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TMI Blog2022 (1) TMI 564X X X X Extracts X X X X X X X X Extracts X X X X ..... se goods with the control and possession over the diesel generator sets passing on to the customers. The transportation and installation of diesel generator sets at the site of the customers cannot lead to a conclusion that the Appellant was rendering STGU service. The Agreement itself provides that the Appellant would be responsible for providing diesel generator sets to the customers. It was, therefore, imperative for the Appellant to ensure that the diesel generator sets were transported and installed at the site of the customer - Though, the Appellant may be providing operators to the customer, but these operators were working entirely under the direction and control of the customers and the Appellant had no control over them. Thus, so long as the effective control over the diesel generator sets remained with the customers, the mere providing of operators who were also under the direction and control of the customers, would not mean that the transaction was not that of sale. It is more than apparent that the supply of diesel generator sets to the customers would not amount to STGU service for the period from 01.04.2011 to 30.06.2012, or a declared service from 01.07.2012 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore the Commissioner (Appeals) was dismissed by order dated February 19, 2018. The reasons given by the Commissioner (Appeals) are as follows: (a) As per the work orders, the Appellant was responsible for loading, transportation, unloading, erection, installation and commissioning, operation, maintenance and repair of diesel generator sets. The Appellant also provided operator/technician to operate the diesel generators sets in many cases. All this meant that possession and effective control of the diesel generators sets remained with the Appellant; (b) All the three ingredients namely, that service should be provided in relation to supply of tangible goods, supply is without transferring right of possession and effective control of goods and service is provided by any person to any other person for it to be taxable under section 65(105)(zzzzj) of the Finance Act were satisfied; (c) The Appellant is paying VAT/Sales Tax on the hiring charges of diesel generator sets and is it being assessed by the concerned authorities. However, section 65(105)(zzzzj) of the Finance Act does not specifically provide that where VAT has been paid, service tax will not be leviable; and (d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tomer. 8. The Commissioner (Appeals) relied upon the work order dated May 03, 2011 issued by Niho Construction Ltd., the work order dated May 30, 2011 issued by Jubilant Clinsys Ltd., and the work order dated October 18, 2011 issued by MGF Estates Managements Private Limited. Since the terms of the work orders are more or less the same, it will be useful to refer to the relevant clauses of the work order dated May 03, 2011 issued by Niho Construction Ltd. It is as follows: KVA Quantity Rate Amount Description 500 1 80000/- Eighty thousand only Monthly charges for silent Diesel Generator set. Terms Condition Tax Type Vat @5%.Extra Payment Terms Monthly hire charges payable in advance. Running Hour's Max. 245 hours per Diesel Generator Set per month. Extra running hours, will be charged on pro rata basis. Freight ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ked after by the appellant and in some cases the appellant has provided a technician to manage the routine maintenance of the generator by deputing him to the clients premises. It is thus evident that the right of control and effective maintenance of the Diesel Generators sets always rests in the hand of the appellant. Had it been a case of transfer of effective control, such conditions would not have been agreed upon at the time of entering into the contract. The CBEC's clarification dated 29-02-2008 clearly mentions that transfer of right to use any goods is leviable to sales tax / VAT as deemed sale of goods. Transfer of right to use involves transfer of both possession and control of the goods to the user of the goods. It further clarifies that transaction of allowing another person to use the goods, without giving legal right of possession and effective control, not being treated as sale of goods, is treated as service. In the case before me there is no dispute to the fact that the said assessee has not transferred the right of possession. Thus it satisfies both the essential criteria of the definition of taxable service of Supply of tangible goods services under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over the diesel generator sets remained with the customers, mere providing operators, who are also under the direction and control of the customers, would not take the transaction out of the scope of a deemed sale. In this connection, reliance has been placed on the decisions rendered in Gimmco Limited, G S Lamba and Dipak Nath ; (iv) The impugned order holds that the Appellant is responsible for maintenance and repair of the diesel generator sets. Once control and possession has been transferred to the customers, extension of any maintenance or repair work would not change the nature of the transaction. In this connection, reliance has been placed on the decisions rendered in Petronet LNG , Dipak Nath, Gimmco and M/s Lindstrom Service India Private Limited vs. Commissioner of Central Excise Service Tax [ 2019 (8) TMI 427-CESTAT Chandigarh ]; (v) Payment of VAT on supply of goods is also a factor to determine whether the transaction is that of sale. In this connection, reliance has been placed on the clarification issued by the Department in TRU dated February 29, 2008, wherein the taxable category of STGU was clarified and its distinction with deemed sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds and even if the Appellant had paid State VAT on any transaction, it cannot be said that the service tax authority cannot demand service tax. In this connection reliance has been placed on the decision of the Supreme Court in Bharat Sanchar Nigam Ltd. vs. Union of India [2006 (2) STR 161 (SC)] ; (iv) The Appellant mis-represented facts and disguised it as a case of transfer of goods by way of hiring with the transfer of right of possession and effective control to the customer, whereas the possession and effective control of the goods was not transferred to the customers and the same remained with the Appellant, which is the core ingredient to levy service tax on the transaction under hiring service. To support the contention reliance has been placed on the following decisions: (a) Indian National Shipowners Association vs. Union of India[2009 (14) STR 289 (Bom.)]; (b) Reliance Industries Ltd. vs. Commissioner of C.Ex. S.T., LTU, Mumbai [ 2014 (36) STR 820 (Tri. Mumbai) ]. 12. The submissions advanced by the learned counsel for the Appellant and the learned authorised representative appearing for the Department have been considered. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct from 01.07.2012 and sub-section (f) of section 66E is as follows: 66E . The following shall constitute declared services, namely:- (f) transfer of goods by way of hiring, leasing, licensing or in any such manner without transfer of right to use such goods ; 18. Thus, what has to be seen for a transaction to be taxable as a service, is: i. There must be a transfer or supply of goods; ii. The transfer must be by way of hire or lease or license for using the goods; and iii. The right of possession and effective control over such goods must not have passed on to the transferee. 19. The nature of transaction between the Appellant and its customers have elaborately been described in paragraph 7 of this Order. It clearly transpires that the Appellant was providing the diesel generator sets to its customers on hire basis. The first two conditions, therefore, stand satisfied. The disputes, in the present appeal, centers around the third condition, which is as to whether the transaction between the Appellant and its customers would involve the transfer of right of possession and effective control or a transfer of right to use. This is because ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he good, the transaction must have the following attributes: a. There must be goods available for delivery; b. There must be consensus ad idem as to the identity of the goods; c. The transferee should have a legal right to use the goods-consequently all legal consequences of such use including any permission or licenses required therefore should be available to the transferee; d. For the period during which the transferee has such legal right, it has to be the exclusion of the transferor this is the necessary concomitant of the plain language of the statute- - viz. 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. (emphasis supplied) 24. It can safely be said that under Sales Tax, there is transfer of possession and effective control in goods, while there is no such transfer of possession and effective control under service tax. 25. In the present case, the nature of the transaction between the Appellant and the customers, as is clear from the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isakhapatnam Steel Project, for the purpose of the steel project allotted different works of the project to contractors. To facilitate the execution of work by the contractors with the use of sophisticated machinery, the petitioner has undertaken to supply the machinery to the contractors for the purpose of being used in the execution of the contracted works of the petitioner and received charges for the same. The respondents made provisional assessment levying tax on the hire charges under section 5-E of the Act. In this writ petition, the petitioner prays for a declaration that the tax levied by the 1st respondent in purported exercise of power under section 5-E of the Act on the hire charges collected during the period 1988-89, is illegal and unconstitutional. The respondents filed a counter-affidavit in support of the levy stating that the validity of A.P. Amendment Act (18 of 1985) which introduced section 5-E of the Act was upheld by the High Court of Andhra Pradesh in Padmaja Commercial Corporation v. Commercial Tax Officer [1987] 66 STC 26; (1987) 4 APSTJ 26. It is further stated that the provisional assessment under section 15 of the Act has been made every month on acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition that he will be responsible for the custody of the machinery while the machinery is on the site does not militate against the petitioners' possession and control of the machinery. For these reasons, we are of the opinion that the transaction does not involve transfer of the right to use the machinery in favour of the contractor. As the fundamental requirement of section 5-E is absent, the hire charges collected by the petitioner from the contractor are not exigible to sales tax. (emphasis supplied) 28. The appeal filed by the Department against the decision of the Andhra Pradesh High Court was dismissed by the Supreme Court and the decision is State of Andhra Pradesh and another vs. Rashtriya Ispat Nigam Ltd.[ 2002 (3) TMI 705 Supreme Court ]. The relevant portion of the decision is reproduced below: The High Court after scrutiny and close examination of the clauses contained in the agreement and looking to the agreement as a whole, in order to determine the nature of the transaction, concluded that the transactions between the respondent and contractors did not involve transfer of right to use the machinery in favour of the contractors a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioners, who are owners of Transit Mixers, were looking for advancing their business interest in Hyderabad. The latter approached the former offering their Transit Mixers to take care of all transporting solution needs. These essentially form part of the recitals. The Habendum of the agreement speaks of the petitioners providing a dedicated fleet of five Transit Mixers painted in a particular style and colour as well as brand name of Grasim to transport RMC, on 24 hours basis every day of the week as instructed by the lessee, failure of which will attract penalties. The staff of the petitioners were required to obey the instructions issued by Grasim, and they should use safety equipment like helmets. These Transit Mixers cannot move or carry RMC to the work sites as per their convenience but are to be used as per the delivery schedule given by Grasim. The counsel also does not dispute that the agreement between the parties speaks of a dedicated fleet of vehicles to be made available on 24/7 basis duly painted in a particular style and colour, and staff being under the instructions of Grasim alone. It is, however, submitted that the parties agreed for five dedicated vehicles as R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... short-term charter (of the vessels Disha, Rahi and Trinity Glory, respectively) amount to a transfer of the right of possession and effective control of these vessels for use by the assessee from the owners thereof. If the transactions establish a transfer of the right to use possession and effective control, the transactions fall outside the purview of the enumerated taxable service . ******* 29. ******* In the adjudication order the analysis of law and consideration of the relevant facts of the transaction occurs only in paragraph 37.3, in relation to taxability of the transaction, under Section 65(105)(zzzzj). Further the mere fact that the Manager, Master, personnel and other crew are employed by the owner does not in any manner derogate from the fact that the transaction constitutes transfer of the right to use the tangible goods, including possession and effective control of the tankers. This is so since there are several other clauses in the agreements between the parties (referred in para 10 supra), which disclose that the personnel on board the tankers function and operate strictly in terms of detailed instructions, guidelines and directives issued or to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irer. 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 Minister s 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. (emphasis supplied) 33. In Dipak Nath , the Gauhati High Court observed as follows: The above analysis of the relevant provisions of the contract agreement between the parties indicate the clear dominion and control of ONGC over the crane during the entire period of operation of the contract once a crane is placed at the disposal of the ONGC under the contract. The crane is to be deployed at worksites as per the discretion of the ONGC and though the normal period of deployment is 10 hours in a day, such deployment at the discretion of the ONGC may be for any period beyond the normally contemplated 10 hours. The deployment of the crane in oil field operations as well as other hazardous situations is at the sole discretion of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransfer of the right to use, possession and effective control is also transferred, the transaction falls outside the preview of service tax liability. However, when the effective control and possession is not transferred and it continues to remain with the person who has given the machinery on hire, it would not be open to the authority to levy service tax; (iii) Mere fact that the persons are employed by the owner does not in any manner deter from the fact that the transaction constitutes a transfer of the right to use the tangible goods with possession and effective control; and (iv) The fact that after the operation is over on any given day and the tangible goods come back to the owner is not a material fact for deciding who has the dominion over the tangible goods. 35. The main contention of the Department is that the appellant was responsible for loading, unloading, installation, commissioning, repair and maintenance of the diesel generator sets and the appellant was also providing an operator for running the diesel generator sets. 36. The transportation and installation of diesel generator sets at the site of the customers cannot lead to a conclusi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es transfer of both possession and control of the goods. 4.4.2 Excavators, wheel loaders, dump trucks, crawler carriers, companion equipment, cranes etc. offshore construction vessels barges, geo-technical vessels, tug and barge flotillas, rigs and high value machineries are supplied for use, with no legal right of possession and effective control. Transaction of allowing another person to use the goods, without giving legal right of possession and effective control, not being treated as sale of goods, is treated as service. 4.4.3 Proposal is to levy service tax on such services provided in relation to supply of tangible goods, including machinery, equipment and appliance, for use, with legal right of possession or effective control. Supply of tangible goods for use is leviable to VAT/Sales tax as deemed sale of goods, is not covered under the scope of the proposed service. Whether a transaction involves transfer of possession and control is a question of facts and is to be decided based on the terms of the contract and other material facts. This could be ascertainable from the fact whether VAT is payable or paid. (emphasis supplied) 40. Reference also needs to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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