9911796707
TMI Blog2024 (11) TMI 1413X X X X Extracts X X X X X X X X Extracts X X X X ..... d into a Leasing Agreement for the supply of compressors with various companies such as Indraprastha Gas Ltd. ["IGL"] and M/s. Mahanagar Gas Ltd. ["MGL"] etc. for compression of natural gas at their outlets. 4. It has been submitted by learned counsel for the petitioner that Service Tax authorities have, contrary to the provisions of Section 65(105)(zzzzj) of the Act, held that the transactions are subject to service tax levy. It has been contended that with the handing over the possession of the equipment, effective control ceased with the petitioner and therefore, the transaction was subject to local/state service tax levy. It has been further submitted that vide order dated 20 February 2010 passed by the Deputy Commissioner of Sales Tax, the petitioner was held liable to pay Sales Tax/VAT. The petitioner has been regularly paying Sales Tax/VAT since 2005 and has also filed Annual Returns with the Sales Tax Department from time to time. It is submitted that since the petitioner is discharging appropriate Sales Tax/VAT under the respective state laws of Delhi and Maharashtra and in view of the Circular dated 29 February 2008, he is not liable to pay service tax. 5. It has also b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia Ltd. ["GAIL"]; (iii) Green Gas Ltd. (iv) IGL (v) MGL (vi) Bharat Heavy Electrical Ltd. ["BHEL"]. The question as to whether the activities undertaken by the petitioner with its customers are exigible to the service tax depends upon the intention of the parties, which can be discerned from the terms of reference given in the contracts. 9. The relevant portion of the scope of work in respect of all the six wet leasing contracts has been reproduced in paragraph 68 of the order of the Commissioner dated 28 November 2016, which is reproduced below: "(i) Gujarat Adani Energy Ltd. (GAEL) "Wet leasing of booster Compressors" "...we are pleased to award you the Work Order for Wet Leasing of 2 nos. of booster compressors with 2 nos. of dispensers as per the agreements terms and conditions jointly signed by GAEL and ICM authorized signatory. 2. Contractor's Scope of work: - o Delivery of booster along with dispenser at M/s Neelu Motors & Mitesh near APMC CNG refueling stations. o The supplier shall bear the transportation cost & octroi incurred from the suppliers end to the said destination. o The supplier shall install and commission the booster compressor & dispen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... monthly billing shall be made as per average derived slab. For the certification of monthly bills, the lessor shall also submit a separate statement giving the station wise log book on breakdowns, non-availability of equipments for that month. This statement shall be duly signed by the SIC. ... (iii) Green Gas Ltd. Repeat Order for Wet leasing of 01 No of Daughter Booster Compressor for CNG & City Gas Distribution Project at Lucknow of M/s Green Gas Limited. ...the major salient terms & conditions are stated below:- 1. Price basis be supplied at site : Monthly wet lease basis for items to 2. Taxes & Duties : Included in your [ICL] scope. No statutory variation shall be admissible. 3. Price Break-up .... : As per enclosed Annexure-I 6. Payment terms : The lessor shall raise bills to GGL on monthly basis and the payment to lessor shall be made within 15 days of receipt of bills. The monthly billing shall be made as per monthly average derived slab. (iv) Indraprastha Gas Ltd. "Wet leasing of variable Suction Pressure Hydraulic Booster (Compressor) at CNG installation in NCR of Delhi" Scope of work:- (i) You (ICL) shall supply install & Commission the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... risk and expense. The manpower deployed by the lessor should be adequately trained in the fire fighting... 7. The lessor shall ensure that all the equipments supplied under wet lease ore in good operating condition..... 11. The lessor shall maintain proper record of compressors operating parameters, energy meter reading and hourly gas sale through each dispensing point... 13. The lessor shall bear and pay lease tax and/or any other taxes, duties or levies as applicable from time to time and will keep MGL informed in respect of payment of said taxes, duties and levies..... Billing and Payment: The lessor shall raise bills to MGL on monthly basis and the payment to the lessor shall be made within 15 days of receipt of bills from lessor. (vi) Bharat Heavy Electricals Limited (Central Foundary Forge Plant, Hardwar-249403) "...Lease agreement for setting up compressed air generating unit on "BOOM" basis ie. Built, Own, Operate & Maintain basis to feed compressed air to various shops of CFFP/BHEL/Haridwar on lease rent basis for a minimum period of 60 calendar months from the date of start of Compressed Air Supply. General Specification:- 10. Having gone through the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht to use as features of command, domination, regulation etc. is very much in the hands of the noticee. Thus effectively, if the lessee has been provided with control of use of goods it will tantamount to transfer of right to use of goods and service tax will not be chargeable. However, in this case there is a transaction of another person to use the goods without giving legal right of. possession and effective control and hence has to be treated as service." 12. Clause 4.4 of the Central Board of Excise & Customs, New Delhi's ["Board"] Circular DOF No. 334/1/2008-TRU dated 29 February 2008 is reproduced below: "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 & charges, geo-technical vessels, lug and barge flotillas, rigs and high value machineries are supplied for use, with no legal righ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng deemed sale. Consequently, the reliance placed on the aforesaid circular and the laws cited in their favour are not applicable to this case. Accordingly, above plea of the Noticee having no force stands rejected." 14. Our conclusion as recorded above would stand fortified by the reasons which we assign hereinafter. It is pertinent to note at the outset that Section 65B(44)(a) of the Act defines 'service' in the following terms: "(44) "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 (29-A) of Article 366 of the Constitution; or..." 15. As is manifest from a reading of clause (ii) of Section 65B(44)(a), a taxable service would include the transfer, delivery or supply of any goods except where such transfer, delivery or supply be liable to be viewed as a deemed sale by virtue of Article 366(29-A) of the Constitution. It is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Authority had already subjected the transactions in question to a tax treating them to be deemed sales and involving a transfer of a 'right to use', no service tax could have been levied. It was in the aforesaid context that the petitioner appears to have placed reliance on the judgment of the Supreme Court in Gujarat Ambuja Cements Ltd. vs. Union of India (2005) 4 SCC 214 as well as of the Customs Excise and Service Tax Appellate Tribunal ["CESTAT"] in Sobha Developers Ltd vs. CCE & ST [2010] 24 STT 425. 19. However, from a reading of the order impugned before us, the following position emerges. After taking into account, the various contractual stipulations which governed the wet lease, the respondents in terms of the SCNs' had come to the tentative conclusion that since no 'right to use' had been transferred, the subject contracts would fall within the dragnet of Section 65(105)(zzzzj). 20. This becomes evident from a reading of paragraph 9 of the impugned order and which is reproduced hereinbelow: "9. In view of the above terms and conditions of the contracts , the Show Cause inferred that the Noticee entered into contracts with various companies/parties which, in nature, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n doing so, the courts have analysed the terms of the agreement underlying the transaction to ascertain whether effective control and possession has been transferred by the supplier to the recipient of the goods. Recently, this court in Great Eastern Shipping Co. Ltd. v. State of Karnataka** considered whether the transfer of a vessel under a charter party agreement was a "deemed sale", subject to sales tax. The court, after analysing the terms of the charter party agreement, held*** : "43. We are not turning our decision upon the terms used like 'let', 'hire', 'delivery' and 'redelivery' but on the other essential terms of the Charter Party Agreement entered in the instant case which clearly makes 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 matt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, a tax on an activity. That, service tax is a value added tax. The value addition is on account of the activity which provides value addition.. . Thus, service tax is imposed every time service is rendered to the customer/client,. .. Thus, the taxable event is each exercise/activity undertaken by the service provider and each time service tax gets attracted." (emphasis supplied) 18. The introduction of section 65(105)(zzzzj) in the Finance Act, 1994, was with the intention of taxing such activities that enable the customer's use of the service provider's goods without transfer of the right of possession 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. 334/1/2008TRU, dated February 29, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d itself to the interpretation of section 65(105)(zzz) while leaving the other observations on interpretation of the law, "open to be considered at length at an appropriate stage".*** We note however, the analysis of section 65(105)(zzzzj) of the Bombay High Court, where the High Court observed# : "38. Entry (zzzzj) is entirely a new entry. Whereas entry (zzzy) covers services provided to any person in relation to mining of mineral, oil or gas, services covered by entry (zzzzj) can be identified 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 first 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 hus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in use. Also the fact of being used or employed habitually ; usage, as, the wear and tear resulting from ordinary use. Berry-Kofron Dental Laboratory Co. v. Smith, 345 Mo. 922, 137 S.W. 2d 452, 454, 455, 456. The purpose served ; a purpose, object or end for useful or advantageous nature. Brown v. Kennedy, Ohio Appellant. 49 N.E.2d 417, 418. To put or bring into action or service ; to employ for or apply to a given purpose. Beggs v. Texas Dept. of Mental Health and Mental Retardation, Tex. Civ. App., 496 S.W.2d 252, 254. To avail oneself of ; to employ ; to utilize ; to carry out a purpose or action by means of ; to put into action or service, especially to attain an end. State v. Howard, 221 Kan. 51, 557 P.2d 1280, 1281. Non-technical sense. The 'use' of a thing means that one is to enjoy, hold, occupy or have some manner of benefit thereof. Use also means usefulness, utility, advantage, productive of benefit." 27. The expression "use" does not have a fixed meaning. The content of the expression must be based on the context in which the expression is adopted. The use of an article may or may not result in a visible change in its form or substance. Moreover, the natu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urement equipment is only for the benefit of the seller in measuring the quantity of the gas supplied would not be correct. The GSA is an agreement reflecting mutual rights and obligations between the seller and the purchaser. Both have a vital interest in ensuring the correct recording of the quantity of gas supplied. Additionally, delivery of gas in a safe and regulated manner, enabled by the SKID equipment, is an essential component of the GSA. The SKID equipment subserves the contractual rights of both the seller and the purchaser of gas. Indeed, without the SKID equipment there would be no gas supply agreement. In fact, in the GSA, the buyer has also provided a warranty to ensure that the "buyer's facilities" remain technically and operationally compatible with the "seller's facilities", both of which include the "measurement equipment". This warranty would not have been provided if the measurement equipment was not of "use" to the buyer. The equipment is thus a vital ingredient of the agreement towards protecting the mutual rights of the parties and in ensuring the fulfilment of their reciprocal obligations as seller and buyer in regulating the supply of gas. As an in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transactions would be exigible to tax under Section 65(105)(zzzzj). 24. Tested on the principles as propounded by the Supreme Court in Adani Gas, we find that the ultimate conclusions which the respondent has arrived at on the question of 'right to use' are clearly unexceptionable. While the petitioner would be correct in its submission that a transaction which falls within the ambit of Article 366(29-A) cannot be subjected to a levy of service tax, the said contention itself proceeds and rests on whether a transaction was validly taxed under a sales tax statute on the basis of it being and amounting to a 'deemed sale'. 25. Since in the present case, the authorities administering the service tax legislation have come to the firm conclusion that there was no transfer of 'right to use', and which conclusion clearly does not merit any interference, the mere fact that the petitioner had discharged a purported liability arising under a sales tax legislation or based upon a misinterpretation of the contractual covenants by the fifth respondent would not absolve it of the liability which attaches in terms of Section 65(105)(zzzzj). 26. In view of the above, we do not find any merit in ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
