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TMI Blog2025 (4) TMI 445X X X X Extracts X X X X X X X X Extracts X X X X ..... eir own cost and leases the same to their customers. 3. In the present case, the Appellant entered into an agreement dated 14.01.1999 (renewed vide agreement dated 01.04.2009) to lease out a plant to M/s. Phoenix Lamps India Ltd. located at 59-A, N.E.P.Z Noida, District: Gautam Buddh Nagar (U.P.) for generation of industrial gases to be used in their manufacturing process. As per the lease agreement, Phoenix Lamp India Ltd. agreed to pay monthly lease rent to the Appellant at the rate specified at clause 2 of the said agreement. Further, as per clause 7 and 11(b) of the lease agreement, the possession and control of the plant was transferred to the customer. Appellant entered into separate agreements dated 23.07.1999 and 01.04.2009 with M/s. Phoenix Lamps India Ltd. for operation and maintenance of the plant that was leased out. 4. The Appellant discharged applicable VAT on the lease of the plant considering it to be a deemed sale by way of transfer of right to use goods under Article 366(29A) of the Constitution read with Section 2(ac) of the Uttar Pradesh Value Added Tax Act, 2008. The Service Tax authorities carried out an audit at the premises of the Appellant with respect to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjudication order has been confirmed on the ground that mere contract of hiring, without transfer of control of the plant qualifies as a contract of bailment and not a contract for transfer of right to use goods. The order also rejects the Appellant's contention that supply of goods in the present case qualifies as deemed sale and that the VAT and Service Tax are mutually exclusive. 9. Aggrieved with the impugned order, the Appellant has preferred the present appeal before the Tribunal. 10. The Ld. Counsel appearing on behalf of the Appellant has made the following submissions:- i. the long-term lease of plant by the Appellant to Pheonix Lamp India Ltd. qualifies as transfer of right to use the plant for the reason that the possession and effective control of the plant is transferred to the customer. In support of the submissions, reliance was placed on the decision of the Hon'ble Supreme Court in BSNL v. Union of India, 2006 (3) TMI 1 - SUPREME COURT and various Circulars explaining the meaning of transfer of right to use and relevant clauses of the contract to substantiate that the lease in the present case qualifies as transfer of right to use the plant; ii. The transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s any service provided,- (zzzzj) 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;" 66E. Declared services. The following shall constitute declared services, namely:- .. (f) transfer of goods by way of hiring, leasing, licensing or in any such manner without transfer of right to use such goods; ... 15. We refer to the definition of 'service' under Section 65B (44) of the Finance Act, 1994 with effect from 01.07.2012, which clearly excludes from its purview the transfer of goods which is deemed to be a sale within the meaning of clause (29A) of Article 366 of the Constitution of India. Section 65B (44) of the Finance Act, 1994 is reproduced hereunder:- 65B (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re reproduced hereunder:- "1. PERIOD/(S) OF LEASE: The lease shall be for the term specified in the Schedule annexed hereto. The Lessee shall have the option to renew the lease of the Plant for further period/(s) as may be decided upon by the Lessee, subject, however, to the provision that such further renewal of the lease shall not exceed 5 years at a time. Period/(s) for which the lease is renewed are hereinafter referred to as Secondary Lease Period/(s). 2. RENTAL: In consideration of the lease of the Plant, the Lessee shall pay to the Lessor, lease rent at the rate specified in the Schedule without any abatement for the entire period of lease including renewal, if any. Such lease rent shall be payable by the Lessee to the Lessor/or to Lessor's designated Bankers as specified in the Schedule annexed/ to be annexed from time to time for and on behalf of the Lessor, under advice to Lessee and such payments shall be deemed to be payments made to the Lessor and shall fully discharge the Lessee from its obligations hereinunder to pay lease rentals to the Lessors. The Lease rent shall be due and payable as mentioned in the schedule. The Lessee will pay as late charge, an amount eq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution of this Agreement and the use and operation of the Plants by the Lessee will not - i) contravene the provisions of its Memorandum of Association and any statute, Rules and Regulations applicable to the transaction covered under the Agreement. ii) result in any breach of any agreement or arrangement to which the Lessee is a party. b) Under the applicable provisions of the import/export policy and the Rules made thereunder, the Lessee is entitled to import the Plant as if the Lessee had bought the Plant and was using and operating the same as the owner thereof. c) Each and every representation, statement made and all particulars given by the Lessee to the Lesssor based on which the Lessor has agreed to enter into this Agreement are true and correct and nothing material has been concealed by the Lessee from the Lessor. 12. UNDERTAKINGS OF LESSOR AND LESSEE: ... a) The Lessee further agrees that during the period of this Agreement and renewal, if any, it will not attempt or cause to capitalise the plant in its Balance Sheet. b) The Lessee hereby agrees to provide annually certificates regarding the depreciation eligibility of the Plant and that the Plant is in good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f India (Supra) in holding that there is no transfer of right to use the plant to the customer without a sound analysis of the terms of the lease agreement. 23. On examination of the terms of the Agreement, we also find that the Operation and Maintenance agreement contains distinctive scope, rights and liabilities, and the rights and liabilities under the Lease Agreement remain separately and independently enforceable. The transfer of full possession and control of the plant to the customer vide the lease agreement is uninfluenced by the existence of the operation and maintenance agreement. We find that once the plant is in complete physical possession and control of the customer, the provision of operation and maintenance services by the Appellant would not alter the nature of the transaction to make it a supply of tangible goods service, and such transaction would remain to be a 'deemed sale'. Ld. Counsel for the Appellant has placed reliance on the following decisions in support of their submissions that mere operation and maintenance of the plant does not detract from the nature of the primary transaction of transfer of right to use the goods vide the lease agreement:- * GS. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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." 24. We find that the impugned Order-in-Appeal has erroneously found that that there is no transfer of effective possession and control of the plant to the customer in the present case. Therefore, the impugned Order-in-Appeal has incorrectly observed that the condition of transfer of right to use to the exclusion of the transferor as laid down by Hon'ble Supreme Court in the decision of BSNL does not stand satisfied in the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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