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TMI Blog2011 (2) TMI 1311X X X X Extracts X X X X X X X X Extracts X X X X ..... ner has paid service tax on the audio-visual equipment rentals. We see no reason, therefore, to direct refund of the service tax paid by them. Suffice to hold that the order now passed by us shall not preclude the petitioner, if they are so entitled, from claiming refund of service tax paid by them in appropriate legal proceedings. The challenge to the impugned assessment order dated April 8, 2010, however, fails - Writ Petition Nos. 17092, 17110 of 2010 - - - Dated:- 23-2-2011 - RAO V.V.S AND RAMESH RANGANATHAN, JJ. ORDER:- The order of the court was made by RAMESH RANGANATHAN J. These three writ petitions are filed by M/s. Viceroy Hotels Limited. As they are inter-connected they were heard together, and are now being disposed of by a common order. The petitioner has a five-star hotel at Hyderabad under the name Marriott . It is also a registered dealer under the Andhra Pradesh Value Added Tax Act, 2005 (hereinafter referred to as, the Act ), on the rolls of the fourth respondent. The first respondent passed an order of assessment dated January 21, 2008, for the periods 2006-07 and 2007-08, resulting in a tax liability of Rs. 11,13,285 and Rs. 20,25,705, res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 17092 of 2010 Sri S. Dwarakanath, the learned counsel for the petitioner, would contend that the petitioner had already paid service tax on this transaction; they could not, simultaneously, be mulcted with liability both under the Finance Act, 1994, and the Act; since the appellate authority had recorded a finding that effective control and possession of the equipment rested with the supplier, the assessing authority had exceeded his jurisdiction in recording a finding to the contrary; in view of the order of the appellate authority, the assessing authority could not have held that there was a transfer of the right to use audio-visual equipment; the petitioner hires the equipment from their supplier who deputes his men to operate the equipment, and take it back as soon as the customer's programme is over; neither is possession of the audio-visual equipment delivered to the customer nor is he put in effective control thereof; it is the supplier who retains control over the audio-visual equipment even during the event; effective control and possession of the equipment lay with the third party supplier, and not with the petitioner; the customer could not operate the equipment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aving challenged the service tax assessment, cannot now contend that, if they are held liable to pay sales tax, they should be refunded the service tax paid by them; unless the service tax assessment is set aside, the question of granting refund of service tax paid by them does not arise; the Department had accepted the service tax returns filed periodically by the petitioner which amounted to an assessment in law; and, having paid service tax voluntarily, it is not open to the petitioner to now contend that they should be refunded the service tax paid by them earlier. The learned senior standing counsel would state that, once a transaction falls within the ambit of taxable service under section 65(105) of the Finance Act, 1994, the service provider is required to pay tax on the amount relating to the service; and service tax is liable to be paid even on that part of the transaction which relates to the transfer of the right to use the audio-visual equipment, on the application of the dominant nature test . The learned counsel would rely on Tamil Nadu Kalyana Mandapam Assn. v. Union of India [2005] 1 VST 180 (SC); [2004] 135 STC 480 (SC); [2004] 217 ITR 9 (SC); [2004] 5 SCC 632, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration shall be deemed to be a sale . Section 2(34)(d) defines tax to mean a tax on the sale or purchase of goods payable under the Act, and to include a tax on the transfer of the right to use any goods for any purpose whether or not for a specified period for cash, deferred payment or other valuable consideration. Section 4 of the Act relates to charge to tax and, under sub-section (8) thereof, every VAT dealer who transfers the right to use goods taxable under the Act, for any purpose whatsoever whether or not for a specified period, to any lessee or licensee for cash, deferred payment or other valuable consideration, in the course of business shall, on the total amount realised or realisable by him by way of payment in cash or otherwise on such transfer of the right to use such goods from the lessee or licensee, pay a tax for such goods at the rates specified in the Schedules. Service tax, under the Finance Act, 1994, is also a value added tax, and is a destination based consumption tax in the sense that it is on commercial activities, and is not a charge on the business but on the consumer. Broadly services fall into two categories, namely, property based service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... direct significance as well as an indirect significance depending on the context (Tamil Nadu Kalyana Mandapam Assn. [2005] 1 VST 180 (SC); [2004] 135 STC 480 (SC); [2004] 217 ITR 9 (SC); [2004] 5 SCC 632, Doypack Systems Pvt. Ltd. v. Union of India [1988] 36 ELT 201 (SC), Renusagar Power Co. Ltd. v. General Electric Company [1985] 1 SCR 432). Any service rendered by the petitioner as mandap keeper, in relation to the use of mandap in any manner including the facilities provided or to be provided to such a person, would alone constitute taxable service under the Finance Act, 1994. Sale of goods, including deemed sale in the form of transfer of the right to use goods, does not, and cannot, form part of such taxable service, and is, therefore, exigible to tax under the Act. Section 93(1) of the Finance Act, 1994 enables the Central Government, if it is satisfied that it is necessary in the public interest so to do, by a noti fication in the official gazette, to exempt, generally or subject to such conditions as may be specified in the notification, taxable service of any specified description from the whole or any part of the service tax leviable thereon. The Central Government, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... limb says that the tax on sale or purchase of goods includes a tax on transactions specified in sub-clauses (a) to (f). The second limb provides that such transfer, delivery or supply of goods, referred to in the first limb, shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and purchase of those goods by the person to whom such transfer, delivery or supply is made. (Association of Leasing and Financial Service Companies [2010] 35 VST 549 (SC)). The object of the new definition, introduced in clause (29A) of article 366, is to enlarge the scope of tax on sale or purchase of goods wherever it occurs in the Constitution so that it may include within its scope the transfer, delivery or supply of goods that may take place under any of the transactions referred to in sub-clauses (a) to (f) thereof wherever such transfer, delivery or supply becomes subject to levy of sales tax. (Builders Association of India v. Union of India [1989] 73 STC 370 (SC); [1989] 2 SCC 645, Gannon Dunkerley Co. v. State of Rajasthan [1993] 88 STC 204 (SC); [1993] 1 SCC 364). The power of the States to levy taxes on the sale and purchase of goods, including de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dients of a sale as defined in the Sale of Goods Act, 1930 are absent, within the ambit of purchase and sale for the purposes of levy of sales tax. Deemed sale, under each particular sub-clause of article 366(29A), has to be determined only within the parameters of the provisions in that subclause. Each fiction by which those transactions, which are not otherwise sales, are deemed to be sales independently operate only in that subclause. One sub-clause cannot be projected into another, and fiction upon fiction is not permissible. Article 366(29A) has served to extend the meaning of the word sale to the extent stated, but no further. (Bharat Sanchar Nigam Ltd. [2006] 3 VST 95 (SC); [2006] 145 STC 91 (SC); [2006] 282 ITR 273 (SC); [2006] 3 SCC 1). Under article 366(29A)(d), levy of tax is not on the use of goods, but on the transfer of the right to use goods. The right to use goods accrues only on account of the transfer of the right and, unless there is a transfer of the right, the right to use does not arise. It is the transfer which is the sine qua non for the right to use any goods. If goods are available (irrespective of where the goods are located), and a written contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansfer, must be deliverable and delivered at some stage. It is assumed, at the time of execution of an agreement to transfer the right to use, that the goods are deliverable. If the goods are not deliverable, the question of the right to use those goods would not arise. (Bharat Sanchar Nigam Ltd. [2006] 3 VST 95 (SC); [2006] 145 STC 91 (SC); [2006] 282 ITR 273 (SC); [2006] 3 SCC 1). In cases where goods are not in existence, or where there is an oral or implied transfer of the right to use goods, such transactions may be effected by the delivery of the goods. In such cases the taxable event would be on the delivery of goods. (20th Century Finance Corpn. Ltd. [2009] 119 STC 182 (SC); [2000] 6 SCC 12). Aspect theory The law with respect to a subject might incidentally affect another subject in some way, but that is not the same as the law being on the latter subject. There might be overlapping, but the overlapping must be in law. The same transaction may involve two or more taxable events in its different aspects. (Federation of Hotel Restaurant Association of India v. Union of India [1989] 74 STC 102 (SC); [1989] 3 SCC 634). The aspect theory would not apply to enable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxable event is determined as service rendered and not the sale of goods, irrespective of whether it is a works contract or a contract for the sale of goods, the taxable event would occur; the taxable event occurs because of the service rendered; merely because the measure or valuation of tax is linked to the gross consideration received in the transaction, it does not determine the nature of tax; the taxable event determines the true event of the tax; and the measure of tax does not determine the nature of tax, but the quantum of tax which can be levied and collected. The decision of the Kerala High Court, in Kerala Colour Lab. Association [2005] 2 VST 1 (Ker); [2003] 156 ELT 17 (Ker), was approved by the Supreme Court in C. K. Jidheesh v. Union of India [2006] 3 VST 1 (SC); [2006] 144 STC 322 (SC); [2005] 279 ITR 118 (SC); [2005] 8 SCALE 784. However, in Bharat Sanchar Nigam Ltd. [2006] 3 VST 95 (SC); [2006] 145 STC 91 (SC); [2006] 282 ITR 273 (SC); [2006] 3 SCC 1, the Supreme Court held that, after the Forty-sixth Amendment, the sale element of those contracts, which are covered by the six sub-clauses of clause (29A) of article 366, are separable and may be subjected to sales t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C 480 (SC); [2004] 217 ITR 9 (SC); [2004] 5 SCC 632). While the States have the legislative competence to levy tax on sales if the necessary concomitant of a sale is present in the transaction, and the sale is distinctly discernible therein, they are, however, not allowed to entrench upon the Union List and tax services by including the cost of such service in the value of the goods. (Bharat Sanchar Nigam Ltd. [2006] 3 VST 95 (SC); [2006] 145 STC 91 (SC); [2006] 282 ITR 273 (SC); [2006] 3 SCC 1, Association of Leasing and Financial Service Companies v. Union of India [2010] 35 VST 549 (SC)). The fact that tax on the sale of goods, involved in a service, can be levied does not mean that a service tax cannot be levied on the service component of the transaction. (Tamil Nadu Kalyana Mandapam Assn. [2005] 1 VST 180 (SC); [2004] 135 STC 480 (SC); [2004] 217 ITR 9 (SC); [2004] 5 SCC 632). In Bharat Sanchar Nigam Ltd. [2006] 3 VST 95 (SC); [2006] 145 STC 91 (SC); [2006] 282 ITR 273 (SC); [2006] 3 SCC 1, the Supreme Court observed (at para 87 in 3 VST 95): . . . Even in those composite contracts which are by legal fiction deemed to be divisible under article 366(29A), the value o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shing features between ordinary sales and deemed sales. (d) Article 366(29A)(d) of the Constitution implies tax not on the delivery of the goods for use, but implies tax on the transfer of the right to use goods. The transfer of the right to use goods contemplated in sub-clause (d) of clause (29A) cannot be equated with that category of bailment where goods are left with the bailee to be used by him for hire. (e) In the case of article 366(29A)(d) the goods are not required to be left with the transferee. All that is required is that there is a transfer of the right to use goods. In such a case taxable event occurs regardless of when or whether the goods are delivered for use. What is required is that the goods should be in existence so that they may be used. (f) The levy of tax under article 366(29A)(d) is not on the use of goods. It is on the transfer of the right to use goods which accrues only on account of the transfer of the right. In other words, the right to use goods arises only on the transfer of such right to use goods. (g) The transfer of right is the sine qua non for the right to use any goods, and such transfer takes place when the contract is executed und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transfer of the right to use goods. (p) All that is required in such a case is that the goods should be in existence so that they may be used; the goods must be available at the time of transfer, must be deliverable, and must be delivered at some stage. It is assumed, at the time of execution of the agreement of the transfer of the right to use goods, that the goods are deliverable. (q) In cases where goods are not in existence, or there is an oral or implied transfer of the right to use goods, such transactions may be effected by the delivery of goods and, in such cases, the taxable event is on the delivery of goods. (r) Article 366(29A) has served to extend the meaning of the word 'sale' to the extent stated, but no further. Each fiction by which those transactions, which are not otherwise sales, are deemed to be sales independently operate only in that sub-clause of article 366(29A). One sub-clause cannot be projected into another, and fiction upon fiction is not permissible. (s) Other than these transactions which are 'deemed' to be sales, in view of the fiction under article 366(29A), all other transactions would have to qualify as 'sales&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould not be treated as a deemed sale under section 4(8) of the Act as it involved the transfer of the right to use the said equipment, the burden lay on the petitioner to adduce proof, by way of documentary evidence, that the hiring of audiovisual equipment did not involve the transfer of the right to use such goods. A perusal of the bill, enclosed as part of the documents annexed to the writ petition, shows that M/s. Abbot Industries were charged Rs. 12,500 towards audio-visual equipment rental charges, in addition to the charges for food, liquor, etc. The contents of the bill does not justify the petitioner's plea show that the audio-visual equipment rentals charged on the consumer did not involve the transfer of the right to use the audio-visual equipment. In their objections to the show-cause notice the petitioner, vide letter dated March 31, 2010, stated that they had outsourced certain items during conferences/meetings, and were collecting consideration from the parties who were renting such LCD projectors, audio and video equipments, etc.,; they had transferred part of the consideration to the provider of such equipment, and had retained the balance amount; providing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction was one of leasing/hiring/letting simpliciter under which the possession of the goods, i.e., effective and general control of the goods was to be given to the customer with the freedom and choice of selecting the manner, time and nature of use and enjoyment, though within the frame work of the agreement, it would then be a transfer of the right to use the goods and fall under the extended definition of sale ; on the other hand, if the customer had entrusted to the assessee the work of achieving a certain desired result, and that involved the use of goods belonging to the assessee and rendering of several other services, and the goods used by the assessee to achieve the desired result continued to be in the effective and general control of the assessee, then the transaction would not be a transfer of the right to use goods falling within the extended definition of sale ; if the petitioner hired audio/visual multimedia equipment to the customer without rendering any other service, i.e., it merely delivered the equipment to the customer on hire, and left it to the customer to transport the equipment, install and operate them in any manner he wanted, and, at the end of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the outsourcing agency for consideration and, in turn, provide the facility of audio-visual equipment to their customers for consideration. On the petitioners' own admission, they do not render any service to their customers in relation to the audio visual equipment. The contract between the petitioner and their customers is not a contract of service as it is not even the petitioner's case that they render any service to their customers with regards the audio visual equipment facility provided to them. Section 16(1) of the Act places the burden of proving that any sale, effected by a dealer, is not liable to tax on the dealer. The assessing authority has held that the bill produced by the petitioner does not disclose that technicians were provided along with LCD projectors or the audio-video equipment. In the absence of any evidence being produced by the petitioner in this regard, the assessing authority was justified, in view of section 16 of the Act, in holding that, since the bill merely reflected audio-visual equipment rentals, there was a transfer of the right to use the audio-visual equipment. As section 16 of the Act casts the onus on the petitioner to establis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessments are not the subject-matter of challenge in these proceedings. It is also not clear whether the petitioner has paid service tax on the audio-visual equipment rentals. We see no reason, therefore, to direct refund of the service tax paid by them. Suffice to hold that the order now passed by us shall not preclude the petitioner, if they are so entitled, from claiming refund of service tax paid by them in appropriate legal proceedings. The challenge to the impugned assessment order dated April 8, 2010, however, fails. W.P. No. 17092 of 2010 is, accordingly, dismissed. W.P. No. 17110 of 2010 By the order, impugned in this writ petition, dated April 26, 2010 the assessing authority informed the petitioner that a show-cause notice dated April 8, 2010 was issued proposing to charge interest of Rs. 1,99,460 under section 22(2) of the Act; despite service of notice on April 12, 2010 the petitioner had not filed any objections; and, therefore, the order proposing levy of interest at Rs. 1,99,460 was being confirmed. Sri S. Dwarakanath, the learned counsel for the petitioner, would contend that under section 22(2) of the Act, read with rule 25(5) of the A.P. VAT Rules, 2005 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he petitioner had already paid the tax due even during the pendency of the earlier appeal filed by them before the Appellate Deputy Commissioner. As such the assessing authority was not justified in levying interest. The impugned order, levying interest of Rs. 1,99,460, is therefore quashed. W.P. No. 17110 of 2010 is allowed. W.P. No. 17130 of 2010 Sri S. Dwarakanath, the learned counsel for the petitioner, would contend that no penalty can be levied since the issue involved is debatable; in any event, levy of penalty at 100 per cent was not justified inasmuch as the respondent had not even alleged that the petitioner had committed fraud or was guilty of wilful neglect in payment of the under-declared tax; section 53(3) could not be invoked without fraud or wilful neglect being alleged; and, while in the earlier round of proceedings prior to the order of the first respondent being set aside by the second respondent the penalty levied was 25 per cent of the alleged under-declared tax, in the present proceedings the penalty levied was 100 per cent of the tax due. In his order dated April 28, 2010, the assessing authority has levied penalty at hundred per cent of the tax due, ..... 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