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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 ..... 4 [the Finance Act ] with interest under section 75 of Finance Act and penalty under section 78 of the Finance Act. 2. Service Tax Appeal No. 70592 of 2018 has been filed by the Director of M/s Express Engineers & Spares Pvt. Ltd. to assail the aforesaid order dated February 19, 2018 passed by the Commissioner (Appeals) that has confirmed order passed by the Additional Commissioner imposing a penalty of Rs. 1 lakh upon the Director under section 78A of the Finance Act. 3. The Appellant supplies diesel generators to customers on hire basis. The issue involved in the Appeals is whether the Appellant renders 'supply of tangible goods for use [STGU] service, which is leviable to service tax under section 65(105)(zzzzj) of the Finance Act for the period upto June 30, 2012 and under section 66E(f) of the Finance Act for the period from July 01, 2012 till 2014-2015. 4. A show cause notice dated April 11, 2016 was issued to the Appellant proposing to recover service tax for the period 2011-12 to 2014-15 with interest and penalties. 5. The Additional Commissioner confirmed the demand by order dated February 28, 2017 and the Appeal filed by the Appellant before the Commissioner (Appeals) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t have any control over the equipment and the effective control over the use of the equipment vests with the customer as the customer draws plans and issues instructions to the operator for operating the diesel generator sets according to the work requirement. Infact, the operator neither uses the equipment as per his own accord nor can the Appellant issue any directions to the operator pertaining to the operation of the equipment. The operator acts as per the directions given by the customer and the method, manner and duration of use of the equipment is as per the discretion of the customer. There is no minimum or maximum number of hours that the machine can be operated as the duration of use of the equipment is entirely at the discretion of the customer. In some cases, the responsibility for maintenance of diesel generator sets is on the Appellant. The diesel/ fuel and lubricant required to run the diesel generator sets is to be provided by the customer. The Appellant cannot demobilize the equipment without the approval of the customer and the equipments cannot leave or enter the premises of the customer without a gate pass issued by the customer. 8. The Commissioner (Appeals) r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Diesel Generators sets given on hire by the appellant to their clients are for a specific period. Thereafter, if the contract is not renewed, the same are brought back by the assessee. All the maintenance work, minor / major breakdowns etc. are being looked 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the direction and control of the customers. The Appellant had no control over these operators. Hence, so long as the effective control 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ways with the Appellant; (iii) Receiving hiring charges is not sale of goods 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 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 a transaction where right of possession of the goods t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 contract, reveals that: (i) Specific equipments for specific duration for hire were agreed upon between the Appellant and the customers; (ii) The A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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 account of submission of incorrect monthly returns claiming wrong exemption. The petitioner, it is stated, is lending highly sophisticated and valuable imported machinery to the contractors engaged by the petitioner for the purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsaction 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 and in the absence of satisfying the essential requirement of Section 5-E of the Act, i.e., transfer of right to use machinery, the hire charges collected by the respondent from the contractors were not exigible to sales tax. On a careful reading and analysis of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 RMC needs to be transported immediately after it is manufactured in the batching plant, and the manufacturer cannot identify and negotiate with the transporter for carrying the products every time an order is placed. Therefore, such a clause was included in the agreement to ensure there is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 be issued by the assessee in terms of the authority of the assessee to do so, under the agreements. The personnel and crew must also be replaced by the owners on valid compliant about their misbehaviour lodged by the assessee. On a true and fair analysis of the several clauses of the charter - agreements, considered as a whole, mere employment of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 the ONGC. Though the cranes are operated by the crew provided by the contractor such crew while operating a crane is under the effective control of the ONGC and its authorities. Therefore, under the contract though the normal operational time is 10 hours in a day, the ONGC is entitled to deploy the cranes, if required, to the entire period of 24 hours to perform duties the kind of which and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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. 37. Though, the Appellant may be providing operators to the customer, but these operators were working entirely under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rol, 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 be made to another Circular dated 23.08.2007 issued by the Department that clarifies that the payment of VAT/Sales Tax on a transaction has to be treated as sales of goods and levy of service tax on such transaction would not arise. The relevant portion of the Circular reproduced below: Reference Code Issue Clarification (1) (2) (3) 036.03/ 23-8-07 Whether spare parts sold by a service station during the servicing of vehicles is liable to payment of service tax? Wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X
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