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TMI Blog2016 (1) TMI 1066X X X X Extracts X X X X X X X X Extracts X X X X ..... the customer. Revenue has not explained as to how the cost of consumables etc. paid by the customer to the applicant as fees, would not transfer the right to use the System to the Customer and effective control will remain with SICPA/applicant. It is observed from perusal of scope of the Agreement that it also involves supply of consumables, which constitute a part of value/consideration. Further, transfer of right to use goods, shall not include service(s). In view of above, contention of Revenue is not tenable. The phrase "grant of license to use the System on a non-exclusive basis" (clause 2.1.2 to the Agreement) is used for the reason that the proprietary / intellectual property used in the System is utilized by the applicant in other similarly placed transaction with other customers. However, the use of System by the customer is on exclusive basis. The activity proposed to be undertaken by applicant is not liable to Service Tax under the provisions of the Finance Act, 1994. - Decided in favor of assessee. - Ruling No. AAR/ST/02/2016, Application No. AAR/44/ST/15/2013 - - - Dated:- 22-1-2016 - V S Sirpurkar (Chairman), S S Rana (Member) And R S Shukla (Member) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be used in relation to labeling of beer bottles, cans etc., with the desired bar codes under ESCIMS for the term which has been agreed with customers. Applicant further submits that the Customer has exclusive right to use of the System. After training by the applicant, staff of the breweries shall be in a position to operate the System on their own for the agreed purposes. In addition to the above, applicant shall also be responsible for preventive maintenance of the System, which shall include planned operations dedicated to minimize System breakdown by providing System maintenance at pre-defined intervals and also replacement of worn-out parts, cleaning up of System, etc. In addition to above, applicant shall also be responsible for its corrective maintenance which shall comprise of measures to maximize uptime by reducing faults in the System as well as provision of required spare parts to make the System good. Applicant shall also supply various Consumables in the form of blank labels and ink ribbons based on orders placed by the breweries. 2. The applicant has raised following questions for Advance Rulings and given its interpretation of said questions which are as unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of beer bottles, cans etc. with the desired bar codes under ESCIMS for the term which has been agreed with the customers; that the applicant shall provide the customer, the services of maintenance and repair and consumables as per agreement; that for transaction to be regarded as transfer of right to use goods , the transfer has to be coupled with possession; that Hon'ble Andhra Pradesh High Court in the case of Rashtriya Ispat Nigam Ltd. Vs. CTO [1990 77 STC 182] held that since the effective control and possession was with the supplier, there is no transfer of right to use; that this decision of the Andhra Pradesh High Court was upheld by the Hon'ble Supreme Court subsequently [2002] 126 STC 0114; that in the matter of Harbans Lal Vs. State of Haryana [1993] 088 STC 0357 [Punjab and Haryana High Court], a view was taken that if pandal, is given to the customers for use only after having been erected, then it is not transfer of right to use goods. It is further, submitted by the Revenue that applying the ratio of the apex Court judgment in case of BSNL Vs UOI [2006] 3 STT 245, the activity of providing machinery and apparatus for provision of automated, online 1D and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e recipients namely; the breweries were transferred the right to use the machinery/apparatus on an exclusive basis wherein the effective control and possession of the same has been transferred to the recipient; that various clauses in the Agreement are illustrative of the fact that the operation and the routine maintenance arising from the operation of System is the responsibility of the recipient/customer. 6. Applicant submits that the clauses 2, 4.5.2 and 5 as also Schedule 11 to the Agreement are clear indicators that the effective control coupled with possession of the said System has been transferred to customer/recipient, who in turn will operate and maintain the machines for his own purposes; that the clauses in the agreement unambiguously provide that the machinery shall be operated and maintained by customer and nothing indicates that applicant has any control over the usage of machinery for the specified purposes; that the presence of its personnel at the customer's end is for the reason that the requisite goods are supplied within the time and any corrective/preventive maintenance required could be provided without a delay; that such personnel of applicant are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paratus shall be the responsibility of the applicant, that the installation of System at customer(s) premises pursuant to which as a process and in terms of the Agreement that the customer shall complete global system tests, issue Milestone Achievement Certificate and Final Completion Certificate for its each location to the applicant and thereafter customer shall be responsible for operating the System; that the documentation needed to operate the System is also being provided by the applicant to the customer(s) as and when the machines/apparatus are installed; that this is just similar to any user guide which comes along-with any electronic equipment along-with the sale package; that this again reflects that effective control and possession of the machines/apparatus is being transferred to the customer(s). Applicants re-iterate that the same machine/apparatus, however cannot be provided by the applicant to any other customer(or used by themselves) while it is in effective control and possession of a specific customer; that the reliance on Schedule 12 is totally misplaced in the rejoinder for the reason that the said schedule indicate that as a consequence of the termination of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts; (d) 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; (e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made; 13. Hon'ble High Court of Andhra Pradesh in Rashtriya Ispat Nigam Ltd. Vs Commercial Tax officer 1990 77 STC 182 AP inter-alia observed that a transfer of the right to use the goods, as envisaged in Article 366 (29A) (d) of the Constitution of India, necessarily involves delivery of posse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., a transfer of the right to use and not merely a license to use the goods; (e) Having transferred the right to use the goods during the period for which it is to be transferred, the owner cannot again transfer the same rights to others. 15. It is noticed from the submissions made both by the applicant and Revenue that the issue for determination is whether the transaction is that of transfer of right to use goods or not. Hon'ble High Court of Karnataka in the case of Indus Towers Ltd. Vs Deputy Commissioner of Commercial Taxes, Bangalore 2012 (285) ELT 3 (Kar) observed as under; 64. It is well settled that, whether the transaction amounts to transfer of right or not cannot be determined with reference to a particular word or clause in the agreement. The agreement has to be read as a whole to determine the nature of transfer 16. In view of above, it may be appropriate to examine the Agreement between the applicant and customer to ascertain whether the transaction in question qualifies as a transfer of right to use goods and consequently be outside the definition of service. Relevant extract of the Agreement are reproduced as under; 2. Scope of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed for the reason that the proprietary / intellectual property used in the System is utilized by the applicant in other similarly placed transaction with other customers. We agree with this submission of the applicant because the automated online ID and 2D bar code printing machinery; label application system, aggregation system and dispatch system is for exclusive use of the customer. It is obvious that when said machineries / Systems are installed at the site of the customer, they cannot be utilized by any other customer. Exclusive use of the System is further corroborated in Schedule 11 to the Agreement wherein it is inter-alia mentioned that the customer may only use the System at the site(s) and solely for its own internal business use. Therefore, the contention of the applicant that the words non-exclusive used in the Agreement is only with respect to Intellectual Property used in the System is tenable. Further exclusivity required to qualify as transfer of right to use the goods is with respect to goods, for which the transfer is taking place, which is being satisfied in this case. 18. Further, relevant extracts of the Agreement are as under; 4.5.2 SICPA shall: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operated by the Customer. Therefore, it has been made clear in clause 4.5.2 that the customer shall operate the System and inform SICPA any issue relating to the System. In case, the operation and control was with SICPA, there was no need to have said clause 4.5.2(II)(e) i.e., the customer shall inform SICPA of any issue related to the System. It has been further made clear by clause 5.1.1 to the Agreement that the customer shall operate the System. This fact is also contracted in Schedule 11 wherein it is inter-alia mentioned that the customer may only use the System at site(s) and solely for its internal business use. 20. Revenue submits that effective control of the System shall remain with the applicant, in view of Schedule 8 to the Agreement. Relevant extract of Schedule 8, as pointed out by the Revenue, is reproduced as under: Schedule 8- Overall roles and Responsibilities 2. SICPA SICPA shall at the operational level:- (a) Install System as per requirements; (b) Train operators on how to operate the system; (c) Provide documentation needed to operate the system; (d) Provide overall spare parts for the performance of the services; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd responsibility of maintenance, as envisaged in para 2.1 of Schedule 6 to the Agreement, is reproduced below: LEVEL AT FACTORY PURPOSE 0 Customer -Operation (printing-Labelling-Aggregation-Dispatching-Rework -Daily maintenance (CRM) -Basic troubleshooting, with on-call assistance if necessary -issue escalation to level 1 (SICPA service technician) 1 SICPA service technician, with support of local HQ -incident resolution (CRM) -preventive maintenance (PRM) -Escaltion to level 2 (SICPA HQ Switzerland) 2 SICPA HQ Switzerland -General support of level 1 and local HQ -Analyse/upgrade/Cheque Request 24. Table above reveals that the customer is responsible for the operational maintenance of all 4 sub-systems of main Systems i.e. printing, labelling, aggregation and dispatching, as also daily maintenance, whereas SICPA is to look after other than daily maintenance. In nut-shell, Schedule 6 to the Agreement makes it clear that oper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12). Therefore, the effect of termination of Agreement leads to revoking transfer of right to use goods/System. However, such termination does not indicate that there was no transfer of right to use goods and the effective control was not with the customer. On the contrary, it may indicate that before termination of Agreement, customer was in control of the System. 29. Revenue relied upon the judgment of Hon'ble Punjab and Haryana High Court in case of Harbans Lal vs. State of Haryana [1993] 088 STC 0357 wherein a view was taken that if pandal is given to the customers for use only after having been erected, then it is not transfer of right to use goods. It is noticed that the Hon'ble High Court in this case observed that whether there is a transfer of the right of use the goods or not is essentially a question of fact which has to be determined in each case having regard to the terms of the contract under which there is said to be transfer of the right to use goods. In view of this observation of the Hon'ble High Court, the ratio of this judgment cannot be applied to the present case. Similarly, judgment of Hon'ble Delhi High Court in case of Hari Durga Travels ..... X X X X Extracts X X X X X X X X Extracts X X X X
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