2021 (2) TMI 83 - AT - Service Tax

Taxability - supply of tangible good for use or not - tool kits provided by the appellant to associated companies - supply of tangible goods without transferring right of possession and effective control - Levy of service tax on rental charges for baked oven under STGU. Whether the tool kits provided by the appellant to associated companies would be a service of supply of tangible good for use - STGU and would be a taxable service contemplated under section 65 (105)(zzzzj) of the Finance Act, which is any service provided to any person, by any other person, in relation to supply of tangible goods without transferring right of possession and effective control? - HELD THAT - There is no dispute with the regard to the first two conditions. The dispute revolves around the third condition, namely whether the transaction between the Appellant and the associated companies involves transfer of right of possession and effective control. This is for the reason that any transaction involving transfer of right to use‟ would result in a deemed sale , which would be beyond the purview of service tax. The term transfer of right to use goods‟ was interpreted by the Supreme Court in BHARAT SANCHAR NIGAM LTD. (BSNL) VERSUS UNION OF INDIA 2006 (3) TMI 1 - SUPREME COURT , wherein five attributes for a transaction to constitute a transfer of right to use goods‟ were highlighted - It is, therefore, clear that sales tax/VAT can be levied if there is a transfer of possession and effective control in goods, while for levy of service tax there is no transfer of possession and effective control. The submission of the appellant that tool kits were in possession of the associated companies with the right to use the kits to the exclusion of appellant and the appellant could also not have passed the right to any other person has not be controverterd in the impugned order nor has any material been provided by the learned Authorized Representative of the Department to controvert this fact - it is not possible to sustain the finding recorded by the Principal Commissioner. Whether service tax would be leviable on rental charges for baked oven under STGU? - HELD THAT - This issue relates to levy of service tax under the category of STGU on the tools imported by the appellant. The appellant had imported baking oven from its foreign associated companies. The appellant claims that it discharged the applicable customs duty and freight charges were also paid by the Appellant. It would be seen that the Principal Commissioner has confirmed the demand by holding that the ownership of the baking oven continued with the foreign supplier, as a result in which the transaction would qualify as a service involving STGU - There is no discussion in the order passed by the Principal Commissioner as to why the possession and control of the baking oven continued to be with foreign companies. According the Appellant, the baking ovens were imported and they were in exclusive possession of the Appellant. Thus, when the possession and exclusive control over the imported goods was in the hands of the Appellant, the transaction would qualify as deemed sale by foreign companies. The Principal Commissioner was, therefore, not justified in holding that the transaction would result in levy of service tax under the category of STGU. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Availment of CENVAT credit on invoices issued on premises other than registered premises.
2. Provision of tool kits to associated companies under the category of "supply of tangible goods for use" (STGU).
3. Provision of service to SEZ, incorrect availment of exemption, and lack of supporting documents.
4. Foreign currency expenditure as rental charge for bake oven and services received from GE Energy Services INC USA under STGU.

Detailed Analysis:

First Issue: Availment of CENVAT credit on invoices issued on premises other than registered premises

The demand for CENVAT credit amounting to ?3,34,35,238 was dropped by the Principal Commissioner. This issue was not contested further in the appeal.

Second Issue: Provision of tool kits to associated companies under the category of "supply of tangible goods for use" (STGU)

The Principal Commissioner confirmed the demand of ?6,16,723 on the ground that the ownership of the tool kits remained with the Appellant, even though VAT was paid on the transaction. The Appellant contended that the transaction qualified as a "transfer of right to use goods," which is not exigible to service tax. The Appellant argued that during the possession period, the associated companies had exclusive legal rights to use the kits, and VAT was paid on the transaction, indicating it was a sale.

The Tribunal examined Section 65(105)(zzzzj) of the Finance Act and Article 366 (29A)(d) of the Constitution, which outlines the criteria for a transaction to qualify as a deemed sale. The Tribunal found that the Principal Commissioner’s basis for confirming the demand was incorrect as it focused solely on the ownership aspect, which is not relevant for service tax. The Tribunal emphasized that the transaction involved the transfer of possession and effective control, qualifying it as a deemed sale, thus not liable for service tax.

Third Issue: Provision of service to SEZ, incorrect availment of exemption, and lack of supporting documents

The demand of ?5,85,611 was confirmed and paid with interest by the Appellant. This issue was not contested further in the appeal.

Fourth Issue: Foreign currency expenditure as rental charge for bake oven and services received from GE Energy Services INC USA under STGU

The Principal Commissioner confirmed the demand of ?3,15,781 on the ground that the ownership of the bake ovens remained with the foreign supplier, classifying the transaction under STGU. The Appellant argued that they had discharged customs duty and paid freight charges, and the baking ovens were in their exclusive possession, qualifying the transaction as a deemed sale by the foreign companies.

The Tribunal found that the Principal Commissioner did not provide sufficient reasoning for why the possession and control remained with the foreign supplier. The Tribunal concluded that since the baking ovens were in the exclusive possession and control of the Appellant, the transaction qualified as a deemed sale and was not liable for service tax under STGU.

Conclusion:

The Tribunal set aside the order dated July 28, 2016, passed by the Principal Commissioner, and allowed the appeal. The confirmation of demand of service tax under the two contested issues was found to be unjustified.

Order Pronounced:

The appeal was allowed, and the order of the Principal Commissioner was set aside on February 1, 2021.