2019 (2) TMI 262 - AT - Service Tax

Supply of Tangible Goods Service - legal right of possession and effective control was handed over to lessess - interpretation of statute - liability of service tax - Held that - These computers were exclusively used by schools and Department of Education, Government of Delhi and not by the appellant. In fact, appellant had no control over the manner or duration of such usage of computers by schools or Director of Education. Possession and ownership need not go together always As a matter of fact,neither the definition given under Section 65(105)(zzzzj) nor the clarification issued by CBEC vide Circular DOF no. 334/1/2008-TRU dated 29.2.2008 specifies or mandates that for not being covered under the service of Supply of Tangible Goods , the service provider must have paid VAT or Sales Tax on the amount received as consideration for hiring out and transferring the equipment such as computers - The language of Section ibid makes it abundantly clear that for transfer of right to use the goods, ownership is not mandatorily or necessarily required to be, as provided under the provisions of Income tax law. Section 65(105)(zzzzj) of the Act is clear and admits of no ambiguity. As the appeal is allowed on merits, the ground to limitation is kept open - appeal allowed.

Issues Involved:
1. Service tax liability under the category of 'Supply of Tangible Goods'
2. Ownership and effective control of leased equipment
3. Applicability of extended period of limitation for raising demand
4. Interpretation of statutory provisions related to service tax

Issue-wise Detailed Analysis:

1. Service Tax Liability under 'Supply of Tangible Goods':
The dispute pertains to whether the appellant's activity of leasing computers and providing IT assistants falls under 'Supply of Tangible Goods' as per Section 65(105)(zzzzj) of the Finance Act, 1994. The revenue argued that the appellant retained ownership of the computers and thus provided services under this category, making them liable for service tax. However, the appellant contended that the legal right of possession and effective control was transferred to the lessee, thus excluding the activity from this service category.

2. Ownership and Effective Control of Leased Equipment:
The tribunal examined the terms of the agreement and found that the lessee had significant control over the computers, including the ability to move them and direct their use. Certificates from school principals supported the claim that the lessee had possession and control. The tribunal concluded that retaining ownership did not imply retaining effective control, which had been transferred to the lessee. Thus, the activity did not fall under 'Supply of Tangible Goods'.

3. Applicability of Extended Period of Limitation for Raising Demand:
The appellant argued that the extended period of limitation was not applicable as the activity was disclosed in public documents like annual reports and balance sheets. The tribunal agreed, noting that there was no suppression or willful misstatement by the appellant. Therefore, the extended period for raising the tax demand was not justified.

4. Interpretation of Statutory Provisions Related to Service Tax:
The tribunal emphasized the importance of interpreting statutes based on their plain language. It cited the Supreme Court's ruling in Commissioner of Customs (Import) Mumbai Vs. Dilip Kumar & Co., which held that clear and unambiguous statutory language should be given effect as it is. The tribunal found that the statutory definition did not require the transfer of ownership to establish the transfer of possession and effective control. Thus, the appellant's activity did not meet the criteria for 'Supply of Tangible Goods' service.

Conclusion:
The tribunal concluded that the appellant's activity of leasing computers and providing IT assistants did not fall under 'Supply of Tangible Goods' as the lessee had effective control and possession. The demand for service tax and penalties was set aside, and the appeal was allowed. The tribunal also noted that the extended period of limitation was not applicable due to the absence of suppression or willful misstatement by the appellant. The order was pronounced in favor of the appellant, setting aside the tax and penalty demands.

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