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TMI Blog2023 (9) TMI 868X X X X Extracts X X X X X X X X Extracts X X X X ..... finition of Supply of Tangible Goods Service it is clear that merely supply of tangible goods will not fall under the category of taxable service but the most important aspect is that the right of possession and effective control of any equipment given on rent should not be transferred - In the present case, since the right of possession and effective control has been transferred, as can be seen from the agreement, the supply of DG Set shall not fall under the definition of Supply of Tangible Goods Service . The most important aspect which is the deciding factor that whether supply of tangible goods will attract service tax or otherwise is that whether such arrangement of supply of tangible goods attracts VAT under the State VAT Act or otherwise. In the present case, admittedly the appellant are registered with the Gujarat VAT department and discharging VAT on the same supply of DG Set to their client. From the clarification by Circular No. 334/1/2008-TRU dated 29.02.2008 with regard to taxability of Supply of Tangible Goods , it is unambiguous that when on supply of tangible goods, the sales tax is payable or paid the same transaction will not be subject to payment of servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellant Shri R.K. Agarwal A.K. Mudvel, Superintendent (Authorized Representative) for the Respondent ORDER RAMESH NAIR The brief facts of the case are that the appellant was engaged into business of supply of DG Sets on rental basis for a non temporary period. The case of the department is that renting of DG Set to the service recipient is classifiable under the category of Supply of Tangible Goods defined under clause 65(105)(zzzzj) of Finance Act, 1994. Accordingly, the appellant are liable to pay the service tax under the said head. 2. Shri Rahul Patel, learned Chartered Accountant appearing on behalf of the appellant submits that the DG Set supplied by the appellant is for definite no temporary period. The responsibility to provide infrastructure, installation, cabling, fitting etc. was upon the client. The client was responsible for commissioning and installation of DG Set in their own plant/ premises. The client was to make proper arrangement for safe custody and space for DG Set. The client was to adjust power requirements and utilize power generated by DG Set. It is the client who was to decide the operating environment and level of activity o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s supplied by the appellant to the service recipient. In such case, the generation of electricity and supplying the same to the client is nothing but sale of goods as the electricity has been classified as goods. Hence on same ground the consideration charged by the appellant from the clients shall be treated as price for sale of electricity and accordingly service tax was not leviable under the category of supply of tangible goods. 2.1 He also submits that the larger period was not available to the adjudicating authority as the issue was highly contentious in the nature and appellant had acted in a bonafide manner which any man reasonable prudence would have otherwise acted that the demand is also hit by limitation. In support of his submission, he placed reliance on the following decisions and Circulars: Circular No. 334/1/2008-TRU dated 29.02.2008 Circular No. 198/8/2016-ST dated 17.08.2016 Quippo Energy Ltd. A/11873-11875/2022 CST vs UFO Moviez India Ltd. 2022-VIL-07-ST-ST Subhash Light House 2022-VIL-106-CESTAT-CEST-ST Express Engineers Spares Pvt Ltd. 2022(1) TMI 564-CESTAT You Broadband Cable India Ltd. 2020 (2) TMI 187 CESTAT Amd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th existing plant/machinery setup of client. l) Client shall be responsible for obtaining approvals, licenses, permissions if any required for generating of electricity. Helping by your appellant in obtaining permissions does not mean that permissions are obtained by your appellant as contemplated by show cause notice. From the above terms, it is observed that the appellant have supplied the DG Set to their client for a fixed period and during the period the DG Set is permanently installed in the premises of the client and the same is operated as per the requirement of the client. The department s main contention to classify their service under Supply of Tangible Goods Service is that since the appellant have provided the operator to operate the DG Set and also the repair maintenance is under the obligation of the appellant, the right to use, possession and effective control has not been transferred to their client, therefore, the supply of tangible goods clearly falls under the definition of Supply of Tangible Goods Service as per the clause 65(105)(zzzzj) of the Finance Act. We find that merely because the appellant have provided the operator and undertaken the rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e goods. 4.4.2 Excavators, wheel loaders, dump trucks, crawler carriers, compaction 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 appliances, for use, with no legal right of possession or effective control. Supply of tangible goods for use and 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 or not VAT is payable or paid. From the above clarification, it is unambiguous that when on supply of tangible go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. To examine this issue, it would be appropriate to refer to the agreement entered into between the appellant and its customers. As noted, the appellant suppliesPower Generating Equipments / gas genset (Plant) to Customers on standby charges and variable charges basis under the agreement. We find that during the subsistence of the agreement, the lessee alone has the right to use the Plant and even the Appellant cannot trespass that right of the lessees/ customers. The Lessees fix the pattern in which the plant is to be used and the time when it will function. All the permission to be obtained from the statutory authorities to be obtained such as Electrical, Pollution, CCR have to be taken by the Customers, the lessee shall ensure the safety of the plant in a manner similar to its own plant. Customers have to provide fuel, Jacket water feed water, the site and other facilities. Further, as per clauses of lease agreements, the customers will also indemnify the Lessor against the loss or damage arising to or in connecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. For the period during which the transferee has such legal right, it has to be the exclusion to 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 licence 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. 4.5 In the light of above discussion and observations of Hon ble Supreme Court, we note that Appellant have complied with all the tests as laid down in the above case to hold that there is transfer of right to use gas genset. Thus the activity is not in the nature of service under the Finance Act in both during the period prior to negative list regime and thereafter as held in the impugned orders. 4.6 We find that the adjudicating authority has held that since as per contract the equipment will remain sole property of equipment provider and skilled manpower supplied by the Appellant are responsible for maintenance operations of gas genset/plant, it is clear that the legal right and effective controls rests with the appellant. We find that e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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; In view of the Article 366(29A) (d) of the constitution, 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, has to be considered as deemed sale or purchase of goods. It is clear that a tax on the sale or p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distributors/producers and converting into compressed encrypted digital format for which they are charging digitalization fee from the distributors/producers and are also discharging service tax on the same. The distributors on the other hand are entering into agreements with the theatre owners for exhibition of movies. The agreement between the distributors and theatre owners are based on number of shows. The distributor also enters into a content distribution agreement with the appellant to deliver the digital content in movie theaters and to monitor the number of shows exhibited. The appellant track the number of show with the help of smart card inserted into the DCE as part of the service to distributors. The theatre owner in order to receive the digital content and exhibit cinema require Digital Cinema Equipments which are either owned by them or are taken on lease by them. The appellant has leased such equipments to some of the theaters. The appellant in order to fulfil contract with the distributors are inserting smart cards to monitor the number of shows in such DCE. They are also collecting registration fee from theaters for conducting feasibility study which is reimbursem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d are discussed in later part of this order. The appellant has contended that the DCE equipments could be operated on standalone basis by the Theatre owner for screening of any content which the theatre owner would procure. The appellant had no say in all such actions of the theatre owner. The role of smart card was limited to keeping track of shows to be played and deducting credit which is available on the smart card for running of shows. It was installed on the direction of the distributors who had entered into agreement with the theatre owners for exhibiting their movie and the appellant had no connection with the theatre owner in respect of such smart card. Thus the smart card were not an instrument to control the operation of DCE on behalf of appellant or has no bearing on the agreement between the theatre owner and appellant in case of leasing of DCE Equipments. As far as insurance of the DCE equipment is concerned the Appellant were owners of the equipments and the nature of leasing agreement does not change for the reason that the insurance was done by the appellant. For bringing any service under the category of supply of tangible goods service in terms of Section 65(10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ratio of said judgment would squarely applicable to the case. 6.2 We also find that the appellant had regularly been filing their returns and even the department from time to time had initiated enquiry with the appellant which was properly responded. The DGCEI also investigated the issue in 2008-2009 and after response by the appellant vide their letter dated 17-6-2009 no further action was taken which shows that even the revenue appears to have satisfied regarding non-applicability of tax on activities of the appellant. Further it is also not in dispute that the appellant had been paying VAT even before the levy of service tax which is being demanded in the instant case. Even the circular issued in 2008 referred above clearly states that VAT and Service Tax are mutually exclusive. Considering all above factors it appears there is no suppression of fact on appellant s part. It is also observed that the appellant obtained DDQ (Determination of Disputed Question) dated 26-6-2008 from Commissioner of Sales Tax, who held that lease rental is liable for VAT. The appellant accordingly was discharging the VAT liability even before the taxability on Supply of Tangible goods for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jointly used by the appellant and the theater owner to provide the services of Sale of Space for Advertisement. The DCE Equipment being specified capital goods as defined under Rule 2(a) and having been used for providing output service are eligible for availment of credit. In terms of Rule 3(1) of Cenvat Credit Rules and proviso to Rule 3(5) it transpires that the credit is available even if the capital goods are removed outside the premises of the provider of output service for providing the output service. As regard submission of Ld. AR that while removing capital goods to theatre, the appellant was supposed to reverse the Cenvat credit as said capital goods was purportedly sold to Cinema theatres. In this regard we find that though the DCE was deemed sold to Cinema Theatre but ultimate ownership of DCE remains with the appellant. The DCE admittedly used for exhibiting advertisement. The appellant paid service tax on service of sale of space for advertisement which was provided through the said DCE. It therefore leaves no doubt that credit on capital goods is available even if they are removed outside from the premises of the appellant for providing output service. We are theref ..... X X X X Extracts X X X X X X X X Extracts X X X X
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