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2025 (3) TMI 1061 - AT - Service TaxNature of transaction - deemed sale or Supply of Tangible Goods service - transaction between the respondent and its customers involves transfer of effective control and possession to the customers or otherwise - HELD THAT - If these agreements are merely an agreement allowing customers to use their goods and the respondents are keeping effective control of said goods then it would fall within the category of SOTG service however if the transfer of goods on lease involves both transfer of effective control and possession to the customer then it would be covered within the category of deemed sale and therefore not liable to service tax. It is also noted that both the sides have argued that whether the transaction is that of deemed sale or that of service can be decided based on the BSNL judgment 2006 (3) TMI 1 - SUPREME COURT by Hon ble Supreme Court and the parameters enumerated therein to come to the conclusion as regards transfer of effective control and possession. While the department has highlighted some provisions to say that effective control rests with the respondents the respondents have tried to justify the factual position as apparent from the terms and conditions to support their submission that the control and possession is with the customers. The Chennai Bench in the respondent s own case 2020 (11) TMI 14 - CESTAT CHENNAI keeping in view the judgment of Hon ble Supreme Court in the case of BSNL and the terms and conditions of the agreement as also the decision by the Chandigarh Bench in the respondent s own case as also the Order-in-Appeal dt.26.12.2017 of the Commissionerate of Hyderabad which had set aside the demand observing that appellant has actually transferred the possession right to use and effective control of the workwear and therefore the activity was not taxable under the category of SOTG service came to the conclusion that the transaction is not in the nature of service. There is no dispute that the terms and conditions of the agreement discussed by the Chandigarh Bench as well as Chennai Bench are different than the terms and conditions in the present appeal. It is also not in dispute that in both these orders the concerned Bench had examined the terms and conditions of the agreement as also the BSNL judgment to come to the same conclusion that the transactions are not in the nature of service and therefore not liable to service tax both prior to 30.06.2012 as well as thereafter. There are no substantive ground to differ with the views expressed by the Coordinate Benches in respect of the similar agreements in respect of same appellant. Conclusion - The transaction is a deemed sale not a service based on the transfer of effective control and possession as per the decision in BSNL case. The appeal of the department is not maintainable and the impugned order is sustained - Appeal dismissed.
ISSUES PRESENTED and CONSIDERED
The core legal issue in this case was whether the transaction between the respondent and its customers involved the transfer of effective control and possession of goods, thereby qualifying as a 'deemed sale' and not subject to service tax, or whether it constituted a 'Supply of Tangible Goods service' (SOTG) under the Finance Act, 1994, making it liable for service tax. Additionally, the question of whether workwear qualifies as tangible goods was considered. ISSUE-WISE DETAILED ANALYSIS 1. Transfer of Effective Control and Possession Relevant Legal Framework and Precedents: The relevant legal framework includes Section 65(105)(zzzzj) of the Finance Act, 1994, for SOTG service and Article 366(29A) of the Constitution for deemed sales. The Supreme Court judgment in Bharat Sanchar Nigam Ltd (BSNL) Vs Union of India was pivotal, outlining criteria for determining deemed sales. Court's Interpretation and Reasoning: The Tribunal examined whether the agreements allowed for the transfer of effective control and possession. The BSNL judgment was used to assess if the transaction met the criteria for deemed sales, which include the transfer of the right to use goods. Key Evidence and Findings: The agreements indicated that the workwear was leased with conditions for washing, servicing, and maintenance by the respondent, suggesting retained control. However, the respondent argued that possession and control were effectively transferred to the customers. Application of Law to Facts: The Tribunal considered precedents from the respondent's own cases where similar agreements were deemed as transferring possession and control, thus qualifying as deemed sales. Treatment of Competing Arguments: The department argued that control was retained by the respondent due to exclusive servicing rights, while the respondent cited precedents and the BSNL judgment to assert that control was transferred. Conclusions: The Tribunal concluded that the transaction was a deemed sale, not a service, based on the transfer of effective control and possession as per the BSNL criteria. 2. Qualification of Workwear as Tangible Goods Relevant Legal Framework and Precedents: The definition of tangible goods under the Finance Act, 1994, was considered. The department's alternative argument questioned whether workwear qualifies as tangible goods. Court's Interpretation and Reasoning: The Tribunal noted that tangible goods are not restricted to machinery or appliances but include any tangible items that can be leased or transferred. Key Evidence and Findings: The department initially treated workwear as tangible goods for the SOTG service category, contradicting their alternative argument. Application of Law to Facts: The Tribunal found that workwear, being tangible and capable of lease, qualifies as tangible goods. Treatment of Competing Arguments: The Tribunal dismissed the department's argument, emphasizing consistency in categorizing workwear as tangible goods. Conclusions: The Tribunal concluded that workwear qualifies as tangible goods, supporting the respondent's position. SIGNIFICANT HOLDINGS Core Principles Established: The Tribunal reinforced the principle that effective control and possession transfer are crucial in determining whether a transaction is a deemed sale or a service. The BSNL judgment criteria remain central in such assessments. Final Determinations on Each Issue: The Tribunal upheld the Commissioner (Appeals) decision, affirming that the transaction was a deemed sale, not liable for service tax. The appeal by the department was dismissed as unsustainable.
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