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TMI Blog2024 (11) TMI 615X X X X Extracts X X X X X X X X Extracts X X X X ..... Agreement, Skol/Sab Miller have been transferred the right to use the brewery license and the permitted capacity for a period of 4 years free from any charges, encumbrances, liens or third party rights. Skol/Sab Miller shall also enjoy the freedom to utilize the brewery license and operate during the entire term without any hindrance, obstruction or limitation from the appellant. In fact, the appellant also agreed to indemnify, defend and hold Skol/Sab Miller harmless from any actions, causes of actions, claims, demands, costs, liabilities, expenses and damages arising out of or in connection with any claim that would constitute a breach of any of warranties and/ or obligations, relating to the period prior to the commencement of the License Agreement dated 30.01.2008. The agreement also provides that the promoters shall not do or cause to be done any act that will result in breach of the License Agreement. The appellant does not, with the transfer of the right to use by Skol/Sab Miller, have any right to itself use the brewery license. There is, therefore, no manner of doubt that a deemed sale under article 366(29A)(d) of the Constitution had taken place when the appellant granted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... three show cause notices, therefore, deserves to be set aside. It will, therefore, not be necessary to examine the contention of the learned counsel for the appellant that the extended period of limitation contemplated under the proviso to section 73(1) of the Finance Act could not have been invoked. The impugned passed by the Commissioner is, accordingly, set aside and the appeal. - MR. DILIP GUPTA, PRESIDENT AND MR. P.V. SUBBA RAO, MEMBER (TECHNICAL) Shri Kamal Sawhaney, Ms. Akansha Wadhwani and Shri Deepak Thakur, Advocates for the Appellant Shri Manoj Kumar, Authorized Representative of the Department ORDER M/s. Tripti Alcobrew Pvt. Ltd. [the appellant] has sought the quashing of the order dated 27.04.2018 passed by the Commissioner adjudicating three show cause notices dated 11.10.2013, 10.09.2014 and 01.04.2016 covering the period from 2008-2009 to 2015-2016. The Commissioner has confirmed the demand of service tax with interest and penalty. 2. A Lease Deed dated 14.03.2008 [the Lease Deed] was executed between the appellant and Skol Breweries Limited[Skol] for renting of land, building, plant and machinery by the appellant to Skol. The appellant discharged service tax lia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 467/- (Service Tax Rs 1,96,26,667 + Ed Cess 3,92,533/- + Ed Cess Rs 1,96,267/-). ***** 18.2 The above facts revealed that the TAL had neither submitted the correct ST-3 returns showing the above taxable amount nor deposited the Service Tax on the taxable amount representing the amount received from the SKOL as License endorsement fees. It appears that TAL had deliberately suppressed their receipts against License endorsement fees and have also sought to mislead the investigation by claiming that the said receipts are not related to renting of the immoveable property while both TAL the service provider and SKOL the recipient of service have accounted for the amount paid as license endorsement fees as Rent in their Balance sheets. It therefore appears from the foregoing that the noticee has resorted to fraud, willful mis-statement, and suppression of facts with intent to evade payment of service tax. M/s TAL have thus suppressed the taxable value to the tune of Rs. 18,93,66,667/- from the Service Tax department and evaded the Service Tax amounting to Rs 2,02,15,467/- (Service Tax Rs 1,96,26,667 + Ed Cess 3,92,533/- + Ed Cess Rs 1,96,267/-) in respect of taxable services rendered by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tegral part of the 'renting of immovable property services' rendered by TAL to SKOL for the purpose of furtherance of their business of brewing beer. Hence, the amount paid by SKOL to TAL against the 'sub-leasing of license is includible in the 'rental income and by not including the same in taxable value, the party has short-paid service tax. ***** 18.3.4. It has also been the party s contention that the transfer of license tantamount to sale . ***** As evident from the facts of the case and conditions laid down in the agreements, it is clear that leasing of the license in the instant case is also subject to certain restrictions and TAL have not only sub-leased the license, they have also provided a bunch of services along-with it, as discussed above. Hence, in view of the above ruling, no sale has taken place in the present case and the party was not liable to pay VAT on it. ***** The above verdicts, although, given in respect of other taxable services, define the scope of term sale and applicability of VAT sale in the light of the said judgments. I have reached to the conclusion that the sub-leasing of the license by TAL to SKOL was not sale and would not attract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tores (P) Ltd. [AIR 1968 SC 200] Reliance has also been placed on the decision of the Kerala High Court in Abbott Healthcare Pvt. Ltd. vs. Commissioner of Commerical Tax, Thrissur [2020 (34) G.S.T.L. 579 (Ker.)] ; and (v) The extended period of limitation could not have been invoked in the facts and circumstances of the case. In this connection, reliance has been placed on the decision of the Tribunal in M/s GD Goenka Private Limited vs. The Commissioner of Central Goods and Services Tax, Delhi South [Service Tax Appeal No. 51787 of 2022 decided on 21.08.2023] . 10. Shri Manoj Kumar, learned authorized representative appearing for the department, however, supported the impugned order and made the following submissions: (i) The License Agreement is an integral part of the Lease Agreement and has been bifurcated with the sole intention of evading payment of service tax; (ii) Merely because VAT was paid by the appellant does not mean that service tax cannot be levied, if in law, the appellant had rendered service; and (iii) The transfer of license does not amount to a deemed sale under article 366(29A)(d) of the Constitution; and (iv) The extended period of limitation was correctly in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct to deduction of taxes. If TDS is deductible, TDS Certificate will be provided by the Lessee to the Lessor within a period of 30 days. In addition to the annual Rent, the Lessee will also be liable for payment of Service Tax any other Taxes as may be applicable in future. ***** 3. Brewery License 3.1 Lessor shall take all necessary steps to apply for and endeavour to procure a valid endorsements/sub licensing of the Brewery License in favour of Lessee for purposes of the Lessee in the lease deed (the Excise Endorsement ). Lessor undertakes to procure the Excise Endorsement no later than 3 months from the date of this Agreement. In vent it is not done within the said period or extended period as may be mutually agreed by the Parties, the parties will revert back to the earlier system but on the financial terms as stipulated in this agreement. (emphasis supplied) 14. It also transpires that a License Agreement dated 30.01.2008 was executed between the appellant and Skol. This License Agreement was renewed from time to time and ultimately a License Agreement dated 01.03.2014 was executed between the appellant and Sab Miller (the name of Skol was changed to Sab Miller). The appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring the entire Term free from any interference, objections, claims, interruption, encumbrances or demand whatsoever by Tripti and, or, any government authority or any person lawfully or equitably claiming by, of from under or, in trust for Tripti and, or, any government authority (subject however to compliance by SABMiller of the conditions of the Brewery License). ***** 5.5 SABMiller shall enjoy the freedom to utilize the Brewery License and operate on the basis thereof during the entire Term without any hindrance, obstruction or limitation from Tripti. 5.6 Tripti agrees to indemnify, defend and hold SABMiller harmless from and against any and all actions, causes of actions, claims, demands, costs, liabilities, expenses and damages arising out of or in connection with any claim that would constitute a breach of any of warranties and/ or obligations set out herein, relating to the period prior to the commencement of the License Agreement dated 30th January, 2008. 5.7 The Promoters shall not do or cause to be done any act that will result in breach of this Agreement or the Lease Deed and shall cause the Company to perform all its obligations hereunder. The obligations of the Promo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the plant and machinery of the appellant on rent for the purpose of brewing beer. Skol did not have the requisite license to brew beer at the rented premises and it could manufacture beer only when there was an endorsement in the License in favour of Skol. The Commissioner, therefore, concluded that: the License agreement entered into between both the parties is only the natural completion or validation of the lease deed and renting of the factory along-with the brewing license is an integral part of the renting of immovable property services rendered by TAL to SKOL for the purpose of furtherance of their business of brewing beer. (emphasis supplied) 18. It is for this reason that the Commissioner held that the amount paid by Skol/Sab Miller to the appellant under the License Agreement would be includable in the rental income and by not including it, the appellant short paid service tax. 19. The contention of the appellant that the License Agreement is a deemed sale under article 366(29A)(d) of the Constitution was repelled by the Commissioner for the reason that: from the facts of the case and conditions laid down in the agreements, it is clear that leasing of the license in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... movable property, and also includes all growing crops, grass, trees, plants and things attached to, or forming part of the land which are agreed to be severed before the sale or under the contract of sale; 24. Sale has been defined in section 2(u) of the MP Value Added Tax Act in the following manner: 2(u) Sale with all its grammatical variations and cognate expressions means any transfer of property in goods for cash or deferred payment or for other valuable consideration and includes,- (i) a transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; (ii) a transfer of property in goods whether as goods or in some other form, involved in the execution of works contract; (iii) a delivery of goods on hire purchase or any system of payment by instalments; (iv) a supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (v) a 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upreme Court in Commissioner of Service Tax, Delhi Vs. Quick Heal Techonologies Limited [(2023) 5 Supreme Court Cases 469] summed up the principles relating to a deemed sale in the following manner: 53.1. The Constitution (Forty-sixth Amendment) Act intends to rope in various economic activities by enlarging the scope of tax on sale or purchase of goods so that it may include within its scope, the transfer, delivery or supply of goods that may take place under any of the transactions referred to in sub- clauses (a) to (f) of clause (29-A) of Article 366. The works contracts, hire purchase contracts, supply of food for human consumption, supply of goods by association and clubs, contract for transfer of the right to use any goods are some such economic activities. 53.2. The transfer of the right to use goods, as distinct from the transfer of goods, is yet another economic activity intended to be exigible to State tax. 53.3. There are clear distinguishing features between ordinary sales and deemed sales. 53.4. Article 366(29-A)(d) of the Constitution implies tax not on the delivery of the goods for use, but implies tax on the transfer of the right to use goods. The transfer of the ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als, concessions, licences and permits in relation to goods would also be available to the user of goods, even if such licences or permits are in the name of owner (transferor) of the goods. 54.6. During the period of contract exclusive right to use goods along with permits, licenses, etc. vests in the lessee. (emphasis supplied) 29. The Andhra Pradesh High Court in Rashtriya Ispat Nigam Ltd. vs. Commercial Tax Officer, Company Circle, Vishakhapatnam [1989 (12) TMI 325- Andhra Pradesh High Court] observed that whether there is a transfer of right to use or not is a question of fact which has to be determined in each case having regard to the terms of the contract under which there is transfer of right to use and in this connection, observed as follows: Whether there is a transfer of the right to use or not is a question of fact which has to be determined in each case having regard to the terms of the contract under which there is said to be a transfer of the right to use. In the instant case, the petitioner - Rashtriya Ispat Nigam Limited owning Visakhapatnam Steel Project, for the purpose of the steel project allotted different works of the project to contractors. To facilitate th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1, 5, 7, 13, and 14 of the contract to show that there is no transfer; while the learned Government Pleader submits that clauses 10 and 12 clearly show that there is a transfer of right and, therefore, tax is validity levied. In our view, whether the transaction amounts to transfer of right or not cannot be determined with reference to a particular word or clause in the agreement. The agreement has to be read as a whole, to determine the nature of the transaction. From a close reading of all the clauses in the agreement, it appears to us that the contractor in entitled to make use of the machinery for purposes of execution of the work of the petitioner and there is no transfer of right to use as such in favour of the contractor. We have reached this conclusion because the effective control of the machinery even while the machinery is in the use of the contractor is that of the petitioner-company. The contractor is not free to make use of the same for other works or move it out during the period the machinery is in his use. The condition that he will be responsible for the custody of the machinery while the machinery is on the site does not militate against the petitioners' pos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se that it was held that since the effective control of the machinery, even while the machinery was in the use of the contractor, was that of the company that had given the machinery on hire, sales tax could not have been charged from the appellant therein under the provisions of the State Sales Tax Act. 32. In G.S. Lamba Sons and others vs. State of Andhra Pradesh [2012-TIOL-49-HC-AP-CT] , the issue that arose before the Andhra Pradesh High Court was whether the contract with M/s. Grasim Industries Limited for transporting the Ready Mix Concrete was for transfer of the right to use Transit Mixers and the following principles were summarised: 40. That brings us to the construction of the agreement between the parties which indisputably came into force on 01.10.2002. The intention of the parties as noticed supra has to be understood by reading the entire agreement; reading a word here or a clause there is not sufficient. Grasim was looking for a transporter to take care of the transporting need of their RMC plants in Hyderabad. The petitioners, who are owners of Transit Mixers, were looking for advancing their business interest in Hyderabad. The latter approached the former offering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where they are loaded with RMC and then proceed to the construction sites of customers. The product carried is manufactured by Grasim, which is delivered to the customers and the customers pay the cost of the RMC to Grasim and the petitioners nowhere figure in the process of putting the property in Transit Mixers to economic use. The entire use in the property in goods is to be exclusively utilised for a period of 42 months by Grasim. The existence of goods is identified and the Transit Mixers operate and are used for the business of Grasim. Therefore, conclusively it leads to the only conclusion that the petitioners had transferred the right to use goods to Grasim. For these reasons, we are not able to countenance any of the submissions made by the petitioners counsel. (emphasis supplied) 33. In Petronet LNG Ltd. vs. Commissioner of Service Tax, New Delhi [2016 (46) STR 513 (Tri.-Delhi)] , the Tribunal observed as follows: 25 . The issue that therefore falls for our consideration is whether the transactions involving the two long-term charters and one short-term charter (of the vessels Disha, Rahi and Trinity Glory, respectively) amount to a transfer of the right of possession an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cl. 13.3, it is provided that the hirer will ensure the safe custody of the equipment by providing necessary security, parking bay, etc., and will be responsible for any loss or damage or destruction. Cl. 13.5 provides that the hirer shall be solely responsible and liable to handle any dispute entered with any third party in relation to the use and operation of the equipment. Further Cl. 14 dealing with title and ownership specifically provides that equipment is offered by GIMMCO Ltd. only on rights to use‟ basis . Cl. 15 relating to damages provides for compensation to be paid by the hirer to the assessee in case of damage to the equipment during the period of use. These responsibilities cast on the hirer clearly show that the right of possession and effective control of the equipment rest with the hirer; otherwise the hirer cannot be held responsible for misuse/abuse, safe custody/security, liability to settle disputes with third parties in relation to use etc. Further Cl. 4.3 of the agreement provides for charging of VAT at 12.5% on the monthly invoice value which shall be payable by the hirer. These terms and conditions stipulated in the agreement, lead to the conclusion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dantly clear that it is the ONGC and not the contractor who has exclusive control and dominion over the crane during the subsistence of the contract, though, during the aforesaid period, at times, physical possession of the crane may come back to the contractor. Such temporary physical possession of the contractor, according to us, would hardly be relevant as under the contract the ONGC is vested with the authority to requisition the crane for operational purposes at any time. Besides, such temporary possession of the crane by the contractor does not mitigate against the transfer of the right to use the crane which event, as already indicated on the authority of the decision of the Apex Court in 20th Century Finance Corpn. Ltd. (supra), constitutes the taxable event under article 366(29A)(d) of the Constitution. (emphasis supplied) 36. From the decisions referred to above, it clearly transpires that: (i) Whether there is a transfer of right to use or not is a question of fact which has to determined in each case having regard to the terms of the contract under which there is a transfer of right to use; (ii) If with the transfer of the right to use, possession and effective control ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall not do or cause to be done any act that will result in breach of the License Agreement. 39. It is, therefore, clear from the aforesaid terms of the License Agreement that it is not merely the use of the License that has been transferred to Skol/Sab Miller by the appellant. What has been transferred by the appellant is the right to use the License. As can be seen from the Agreement, Skol/Sab Miller have been transferred the right to use the brewery license and the permitted capcity for a period of 4 years free from any charges, encumbrances, liens or third party rights. Skol/Sab Miller shall also enjoy the freedom to utilize the brewery license and operate during the entire term without any hindrance, obstruction or limitation from the appellant. In fact, the appellant also agreed to indemnify, defend and hold Skol/Sab Miller harmless from any actions, causes of actions, claims, demands, costs, liabilities, expenses and damages arising out of or in connection with any claim that would constitute a breach of any of warranties and/ or obligations, relating to the period prior to the commencement of the License Agreement dated 30.01.2008. The agreement also provides that the promo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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