2018 (6) TMI 1156 - AT - Service Tax

Service or sale - appellant had leased their various types of machines to Roots Casts (P) Ltd. Roots Polycraft and M/s.Roots Prevision Products Pvt. Ltd. by entering into lease deeds and received lease rents from lessees - whether the activity would amount to Supply of Tangible Goods Service or deemed Sale? - Held that - It is abundantly clear that the nature of renting of the machineries caused through lease deeds was in the nature of deemed sale. It is also seen that it is the lessees and not the appellants had effective possession and control of such machineries leased. It is also not the case that the these activities were outsourced to the appellant on these machineries. On the other hand manufacturing activity was got done with the help of these machineries only by the lessee at their own control and fancy and not on any direction or control of the appellants. This being so the ingredients required for bringing the activity within the fold of supply of Tangible Goods Service for the purpose of Section 65 (105) (zzzzj) ibid are not satisfied. Renting has satisfied the requirements of deemed sale . This being so in view of the activities will not fall either within the scope of Business Support Service for the earlier periods or for that matter under the supply of Tangible Goods Service for subsequent periods. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Tax liability on leasing of machines under 'Business Support Service' and 'Supply of Tangible Goods Service'.
2. Interpretation of lease agreements and VAT payments.
3. Applicability of service tax on deemed sale transactions.
4. Comparison with relevant case laws and judicial precedents.

Issue 1: Tax liability on leasing of machines under 'Business Support Service' and 'Supply of Tangible Goods Service':
The appeals involved a dispute regarding the tax liability on leasing machines to various entities. The original authority upheld the demand under 'Business Support Service' for a specific period but considered the activity taxable under 'Supply of Tangible Goods Service' for other periods. The appellants contested this classification, leading to multiple appeals. The Commissioner (Appeals) differentiated between the two services, resulting in conflicting tax liabilities.

Issue 2: Interpretation of lease agreements and VAT payments:
The appellants argued that they only leased the machines and received lease rents from lessees, supporting this claim with VAT payments made on the amounts received. They contended that the transfer of goods through lease agreements constituted a deemed sale, exempting the activity from service tax under 'Supply of Tangible Goods Service'. The appellants referenced previous Tribunal decisions and their own case where the demand was deemed legally unsustainable due to the transfer of goods involved.

Issue 3: Applicability of service tax on deemed sale transactions:
The Tribunal analyzed the nature of renting machinery through lease deeds, emphasizing that the lessees had effective possession and control over the leased machines. It was observed that the manufacturing activities were carried out by the lessees at their discretion without the appellants' direction or control. The Tribunal concluded that the renting activities satisfied the requirements of a "deemed sale," exempting them from falling under 'Business Support Service' or 'Supply of Tangible Goods Service' for different periods.

Issue 4: Comparison with relevant case laws and judicial precedents:
The Tribunal referred to various case laws and judicial precedents, including GIMMCO Ltd. v. CCE & ST Nagpur and CCE & ST Raipur v. Chhattisgarh Earth Movers, to support the appellants' contentions. These decisions highlighted the distinction between the transfer of the right to use goods and the supply of tangible goods for use, emphasizing that the transaction involved in the present case constituted a deemed sale. The Tribunal, aligning with the legal principles established in the referenced cases, concluded that the impugned orders related to the appellants were not sustainable and set them aside, allowing the appeals with consequential benefits as per law.

This comprehensive analysis of the judgment addresses the tax liability issues, lease agreements interpretation, applicability of service tax on deemed sale transactions, and the comparison with relevant case laws, providing a detailed understanding of the legal complexities involved in the case.