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2024 (10) TMI 54 - AT - Service TaxNon-payment of service tax - lease amount recovered from the lessee under the category of Supply of Tangible Goods service - basic contention of the department for demanding service under the category of Supply of Tangible Goods service is that while providing Diesel Generator Sets on lease basis, the appellant has not transferred the right of possession and effective control on the Diesel Generator Sets and therefore, the appellant should have paid the service tax under the category of Supply of Tangible Goods service. HELD THAT - In the present matter, the appellant have paid VAT on all the lease agreements which have been entered for supply of Diesel Generator Sets to various lessees. The agreements which have been entered into by the appellant have clearly provided that the lessees shall bear all the maintenance and operating cost of the Diesel Generator Sets during the term of lease. The other clauses of the agreement also point out the fact that lessees have the right of possession and effective control on the Diesel Generator Sets which is evidenced by the agreement which have been shown to us by the learned advocate. The identical issue has been considered and settled by this Tribunal in various decisions. This Tribunal in the case of TECHNICAL DYING SERVICES P LTD VERSUS C.C.E. S.T. -VADODARA-II 2024 (1) TMI 452 - CESTAT AHMEDABAD has held that ' Cenvat credit on Digital Cinema Equipment has to be allowed, independent of taxability on lease Rentals of DCE. Accordingly we set aside the demand of Cenvat credit on Digital Cinema Equipment on merit as well as on limitation.' The VAT has been paid by the appellant on the supply of Diesel Generator Sets and therefore, service tax is not liable to be paid under Supply of Tangible Goods service - there are no merit in the impugned orders-in-original and the same is set aside - appeal allowed.
Issues Involved:
1. Whether the appellant transferred the right of possession and effective control of Diesel Generator Sets to the lessees. 2. Whether the appellant is liable to pay service tax under the category of "Supply of Tangible Goods service." 3. Whether the payment of VAT on the transactions exempts the appellant from service tax liability. 4. Whether the penalties and interest imposed under Section 78 of the Finance Act, 1994, are justified. Issue-wise Detailed Analysis: 1. Transfer of Right of Possession and Effective Control: The appellant contended that they had transferred the right of possession and effective control of Diesel Generator Sets to the lessees, who were responsible for maintaining and operating the sets. The lessees bore all maintenance and operating costs during the lease period. The appellant relied on various decisions and guidelines provided by the Hon'ble Apex Court in the case of BSNL & Ors vs. UoI & Ors, which outlined the criteria for determining the transfer of goods/deemed sale. The guidelines emphasized that the transferee should have a legal right to use the goods, and for the period of the lease, this right should be exclusive to the transferee. 2. Liability to Pay Service Tax under "Supply of Tangible Goods Service": The department argued that the appellant did not transfer the right of possession and effective control over the Diesel Generator Sets, thus making them liable to pay service tax under the category of "Supply of Tangible Goods service." However, the appellant countered this by stating that they had paid VAT on the transactions, which indicated a deemed sale and not a service. The agreements between the appellant and the lessees explicitly stated that the lessees had the right of possession and effective control over the Diesel Generator Sets. 3. Payment of VAT and Exemption from Service Tax Liability: The appellant argued that since they had paid VAT on the transactions, they were not liable to pay service tax. They relied on CBEC Circular No. 334/1/2008-TRU dated 29.02.2008, which clarified that service tax is not liable if VAT has been paid on the transactions. The Tribunal, in various decisions, had held that if VAT is paid on leasing tangible goods, the liability to pay service tax does not arise. The appellant cited decisions in the cases of Technical Dying Services Pvt. Limited vs. CCE&ST and Jeevanjyot Motors vs. CCE&ST, which supported their contention. 4. Penalties and Interest under Section 78 of the Finance Act, 1994: The impugned orders confirmed the service tax demand and imposed equal penalties under Section 78 of the Finance Act, 1994, along with interest. However, the Tribunal found that the appellant had paid VAT on all lease agreements and that the lessees had the right of possession and effective control over the Diesel Generator Sets. The Tribunal referred to previous decisions where it was held that payment of VAT exempts the transaction from service tax liability. Consequently, the Tribunal set aside the impugned orders, including the penalties and interest. Conclusion: The Tribunal concluded that the appellant had transferred the right of possession and effective control of the Diesel Generator Sets to the lessees, and since VAT was paid on the transactions, service tax was not liable under the "Supply of Tangible Goods service." The impugned orders were set aside, and the appeals were allowed with consequential relief in accordance with the law. The Tribunal's decision was pronounced in the open court on 30.09.2024.
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