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TMI Blog2018 (2) TMI 1415X X X X Extracts X X X X X X X X Extracts X X X X ..... n goods were absent; that all through agreement period, equipment was in the possession and control of the owner. It also appeared that insurance, maintenance, repairs and damages charges pertaining to diesel generators for the purpose of analysis/testing were also borne by the owner. Department therefore took the view that the said services rendered by appellants to their customers i.e. supply of diesel generators are classifiable under the category of "supply of tangible goods" and that appellants are liable for payment of service tax on the consideration received for such services from 16-05-2008 onwards. 2.2) Accordingly, following show cause notices were issued to PMI, inter-alia seeking demand of service tax liability with interest thereon as follows: S.No. S.C.N. O.R. No. & Date Service Tax involved in Rs. Period covered 1. 05/2012-Adjn(ST)(Comnr), dated 18.01.2012 2,52,61,016/- 05/2008 to 03/2011 2. 135/2012 Adjn (ST) Commr dt. 16.10.2012 1,12,52,789/- 04/2011 to 03/2012 3. 22/2014-Adjn(ST) (Commr) dated 11.03.2014 46,62,024/- 04/2012 to 06/2012 4. 113/2014-Adjn(ST) (Commr) dated 8.8.2014 1,53,13,521/- 07/2012 to 03/2013 5. 211/2014-Adjn(ST) (Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Comnr), dated 18.01.2012 91,02,472/- 05/2008 to 03/2011 2. 136/2012 Adjn (ST) (Commr) dt. 16.10.2012 5,13,506/- 04/2011 to 03/2012 3. 21/2014-Adjn(ST) (Commr) dated 11.03.2014 1,18,409/- 04/2012 to 06/2012 4. 117/2014-Adjn(ST) (Commr), dated 8.8.2014 3,27,344/- 07/2012 to 03/2013 5. 210/2014-Adjn(ST)(Commr) dated 8.8.2014 1,85,029/- 04/2013 to 11/2013 3.3) These Show Cause Notices were adjudicated by a common order O1-0 No.HYD-EXCUS-002-COM-38-14-15, dated 20-1 1-2014 (impugned order) where the adjudicating authority has ordered as follows: A) In respect of Show Cause Notice dated 18-01-2012, confirmed the service tax demand limited to Rs. 78,66,699/- for the period May 2008 to March 2011 with interest. Rest of the demand proposed in show cause notice dropped. Penalties proposed waived. B) In respect of Show Cause Notice dated 16-10-2012, service tax demand confirmed but limited to Rs. 4,61,958/- for the period April 2011 to March 2012. Rest of the demands proposed with interest dropped. Penalties proposed waived. C) In respect of Show Cause Notice dated 11-03-2014, service tax demand confirmed but limited to Rs. 1,05,383/- for the period April 2012 to June 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion and control of the goods to the users", which is a deemed sale and is leviable the sales tax/VAT as deemed sale of goods. The definition of 'sale' under section 2(g) of Central Sales Tax Rules 1956 includes a transfer of right to use any goods for any purpose (whether or not for specified period) for cash, deferred payment or other valuable consideration. Similarly sub section 8 of section 4 of Andhra Pradesh Value Added Tax Act (APVAT Act) provides for tax on transfer of right to use goods, hence the transaction entered into by appellants is deemed sale of VAT which is payable on such transaction. 4.6) Appellant PMPL had filed application and sought clarification on advance ruling under section 67 of APVAT Act 2005 read with rule 66(2) (1) of APVAT Rules 2005 on the following: a) Whether hiring of generators is covered by the clause "levy" of tax on transfer of right to use goods under APVAT Act or not? b) Whether the hire charges received form part of taxable turnover or not? Ld. Advocate submits a copy of the proceedings of the Advance Ruling Authority dated 30-06-2006 wherein it has been ruled as follows: "The ruling is that the transaction falls under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontractors and hence the hire Charges were not exigible to sales tax. With regard to the appellant's contention that they have been paying VAT on the transaction as "deemed sale", Ld. AR submits that they may very well have been discharging VAT by mistake instead of service tax but the transaction is such that service tax is also very much payable. 6.1) Heard both sides and have gone through the facts. In our opinion, the controversy in these appeals is in a narrow compass, namely, whether the transaction entered into by the appellants with the hirers of DG sets would be in the nature of a transaction involving transfer of possession and control of goods to the users or is only one that allows the other users to use the goods without giving legal right of possession and effective control. If the transaction falls in the first category, that would be considered as "deemed sale of goods" and exigible to sales tax/VAT. However in case it is the latter, the transaction would then be treated as a service attracting levy of service tax under Finance Act, 1994. 6.2) Taxable service of "supply of tangible goods services" has been defined under section 65(105)(zzzz) of the Finance Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t; (c) a tax on the delivery of goods on hire purchase or any system of payment by instalments; (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; 6.4) Thus, both before and after 01-07-2012, it can be reasonably concluded that supply of tangible goods inter-alia with the right to use then for any purpose and which transaction is deemed as a sale will attract o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ify whether such transaction involve transfer of right to use or otherwise. However, it was also advised therein that the list was only illustrative of how Courts have interpreted terms and conditions of various types of contracts, to see if a transaction involves transfer of right to use goods. The CBEC also advised t e nature of each transaction has to be examined in totality keeping in view all the terms and conditions of an agreement relating to such transaction. 6.6) The take away from the combined reading of all the above reproduced legal provisions and the CBEC circular are that there cannot be "one-size-fix-all" method to determine whether a transaction is supply of tangible is "deemed sale" or "service". On the other hand, each transaction having its own unique entities and conditions, will have to be critically examined and subject to various tests laid down by the Courts, in particular the tests laid down by the Hon'ble Supreme Court in the landmark judgment of Bharat Sanchar Nigam Limited cited supra. This is precisely what we wish to proceed to do. 6.7) From a perusal of the various clauses of the agreements, the following conclusion emerge: i) There was a minim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not in dispute that appellants have transferred the right only to one hirer at a time. 6.9) With this background, we are unable to fathom how the adjudicating authority has concluded that effective possession and control of the impugned DG sets remains with the appellants and not with the hirers. The authority has held that since hirer is not permitted to run the DG set in the absence of technician provided by the appellant, the hirer is not free to use the DG set and that this indicates control of the appellant over the DG set. He has also found fault with the condition that power should not be withdrawn "more than 72% of 288 KV/ 500 Amps at 8 PF on standard load 40% - 60% etc." We find that these objections have been adequately countered by the appellants in the grounds of appeal clarifying that condition relates to the tolerance level of the equipments and deviation it will result in break down of the equipment, accordingly, they prescribed a list of "Do's" and "Don'ts" by the manufacturer. Appellants have also clarified that DG technicians were provided by them in many cases as some of the hirers do not know how to technically operate the DG sets. We find merit in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions of the APVAT Act Rules and HSN Codes notified by Government vide G.O.Ms.No:398, Revenue (CT.II) Department dated 31.03.2005 and G.O.Ms.No.490, Revenue (CT-Il), Dated 27.08.2005 and in G.O.Ms.No.1615, Revenue (CT-Il), Dept. Dated 31.08.2005 and the ruling is given as under: VI. As per subsection (8) of Section 4 of APVAT Act, every VAT dealer who transfers the right to use goods taxable under the Act is liable to pay a tax for such pods at the rate specified in the schedules on the total amount realized or realizable on such transfer of right to use goods. As seen from the agreement between the owner and the hirer clause (2) of Terms and conditions it is clearly mentioned that APGST @ 8% of the invoice amount will be charged extra as per Sec. 5E of APGST Act. VAT will be applicable w.e.f. 1.4.2005. Any other taxes or levies imposed by any of the State or Central authorities will be to the hirer's account with retrospective effect. Further in the preamble of the agreement, it is clearly mentioned that the Lesser (Owner) is carrying on the business of leasing of power generators. Hence it is evident that the owner (Lessor) is in the agreement to collect tax as applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s "deemed sale" with liability to discharge sales tax only. ii) In the case of G.S. Lamba & Sons Vs. State of Andhra Pradesh [2015(324) ELT 316 (A.P), the Hon'ble High Court of Andhra Pradesh, which is the jurisdictional High Court for this Forum, the issue therein concern the liability of sales tax on the assessee who had provided Transit Mixers to the manufacturers of ready mix concrete, 24 hours and every day of the week as instructed by manufacturer while considering the issue, the Hon'ble High Court held as follows: "30. From the judicial decisions, the settled essential requirement of a transaction for transfer of the right to use goods are : (i) it is not the transfer of the property in goods, but it is the right to use property in goods; (ii) Article 366 (29-A)(d) read with the latter part of the clause (29-A) which uses the words, "and such transfer, delivery or supply...." would show that the tax is not on the delivery of the goods used, but on the transfer of the right to use goods regardless of when or whether the goods are delivered for use subject to the condition that the goods should be in existence for use; (iii) in the transaction for the transfer of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ponsibilities cast on the hirer clearly show that the right of possession and effective control of the equipment rest with the hirer; otherwise the hirer cannot be held responsible for misuse/abuse, safe custody/security, liability to settle disputes with third parties in relation to use etc. Further Cl. 4.3 of the agreement provides for charging of VAT at 12.5% on the monthly invoice value which shall be payable by the hirer. These terms and conditions stipulated in the agreement, lead to the conclusion that the transaction envisaged in the agreement is one of transfer of right to use which is a deemed sale under Section 2(24) of the Maharashtra Value Added Tax Act, 2002. The Finance Ministers speech and the budget instructions issued by the C.B.E. & C. also clarify that if VAT is payable on the transaction, then service tax levy is not attracted. 6. In view of the foregoing, we are of the considered view that the assessees activity of giving various equipments on hire does not fall under the category of Supply of tangible goods for use, hence the same is not liable to service tax w.e.f. 16.05.2008. Now coming to the Revenues appeal, we find that the Ld. Commissioner dropped the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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