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2024 (7) TMI 309 - AT - Service TaxTaxability - Supply of Tangible Goods for Use (STGU) services or not - activities performed or services provided by the appellants - determination of service tax liability on the appellants, by treating the activities undertaken by them as STGU - liability for payment of penalty as determined by learned Commissioner in the impugned orders dated 18.11.2016 and 27.12.2018. HELD THAT - There is no dispute in relation to the above first two conditions inasmuch as the generating set/equipment is physically supplied to various clients by the appellants and there is a sale by the appellants to their clients by way of hire purchase/lease agreement to this effect. The dispute is related only to the third condition, that is whether the transaction between the appellants and its customers would involve the transfer of right of possession and effective control or a transfer of right to use. To examine this issue, it would be appropriate to refer to the instructions issued by the Ministry of Finance at the time of introduction of service tax levy on STGU and the various terms and conditions of agreement entered into between the appellant and its clients. The labour employed in such manner is working directly under the control and supervision of their clients and performing the operation of the equipment as per the directions of their clients. The contractual obligations also provide that procurement and availability of fuel for operations of equipment was always rest with their clients. From the above nature of the transactions entered into by the appellants with their clients, prima facie, we find that the activities undertaken by the appellants is in the nature of supply of generating sets/ equipment on rental basis or lease basis, for a specified period as agreed upon by both the parties i.e., appellants and their clients. In undertaking such act, the appellants have also paid the applicable VAT/Sales Tax as per the local State laws. The factual matrix indicate that the generating set/equipment are used to provide the electrical power required for undertaking the activities of the clients. These generating set/ equipment are installed at the premises of the client and for regulatory purpose of State Electricity authorities, the license/registration is taken by the clients. Further, in no manner the equipment is used by the appellants without taking permission from the clients; and even for routine repair and maintenance, specific prior permission of the client is required to be taken to access the said equipment - on the facts of the case and on detailed examination of the services provided by the appellants as per the agreement entered into by the appellants, prima facie we do not find it feasible to categorise the activities undertaken by the appellants as Supply of Tangible Goods for use in order to subject the transaction for levy of service tax under Section 65(105)(zzzzj) ibid. It is seen from the agreement that there is no dispute as to the fact that the goods are in the possession of the lessee (Owner) and is being used by him for the intended purpose without any interference or hurdle from the appellants once it is commissioned - the transaction of appellants does not satisfy the condition of without transferring right of possession and the effective control of such machinery, equipment and appliances. Hence the activity does not fall under the definition of Supply of tangible goods for use service as claimed by the Revenue. The services rendered by the appellants does not fall under the category of sub-clause (zzzzj) of Section 65(105) of the Finance Act, 1994 as Supply of Tangible Goods for Use without transfer of right of possession and effective control, for the period prior to 01.07.2012 - such services are also not covered under the scope of clause (f) of declared services under Section 66E ibid, for the period post 01.07.2012 - the adjudged service tax demands confirmed by the impugned orders dated 18.11.2016 and 27.12.2018, does not stand the legal scrutiny. The said order is equally unsustainable for demand of interest and imposition of penalties on the part of appellants - there are no merits in the impugned orders, in so far as the adjudged demands were confirmed on the appellants - appeal allowed.
Issues Involved:
1. Whether the activities performed by the appellants are taxable under the category of ‘Supply of Tangible Goods for Use’ (STGU) services. 2. Whether the determination of service tax liability on the appellants by treating the activities as STGU is legally sustainable. 3. Whether the appellants are liable for payment of penalty as determined by the Commissioner in the impugned orders. Issue-Wise Detailed Analysis: 1. Taxability under ‘Supply of Tangible Goods for Use’ (STGU) Services: The appellants, engaged in leasing diesel generating sets and related equipment, were paying VAT/CST on hire charges by treating these as deemed sales. The Department, however, argued that the control of the equipment remained with the appellants, thus making the transactions taxable under STGU services as per Section 65(105)(zzzzj) of the Finance Act, 1994. The Tribunal examined the nature of the transactions, the terms of the agreements, and relevant legal provisions, concluding that the effective control and possession of the equipment were transferred to the customers. The Tribunal emphasized that the appellants paid VAT on these transactions, aligning with the guidelines from the Ministry of Finance and the Supreme Court's decision in BSNL, which outlined that transfer of right to use goods constitutes a deemed sale, not a service. 2. Legal Sustainability of Service Tax Liability: The Tribunal scrutinized the legal provisions under the Finance Act, 1994, and the Maharashtra VAT Act, 2002. It noted that the key factors for STGU services include supply of goods without transferring the right of possession and effective control. The Tribunal found that the appellants' agreements with customers indicated a transfer of possession and control, thus constituting a deemed sale. The Tribunal also referred to the Ministry of Finance's instructions clarifying that transactions where VAT is paid are not subject to service tax under STGU. The Tribunal concluded that the appellants' activities did not fall under STGU services, and the service tax demands were not legally sustainable. 3. Liability for Payment of Penalty: The Tribunal observed that the appellants had complied with VAT payment obligations and had not suppressed any facts. The Tribunal referred to various judicial precedents, including the Supreme Court's affirmation in the UFO Moviez India Ltd. case, which held that transactions involving deemed sales are not subject to service tax. The Tribunal concluded that the penalties imposed under Sections 76 and 78 of the Finance Act, 1994, were not justified, as the appellants' activities were not taxable under STGU services. Conclusion: The Tribunal set aside the impugned orders dated 18.11.2016 and 27.12.2018, ruling that the appellants' activities were not taxable under STGU services, and the service tax demands, interest, and penalties were unsustainable. The appeals were allowed in favor of the appellants.
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