Raju ORDER
Ramesh Nair, Member (J)
1. Briefly stated facts of the case are that during the course of audit it was noticed that appellant has recovered rent charges towards rents of gas cylinders obtained by them from the appellant for the period from 2009-10 to 2012-13. The department was of the view that the said income falls under the "Supply of Tangible Goods Service" for use without transfer of right of possession/control therefore service tax is required from the appellant. The department issued show cause notice to the appellant proposing the demand of such Service Tax not paid, impugned order confirmed the demand of Rs. 34,52,544/- under section 73(1) of Finance Act, 1994 along with interest under section 75 of the act supra. The adjudicating authority also imposed penalty of Rs. 34,52,544/- under section 78(1) of finance act, 1994 and Rs. 10,000/- separately under section 77(1)/77(2) of the Finance Act, 1994. Being aggrieved by the Order in Original, the appellant filed appeal before the Commissioner (Appeals) on the merit as well as the limitation, who vide the impugned order upheld the Order in Original and rejected the appeal. Therefore, the present appeal.
2. Shri Saurabh Dixit, Ld. Counsel appearing on behalf of the appellant submits that the appellant have given the cylinders to Aims Industries Ltd. on lease basis under the MOU dated 01/04/2010. According to which the possession and effective control of the cylinders have been transferred to the lessee which is a deemed sale. The appellant are paying VAT on the lease rentals. Since as per the MOU, the right of possession and effective control of the cylinders has been transferred to the lessee, the transaction does not involve services of 'supply of tangible goods for use'. He submits that the issue has been time and again considered by this tribunal in various judgments as cited below:
(1) M/s. G.S. Lamba & Sons MANU/AP/0080/2011 : 2015 (324) E.L.T. 316 (A.P.)
(2) Gimmco Ltd. MANU/CM/0920/2016 : 2017 (48) STR 476 (Tri. (Mum)
(3) Hindustan Coca Cola Beverages P. Ltd. MANU/CE/0804/2015 : 2016 (42) STR 696 (Tri-Del.)
(4) M/s. Century Pulp and paper 2019 (2) TMI 491 (Tri-New Delhi)
(5) M/s. Century Cement 2019 (2) TMI 1034 (Tri.-New Delhi)
(6) M/s. Ultratech Cement 2019 (1) TMI 377-CESTAT NEW Delhi
(7) M/s. Agarwal Builders 2019 (2) TMI 311-CESTAT Allahabad
(8) M/s. Bluedart Aviation Ltd. 2018 (9) TMI 1721-CESTAT Chennai
(9) M/s. Altech Equipments (P) Ltd. 2018 (5) TMI 1420-CESTAT New Delhi
(10) M/s. Roots Auto Products Pvt. Ltd. 2018 (6) TMI 798-CESTAT New Delhi
(11) M/s. J.P. Singhal & Co. MANU/CE/0244/2018 : 2018 (6) TMI 1156-CESTAT Chennai
(12) M/s. International Seaport Dredging Ltd. MANU/CC/0058/2018 : 2018 (12) G.S.T.L. 185 (Tri.-Chennai)
(13) M/s. Matheson K. Air India P. Ltd. 2017 (3) TMI 1722-CESTAT Mumbai
(14) Mirah Hospitality & Food Solutions Pvt. Ltd. 2018 (3) TMI 193-CESTAT Mumbai
(15) Brindavan Bottlers Ltd. 2019 (3) TMI 1428-CESTAT Allahabad
He further submits that as per the board's circular No. 168/3/2013-ST : MANU/DSTX/0018/2013 dated 15/04/2013, the board has laid down the criteria for deciding the transfer of the right to use of goods and according to said circular, the appellant's transaction does not fall under 'supply of tangible goods for use'. He also referred to the board's letter DOF No. 334/1/2008-TRU dated 29/2/2008 wherein it is clarified that for the purpose of goods leviable to sales Tax/VAT, transfer of right to use involves transfer of both possession and control of the goods to the user of the goods. He submits that in the present case also, the possession and effective control has been given to the lessee of the cylinders. Therefore, it is a deemed sale and accordingly, not leviable to Service tax under 'supply of tangible goods for use'.
3. Ms. Nitina Nagori, Ld. Jt. Commr. (AR) appearing on behalf of the Revenue reiterates the finding of the impugned order.
4. Heard both sides and perused the records. We find that the issue to be considered by us is that whether the supply of cylinders is a deemed sale in terms of Article 366(29A) of constitution as 'deemed sale' or it falls under definition of 'supply of tangible goods for use' under the Finance Act, 1994. The definition of the alleged services needs to be gone through which is reproduced below:
The definition of 'supply of tangible goods' as per the provision of section 65(105)(zzzzj) of the Finance Act, 1994-
"taxable services" means any service provided or to be provided to any person by any other person in relation to supply of tangible goods including machinery equipments and appliances for use without transferring right of possession and effective control of such machinery, equipments and appliances".
From the above definition, it is clear that for the supply of tangible goods is for use by other person but without transferring right of possession and effective control, then only such supply shall classify under the taxable services of supply of tangible goods\service. Now it is to be seen that whether the supply of cylinders are with or without transferring right of possession and effective control for which a Memorandum of Association needs to be perused. The relevant clauses of the MOU are reproduced below:
4.1. As per sub clause (ii) of main clause 3, the lessee paying the rent, reserved and observing and performing the several covenants of the MOU on its part contained shall peacefully hold gas cylinders without any disturbance by the lesser or any person.
4.2. As per sub clause (ii) of main clause 2, the lessee will have to ensure all registration to use the gas cylinders will be in full force of time during the MOU period. As per sub clause (iii) of main clause 2, the repair and operation of the cylinders has to be carried out by the lessee without any interruption on the part of the lesser during the period of MOU. As per sub clause (iv), maintenance responsibility is with the lessee.
4.3. As per the above terms of the MOU, it is absolutely clear that after giving the cylinders on lease during the entire period of MOU, the effective right of possession, the effective control is with the lessee and not with the appellant. As per the definition of 'supply of tangible goods', the supply will fall under the taxable services only when right to possession and effective control is not transferred. Therefore, supply of tangible goods on lease basis with transfer of right to possession and effective control will go out of ambit of taxable services. Moreover this transaction is undisputedly liable to VAT as the appellant are paying the VAT as per the provision of the State Government VAT Act, the board in the DOF letter dated 29/02/2008 (supra), in para 4.4, clarified as 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 to 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 & barges, geo-technical vessels, tug and barge flotillas, rigs and high value machinery 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.
As per the above clarification, transfer of the right to use any goods is leviable to sales tax/VAT as deemed sale of the goods when transfer of right to use involves transfer to both possession and control of the goods to the user of the goods. In the present case also, transfer of right to use is clearly with transfer of both possession and control of goods to the lessee, accordingly the transaction is clearly of deemed sale of goods in terms of Article 366(29A)(d) of the Constitution of India. Since the entire value of the transaction is liable to Sales Tax as per the above provision the same would not again leviable to Service Tax under the head of 'supply of tangible goods'. On the similar issue this Tribunal passed a judgment in the case of Gimmco Ltd. by relying on the Andhra Pradesh High Court judgment in the case of GS Lamba (supra). In Gimmco Ltd. following finding was given:
5. We have carefully considered the submissions made by both sides and perused the records.
5.1. Section 65(105)(zzzzj) defines the taxable service in respect of supply of tangible goods for use as follows:-
"Taxable service" means 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 effective control of such machinery, equipment and appliances."
While the assessee contends that what they have transferred is right to use which is a deemed sale, the Revenue's contention is that the right of possession and effective control remained with the assessee and hence, the transaction has to be treated as service.
5.2. Revenue's contention is based on the clauses in the agreement relating to restrictions of use by the lessee, provision of skilled operator by the lessor and maintenance and repairs of the equipment by the lessor. Merely because restrictions are placed on the lessee, it can not be said that there is no right to use by the lessee. Such a view of the revenue does not appear to be tenable when we read carefully the provisions of the agreement. Cl. 13 of the agreement provides for Hirer's Covenants. As per Cl. 13.1, the hirer will use the equipment only for the purpose it is hired and shall not misuse or abuse the equipment. Similarly in 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 that the transaction envisaged in the agreement is one of "transfer of right to use" which is a deemed sale under Section 2(24) of the Maharashtra Value Added Tax Act, 2002. The Finance Minister's speech and the budget instructions issued by the C.B.E. & C. also clarify that if VAT is payable on the transaction, then service tax levy is not attracted.
5.3. A similar issue arose for consideration before the Hon'ble High Court of Andhra Pradesh in the G.S. Lamba case cited supra. The petitioners therein entered into a contract with M/s. Grasim, manufacturer of ready mix concrete (RMC) for providing transportation service for shipping RMC by hiring specially designed Transit Mixers. Under the contracts, the transit mixers are never transferred and effective control over running and using of these vehicles, as well as disciplinary control over the drivers, always remained with petitioners. It was petitioner's responsibility to obtain route permits, to take the risk or loss of transportation, to decide the shifts for the drivers and vehicles, to maintain and upkeep the vehicles in good condition. The petitioners contention was that the contract was for transport service and not the transfer of the right to use the goods.
5.4. The Hon'ble High Court observed that the essential requirement of a transaction for transfer of the right to use goods are:
(1) it is not the transfer of the property in goods, but it is right to use property in goods;
(2) Article 366(29A)(d) read with the latter part of the Clause (29A) which uses the words, "and such transfer, delivery or supply" would show that the tax is not on the delivery of the goods used, but on the transfer of the right to use goods regardless of when or whether the goods are delivered for use subject to the condition that the goods should be in existence for use;
(3) in the transaction for the transfer of the right to use goods, delivery of goods is not condition precedent, but the delivery may be one of the elements of the transaction;
(4) the effective or general control does not mean always physical control and even if the manner, method, modalities and the time of the use of goods is decided by the lessee or the customer, it would be under the effective or general control over the goods;
(5) the approvals, concessions, licences and permits in relation to goods would also be available to user of the goods, even if such licences or permits are in the name of transferor of the goods; and
(6) during the period of contract exclusive right to use goods along with permits, licences, etc., vests with the lessee.
Applying these principles and examining the terms of the contract, the Hon'ble High Court held that the transaction involved was a transfer of right to use Transit Mixers and not transport service and the petitioners had transferred the 'right to use goods' to Grasim. If we apply the ratio of the above decision to the facts of the present case, the transaction involved herein is "transfer of right to use" which is a deemed sale and not "supply of tangible goods for use" service.
6. In view of the foregoing, we are of the considered view that the assessee's activity of giving various equipments on hire does not fall under the category of "Supply of tangible goods for use", hence the same is not liable to service tax w.e.f. 16-5-2008. Now coming to the Revenue's appeal, we find that the ld. Commissioner dropped the demand for the period prior to 16-5-2008 mainly on the ground that the service is of "Supply of tangible goods for use" which came into effect on 16-5-2008, therefore prior to that date the service was not taxable. However, we, in our above findings, held that the service in question is not the service of "Supply of tangible goods for use". In this position the main ground of the ld. Commissioner for dropping of demand does not exist and not relevant. Though the ld. Commissioner in a passing reference mentioned in the impugned order that the service prior to 16-5-2008 does not fall under the "Business Auxiliary Service" but not given the detailed findings. Therefore when the main ground for dropping of demand does not exist. The issue relates to demand prior to the period 16-5-2008 needs reconsideration.
7. As per our above findings, we pass following order:
1. Assessee's Appeal No. ST/654/2012 is allowed.
2. Revenue's Appeal No. ST/712/2011 is allowed by way of remand to the original adjudicating authority passing a fresh order only in respect of the demand for the period prior to 16-5-2008. All other issues related thereto are kept open.
3. Cross objection No. ST/CO/45/2012 stands disposed of.
5. As per the above judgment, being on similar facts and the legal issue, this tribunal has observed that the services would not fall under the category of 'tangible goods for use'. Similar issue has been settled in various judgments as cited by the Ld. Counsel. Considering the facts of the present case, and various judgments on the issue, we are of the view that the transaction of the appellant of leasing of gas cylinders to the group company does not fall under 'supply of tangible goods' services. Accordingly, demand raised under the said category is not sustainable. Hence, the impugned order is set aside. Appeal is allowed.
(Pronounced in the open court on 02/05/2019)
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