: Interpretation of legal provisions
The Ld. Counsel for the appellants argued that the Tribunal had previously set aside a similar demand in a different case, holding that the activity did not attract service tax under the category of 'Supply of Tangible Goods' service. He highlighted the exclusion under Section 65 B (44) (ii) for activities involving transfer, delivery, or supply of goods deemed to be a sale. The Tribunal's previous decision emphasized that the activity was a deemed sale and did not fall under the 'Supply of Tangible Goods' service category, even after the amendment in 2012.

Issue 3: Tribunal's analysis and decision
The Tribunal analyzed the nature of the activity, emphasizing the importance of transferring right of possession and effective control of the equipment to classify it under 'Supply of Tangible Goods' service. Referring to legal precedents, the Tribunal concluded that since the appellants transferred possession and effective control of the equipment, the activity did not fall under the said service category. Moreover, the Tribunal noted that the appellants paid VAT on the activity, indicating that the demand for service tax was not sustainable due to the mutually exclusive nature of VAT and service tax. The Tribunal also referenced relevant provisions post-July 2012 to support its decision that the activity did not meet the definition of service under the Finance Act, 1994.

Conclusion:
The Tribunal set aside the impugned orders and allowed the appeals, granting consequential reliefs. The decision was based on the analysis that the activity involving the supply of digital camera equipment did not fall under the 'Supply of Tangible Goods' service category, as it included the transfer of right of possession and effective control of the goods. The Tribunal's decision aligned with the appellant's argument and previous legal interpretations, emphasizing the deemed sale nature of the activity and the inapplicability of service tax under the given circumstances.