2024 (1) TMI 727 - AT - Service Tax

Demand on the plant and machinery component of the agreement of the M/s. Wimplast Limited - demand primarily for the reason that appellant has not paid the VAT - HELD THAT - From the impugned order it is seen that no evidence in support of the claim that the right of possession and effective control has not been transferred is presented. The only reason cited in the order is that the appellant has not paid VAT on the said transaction and therefore it implies that the right of position in effective control has not been transferred. Department has to produce positive evidence to show that right of possession and effective control has not been transferred. Thus there are no merit in the impugned order seeking to clarify the activity of renting of plant and machinery as provision of supply of tangible goods service - Moreover, the appellant has discharged the tax along with interest. From this circumstances it appears it is fit case for invoking under Section 80. The penalties imposed in respect of this transactions are therefore also liable to be set aside under Section 80 of the Finance Act, 1994. The impugned order is set aside - appeal is allowed.

Issues Involved: Interpretation of liability to Service Tax under different categories, imposition of penalties under Section 76 and Section 78, invocation of Section 80 for waiving penalty.

Interpretation of Liability to Service Tax: The appellant, a company, entered into a leasing agreement with another company and discharged Service Tax under the category of banking and financial services to avail exemption under a specific notification. Subsequently, an additional amount was received for the extended lease period, for which Service Tax liability was also discharged. However, different officers interpreted the liability differently, leading to confusion regarding the classification of the service provided.

Penalties Imposed: Penalties under Section 76 and Section 78 were imposed on the appellant for the perceived non-payment of VAT on certain transactions related to leasing agreements. The appellant argued against the penalties, stating there was no fraud or suppression, and the revenue itself was uncertain about the correct classification of the services. The appellant contended that the penalties should be waived under Section 80 of the Finance Act.

Classification of Services: The impugned order sought to classify the activity of renting of plant and machinery as provision of supply of tangible goods service. However, the appellant argued that in a similar lease rent agreement with another company, the demand was raised under a different category. The appellant maintained that possession and effective control were transferred to the lessee, and the non-payment of VAT on certain components did not imply a failure to transfer these rights.

Decision: The Tribunal found that the Department was uncertain about the classification of services in the case of the appellant. It was noted that no evidence was presented to prove that the right of possession and effective control had not been transferred. Considering that the appellant had discharged the tax along with interest, the Tribunal invoked Section 80 and set aside the penalties imposed. Consequently, the impugned order was set aside, and the appeal was allowed on 16.01.2024.

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