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TMI Blog2024 (7) TMI 999X X X X Extracts X X X X X X X X Extracts X X X X ..... 012 but on the point that activity is deemed sale, is clearly applicable even in the present case also. Their activity of leasing of DG Sets in the present case is not liable to service tax - the impugned order is set-aside - appeal allowed. - HON BLE MR. RAMESH NAIR , MEMBER ( JUDICIAL ) And HON BLE MR. C. L. MAHAR , MEMBER ( TECHNICAL ) Shri Rahul Patel , Chartered Accountant for the Appellant Shri Anoop Kumar Mudvel , Superintendent ( AR ) for the Respondent ORDER RAMESH NAIR : The issue involved in the present case is taxability of renting of DG Sets under the category of supply of tangible goods for use service for the period from 01.07.2012 onwards. 2. Shri Rahul Patel, learned Chartered Accountant appearing on behalf of the appellant at the outset submits that in the appellant s own case for the period prior to 01.07.2012, this Tribunal has passed a detailed order vide Final Order No. 11928-11930/2023 dated 12.09.2023 therefore the issue is no longer res-integra. He further submits that in the present appeal, the show cause notice was issued invoking Section 73(1)(a) of Finance Act, 1994 i.e. in the form of statement of first show cause notice. It is his submission that po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Finance Act 1994. To arrive at a conclusion, it is important to go through the terms and conditions of the agreement. As per the terms of the agreement, the following points are extracted: a) Supply of DG set is an absolute transaction involving dispossession by your appellant in favour of client. b) Supply is irrevocable in nature during the tenure of agreement. c) Supply is effected by virtue of an agreement whether written or implied, which is enforceable at law and therefore exchanging rights and obligations by and between the parties to agreement which inter alia involved transfer of right to use, right to possess and effective control unless and until agreement stands terminated. d) Your appellant does not retain control of usage over the machinery during tenure of agreement. e) Client may use and exploit benefits of DG set in whatever manner he wants, during the tenure of agreement. Client may operate the DG set as per his own will, desire and requirement. f) Switch on/off of the DG set is controlled by the client and not by your appellant. g) Your appellant is not entitled to transfer, sell, rent out supplied DG set to any other person during the tenure of agreement. h) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of Finance Act which for the ease of reference is reproduced below: To any person, by any other person in relation to supply of tangible goods including machinery, equipment and appliances for use, without transferring right of possession and effective control of such machinery, equipment and appliances; From the above definition 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 clie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s any service provided or to be provided to any person, by any other person in relation to supply of tangible goods including machinery, equipment and appliances for use, without transferring right of possession and the effective control of such machinery, equipment and appliances. Service tax on the supply of tangible goods was introduced w.e.f. 16.05.2008 vide Notification No. 18/2008-ST. dtd. 10.05.2008. Further w.e.f. 01.07.2012 in the negative list regime, the transfer of goods, by way of hiring, leasing, licensing or in any such manner without transfer of right to use such goods constituted the declared service, in terms of clause (f) of Section 66E of the Finance Act, 1994. 4.1 In view of both i.e. before 01.07.2012 and after, supply of tangible goods or transfer of goods without transferring the right of possessions or by way of hiring, leasing, licensing or any such manner without transfer of right to use such goods, were liable to service tax. 4.2 To fall within the definition of taxable service, fallowing three conditions are required to be satisfied (1) there should be a supply or transfer of goods for use; (2) The transfer must be by way of hire or lease or licences fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he clauses of agreement, as produced before us, we find that the appellants had handed over the Goods possession to the lessee as also the right to use. Therefore we are of the view 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 . 4.4 Being identical issue involved, we take support from Hon ble Supreme Court s decision in the case of BSNL v. Union of India - 2006 (2) S.T.R. 161 (S.C.), which mentions - what are the attributes for treating a transaction as transfer of rights to use the goods? The Hon ble Supreme Court in the said case on this issue inter alia observes as under :- 90. The entire infrastructure/instruments/appliances and exchange are in the physical control and possession of the petitioner at all times and there is neither any physical transfer of such goods nor any transfer of right to use such equipment or apparatuses. 91. To constitute a transaction for the transfer of the right to use the goods the transaction must have the following attributes: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax has been discharged by the Appellant. Once the control and possession of gas genset/equipments was transferred to the customers, mere supply of manpower for maintenance will not change the nature of the transaction. All these factors are to be taken into consideration while determining the nature of service. Therefore finding of the impugned orders in present matters legally not correct. 4.7 We further find that a reading of the definition of sale under the provisions of Gujarat VAT Act, 2003 and Central Sales Tax Act, 1956 makes it crystal clear that every transfer of property in goods by one person to another in the course of trade or business, includes the transfer of right to use of any goods for any purpose. The Section of the said Act also provides levy of tax on the transfer of the right to use any goods. Article366(29A)(d) inserted by the Constitution (46th Amendment) Act, 1982 on 2-2- 1983 also reads as under : 366. (29) tax on income includes a tax in the nature of an excess profits tax; (29A) tax on the sale or purchase of goods includes (a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on on which VAT is Payable or paid . The another circular dtd. 23.08.2007 issued by the department also clarifies that the payment of VAT/ Sales Tax on the transaction has to be treated as sales of goods and levy of Service tax on such transaction would not arise. The transfer of right to use gas genset/ plant on lease charges basis is a deemed sale in terms of Article 366(29)A of the Constitution, which is exclusive from service. Since the nature of transaction under dispute is deemed sale, no service tax can be demanded, as held in various judgments and relied upon by the Appellant in the present matter. 4.9 Following the cited decisions and our independent observations in the facts of the present cases, we are of the considered opinion that the demand raised cannot sustain and requires to be set aside. 5. Accordingly, the impugned orders are set aside. The appeals are allowed with consequential relief if any, as per law. The similar issue has also been considered by this Tribunal in Mumbai Bench and passed the following decision in the case of UFO Moviez India Limited 2018 (11) GSTL 391 which is reproduced below: 5. We have carefully considered the arguments and written submissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s made submission on clause of agreements i.e. in terms of Clause 1B of the agreement the equipment is delivered to the theatre owner; in terms of Clause 1D the Theatre owner would put a person well versed with handling of equipment; Clause 5J where the theatre owner is required to get all permissions for installation of DCE; Clause 5K as per which the theatre owner shall be responsible for all injuries, losses and damages cause to the equipment and shall also indemnify the appellant against any loss or damage arising to or in connection with the equipment for the reason other than normal wear or tear; Clause 16A as per which the appellant has transferred the right to use of DCE exclusively to the theatre owner and the theatre owner shall have effective control of the DCE and shall be free to make its own use for theatrical exhibition purpose at its sole discretion. The Ld. Senior Counsel appearing on behalf of appellant has argued by citing case laws that agreement should be read as a whole and not few clauses in isolation to decide the nature of service. 6.1 Further the fact that 600 theatres had exhibited the IPL matches and none of the content was provided by appellant. None of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o states that 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 . It is not in dispute that the appellant were paying VAT since 2006 and the services of supply of tangible goods came into service tax net later. The subject DOF was issued before the enactment and intended that the proposed service would not include the transaction on which VAT is Payable or paid . The theaters are free to choose which movie to be displayed, the number of shows, the timing of shows, weather to play a movie or not and also have operational control over equipment. From these facts, it prima facie appears that the theatre were having absolute authority to run the Cinema Equipments as per their liking with no right of the appellant to interfere or to be forced by the appellant to run the Equipments as per their directions or control. The appellant has also relied up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... past and pass a speaking order after giving an opportunity of being heard. The appellant is at liberty to make all submissions before the adjudicating authority. 6.4 With regard to CENVAT credit on capital goods we find that it is not disputed that the appellant and theatre owner had joint partnership agreement to exhibit the advertisement and the proceeds were to be shared in the ratio of 75 : 25 or as the case may be. The advertisers were into agreement with the appellant for such advertisement. Further we find that as per Rule 2(a) of Cenvat Credit Rules, 2004 specified capital goods used for providing output service would be eligible for credit. In this case the capital goods are specified capital goods and has been used for providing the output services of the appellant namely content delivery services and sale of space for advertisement service. It is not in dispute that equipments are used for providing the output services of the appellant. We also find that there was no contract or agreement between the theatre owners and the persons whose advertisements were exhibited in cinema theaters. Only the appellant had an agreement with such persons to exhibit the advertisements. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... result, we pass following order. (i) Demand of Cenvat credit and consequential interest and penalty commensurate to said demand on capital goods i.e. Digital Cinema Equipments is set aside on merit as well as on limitation. (ii) The matter relating to demand of service tax for normal period on lease rentals of Digital Cinema Equipments is remanded for reconsideration, on merit to the adjudicating authority. The demand of service tax on lease rentals and corresponding interest and penalty for the extended period is set aside being time-bar. 8. The appeal is disposed of in the above terms. The above decision has been upheld by the Hon ble Supreme Court as reported at UFO Moviez Private Limited 2022 (61) GSTL 4 (SC), wherein the Hon ble Apex Court held as under: 2. In the facts of the present case as it is not disputed that the respondent had regularly paid amount towards VAT liability in respect of the subject goods during the relevant period, the question of claiming service tax thereon does not arise. 3. Accordingly, in the facts of the present case, the civil appeal is dismissed. From the above decisions it can be seen that in a case where supply of goods has been treated as deem ..... X X X X Extracts X X X X X X X X Extracts X X X X
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