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Aims Pharma Pvt. Ltd. Vs. C.C.E. & S.T., Vadodara-I - (Customs, Excise and Service Tax Appellate Tribunal) (02 May 2019)

Supply of tangible goods will fall under the taxable services only when right to possession and effective control is not transferred


Service Tax

In facts of present case, during the course of audit it was noticed that, Appellant has recovered rent charges towards rents of gas cylinders obtained by them. The Department was of the view that, 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 under Section 73(1) of Finance Act, 1994 along with interest under Section 75 of the Act. The adjudicating authority also imposed penalty under Section 78(1) and under section 77(1)/77(2) of the 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.

The issue to be considered 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 Act, 1994.

As per the definition of 'supply of tangible goods' as per the provision of Section 65(105)(zzzzj) of the Act, 1994, it is clear that, for the supply of tangible goods 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.

As per the 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.

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.

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 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'.

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.


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