9911796707
TMI Blog2024 (1) TMI 451X X X X Extracts X X X X X X X X Extracts X X X X ..... ht only) under Section 78 of the Finance Act, 1994 upon M/s. Sahara Sanchaar Limited, C-2,3,4, Sahara India Complex, Sector-11, Noida (iii) I also disallow the CENVAT credit of Rs. 2,27,05,076/- (Rupees Two Crores Twenty Seven Lakhs Five Thousand and Seventy Six only) as proposed in the show cause notice under Rule 14 of the CENVAT Credit Rules, 2004 read with the proviso to Section 73(1) of the Act, ibid, and order M/s. Sahara Sanchaar Limited, C-2,3,4, Sahara India Complex, Sector-11, Noida to pay the same along with interest under Rule 14 of the CENVAT Credit Rules, 2004 read with Section 73(2) of the Finance Act, 1994 (iv) I further impose a penalty of Rs. 2,27,05,076/- (Rs. Two Crores Twenty Seven Lakhs Five Thousand and Seventy Six only) under Rule 15(3) of the CENVAT Credit Rules, 2004 read with Section 78 of the Finance Act, 1994 on M/s. Sahara Sanchaar Limited, C-2,3,4, Sahara India Complex, Sector-11, Noida. (v) I also order to recover the interest under Section 75 of the Finance Act, 1994 from M/s. Sahara Sanchaar Limited, C-2, 3, 4, Sahara India Complex, Sector-11, Noida on the confirmed demand amounts as per sl. (i) & (iii) above (vi) I further impose a total p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice Credit ledger of the party for the financial years 2009-10, 2010-11, 2011-12, 2012-13 and 2013-14, it was observed that the party have availed the service tax credit on following input services- a) Space Segment Charges for KU banc / C band; b) Vehicle Maintenance charges; c) Freight & Cartage for matrix video board; d) Training Service & Installation, integration, commissioning & handholding; e) Insurance charges/ Insurance premium of equipment; f) Chartered flight hiring charges In the opinion of revenue these services would not qualify as input service as defined by Rule 2 (l) of the Cenvat Credit Rules, 2004 for the Business Auxiliary Services provided by the Appellant. Thus they availed the inadmissible input service credit during the years from 2009-10 to 2013-14 contravening the provisions of Rule 3 of the CENVAT Credit Rules, 2004. Further, the details of the input service credit and the related documents were never produced by the party and the instant case of wrong availment of the CENVAT credit came to the notice of the department only during the visit of premises of the party on 20.03.2015 by the officers of the Anti-Evasion branch of the Commissionerat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nish Raj, Authorized representative for the revenue. 3.2 Arguing for the appellant learned Chartered Accountant submitted:- * Right to use goods is not covered the net of service tax. As is evident from the agreement between appellant and M/s SICC that appellant has given complete control & possession of the assets to M/s SICC. "Right to Use" is thus transferred * The effective control of the assets is purely in the hands of lessee, as the lessee is at his liberty to use the equipments hired by him. It is seen from the agreements that there is no dispute as to the fact that the goods are in the possession of the lessee and is being used by him for the intended purpose without any interference or hurdle from the appellant. Therefore, it is submitted that the transaction of appellant does not satisfy the condition of "without transferring right of possession and the effective control of such machinery, equipment and appliances. "Hence the activity does not fall under the definition of "Supply of tangible goods for use". Relaince is palced on the following decisions: o Compucom Software Ltd. [2019 (25) G.S.T.L 75 (Tri.)] o G.S. Lamba & Sons. [2015 (324) E.L.T. 316 (A.P.)] o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure the condition of the assets(Clause 8). o lessee shall not be entitled to sub-let to any one, wholly or partially, any part of the assets without the prior consent of the appellant. (Clause 9). * The said allegations are not sustainable on account of the following reasons: o When 'right to use' gets transferred only the effective control and possession gets transferred to the lessee. The ownership does not get transferred. If the ownership also gets transferred, then it will amount to sale and there should be no difference between 'sale' and 'right to use'. Thus, allegation in the SCN will not be sustainable. o As far as insurance and license is concerned, as appellant is owner of the assets and iicense is in the name of the appellant in the name of the owner and not in the name of lessee and therefore, insurance cover and license fees has been taken/paid by the appellant and not by the lessee. It is submitted that same is more of responsibility and does not affect in any way with possession or control of the assets. In the following cases, wherein insurance or license fees were paid by the lessor and court has held that same is not relevant facto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ease rental and has in fact paid VAT. The explanation 2 to section 67 provides for the cum- duty benefit. Reliance is also placed on the following decisions: o Maruti Udyog [2002 (141) ELT 003 (SC)] o Advantage Media Consultant [2008 (10) S.T.R. 449 (Tri. Kolkata)] affirmed by the Supreme Court as reported at [2009 (14) S.T.R. J49 (S.C.)]. * It is submitted that appellant has not availed cenvat credit for the period 2013-14 all. It is evident from the ST-3 return for the period 2013-14 that appellant has not at availed credit. It is further submitted that appellant has already reversed the cenvat credit of Rs. 62,82,638/- for the period 2012-13. * At the outset it is submitted that demand for the entire period cannot sustain as there was no allegation of violation of statutory provisions in the Show Cause Notice. The appellant relies upon the judgment of Brindavan Beverages (P) Limited 2007 (213) E.L.T. 487 (S.C.) and M/s Federation of Indian Chambers Of Commerce And Industry 2014-TIOL-701-CESTAT-DEL and Tiger Security Services 2009 (14) S.T.R. 747 (Tri. Chennai). * The aforesaid credit has been denied on the ground that there is no nexus with the business auxiliary servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of facts. The extended period of limitation under section 73(1) can only be invoked in the case of fraud, suppression of facts, etc. with an intention to evade duty. As the appellant was under a bonafide belief that transaction involves transfer of right to use goods and hence chargeable to VAT & accordingly VAT was discharged by the appellant. Appellant is rightly eligible for the alleged Cenvat credit as same was used for business purpose. There was no malafide intention on the part of the appellant in discharging VAT liability & in taking such credit. The matter relates to interpretation of the term 'right to use' & definition of `input services' appearing under Rule 2(1) of the Cenvat Credit Rules. the Tribunal has held that when the issue relates to interpretation of the statute, extended period of limitation should not be invoked. Reliance is placed on the decision in case of Continental Foundation Jt. Venture [2007 (216) E.L.T. 177 (S.C.)]. * The appellant had no malafide intention in treating the transaction as involving transfer of right to use the goods & in claiming the Cenvat credit on various input services & had bonafide belief that they are eligible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty ie. M/s. Sahara Sanchaar Limited shall be responsible to make or get adequate insurance cover for the assets given on lease to the second party (Clause2). (c) The party i.e. M/s. Sahara Sanchaar Limited shall bear the entire license fees etc. to be paid to Govt. authorities in respect of usage of such assets (Clause 5) (d) The party i.e. M/s. Sahara Sanchaar Limited shall charge compensation in case of any damage (Clause 7) (e) The party ie. M/S Sahara Sanchaar Limited shall have right to inspect all the assets through their Engineers authorized representatives at any time to ensure the condition of the assets (Clause 8). (f) That the second party shall not be entitled to sub-let to any one, wholly or partially, any part of the assets without the prior consent of the first party (Clause 9). Here, it is pertinent to mention that the first party and second party in the said agreement are M/s. Sahara Sanchaar Ltd. and M/s. Sahara India Commercial Corporation Ltd. respectively On perusal of these clauses and the definition of "Supply of Tangible Goods Services", it was found that the said agreement fulfilled the condition of taxable service by way of supply of tangible goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight to Use is transferred 2. Payment of VAT has been made against the supply of goods 3. On account of rebuttal to the allegations made in the show cause notice The party has analyzed the taxability of service of supply of tangible goods under Section 65(10)(zzzzj) of the Finance Act,1994 by stating that (a) there shall be shall supply of tangible goods (b) supply shall be for use by the recipient, and (c) supply control of such effected without" transferring right Of possession and effective machinery, equipment and appliances. Thereafter, the party has argued about the effective possession by relying the decision given in the case of Supdt. And Remembrancer of Legal Affairs West Bengal Vs Anil Kumar Bhunja and Ors. (1979)4 SCC 274, wherein the court explained that "Possession" implies a right and a fact the right to enjoy annexed to the right of property and the fact of the real intention If involves power of control and intent to control., The party further stated that the same is in consonance with clause 6 & 7 of the said agreement as the Clause 6 stated that the maintenance charges incurred for the use of assets shall be borne by M/s SICCL and no part of such maintenan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement, they shall pay the owner of the asset. Hence this clause does not, in any way, mean that the 'right to use iS not being transferred to the lessee. (b) The insurance company issues insurance policy only in the name of the owner and not in the name of lessee and therefore, insurance cover has been taken by them and not by the lessee. (c) The license fee of Rs. 56,85,000/- appx. for an year, is to be paid to Govt authorities for operating the earth station. The said department (like insurance company), only recognizes the owner of the asset and not the lessee of the asset Hence, the license fee is to be paid by them. (d) As per clause 7 of the agreement, M/s SICC will be liable to pay compensation to them in case of any damages to the asset. This shows that the possession has been transferred. (e) It is mentioned in clause 8 that assessee shall have right to inspect asset by the engineers at any time. It is submitted that if the effective control and possession is with them then there is no need to have a clause in the agreement empowering the assessee to have right to inspect the assets given on lease. (f) The 'right to use' has been transferred to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made It follows that such transactions will be liable for Sales Tax/Value Added Tax. In terms of section 66E(f) of the Finance Act, 1994, transfer of goods by way of hiring, leasing licensing or in any such manner without transfer of right to use such goods is a "declared service" and hence liable to service tax. In this regard some representations have been received. 2 The matter has been examined. I am directed to draw your attention to the fact that in any given case involving hiring, leasing or licensing of goods, it is essential to determine whether, In terms of the contract, there is a transfer of the right to use the goods. Further, the Supreme Court in the case of Bharat Sanchar Nigam Limited vs Union of India reported in 2006(2) STR 161 SC, had laid down the following criteria to determine whether a transaction involves transfer of the right to use goods, namely.- a. There must be goods available for delivery b. There must be a consensus ad idem as to the identity of the goods c. The transferee should have a legal right to use the goods - conse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enerally for a long term period which covers the major portion of the life of the asset and at the end of the lease period, usually the lessee has an option to purchase the asset, The lessee bears the cost of repairs and maintenance and risk of obsolescence also rests with him. In contrast, an operating lease does not involve the transfer of the risks and rewards associated with that asset to the lessee. It is for a short term period and at the end of the lease period the lessee does not have an option to purchase the asset. The cost of repairs, maintenance and obsolescence rests with the lessor Similarly in the aircraft industry there are "dry leases" and "wet leases". Generally 4.2 speaking, "wet leases" may involve short term provision of an aircraft along with crew maintenance and insurance while the lessee bears other operating expenses. In contrast "dry lease" is for a relatively longer term and involves the provision of an aircraft only without crew 4.3 The above two situations have been elaborated only to explain and emphasize the diverse nature of such transactions. There can be variations and in some cases, a combination. 5. In all these cases, no a priori general ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowing declaration has been made: "1.04 OPERATING LEASE- WHERE ASSETS ARE GIVEN ON LEASE Leases in which the company does not transfer substantially all the risk and benefits of ownerships are classified as operating lease. Assets subject to operating are included in the fixed assets. Income on an operating lease is recognised in the statement of Profit and Loss Accounts over the lease period. Thus, it is apparent that it is undisputed fact that the issue involved in the present case is not concerning the financial leasing which has been distinguished by the Hon'ble Supreme Court in the case of Association of Leasing & Financial Service Companies vs Union of India, as reported in 2010(20) S.T R. 417(SC) as under: "21. . ......That, in substance a finance lease, unlike an operating lease, is a financial loan (assistance/facility) by the lessor to the lessee. That, in the bailment termed "hire" the bailee receives both possession of the chattel and the right to use it in return for remuneration. On the other hand, equipment leasing is long term financing which helps the borrower to raise funds without outright payment in the first instance. Here the "interest" elemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perator of the leased equipment or was having right to possession and effective control during the period of lease for his own independent use. I also observe that clause 2 of the said agreement although mentions that the second party (lessee) shall enjoy the exclusive right to use the assets So installed but at the same time it mentions that the lessee shall not claim ownership Further it is also provided in the said clause that the said right to use can be extended by the first party (i.e. the party) to any third party after obtaining consent of the second party which clearly shows that the lessee was not having an exclusive right over the use of such equipments. Contrary to this, the lessee did not have such rights for further sub-leasing. This clearly implies that the party was always having its right to extend lease of such rights to use to any third party even during the period of lease with the lessee (i.e M/s SICCL). Thus, it is seen that such transfer of right to use in the present case was not in accordance with the principles laid down by the Hon'ble Supreme Court in the case of Bharat Sanchar Nigam Ltd. Vs UOl, as reported in 2006(2) S.T.R. 161(SC), wherein, one of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use 8) (f) That the second party shall not be entitled to sub-let to any one, wholly or partially, any part of the assets without the prior consent of the first party (Clause 9). 6.6.4 Thus, I have no iota of doubt that the said agreement does not transfer the right to use tangible goods with effective possession and control to the lessee i.e M/s SICCL. Thus, I am of the view that the same is taxable service chargeable to the service tax in terms of the provisions of Section 65(105)(zzzzj) read with Section 66, 66B and Section 66E(f) of the Finance Act, 1994, as applicable during the relevant period. I find judicial support to the above in the case upheld by the Hon'ble Supreme Court of India in the case of State Of Andhra Pradesh & Anr vs M/s Rashtriya Ispat Nigam Ltd on 6 March, 2002, as reported in 2013(31) S.T.R. 513(SC), wherein it has been observed/held as under- "3. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der, and their access to the infrastructure did not amount to its possession or right to use goods - Mobile operator were merely provided access to the infrastructure, and that did not amount to service provider losing control over the infrastructure, and especially so as mobile operators could not transfer it during period of contract to a third party - Right of mobile operators was personal right to do something on the passive infrastructure belonging to service provider, it did not amount to creation of interest therein, and was only in nature of licence as defined under Section 52 of Easements Act, 1882 - In that view, there was no sale or deemed sale as defined under Section 2(29)(d) of Karnataka Value Added Tax Act, 2003, to attract levy of tax under it." 6.6.5 Further I observe that the party in their submissions has built their defence by treating the supply of tangible goods as deemed sales thereby depositing the VAT. I am not inclined to agree with the party's contention as it is no where stated in statute that one activity if subject to the VAT under state laws need not necessarily be levied to Central Law viz the service tax Or vice versa also notice that both the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use and thus giving strength to the revenue case as the activity spell out of said agreement drives home one and only point that the party has not transferred right to use the tangible goods and thus activity would be covered under the ambit of service tax quite rightly, as alleged in the SCN. 6.7 Irregular availment of the CENVAT credit 6.7.1 It is alleged in the SCN that the party has availed the CENVAT credit of input services for providing their output service namely "Business Auxiliary Services". On scrutiny of Input Service Credit ledger of the party for the financial year 2009-10, 2010-11, 2011-12, 2012-13 and 2013-14, it was observed that the party has availed service tax credit on following input services- a) Space Segment Charges for KU banc / C band b) Vehicle Maintenance charges c) Freight & Cartage for matrix video board: d) Training Service & Installation, integration commissioning & handholding e) Insurance charges Insurance premium of equipment; f) Chartered flight hiring charges It has been alleged that these expenses do not appear to be in relation to providing their output service 'Business Auxiliary Services' and therefore, they (the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'input service' as Rule 2(1) of the CENVAT Credit Rules, 2004 is as under- "input service means any service- (i) used by a provider of taxable service for providing an output service or (ii) used by the manufacturer..................................... and includes services used in relation to modernization, renovation or repairs of a factor(y), premises of provider of output service or an office relating to such factory or premises, advertising or sales promotion, market research, storage upto the place of removal, procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation upto the place of removal; but excluded services- A. ..... B. ...... C. such as those provided in relation to outdoor catering., beauty treatment, health senices, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefit extended to employees on vacation such as Leave or Home Travel Concession, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd services is culmination of mark up fees or commission amount received which as the BAS services. I find no reason to disagree with the allegation of SCN. Accordingly it can be safely deduced that there are no provisions in the service tax wherein the credit of service tax paid on input services credit having no nexus with the output service can be safely allowed. In line with the above findings, I do not find any strength in the material facts or the argument put forth by the party in support of their contention and I find the charges in the impugned SCN are in consonance with the service tax provisions/ rules regarding the ambit and the scope of definition of the services rendered by the party. I uphold the allegations of the Show Cause Notice and maintain that the party has availed irregular CENVAT credit and hold the same recoverable from them. 6.7.5. The case laws cited by the party do not hold good, as the decisions have been passed in different perspective with different facts and circumstances, inasmuch as the decisions cited delve into different issue. In the case of Tiger Security Services (supra), the Hon'ble Tribunal allowed the appeal filed by the assessee beca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds on its own facts and a close similarity between one case and another is not enough because even a single significant detail may alter the entire aspect, in deciding such cases, one should avoid the temptation to decide cases (as said by Cordozo) by matching the colour of one case against the colour of another. To decide therefore, on which side of the line a case falls, the broad resemblance to another case is not at all decisive. *** *** *** Precedent should be followed only so far as it marks the path of justice, but you must cut the dead wood and trim off the side branches else you will find yourself lost in thickets and branches. My plea is to keep the path to justice clear of obstructions which could impede it." 6.8. Recovery under the proviso to Section 73(1) of the Finance Act, 1994 6.8.1. The party has contended that the demand for the period up to September 2013 is hit by limitation in as much as they were under bonafide belief that transaction involves transfer of right to use the goods and hence chargeable to the VAT and that they were rightly eligible to avail the CENVAT c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m and returns filed with the State VAT authorities. As such, the contention that they had discharged the VAT on such activities during the relevant period iS not also verifiable. As such, I am convinced that non-payment of service tax on the supply of goods service and the wrong availment of service tax credit would have gone undetected, had it not been detected by the officers of Anti-evasion as mentioned in the brief facts of the case, therefore, I hold this as a fit case of evasion of service tax and irregular availment of the CENVAT credit by the party with the deliberate intent of non-declaration and suppression of vital information. Accordingly, the invoking of extended period under the proviso to Section 73(1) of the said Act in the case before me is fully justified. Accordingly, the charge of suppression is convincingly established against them. In the circumstances, I am of the view that payment of the VAT to the state authorities can not absolve them from the charge of the service tax under the Finance Act, 1994 and willful suppression and mis-declaration of vital information. I find that the SCN has been issued on 19.08.2015 covering the period 2009-10, 2010-11, 2011-12, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recovered from them under rule 14 of the CCR read proviso to Section 73(1) of the Act, ibid, along with interest under Rule 15 of the CENVAT Credit Rules, 2004 read with the Section 75 of the Act. ibid. 6.8.4 I also observe that the party has made another contention that if the tax is payable on the supply of tangible goods service, they would be eligible for the CENVAT credit of Rs. 2,27,05,076/-. I observe that the demand of service tax has been raised invoking the extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994 as there exist sufficient grounds, as discussed hereinabove, for invoking the said proviso. 1, therefore, do not find it a fit case to allow the benefit of the CENVAT credit as sought by the party. On the merits of the contention, I observe that the party as sought allowing credit of input service credit on Space Segment Charges for KU banc / C band, Vehicle Maintenance charges, Freight & Cartage for matrix video board, Training Service & Installation, integration, commissioning & handholding; Insurance charges / Insurance premium of equipment, and Chartered flight hiring charges. On perusal of the facts brought on record, I fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right of possession and effective control of such machinery, equipment and appliances." 14. Section 65(105)(zzzzj) of the Finance Act, 1994 was introduced by Notification No. 18/2008-S.T. with effect from 16 May, 2008. Section 65(105)(zzzzj) levies a service tax on the use of tangible goods. On the other hand, the transfer of the right to use any goods is treated as a 'deemed sale' and is subject to sales tax under Article 366(29-A)(d) of the Constitution of India. It is necessary to distinguish the applicability of these two provisions. Article 366(29A)(d), provides : "366(29A) tax on the sale or purchase of goods includes - xx xx xx (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; xx xx xx 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." 15. The applicability of Article 366(29A)(d) was discussed in a decision of this Court in Bharat Sanchar Nigam Li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es out that there is a transfer of exclusive right to use the vessel which is a deemed sale and is liable to tax under the KST Act. In the instant case, full control of the vessel had been given to the charterer to use exclusively for six months, and delivery had also been made. The use by charterer exclusively for six months makes it out that it is definitely a contract of transfer of right to use the vessel with which we are concerned in the instant matter, and that is a deemed sale as specified in Article 366(29A)(d). On the basis of the abovementioned decision, it was urged that all Charter Party Agreements are service agreements. The submission cannot be accepted, as there is no general/invariable rule/law in this regard. It depends upon the terms and conditions of the charter party when it is to be treated as only for service and when it is the transfer of right to use. xx xx xx 54. When we consider the charter party in question in the context of applicable law, particularly in view of the constitutional provisions of Article 366(29A)(d), we find that there is transfer of right to use tangible goods, which is determinative of deemed sale as per the Constitution of India a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion and effective control. This provision creates an element of taxation over a service, as opposed to a 'deemed sale' under Article 366(29A)(d). For the purpose of clarification, the Department of Revenue issued a Circular, D.O.F. No. 334/1/2008-TRU, dated 29 February, 2008. The said circular clarified the applicability of Section 65(105)(zzzzj) vis-a-vis Article 366(29A)(d). The relevant portions of the circular are as follows : "4.4 SUPPLY OF TANGIBLE GOODS FOR USE: 4.4.1 Transfer of the right to use any goods is leviable to sales tax/VAT as deemed sale of goods [Article 366(29A)(d) of the Constitution of India], Transfer of right to use involves transfer of both possession and control of the goods to the user of the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntified by the presence of two characteristics namely (a) supply of tangible goods including machinery, equipment and appliances for use, (b) there is no transfer of right of possession and effective control of such machinery, equipment and appliances. According to the members of the 1st petitioner, they supply offshore support vessels to carry out jobs like anchor handling, towing of vessels, supply to rig or platform, diving support, fire fighting etc. Their marine construction barges support offshore construction, provide accommodation, crane support and stoppage area on main deck or equipment. Their harbour tugs are deployed for piloting big vessels in and out of the harbour and for husbanding main fleet. They give vessels on time charter basis to oil and gas producers to carry out offshore exploration and production activities. The right of possession and effective control of such machinery, equipment and appliances is not parted with. [...]" (emphasis supplied) 20. The taxable service is defined as a service which is provided or which is to be provided by any person to another "in relation to supply of tangible goods". The provision indicates that the goods may include mach ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the proposal submitted by the Seller." (emphasis supplied) Clause 5.4 provides that : "5.4 Gas pipeline from nearest Distribution Mains to the Measurement equipment shall be constructed and maintained by the Seller at Buyer's cost. The Buyer agrees to let the Seller or his authorised representative to supply, construct, install commission and maintain the supply pipeline from main distribution line upto the Measurement Equipment and Measurement Equipment in its premises. (emphasis supplied) The Buyer's Facilities and Seller's Facilities are defined to include the measurement equipment and pipelines and have been defined as follows : " "Buyers Facilities" means plant, machinery, measurement equipment and other equipment from the Delivery Point onwards necessary to receive Gas under this Agreement." " "Seller's Facilities" means the Seller's pipelines, gas plants, machinery, Measurement Equipment, other metering facilities and other equipment necessary for flow control and the processing, compression, measuring and testing of Gas to enable delivery of Gas to the Buyer at the Delivery Point." Further, the expression 'Measurement Equipment' is defined as follows : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipment shall be verified periodically by the Parties. 9.2.4 ....... 9.2.5 ....... 9.2.6 ...... 9.2.8 Notwithstanding anything contained in this Agreement, pending the result of any check/re-calibration, the Buyer shall not withhold payments to the Seller under this Agreement on this account. However, the Buyer shall be entitled to lodge his claim for refunds/adjustments, if any, depending upon the final results of such check/re-calibration within a period of fourteen (14) days of such check/re-calibration. Such claim, if found correct by the Seller, shall be adjusted against the subsequent invoice(s) of supply of Gas. 9.2.9 Pending the resolution of any dispute, the Seller shall produce the invoices on the basis of self-verification." (emphasis supplied) The provisions for billing and payment are contained in clause 12. The relevant portion is extracted below : "12. Billing and Payment 12.1 Following the end of the Fortnight, the Seller shall render to the Buyer a statement including the following details for each Day of the previous Fortnight (hereinafter referred to as the "Fortnightly Invoice"), which shall show in respect of the previous Fortnight, along w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e clause 14.3, the buyer warrants to maintain the "Buyer's Facilities", which includes the 'measurement equipment', in good working order and condition and technically and operationally compatible with the Seller's Facilities. Under clause 16.4, if the buyer fails (otherwise than as a consequence of force majeure or the seller's default) to take fifty per cent or more of the cumulative DCQ over 45 consecutive days, the seller is entitled to terminate the agreement. 22. ....... 23. At the outset, it is clear from the provisions of the agreement, and it has been admitted by both the parties, that there is no transfer of ownership or possession of the pipelines or the measurement equipment (SKID equipment) by the respondent to its customers. Clause 5.3 of the agreement specifically provides that the 'Measurement Equipment' is to be supplied, installed and maintained by the seller at the cost of the buyer and that the ownership of the equipment will rest with the respondent forever. Clause 5.6 further clarifies that the buyer has no right to adjust, clean, handle, replace, maintain, remove or modify the measurement equipment. Clause 5.10 guarantees that the seller shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and regulators that are crucial for regulating the pressure of gas and ensuring safe operation of the buyer's facilities. In order to maintain the sanctity of the equipment, the agreement casts the exclusive responsibility to install and maintain it on the respondent as the seller. The terms of the GSA would indicate that the quantity of gas supplied is to be measured at the Delivery Point. For this purpose, the measurement equipment is supplied, installed, owned and maintained by the seller at the cost of the buyer. The working of the measurement equipment is verified periodically by the parties to the agreement. If the buyer doubts its accuracy, this has to be communicated in writing to the seller, who alone is entitled to test, re-calibrate, remove or modify it. Similarly, if the seller has any doubt about the proper working of the measurement equipment it is entitled to check the meter in the presence of the representatives of the buyer. If according to the seller, the existing measurement equipment is not working satisfactorily it would be replaced at the cost of the buyer. These provisions indicate that the supply, installation and maintenance of the measurement equipment is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the article by the person who uses it. In such a case, actual physical use is what is meant by the supply of the goods for the use of another. In the case of others, the nature of the goods supplied impacts the character of the use to which the goods can be put. As an illustration, Section 65(105)(zzzze) of the Finance Act, 1994, seeks to tax services related to information technology and interprets the "right to use" to include the "right to reproduce, distribute, sell, etc. [Circular D.O.F. No. 334/1/2008-TRU, dated 29 February, 2008]". This understanding of "use" differs from the supply of tangible goods under Section 65(105)(zzzzj) at hand, where effective control or possession is not ceded. Thus, physical operation is not the only or invariable feature of use. As a corollary to the same, technical expertise over the goods in question is not a sine qua non for determining the ability of the consumer to use the goods. Therefore, the expression "use" also signifies the application of the goods for the purpose for which they have been supplied under the terms of a contract. 28. The terms of the GSA indicate that the supply, installation, maintenance and repair of the measur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not accompanied by control and possession. 'Use' in the context of SKID equipment postulates the utilization of the equipment for the purpose of fulfilling the purpose of the contract. Section 65(105)(zzzzj) does not require exclusivity of use. The SKID equipment is an intrinsic element of the service which is provided by the respondent, acting pursuant to the GSA, as a supplier of natural gas to its buyers." 4.4 Again in the case of Quick Heal Technologies Ltd. [2022 (63) G.S.T.L. 385 (S.C.)] Hon‟ble Supreme Court observed as follows: "41. The Transfer of Right to use goods for case, deferred payment or value consideration is considered as deemed sale under sub-clause (d) of Article 366(29A) of the Constitution of India. Right to use of tangible goods and services has also been brought under the service tax net by the Finance Act, 2008, with effect from 16-5-2008 vide Notification No. 18/2008-S.T., dated 10-5-2008 whereby taxable service has been defined under Section 65(105)(zzzzj) of the Act, 1994 to mean as :- "Any services provided or to be provided, to any person, by any other person in relation to supply of tangible goods including machinery, equipment and appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no difference between a sale of a software program on a CD/floppy disc from a sale of music on a cassette/CD or a sale of a film on a video cassette/CD. In all such cases, the intellectual property has been incorporated on a media for purposes of transfer. Sale is not just of the media which by itself has very little value. The software and the media cannot be split up. What the buyer purchases and pays for is not the disc or the CD. As in the case of paintings or books or music or films the buyer is purchasing the intellectual property and not the media i.e. the paper or cassette or disc or CD. Thus a transaction/sale of computer software is clearly a sale of "goods" within the meaning of the term as defined in the said Act. The term "all materials, articles and commodities" includes both tangible and intangible/incorporeal property which is capable of abstraction, consumption and use and which can be transmitted, transferred, delivered, stored, possessed, etc. The software programs have all these attributes". 28. At this stage it must be mentioned that Mr. Sorabjee had pointed out that the High Court has, in the impugned judgment, held as follows : "... In our view a corre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regarded as "goods" under the aforesaid provisions of the Customs Act, these items being moveable goods, covered by Section 2(22)(e) of the Customs Act. What was transferred was technical advice on information technology. But the moment the information or advice is put on a media, whether paper or diskettes or any other thing, the supply is of a chattel. It is in respect of the drawings, designs, etc. which are received that payment is made to the foreign collaborators. The question whether the papers or diskettes etc. containing advice and/or information are goods for the purpose of the Customs Act was answered in the affirmative. This Court clearly held that "the intellectual property when put on a media would be regarded as an article on the total value of which customs duty is payable". "When technical material is supplied whether in the form of drawings or manuals the same are goods liable to customs duty on the transaction value in respect thereof". It was concluded so in paragraph 46: '46. The concept that it is only chattel sold as chattel, which can be regarded as goods, has no role to play in the present statutory scheme as we have already observed that the word "goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds. In our view, therefore, on a plain construction of sub-clause (d) of Clause (29A), the taxable event is the transfer of the right to use the goods regardless of when or whether the goods are delivered for use. What is required is that the goods should be in existence so that they may be used. And further contract in respect thereof is also required to be executed. Given that, the locus of the deemed sale is the place where the right to use the goods is transferred. Where the goods are when the right to use them is transferred is of no relevance to the locus of the deemed sale. Also of no relevance to the deemed sale is where the goods are delivered for use pursuant to the transfer of the right to use them, though it may be that in the case of an oral or implied transfer of the right to use goods, it is effected by the delivery of the goods." 45. While holding that in a contract for the transfer of the right to use goods, the taxable event would be the execution of the contract for delivery of the goods, it was observed:- "27. Article 366(29A)(d) further shows that levy of tax is not on use of goods but on the transfer of the right to use goods. The right to use goods accru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eliverable goods or not. If there are no deliverable goods in existence, like the one in BSNL (supra), there is no transfer of user under Article 366(29A)(b) at all. 47. Justice Dr. A.R. Lakshmanan, in his separate but concurring judgment, highlighted the following attributes in para 97 of the judgment to constitute a transaction for the transfer of right to use the goods:- "97. xx xx xx (a) There must be goods available for delivery; (b) There must be a 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 permissions or licenses required therefor should be available to the transferee; (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." 48. In the case of BSNL (supra), Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e equated with that category of bailment where goods are left with the bailee to be used by him for hire. (e) In the case of Article 366(29A)(d) the goods are not required to be left with the transferee. All that is required is that there is a transfer of the right to use goods. In such a case taxable event occurs regardless of when or whether the goods are delivered for use. What is required is that the goods should be in existence so that they may be used. (f) The levy of tax under Article 366(29A)(d) is not on the use of goods. It is on the transfer of the right to use goods which accrues only on account of the transfer of the right. In other words, the right to use goods arises only on the transfer of such right to use goods. (g) The transfer of right is the sine qua non for the right to use any goods, and such transfer takes place when the contract is executed under which the right is vested in the lessee. (h) The agreement or the contract between the parties would determine the nature of the contract. Such agreement has to be read as a whole to determine the nature of the transaction. If the consensus ad idem as to the identity of the goods is shown the transaction is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant has been outsourced all the activities by SICC relating to distribution i.e., for broadcasting its channel through network of cable operators. 4.6 Appellant had entered into agreement dated 01.04.2009 with SICC (which was resumed during the search of their premises. The relevant clauses of the said agreement as noted in the Show Cause Notice are reproduced below- "Whereas the first party (M/s Sahara Sanchaar Limited) has established Earth Station' at Sahara India Complex, C-2,3,4, Sector-11, Noida and is acquiring other equipment and related infrastructure (hereinafter called 'Assets') to have up linking facility of T.V. Programmes. And whereas M/s Sahara India Commercial Corporation Limited has approached M/s Sahara Sanchar Limited for hiring the assets on lease for their business purposes And whereas the first party has agreed to grant lease of the assets to second party for its business purpose exclusively Now, this lease agreement witnesses as follows- 1. That the first party (M/S Sahara Sanchar Limited) shall charge yearly lease @20% plus taxes (as applicable) per annum on the total cost of lease out assets (as given in schedule-1 and forming ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s reached, the matter shall be referred to Arbitrators(s), appointed by both the parties whose award shall be final and binding on both parties. 11. That this agreement to lease for giving assets on lease to the Second Party by the First Party shalkl come in to Opeartion from the 1st Say of April' 2009 and will be valid for a period of 60 months i.e. upto 31st march 2014. However, this may be renewed further on the mutually agreed terms and conditions by both the parties. 12. Payment would be made on half yearly basis. This agreement was amended on 15.10.2010. The amended agreement was made effective from 01.04.2010 and was valid till expiry of the original agreement i.e. till 31 03.2014. The amendment was as under- "Whereas, the parties have mutually agreed to amend / make a few changes to the said agreement. Now, as per the agreed amendment/changes, SANCHAR shall charge annual Lease Fee 15% plus taxes (as applicable) per annum on the 40% of the total Asset Value of the equipments & lease rent on further new additions to Leased out assets shall be charged @15% by the First party from the first day of the following month in which such asset arrived at site & are installed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accountant and company secretary with the Appellant, in her statement dated 20.03.2015, and submitted that they had given the legal right of possession and effective control to the lessee but she was unable to explain it in the light of agreement dated 01.04.2009. In his statement, recorded on 26.03.2015, Shri Hardeep Singh, Chartered Accountant and Head of Accounts of Appellant explaining the above referred clauses stated as follows: That they have taken the view of their legal advisor on incidence of service tax on lease rent and they were advised by their advisors that incidence of the service tax is not applicable on them. Clause 2- Since, the second party is enjoying right to use and they are having the possession and effective control on such assets therefore, incidence of service atx does not arise there. Clause 4- To the best of my knowledge insurance can be procured from the insurance company by the owner of assets therefore first party has to aquire insurance cover for such assets. Clause 5 - To the best of my knowledge License fee is payable by the first party as such license has been issued to the first party. Clause 8- This clause simply gives a right to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Ispat Nigam Ltd. [2013 (31) S.T.R. 513 (S.C.)] 2. The respondent is owning Visakhapatnam Steel project. For the purpose of steel project, it allotted different works to contractors. The respondent undertook to supply sophisticated machinery to the contractors for the purpose of being used in execution of the contracted works and received charges for the same. The appellant made provisional assessment levying tax on hire charges under Section 5E of the Act. The respondent filed writ petition seeking declaration that the tax levied, exercising power under Section 5E of the Act on the hire charges collected during the period 1988-89, was illegal and unconstitutional. The appellant filed a counter affidavit in the writ petition contending that the respondent was lending highly sophisticated and valuable imported machinery to the contractors engaged in the execution of the project work on specified hire charges; the machinery was given in the possession of the contractor and he was responsible for any loss or damage to it and in view of the terms and conditions contained in the agreement, there was transfer of property in goods for use and on the amounts collected by the respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re of the view that the assets were made available to the lessee for use without transferring the effective control and possession over the said assets to the lessee and hence the service tax under the category of "Supply of Tangible Goods Services" has been rightly demanded from them. 4.10 From 01.07.2012 the scheme of taxation of services was changed and a negative list of services were defined which were kept outside the scheme of taxation. The service were defined as per clause 65B(44) as follows: ""service" means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include- (a) an activity which constitutes merely,- (i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or (ii) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of article 366 of the Constitution; or (iii) a transaction in money or actionable claim;" Section 66E defines the Declared Services stating as follows: "Declared services. - The following shall constitute declared services, namely:- " (f) transfer of goods by way of hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Hon'ble Supreme Court further held that if the goods are not available for delivery or there is no written agreement, then the sale will be deemed to have taken place in the State where the delivery is given. While so holding, the Hon'ble Supreme Court elaborated upon the scope of Article 366 Clause (29A) and observing that the taxable event under Article 366(29A) is the transfer of right to use the goods and elaborately considering the scope of Article 366(29A), the Hon'ble Supreme Court held as under: "26. Next question that arises for consideration is, where is the taxable event on the transfer of the right to use any goods. Article 366(29A)(d) empowers the State Legislature to enact law imposing sales tax on the transfer of the right to use goods. The various sub-clauses of clause (29A) of Article 366 permit the imposition of tax thus : sub-clause (a) on transfer of property in goods; sub-clause (b) on transfer of property in goods; sub-clause (c) on delivery of goods; sub-clause (d) on transfer of the right to use goods; sub-clause (e) on supply of goods; and sub-clause (f) on supply of services. The words "and such transfer, delivery or supply ..." in the latter port ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t II. Therefore, there is no merit in the contention that the taxable event provided under Section 65(105)(zzzzt) is covered by Article 366(29A)." Thus to claim the benefit of exclusion clause appellant has to show that transfer of right ot use the goods was not in nature of transfer of right to use in absolute manner in the said goods and was just not the case of supply of goods for use. What is the crux of levy under the scheme of service tax under this category ius that goods have been supplied for use without transferring the property or rights in the goods. In the present case we are convinced that the appellant had supplied the goods for use by the lessee against a lease rent without transferring any right in the goods to the lessee. Hence for the period post 01.07.2012 also the services rendered by the appellant were taxable under this category. 4.11 Appellant has during the entire period of dispute not paid applicable service tax on such activity i.e. lease rent, carried out by them was not deposited to the government exchequer, with the intent to evade payment of the service tax. They have also not incorporated the details of the incomes earned on this account in their S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in providing the assets leased out by them to SICC. In our view appellant was fully aware of taxability of such transactions and have thorough out taken the CENVAT Credit in respect of these inputs services. The act of taking the credit respect of these input without payment of service tax on the output services clearly show the intention of the party to evade payment of service tax in respect of the lease amount recovered by them from SICC by suppressing the facts of lease from the department. As we have held that these output services are taxable under the category of "Supply of Tangible Goods Services" we hold that CENVAT Credit in respect of these four input services namely, Space Segment Charges, Training Service & Installation, Freight & Cartage, Vehicle Maintenance, Insurance Charges and Internal Audit fee will be admissible to the appellant. However are not in position to admit the claim of the appellant towards "Chartered Flight hiring" as admissible credit. Nothing has been stated by the appellant as to how this service was used for providing the output services provided by them. We uphold the impugned order to the extent of denying the credit to the tune of Rs 16,80,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of Mehta & Co. 2011 (264) E.L.T. 481 (S.C.) Hon‟ble Apex Court held as follows : "The cause of action, i.e., date of knowledge could be attributed to the appellant in the year 1997 when in compliance of the memo issued by the appellant and also the summons issued; the hotel furnished its reply setting out the details of the work done by the appellant amounting to Rs. 991.66 lakhs and at that stage only the department came to know that the work order was to carry out the job for furniture also. A bare perusal of the records shows that the aforesaid reply was sent by the respondent on receipt of a letter issued by the Commissioner of Central Excise on 27-2-1997. If the period of limitation of five years is computed from the aforesaid date, the show cause notice having been issued on 15-5-2000, the demand made was clearly within the period of limitation as prescribed, which is five years." In our considered view, the ratio of the aforesaid decision squarely applies to the facts of the present case. Since the copy of the agreement and relevant information were provided to the department only in 2011 the show cause notice issued in April, 2011 is clearly within the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quired to pay interest u/s. 11AB and if the facility is available, on compliance of the same, the party would not be liable to pay interest. Taking into consideration that the tail piece relied upon by learned Counsel is included in the Explanation to particular sub-section (2B), we are unable to accept the interpretation as tried to be attributed by the learned Counsel for one simple reason that an explanation ought to be therefor the purpose of explaining the main provision, it cannot nullify the effect of main provision. If Explanation (2) interprets as attempted by learned Counsel due to the phrase with which it ends "but for this sub-section", the explanation will have to be ignored being in conflict with sub-section (2B), which it explains. However, the meaning of this clause "but for this sub-section" can be enlightened when we refer to Section 11AB (1), we have reproduced two portions of this provision (in parts) in the earlier part of this judgment and for the sake of convenience, now we are quoting entire sub-section (1) of Section 11AB, which reads : "11AB. Interest on delayed payment of duty. - (1) where any duty of excise has not been levied or paid or has been sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f notice then the proceeding against him would be deemed to be conclusive (without prejudice to the provisions of Sections 9, 9A and 9AA) as provided in the proviso to sub-section 2 of Section 11A. Sub-section 1A and the proviso to sub-section 2 were inserted with effect from July 13, 2006 and, therefore, have no application to the periods relevant to the two appeals. 15. Sub-section 2B of Section 11A provides that in case the person in default makes payment of the escaped amount of duty before the service of notice then the Revenue will not give him the notice under sub-section 1. This, perhaps, is the basis of the common though erroneous view that no penalty would be leviable if the escaped amount of duty is paid before the service of notice. It, however, overlooks the two explanations qualifying the main provision. Explanation 1 makes it clear that the payment would, nevertheless, be subject to imposition of interest under Section 11AB. Explanation 2 makes it further clear that in case the escape of duty is intentional and by reason of deception the main provision of sub section 2B will have no application. 16. The other provision with which we are concerned in this case is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Central Government prior to the date of communication of the order referred to in the first proviso or the fourth proviso shall be adjusted against the total amount due from such person.] 17. The main body of Section 11AC lays down the conditions and circumstances that would attract penalty and the various provisos enumerate the conditions, subject to which and the extent to which the penalty may be reduced. 18. One cannot fail to notice that both the proviso to sub-section 1 of Section 11A and Section 11AC use the same expressions : "....by reasons of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty,...". In other words the conditions that would extend the normal period of one year to five years would also attract the imposition of penalty. It, therefore, follows that if the notice under Section 11A(1) states that the escaped duty was the result of any conscious and deliberate wrong doing and in the order passed under Section 11A(2) there is a legally tenable finding to that effect then the provision of Section 11AC would also get a ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
