2024 (3) TMI 562 - AT - Service Tax

Levy of service tax - deemed sale or rent a cab scheme operator service - activities of appellants in providing motor vehicles under operational lease basis under a Master Lease Agreement - invocation of Extended period of limitation - penalties under Sections 76, 77 and 78 of the Finance Act, 1994 - HELD THAT - For the period relating to the pre-negative list regime i.e., prior to 01.07.2012, the taxability was determined in terms of coverage of an activity under the service tax net be defining taxable services under Section 65(105) ibid, which enumerated each of the specified services. For the period post-negative list regime, the category of services hitherto defined under the erstwhile regime were merged under a common phrase i.e., service as defined under Section 65B(44) ibid, which was brought into effect from 01.07.2012. There are no strong grounds to hold that the activities undertaken by the appellants in terms of Operation Lease agreement/Master Lease Agreement for providing motor vehicles to their customers, is covered under the scope of levy of service tax, inasmuch as such activity is squarely covered under the deemed sale as per Article 366 (29A) (d) of the Constitution of India, in terms of the judgement given by the Hon ble Supreme Court in the case of BHARAT SANCHAR NIGAM LTD. (BSNL) VERSUS UNION OF INDIA 2006 (3) TMI 1 - SUPREME COURT . Consequently the demands of service tax and imposition of penalties confirmed in the impugned order is not legally sustainable. The adjudged demands confirmed on the appellants in the impugned order dated 04.11.2015 is liable to be set aside - Appeal allowed.

Summary

Issues Involved:

1. Taxability of operating lease transactions under "Rent-a-Cab Scheme Operator" service.
2. Applicability of extended period of limitation for demand of service tax.
3. Imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994.

Summary:

1. Taxability of Operating Lease Transactions:
The primary issue was whether the activities of the appellants in providing motor vehicles under an operating lease basis through a Master Lease Agreement (MLA) could be considered taxable services under the definition of "Rent-a-Cab Scheme Operator" service as defined by Section 65(91) of the Finance Act, 1994, and taxable service under Section 65(105)(o) for the pre-negative list period and under Section 65(B)51 for the post-negative list regime, or if these transactions were "deemed sales" as per Article 366(29A)(d) of the Constitution of India, subject to VAT/Sales Tax.

The Tribunal examined the MLA and found that the transactions satisfied the five-point criteria laid down by the Supreme Court in the Bharat Sanchar Nigam Limited case, indicating that the transactions were indeed "deemed sales." The Tribunal referred to similar cases, such as Arval India Pvt. Ltd. and Orix Auto Infrastructure Services Ltd., where operating lease agreements were held to be "deemed sales." Consequently, the Tribunal concluded that the appellants' transactions were not taxable under the "Rent-a-Cab Scheme Operator" service but were subject to VAT/Sales Tax as "deemed sales."

2. Applicability of Extended Period of Limitation:
The department had invoked the extended period of limitation for demanding service tax on the grounds of suppression of facts. However, since the Tribunal concluded that the transactions were "deemed sales" and not taxable services, the issue of invoking the extended period of limitation became irrelevant and unsustainable.

3. Imposition of Penalties:
Given that the Tribunal held the transactions to be outside the scope of service tax and categorized them as "deemed sales," the imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994, was deemed inappropriate and was set aside.

Conclusion:
The Tribunal set aside the adjudged demands and penalties confirmed in the impugned order dated 04.11.2015, allowing the appeals in favor of the appellants. The activities under the MLA were recognized as "deemed sales" and not subject to service tax.