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TMI Blog2024 (11) TMI 1413X X X X Extracts X X X X X X X X Extracts X X X X ..... uld 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 this definition which informs Section 65(105)(zzzzj) and which brings to tax taxable services provided by a person to another and relating to supply of tangible goods without transferring a right of possession and effective control of such machinery, equipment and appliances. 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 . Conclusion - 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 misinterpreta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned counsel that the agreements executed between the petitioner and its customers involve the transfer of the right to use, right to possess and effective control. It was further submitted that the petitioner company does not retain any control or usage of compressors during the tenure of the Agreement and the petitioner's customers can use and exploit the benefit of compressors in whatever manner they want. Moreover, during the tenure of the Agreement, the petitioner is not entitled to transfer/sell the compressors to any other person. 6. Per contra, learned counsel for respondent no. 2 has argued that the activity in question is clearly exigible to service tax. It is submitted that the activity of the petitioner falls within the ambit of 'supply of tangible goods services' as under Section 65(105)(zzzzj) of the Act and as per which, where the services are provided in relation to 'supply of tangible goods' without right of transfer or possession and effective control of the goods so supplied, the said service would be liable to service tax. It has been stated that the services rendered by the petitioner to its customers fulfil the essential criteria to be taxable under the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e at his cost. o The operation and maintenance of compressor as well as dispensers shall be carried out by the supplier at his cost o The supplier has to ensure the availability of booster compressor for operation as per the international practices and work like a prudent and reasonable operator. o Labour cost of Installation of tubing shall be borne by the supplier o All electrical termination work to be done by the supplier at his cost o The contractor shall manage and arrange spare parts and consumables required for O&M of booster compressor and dispenser on their cost. … 1. Terms of payment. On submission of invoice duly approved by the officer-in-charge. (Gas Authority of India Ltd. (GAIL) "Wet Lease of 3 (three) Nos of CNG Daughter Booster Compressors in Baroda for Gail. …we (GAIL) are pleased to issue this firm Purchase Order on you (hereinafter referred us "Lessor") for wet leasing compressors for Blue Sky Project of GATL in the following terms & conditions:- 1.0 Brief Scope of Work a. Under Wet lease, supply, Installation and commissioning of 3 (three) nos. of CNG Compressors including supply and installation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) You (ICL) shall supply install & Commission the booster compressor on hiring basis at the designated CNG Stations. [Emphasis supplied]. (ii) Operation and Maintenance: You [ICL] shall be responsible for operation & maintenance including replacement of spares and any other requirement to run the compressor. However, electrical power shall be provided and the running cost of the same shall be borne by IGL. (iii) No. of Booster compressors: 18 Nos Terms of payment: - 100% payment on monthly basis on certification by Engineer-InCharge on hiring of booster compressors. …. SCHEDULE OF RATES Item No Service Description Net Price 00010 Hiring of Boosters Compressor 20,736,000.00INR (v) Mahanagar Gas Ltd. "Wet leasing Contract of Daughter Booster Stations (Mahaveer, Wadibunder and Royal Auto Bhendibazar)" Scope of work- The scope of work outlines minimum requirement for wet leasing of CNG equipments such as compressors, etc required for online CNG stations. 1. The lessor shall provide suitable CNG equipments and accessories for CNG dispencing facility at wet leased CNG outlets...Anik Depot (Compressors), Modern Auto Services (Compr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ressed Air Supply. General Specification:- 10. Having gone through the aforesaid terms and conditions of the contracts, we find that the petitioner supplied the goods viz. compressors, boosters etc. and other related equipment and necessary manpower to operate and maintain the said equipment for the service receivers. The terms and conditions reveal that the petitioner retained possession and exercised effective control and management over such compressors etc. supplied to their customers. 11. The services rendered by the petitioner therefore fulfil the criteria to be taxable under the category of 'supply of tangible goods', since the equipment was supplied by the petitioner to the service receivers while retaining control over the equipment and without handing over the possession to the service receivers. In this regard, the Commissioner observed as under: "70. (a) On carefully sifting through the said agreements I find that aforesaid agreements are of wet leasing of CNG Compressors package or Daughter Booster Compressor or Suction Pressure Hydraulic Booster or Compressed Air Generating Unit and Dispensers & other related equipments. The scope of work delineated in. the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and high value machineries are supplied for use, with no legal right of possession and effective control. Transaction of allowing another person to use the goods, without giving legal right of possession and effective control, not being, treated as sale of goods, is treated as service. 4.4.3 Proposal is to levy service tax on such services provided in relation to supply of tangible goods, including machinery, equipment and appliances, for use, with no legal right of possession or effective control. Supply of tangible goods for use and leviable to VAT/sales tax as deemed sale of goods, is not covered under the scope of the proposed service. Whether a transaction involves transfer of possession and control is a question of facts and is to be decided based on the terms of the contract and other material facts. This could be ascertainable from the fact whether or not VAT is payable or paid." 13. It is manifest from Clause 4.4.3 that whether or not a particular transaction involves the transfer of possession and control is a question of fact and is to be decided based on the terms of the contract and other material facts. On the basis of the terms and conditions of the contracts, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a deemed sale by virtue of Article 366(29-A) of the Constitution. It is this definition which informs Section 65(105)(zzzzj) and which brings to tax taxable services provided by a person to another and relating to 'supply of tangible goods' without transferring a right of possession and effective control of such machinery, equipment and appliances. 16. As would be evident from a reading of clause (zzzzj), the latter part of that provision excludes from its ambit 'deemed sales' as defined by Article 366(29-A) of the Constitution and which also includes a transfer of a 'right to use' goods. That provision reads as follows: "(366)(29A) 'tax on the sale or purchase of goods' includes,-- (a) to (c). .. (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 ; ... 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." 17. The 'right to use' and which is spoken of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cee entered into contracts with various companies/parties which, in nature, were of wet leasing of CNG Compressors package or Daughter Booster Compressor or Suction Pressure Hydraulic Booster or Compressed Air Generating Unit and Dispensers & other related equipments. The Noticee was solely responsible for supply, installation, maintenance and proper functioning of compressors package in order to compress the gas at specified sites on 24x7 basis. The tangible goods remained under the effective control of the Noticee. Thus, the services being rendered in terms of the contracts / agreements are squarely covered and classifiable under the ambit of Service Tax under 'Supply of Tangible Goods Services'." 21. It is also pertinent to note that the petitioner had taken the stand that the terms of the agreement which it had entered into with parties to which the equipment was supplied, embodied and exhibited the legal right of effective control and possession being transferred. The respondents in terms of their letter dated 26 December 2012, however, had questioned the stand as taken, observing that there was no transfer of effective control and possession. While responding to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tely 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. .. . 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 and provisions of section 5C reflecting the said intendment. We are of the considered opinion that there is transfer of right to use exclusively given to charterer for six months, and the vessel has been kept under the exclusive control. The charterer qualifies the test laid down by this court in Bharat Sanchar Nigam Ltd.*" (emphasis supplied) 17. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : "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 and barges, geo-technical vessels, tug and barge flotillas, rigs and high value machineries are supplied for use, with no legal right of possession and effective control. Transaction of allowing another person to use the goods, without giving legal right of possession and effective control, not being treated as sale of goods, is treated as service. 4.4.3 Proposal is to levy service tax on such services provided in relation to supply of tangible goods, including machinery, equipment and appliances, for use, with no legal right of possession or effective control. Supply of tangible goods for use and leviable to VAT/sales tax as deemed sale of goods, is not covered under the scope of the proposed service. Whether a transaction involves tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide 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 machinery, equipment or appliances. The crucial ingredient of the definition is that the supply of tangible goods is for the use of another, without transferring the right of possession and effective control "of such machinery, equipment and appliances". Hence, in order to attract the definition of a taxable service under sub-clause (zzzzj), the ingredients that have to be fulfilled are: (i) The provision of a service ; (ii) The service is provided by a person to another person ; (iii) The se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ixed 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 nature of use is conditioned by the kind of article which is put to use. Section 65(105) of the Finance Act, 1994 envisages myriad interpretations of the expression "use", in a variety of services such as telecommunication,* renting of immovable property,** and services related to art, entertainment, and marriage.*** In the case of some articles, use may be signified by a physical operation 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".# This understanding of "use" differs from the supply of tangible goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 incident of regulating supply, it determines the correct quantity of gas that is supplied. The obligation to supply, install and maintain the equipment is cast upon the seller as an incident of control and possession being with the seller. Section 65(105)(zzzzj) applies precisely in a situation where the use of the goods by a person is 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. xxxx xxxx xxxx 30. Thus, we are of the view that the supply of the pipelines and the measurement equipment (SKID equipment) by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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