2020 (3) TMI 916 - AT - Service Tax

Nature of activity - service or sale - appellant has made payment towards tanker hire charge to various foreign suppliers in foreign currency for hiring ISO tanker which was mostly used for export purpose - case of Department is that ISO tank owned in such a case does not transfer the right of possession and no VAT/Sales Tax has been paid, it is liable to classify under supply of tangible goods service - reverse charge mechanism - HELD THAT - The appellant have referred to a contract under which ISO tank was hired by them on lease from foreign supplier. The Adjudicating Authority as well as the appellate authority has held that the renting of ISO tank falls under the category of supply of tangible goods service only on the reasoning that there is no transfer of right of possession and effective control in respect of the leased ISO tank. However, no proper reasoning was given as how there is no transfer of right to possession and effective control. From the facts narrated by the learned counsel, it is found that after supply of ISO tank the same was under their control, was operated by them with their own employees, and repair and maintenance if any was also carried out by the appellant themselves. Thus, the right to use and effective control was with appellant. However, both the lower authorities have not carefully gone through the contract and not given reasoning under the given facts on why there is no transfer of right and effective control by the foreign supplier to the appellant. Therefore, the matter needs to be reconsidered carefully by the Adjudicating Authority. Also, the Adjudicating Authority has contended that since there is no payment of VAT, the transaction is not a deemed sale. Matter remanded to the Adjudicating Authority for passing a fresh order after providing sufficient opportunities to the appellant - appeal allowed by way of remand.

Summary

Issues: Classification of renting ISO tank under "supply of tangible goods service" for Service Tax liability.

Analysis:
The case involved a dispute regarding the classification of renting ISO tanks from foreign suppliers under the category of "supply of tangible goods service" for Service Tax liability. The appellant had rented ISO tanks for export purposes and the department contended that since there was no transfer of right of possession and effective control, Service Tax was applicable under reverse charge mechanism. The Adjudicating Authority confirmed the demand, imposing penalties as well. The appellant argued that they had full control over the tanks during the renting period, including operation, repair, and maintenance by their own labor force. The Commissioner (Appeal) upheld the original order, leading to the appellant's appeal before the Appellate Tribunal.

The appellant's counsel highlighted that the appellant had complete control and use of the ISO tanks during the renting period, with no interference from the lessor located abroad. The appellant conducted operations, repairs, and maintenance independently, supporting their claim that the transaction did not fall under "supply of tangible goods service." The Tribunal noted that both lower authorities failed to provide adequate reasoning for the lack of transfer of right and effective control. The Tribunal observed that the appellant seemed to have the right to use and control the tanks, indicating a need for a detailed review of the contract by the Adjudicating Authority. The Tribunal emphasized that the absence of VAT payment did not automatically exclude the transaction from being a deemed sale, urging a thorough reconsideration of the matter.

In its decision, the Tribunal set aside the impugned order and remanded the case to the Adjudicating Authority for a fresh decision. The Tribunal directed the Adjudicating Authority to carefully examine the contract, consider relevant judgments cited by the appellant, and provide ample opportunities for the appellant to present their case. Given the extended duration of the case (2008-2009 to 2017), the Adjudicating Authority was instructed to issue a new order within three months from the date of the Tribunal's decision.