Brief facts of the case :M/s. Gujarat Powerfield Pvt. Limited, situated at “Powerfield House”,
Near Yash Motors, Narol, Ahmedabad (hereinafter referred to as “the assessee”) is
engaged in the Renting of inverters/ Transformer and forklifts”. The assessee is
registered
with Service Tax department and having Service Tax Registration
No.AAACG3971DST001 for Maintenance
and Repair Service and Erection
Commissioning and Installation Service as defined under Section 65(105) of the
Finance Act, 1994.
2.
The assessee’s website portrays that they have provided services to
clients like Airtel, Aditya Birla Group, Adani Group, Amul Dairy, Apollo Tyre,
Bayer Group, Cadila Pharma, Claris Life Sciences, Coca Cola, DuPont, Essar
Group, Euro Group, GMDC, Godrej, Gannon, Gammon, Havmor Icecream, ICICI
Lombard, Ingersoll Rand, IOCL, L & T, Lake Palace Hotel, Nirma, ONGC, Philips,
Sandvik, Sanghi Cement, SBI, Shapoorji Pallonji, Suzlon, Sun Pharma, Tata
Project, Tata Tele, Vadilal Icecream. Welspun, Zydus, 3M India.
3.
It appeared that the assessee was engaged in the business of hiring of
DG sets and not paying service tax on the value of hire charges charged from their
customers for DG sets under “Supply of tangible goods service” as defined under
Section 65(105)(zzzj) of the Finance Act, 1994 w.e.f. 16.05.2008.
PROVISIONS OF SUPPLY OF TANGIBLE GOODS SERVICE:
4.1
Service tax on the ‘Supply of tangible goods service” is levied with
effect from 16-05-2008.
4.2
As per Section 65 (105)(zzzzj) of the Finance Act, 1994, the taxable
service (supply of tangible goods 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.
The definition of taxable service in this case has not specifically provided that where
VAT has been paid, service tax will not be attracted.
2
4.3
The scope of levy of service tax under this service can be better
understood by referring to CBEC’s letter D.O.F. No. 334/1/2008-TRU dated 29-022008. Para 4.4 clarify the scope of services taxable under this category, 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 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, geotechnical 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 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. This could be ascertainable from the fact whether or not VAT is
payable or paid.”
4.5
It can be seen from the CBEC’s clarification dated 29-02-2008 that
supply of tangible goods for use and leviable to VAT / sales tax as deemed sale of
goods is not covered under “supply of goods for use service”.
Therefore, for
claiming exclusion, there must a provision for charging VAT / sales tax. Hiring of
DG sets is not leviable to VAT / sales tax under the Gujarat Value Added Tax Act,
2006 or the Gujarat Sales Tax Act, 1969.
Further, it was observed that the
schedules of the Gujarat Value Added Tax Act, 2006 shows that VAT was
applicable on item code No. 18060 for electrical goods falling under schedule 3 at
entry No. 6, when such goods were given on lease. The term lease is generally used
for sale under installments, when all the installments are paid, the lessor becomes
the owner of the goods. In the instant case, VAT was not applicable on their activity
3
because the goods are returned to them. Therefore, they were liable to pay service
tax.
4.6
Another crucial factor which determines liability to service tax is to
see whether transaction involves transfer of possession and control of the goods
hired. It is set out in the CBEC’s Circular dated 29.02.2008 that to determine
whether the transaction involves transfer of possession and control of the goods
hired is a question of fact and is to be decided based on the terms of the contract and
other material facts.
5.
From the work orders/ agreements with various customers for hiring
of DG sets, it was evident that the assessee himself was responsible for loading,
transportation, unloading, erection, installation & commissioning, operation,
maintenance and repair of the DG sets supply on hire during the contract period.
Therefore, it can be said that the possession and control of the DG sets remains with
the assessee. At no point of time during the entire transaction / contract period
transfer of possession and control is made to their customers. Operator / technician
provided by the assessee at the customers site operates the DG sets as per their
requirement.
6.
In view of the facts as discussed above, it was clear that amount
charged for hiring of DG sets attracts service tax under “Supply of tangible goods
Service” and they were liable to pay service tax on the value of hire charges charged
from their customers for DG sets under the supply of tangible goods service. A
Show Cause Notice F.N. DGCEI/AZU/36-112/2010-11 dated 30.11.2010 was
issued by the Additional Director General, DGCEI, Ahmedabad for the period 165-2008 to 31-3-2010 for recovery of service tax amounting to Rs.1,25,95,334/-.
7.
The Superintendent, Service Tax, AR-VI, Div-II vide letter dated
27.07.2011 requested the said assessee to provide figures of amount received against
hiring of DG sets for the period from 01.04.2010 to 31.03.2011. The said assessee
vide letter dated 02.08.2011 submitted the month wise hire charges for DG sets for
the period from 01.04.2010 to 31.03.2011 totally amounting to Rs.5,89,47,849/-.
The Service Tax liability was worked out to Rs.60,71,628/- (Including Education
Cess & Sec. &Higher Education Cess) as detailed in Annexure-A to the show
cause notice.
4
8.
It was found that the assessee was registered with service tax department at
Ahmedabad and held service tax registration No. AAACG3971D ST 001 for the
services of “Erection, commissioning and installation service” and “Maintenance or
repair service”. However, they had not obtained service tax registration under
“supply of tangible goods service”. The failure to obtained registration for hiring of
DG sets under “supply of tangible goods service” can be attributed to their intention
of suppression of the facts from the department and to evade payment of service tax
thereon. It was submitted that as their turnover of “Erection, commissioning
and installation service” and “Maintenance or repair service”. was less than Rs. 8
lakhs they applied for cancellation of their service tax registration from April,
2009.
9.
Section 68 of the Finance Act, 1994 provides that every person
providing taxable service to any person shall pay service tax at the specified rates
and in such manner and within such period as may be prescribed. Further, Rule 6 of
the Service Tax Rules, 1994 stipulates that service tax shall be paid to the credit of
the Central Government, by the 5th of the month immediately following the calendar
month, in which the payments are received, towards the value of taxable services.
10.
Section 69 of the Finance Act, 1994 read with Rule – 4 of the Service
Tax Rules, 1994 provides that every person liable to pay service tax should make
an application within a period of thirty days from the date on which the service tax
under Section 66 of the Finance Act, 1994 is levied.
11.
Section 70 of the Finance Act, 1994, provides that every person liable
to pay the service tax shall himself assess the tax due on the services provided by
him and shall furnish to the Superintendent of Central Excise, a return in such form
and in such manner and at such frequency as may be prescribed. Rule 7 of the
Service Tax Rules, 1994, prescribes that every assessee shall submit a half-yearly
return in Form ST-3 or ST-3A as the case may be, alongwith a copy of the Form
TR-6, in triplicate for the months covered in the half-yearly returns. Further sub-rule
[2] thereto also provides that every assessee shall submit the half yearly return by
the 25th of the month following the particular half-year.
12.
The assessee was providing taxable services viz., 1) erection,
commissioning & installation service, 2) management, maintenance or repair service
5
and 3) supply of tangible goods service, but they are registered for the services of 1)
erection, commissioning & installation service and 2) management, maintenance or
repair services only with the jurisdictional service tax office. However they had
deliberately not obtained registration for hiring of DG sets under “Supply of
Tangible Goods Service” and not paid service tax on the gross amount charged with
the intention of evading the payment of Service Tax.
13.
In view of above, it appeared that the assessee had not paid service
tax by suppression of facts and in contravention of provisions of Section 73(1) of
the Finance Act, 1994 relating to levy and collection of service tax and Rules made
there under with an intent to evade the payment of service tax.
14.
In view of the above, it appeared that the assessee had contravened the
provisions of:
>
Section 67 of the Finance Act, 1994 in as much as they failed to pay
appropriate service tax on the gross value amount charged by them for
service of supply of tangible goods service provided by them;
>
Section 68 of the Finance Act, 1994 read with Rule 6 of the Service Tax
Rules, 1994, in-as-much as they had not paid service tax amounting to Rs.
60,71,628/- as detailed in Annexure-A to the show cause notice to the credit
of the Government of India;
>
Section 69 of the Finance Act, 1994 read with Rule – 4 of the Service Tax
Rules, 1994 in as much as they failed to obtain service tax registration under
“supply of tangible goods services”;
>
Section 70 of the Finance Act, 1994 read with Rule 7 of the Service Tax
Rules, 1994, in as much as they had not filed periodical half yearly return in
form ST-3 to the department.
15.
The assessee had not paid the service tax under supply of tangible
goods service, therefore, it appeared that they were liable to penal action under
Section 76 of the Finance Act, 1994.
16.
Therefore a show cause notice bearing F.No.STC/4-67/O&A/11-12
dated 04.10.2011 was issued to M/s. Gujarat Powerfield Pvt. Limited, situated at
“Powerfield House”, Near Yash Motors, Narol, Ahmedabad by the Commissioner
of Service Tax, Ahmedabad to show cause as to why:-
6
i.
The Service Tax amounting to Rs. 60,71,628/-. (Rupees Sixty Lakh Seventy
one Thousand Six Hundred Twenty Eight only ), not paid by them during the
period from 01.04.2010 to 31.03.2011 under “Supply of tangible goods
services” should not be demanded and recovered from them under Section
73 of the Finance Act, 1994;
ii.
Interest at appropriate rate should not be demanded and recovered from them
on service tax not paid as mentioned at (i) above, under the provisions of
Section 75 of the Finance Act, 1994;
iii.
Penalty under the provisions of Section 76 of the Finance Act, 1994, as
amended, should not be imposed on them for failure to pay Service Tax, as
mentioned hereinabove;
iv.
Penalty under Section 77 of the Finance Act, 1994, as amended, should not
be imposed on them for violation of provisions of Section – 67, Section – 68,
Section – 69 and Section 70 of the Finance Act, 1994;
DEFENCE REPLY & PERSONAL HEARING:-
17.
A personal hearing in the case was fixed for 21.09.2012. The assessee vide
letter dated 20.09.2012 submitted that their authorized representative was not in a position to
appear on 21.09.2012 and requested for adjournment. Another date for personal hearing was
fixed for 12.10.2012. Nobody appeared on the said date and hence another personal hearing
was fixed for 16.10.2012. Personal hearing fixed for 16.10.2012 was attended by Shri. Rahul
Patel, C.A. on behalf of the said assessee. He submitted that since in their case there is a
transfer of possession and effective control of the DG sets, they do not fall under Supply of
tangible goods service. Moreover, they were paying sales tax / VAT even prior to 16.05.2008.
They promised to give detailed reply to the show cause notice within a week and requested
the case to be dropped. The said assessee vide their letter dated 22.10.2012 submitted their
reply to the show cause notice.
18.
In the said written statement they submitted that they have been registered
with VAT / Sales Tax authorities since a long – even prior to introduction of service
tax, and been discharging VAT / Sales tax liability and being assessed too. The
turnover of the assessee company relating to hiring of DG sets have been well
7
assessed and paid with VAT under GVAT and there said turnover shall not form
part of taxable value under sub clause (zzzzj) of clause (105) of Section 65 of the
Act.
19.
They further submitted that only because transportation, loading, unloading,
maintenance and operator were provided by them it shall amount to ‘service’,
requires summary rejection. Transportation, loading and unloading were
commercially undertaken responsibilities and cannot be fastened to nature of
transaction. DG set being heavy machinery and complex in nature, providing of
transportation, loading and unloading, repair and maintenance would be warranted
to facilitate clientele but in no means same could be treated as determining factors
for underlying transaction of renting of DG Sets.
20.
They have further submitted that unlike works contract service, levy of
service tax under supply of tangible goods services is alternate in nature and
subordinate to levy of VAT. VAT being charged under a deeming fiction created by
Article 366(29A) while service tax is charged under Entry No.97 (residual entry), it
can never be taxed simultaneously.
21.
To further support their claim as to taxability under GVAT, attention was
invited to Annexure : B – VAT Assessment order issued by appropriate authority
under GVAT.
It was submitted that it serves as an evidence as to taxability
considered under GVAT by administrative authorities and accordingly assessed the
turnover of assessee company.
22.
In absence of any other specific finding explaining plausible reasons to bring
activity of hiring of DG sets as undertaken by assessee company within the ambit of
sub-clause (zzzzj), they attempted to make further submission in light of provision
of law, legislative history as emphasized and various judicious pronouncements.
Sub-clause (zzzzj) of clause (105) of section 65 of the Act reads as under :
“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”
From the definition of taxable service as contemplated above, following broad
propositions could be laid as to taxability :
8
a) There shall be supply of tangible goods including machinery, equipment and
appliances
b) Supply shall be for use by recipient
c) Supply shall be effected without transferring right of possession and effective
control of such machinery, equipment and appliances
22.1
If all the three conditions stated above are satisfied, then and then only,
service tax was levied. It is therefore mandatory in order to bring taxability, that
transaction does not result into transfer of right of possession and effective control.
What amounts to transfer of right of possession and effective control, is nowhere
defined in the Finance Act, 1994. It was submitted that as per detailed discussion
made earlier in relation to legislative history and rationale behind introduction of
taxable service, it must be borne in mind that transfer of right of possession and
effective control are used in pari materia to transfer of right to use in goods
contemplated in Article 366(29A). To be precise in evaluation of facts, clause
(zzzzj) has used words ‘transfer of right of possession and effective control’ in
further elaboration of ‘transfer of right to use’ contemplated in article.
22.2
There are different types of rights i.e. right of possession, right of
dispossession, right of ownership, right of tenancy, right to titles etc. Here the
reference is made only to right of possession and effective control. Hence even if
possession and control are transferred permanently or temporarily without
transferring property in goods, same will tantamount to transfer and according fall
out of taxability.
22.3
In the present case, it could be seen from the statement attached as Annexure
: E that assessee company had supplied the DG sets by transferring right of
possession as well as effective control. Merely because operator was provided or
not provided does not alter the nature of transaction and therefore cannot be
construed to be a determinative factor. More important is the freedom of the party
receiving such goods for use of DG sets, whether supplier retains right to sell,
transfer or rent out said goods even during subsistence of the agreement or not,
whether etc. From the given statement, it would find following broad proposition
underlying supply of DG Sets :
a)
Supply of DG set is an absolute transaction involving dispossession by
the assessee company in favour of client
b)
Supply is irrevocable in nature during the tenure of agreement
9
c)
Supply is effected by virtue of an agreement whether written or
implied, which is enforceable at law and therefore exchanging rights
and obligations by and between the parties to agreement which inter
alia involved transfer of right to use, right to possess and effective
control unless and until agreement stands terminated.
d)
Assessee company does not retain control of usage over the machinery
during tenure of agreement
e)
Client may use and exploit benefits of DG set in whatever manner he
wants, during the tenure of agreement. Client may operate the DG set
as per his own will, desire and requirement.
f)
Switch on/off of the DG set is controlled by the client and not by the
assessee company
g)
Assessee company is not entitled to transfer, sell, rent out supplied DG
set to any other person during the tenure of agreement
h)
DG set stands supplied for a substantially longer period of time which
indicates intention of the parties as to possession and control
i)
Cost of diesel is to be borne by client and not by the assessee company
j)
DG set once supplied gets attached permanently to earth with loads of
connections, cables and attachments to present setup of client’s plant
k)
DG set once commissioned at the client’s plant / premises, it looses it
characteristic of isolated machinery but works in synchronization with
existing plant / machinery setup of client
l)
Client shall be responsible for obtaining approvals, licenses,
permissions if any required for generating of electricity. Helping by
assessee company in obtaining permissions does not mean that
permissions are obtained by assessee company as contemplated by
show cause notice.
In light of above propositions, there is no infirmity in saying that right of
possession and effective control is transferred to the client by assessee company in
relation to DG sets. Therefore conditions laid down in clause (zzzzj) of the Act
stands dissatisfied and accordingly not taxable under Finance Act, 1994.
23.
In support of various arguments and interpretations advanced in support of
claim as to non-taxability under Finance Act, 1994, assessee company relied upon
various judicial pronouncements referred hereinafter.
10
Hon’ble Supreme Court in case of State of Uttarpradesh v. Union of
India – 2006 (3) STR 98
In the case before Hon’ble Supreme Court, question was raised as to whether
telephone instruments supplied on rental basis by DOT attracts tax under
Uttar Pradesh Trade Tax Act, 1948. Hon’ble Supreme Court has held in
favour of Uttar Pradesh Tax authorities contending that telephone
instruments provided by DoT on rental basis, consistuted “goods” and there
was transfer of right to use amounting to “sale”.
State of Andra Pradesh v. BSNL – 2012 (25) STR 321 (AP)
In the case before Hon’ble Andra Pradesh High Court, similar question was
raised as to whether telephone instruments / mobile phone / modems
provided to the subscribers for rent are exigible to VAT. It was held that
rentals for such supply shall be taxable under AP VAT Law.
Essar Telecom Infrastructure P. Ltd v. Union of India – 2012 (25) STR
16(Kar)
Issue before Hon’ble Karnataka High Court in the matter stated, was relating
to renting of tower sites with equipments to telecom / cellular operators.
Hon’ble High Court held that though the towers are fixed to earth and treated
as immovable property, super structure does not acquire character of
immovable property to detract application of VAT Act. Though maintenance
and other control over equipment was retained by assessee, it amounts to
transfer of right to use of goods and attracts VAT.
Hon’ble Supreme Court in case of Aggarwal Brothers v. State of
Haryana and Anr – AIR 1999 SC 2868, (1999) 9 SCC 182
In the case before Hon’ble Apex Court, question was whether supply of
shuttering by owner to builder amounts to deemed sale as involving transfer
of right to use and exigible to Sales Tax. Hon’ble Apex Court dismissed the
appeal of assessee by deciding that supply of shuttering to builders for use
certainly amount to transfer of right to use even though does not involved
transfer of goods and accordingly taxable as deemed sale under Article
366(29A).
11
MSPL Ltd v. CCE, Belgaum – 2012 (25) STR 90 (Tri-Bang)
Wagons leased to railways are contended to be non-taxable under ‘supply of
tangible goods’ service as wagons become part of common pool of railways
and used by railway for transport of goods and assessee has not control on
those wagons. Having prima facie case in favour, Hon’ble Tribunal waived
requirement of pre-deposit and granted full stay.
In view of cited decisions, it has gone beyond any doubts that impugned
transactions were in nature of deemed sale exigible to Sales Tax / VAT and
accordingly question of service tax does not arise.
24
Attention was invited to a decision of ld. Commissioner ( T &T ),
Department of Trade & Taxes, Government of NCT of Delhi in case of M/s Skan
Renting & Leasing vide Order No. 203/CDVAT/2008, copy of which was
submitted. Facts in the cited decision were similar and identical to the facts in the
instant case.. It was contended by the ld. Commissioner that providing of generator
by the dealer to the customer for producing electricity on rent on fixed site and fixed
duration with operator would amount to deemed sale within the meaning of Section
2(zc)(vi) of the DVAT Act, 2004. In light of given determination, it can be further
supported that VAT was payable in relation to transactions involved in the present
case and accordingly service tax should not be levied.
25.
It was submitted that TRU has made their view very clear at the time of
Budgetary introduction of levy of service tax on supply of tangible goods in 2008.
In circular No 334/1/2008 dated 29.02.2008, TRU clearly brought distinction
between a transaction where VAT is levied and where Service Tax is levied. It has
also confronted to the rationale discussed behind introduction of Sales Tax under
concept of deemed sale involving transfer of right to use in goods as well as
introduction of Service Tax to plug the holes. However, it is undisputedly admitted
by TRU in circular that transactions subject matter of VAT / Sales Tax, are not
taxable under said category but only those transactions not exigible to VAT / Sales
Tax are taxable under ‘supply of tangible goods’ category. Hence, spirit of circular
should be followed by revenue in broad terms and accordingly apply to present facts
before your honour for a reason that VAT has been consistently paid by assessee
company and assessed by VAT authorities too. Moreover, it is to submit that
circular of Board is mandatory in nature insofar as revenue officers are concerned
and therefore show cause notice cannot travel beyond the scope of what circular
12
posturize. Reference was invited to following landmark decisions in support of
their claim that Board circulars were binding in nature to revenue officers and must
be followed without any divergence.
-
Pannalal Binjraj vs. Union of India (1957) 31 ITR 565 (SC) :
TC69R.243
-
Navnit Lal C. Javeri vs. K.K. Sen, AAC (1965) 56 ITR 198 (SC) :
TC69R.265
-
Ellerman Lines Ltd vs. CIT (1971) 82 ITR 913 (SC) : TC69R.265A
-
K.P. Varghese vs. ITO (1981) 24 CTR (SC) 358 : (1981) 131 ITR 597
(SC) : TC69R.266
-
CWT vs. Vasudeo V. Dempo (1993) 110 CTR (SC) 237 : (1992) 196
ITR 216 (SC) : TC65R.819
-
Wilh Wilhelmsen vs. CIT (1996) 134 CTR (SC) 266 : (1996) 221 ITR
244 (SC) : TC69R.266A affirming CIT vs. Wilh Wilhemsen (1978)
115 ITR 10 (Cal) : TC69R.267
-
Chokshi Metal Refinery vs. CIT (1977) 107 ITR 63 (Guj) :
TC69R.268B
-
Pankaj Oils Mills vs. CIT 1977 CTR (Guj) (FB) 154 : (1978) 115 ITR
824 (Guj) (FB) : TC19R.445
-
CIT vs. T.S. Venkiteswaran (1979) 13 CTR (Ker) 373 : (1979) 120
ITR 675 (Ker) : TC28R.535
-
CIT vs. Ahmedabad Keiser-E-Hind Mills Co. Ltd. (1981) 128 ITR
486 (Guj) : TC69R.273A
-
Madhu Silica Pvt. Ltd vs. CIT (1997) 137 CTR (Guj) 492 : (1997) 227
ITR 350 (Guj)
-
Uco Bank vs. CIT (1999) 154 CTR (SC) 88 : (1999) 237 ITR 889
(SC).
Supreme Court in Navnitlal C. Javeri vs. K.K. Sen, AAC (1965)
56 ITR 198 (SC) : TC69R.265.
Supreme Court in Ellerman Lines Ltd vs. CIT (1971) 82 ITR 913
(SC) : TC69R.265A
26.
Therefore in light of above discussion and in absence of specific finding by
revenue in the impugned notice, conditions specified in clause (zzzzj) were not
satisfied and therefore turnover of sales of hiring of machineries were not exigible to
Service Tax under Finance Act, 1994 but to VAT / Sales Tax which stands
discharged by assessee company.
13
27.
Without prejudice to their contentions and submissions, it was further
submitted that benefit of doubt as to taxability should be extended to them. In
support of their submission attention was invited to decision of Hon’ble Supreme
Court in case of Sun Export Corporation v. Collector of Customs, Bombay 1997(93) ELT 641 and Collector of Customs v. Lotus Inks – 1996(87) ELT 580
(SC).
28.
Without prejudice to their contentions and submissions, they further
submitted that demand of service tax as computed in impugned show cause notice
was incorrect insofar as provision of section 67 are applicable. It was undisputed
fact that assessee company has been charging VAT on turnover of its hire charges
and therefore did not collect service tax. Accordingly, in terms of explanation to
section 67 of the Act, amount of taxable service shall be deemed to be inclusive of
element of service tax and shall be construed accordingly. Therefore demand of
service tax in impugned notice must have been calculated on cum-tax basis. Hence,
assessee company earnestly requested to reduce demand of service tax accordingly.
29.
Without prejudice to their foregoing submission, they stated that service tax
shall not be demanded on rental charged from the units located in SEZ area and DG
sets were supplied within the premises of SEZ area. They requested to refrain from
demanding service tax on such sales effected to SEZ units.
30.
As regards levy of interest u/s 75, they requested to grant consequential
relief.
31.
As regards imposition of penalties u/s 76 and 77 of the Act, they submitted
that assessee company craves to submit that no penal action was warranted as
violation of provisions of law is technical in nature and flowing from bona fide
belief as to non-taxability. It was already submitted that assessee company has been
paying VAT / Sales Tax since beginning – even prior to levy of Service Tax and
been assessed by VAT authorities. It was also submitted that entire fraternity has
been following same practice and therefore assessee company had done it in the
same fashion as a man of reasonable prudence must have acted upon. It is also
submitted that assessee company relied upon clarification issued by TRU as to nontaxability when VAT is applicable / paid. Having been paid VAT / Sales Tax from
time to time, assessee company carried a genuine, reasonable and bona fide belief as
14
to non-applicability of Service Tax to hiring of DG sets, with categorical reliance
placed upon the clarification issued by TRU. Therefore, all the penalties should be
waived in terms of provisions of section 80 of the Act. In light of above discussion,
it would be proper and reasonable to conclude that assessee company has a
sufficient and reasonable cause in non-payment of service tax and a technical breach
of provisions of the law. Therefore penalties u/s 76 and 77 of the Act as proposed to
be imposed in impugned notice were requested for waiver under section 80 of the
Act.
32.
In light of foregoing discussion and reasons / cause / explanations advanced,
it was requested to drop show cause notice in totality and pass necessary order to
that effect.
DISCUSSION & FINDINGS:
33.
I have carefully gone through the Show Cause Notice, the defence reply filed
by the said assessee, the submissions made during the course of personal hearing
and records available with this office.
34.
The issue to be decided in this case is whether, “Diesel Generating Sets”
given on hire would amount to providing taxable service classifiable under the
taxable category of “Supply of tangible goods services” as defined under Section 65
(105)(zzzzj) of the Finance Act, 1994 and whether payment of VAT on the said hire
charges would be a determinative factor to take it out of the purview of service tax.
34.1
Taxable service of “Supply of tangible goods services” has been defined
under Section 65 (105) (zzzzj) of the Finance Act, 1994 as “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.
34.2
On plain reading of the above definition, I find that a service would become
taxable under the said category when the following ingredients are satisfied:
a) The service is provided in relation to supply of tangible goods.
b) The supply is without transferring right of possession and effective
control of goods.
15
c) The service may be provided by any person to any other person.
34.3
Accordingly, I proceed to decide whether, the above ingredients are fully
satisfied or otherwise in the case before me.
34.4
I find that the demand in the show cause notice has been based on two
charges:
i)
Hiring of D.G. Sets is not leviable to VAT/Sales Tax under the Gujarat Value
Added Tax Act, 2006 or the Gujarat Sales Tax Act, 1969 as VAT is applicable on
item code No. 18060 for electrical goods falling under schedule 3 at entry No. 6,
when such goods are given on lease. Whereas, in the instant case, VAT was not
applicable because the D.G Sets were given on hire which were returned to them.
ii)
On the basis of the various work-orders/agreements submitted by the
assessee, it was alleged that the assessee himself was responsible for loading,
transportation, unloading, erection, installation & commissioning, operation,
maintenance and repair of the D.G.Sets. It was also alleged that the assessee
provided operators/technicians to operate the D.G.Sets. All this meant that
possession and control of the D.G.Sets remained with the assessee.
34.5
I find that there is no dispute to the fact that the said assessee is paying
VAT/Sales Tax on the D.G.Sets hiring charges and is being assessed by the
concerned authorities. I have no authority to adjudicate on the applicability or non
applicability of VAT either when the D.G.Sets are given on lease or hire. I find that
the said assessee has relied on the instruction letter F.No.334/1/2008-TRU dated
29.2.2008 to contend that 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
“Supply of tangible goods services”. I find that the definition of taxable service as
per section 65 (105)(zzzzj) of the Finance Act, 1994 does not specifically provide
that where VAT has been paid, service tax will not be attracted. I further find that at
para 4.4.3 of the said letter it is clearly mentioned that whether a transaction
involves 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.
34.6
I have also perused the work-orders/agreements submitted by the assessee
and I find that the following two conditions mentioned in various work-
16
orders/agreements are very crucial and support the allegations made in the show
cause notice.
a)
An operator is to be provided by the said assessee along with the D.G.Set.
b)
Maintenance of the D.G.Set is the responsibility of the said assessee.
c)
The contract for hire of DG sets is for a specific period
d)
All the repairs / faults would be handled by the assessee
34.7
Relevant extracts from some of the work-orders/agreements are reproduced
as under:
Work Order dated 30.06.2010 issued by ST LAURN, A unit of St Laurn Hotels
Ltd to the said assessee
2.
Rate Rs.70,000/- includes supply of change over switch & two 30
meter length aluminum cable of 300 sq. mm and to and fro, loading
and unloading charged.
7.
Any breakdown for more than one day, there would be deduction in
the Hire charges on prorate basis. Though you would make
arrangement to have rectify the faults in reasonable time.
Work-order dated September 26,2011 issued by M/s Gujarat Powerfield Pvt
Ltd to M/s Intas Pharmaceuticals Ltd.
1.
The contract of DG set hiring shall be for a minimum period of 25
days and if the same is kept beyond this period, the contract shall be
deemed to have been extended on mutual consent with same terms as
agreed.
6.
Applicable equipment hiring taxes for temporary transfer of use of
right – VAT / service tax shall be charged extra as prevailing at the
time of invoice. Presently only VAT is applicable @ of 5%.
7.
We will provide 1-Technician to manage the routine maintenance of
our rented generator during day time. You shall allow him to stay near
the generator.
9.
We will manage for routine maintenance and minor / major
breakdown repair with its spares at our cost.
17
10.
We will keep the DG set in excellent condition and try to give
maximum availability.
34.8
In view of the above, it is explicitly clear that in the present case effective
control is not parted with by the said assessee. The DG sets given on hire by the
assessee to their clients are for a specific period. Thereafter, if the contract is not
renewed the same are brought back by the assessee. All the maintenance work,
minor / major breakdowns etc. are being looked after by the said assessee and in
some cases the assessee has provided a technician to manage the routine
maintenance of the generator during the day time by deputing him to the clients
premises. It is thus evident that the right of control and effective maintenance of the
DG sets always rests in the hand of the assessee. Had it been a case of transfer of
effective control, such conditions would not have been agreed upon at the time of
entering into the contract. The CBEC’s clarification dated 29-02-2008 clearly
mentions that transfer of right to use any goods is leviable to sales tax / VAT as
deemed sale of goods. Transfer of right to use involves transfer of both possession
and control of the goods to the user of the goods. It further clarifies that 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. In the
case before me there is no dispute to the fact that the said assessee has not
transferred the right of possession. Thus it satisfies both the essential criteria of the
definition of taxable service of “Supply of tangible goods services” under Section
65 (105)(zzzzj) of the Finance Act, 1994. The situation is analogous to the
chartering of aircraft. I place reliance on the CBEC Circular Dy.No 20/Comm
(ST)/2009 dated 9.2.2009 where in it has been clarified that where the crew is also
provided by the owners of the aircraft as in a wet lease of aircraft effective control is
not transferred. Thus supply of tangible goods is without transferring right of
possession and effective control of said goods.
34.9
I observe that Circulars issued by the Board are binding on the departmental
officers as has been held by the Hon’ble Supreme Court in the case of Ranadey
Micronutrients Vs 1996(87)ELT19(SC) and Paper Products Ltd Vs CCE
1996(112)ELT 765(SC).
18
34.10 I observe that goods in question in the case before me are the “Diesel
Generating Sets (D.G. Sets) ” and there cannot be any argument that the same are
not tangible goods. The term “tangible goods” has not been defined under the
Finance Act and therefore, I refer other sources for the same. The term “Goods” has
been defined in section 65(50) of Finance Act, 1994 to mean the same as in section
2(7) of Sale of Goods Act, 1930. “Goods” has been defined under the Sale of Goods
Act to mean every kind of movable property other than actionable claims and
money. As per Random House Webster’s Unabridged Dictionary, tangible means
capable of being touched or discernible by the touch. The goods being supplied
should be tangible goods i.e. having physical existence and form, in order to attract
liability under this category. In the case before me the goods are tangible in nature.
34.11 This service category envisages use of goods by the recipient of service and
the expression “use” would mean the physical exploitation of the said goods by the
recipient of service who has become capable of exploitation of the said goods, but
without having legal rights of possession and effective control. Therefore, I
conclude that service is provided in relation to supply of tangible goods.
34.12.
The above said service is provided by any person i.e. the said assessee
to any other person i.e it’s various customers.
34.13.
In view of the above, I find that all the three ingredients of the taxable
service of “Supply of tangible goods services” as defined under Section 65 (105)
(zzzzj) of the Finance Act, 1994 are fully satisfied. I also place reliance on the
judgment in the case of Indian National Ship Owner’s Association v. Union of India
(2009) 14 STR 289 (Bombay), wherein, it was held that providing vessels on time
charter basis without giving effective control was covered under Section
65(105)(zzzzj) of the Act.
34.14 In view of the above discussions, I find that an amount of Rs.5,89,47,849/received by the said assessee from various customers as Generator hiring charges as
detailed in Annexure-A to the show cause notice, is the taxable value under the
category of “Supply of tangible goods services” as defined under Section 65 (105)
(zzzzj) of the Finance Act, 1994 and service tax of Rs. 60,71,628/- on the said
taxable value is recoverable from them under proviso to Section 73(1) of the
Finance Act, 1994 along with interest under Section 75 ibid.
19
35.
Now, I look into the said assesseee’s contention that in case service tax is to
be levied, it should be levied on cum tax value of the services and not on the entire
value.
35.1
I observe that in the case before me it was the assessee’s belief that no
service tax was leviable on such payments, therefore, he could not have included the
service tax in the gross amount of the invoices raised to its customers who had hired
the D.G.Sets. Thus, the said assessee was in no position to collect any service tax
from its customers nor is there any evidence on record to show that the invoices
specifically indicate that the gross amount charged included the amount of service
tax.
35.2
I place reliance on the judgment of M/s Shakti Motors reported at 2008(12)
STR 710(Tri. Ahmd.) wherein, it has been observed as under:
“I am unable to agree with the advocate that the amount realized has to be
treated as cum-tax value in view of the provision of Section 67(2) of Finance
Act, 1994, which is reproduced below for ready reference:“Section 67(2). Where the gross amount charged by a service provider, for
the service provided or to be provided is inclusive of service tax payable, the
value of such taxable service shall be such amount as, with the addition of
tax payable, is equal to the gross amount charged”.
In terms of the above provision if the invoice does not specifically say that
the gross amount charged includes service tax, it cannot be treated as cumservice tax price. Therefore, in the absence of any evidence to show that
invoices had indeed been prepared in this manner, cun-tax value benefit
cannot be extended.”
35.3
Accordingly, I find that claim made by the said assessee in this regard is not
correct and hold that benefit of Cum-Tax value is not allowable to the assessee.
36.
It has also been contended by the said assessee that the rental charges on DG
sets provided by them to SEZ units are exempted from service tax and therefore
amount of Rs. 10,42,609/- should be treated as exempt service and demand may be
reduced to that extent. I find that along with their written reply, the said assessee has
20
submitted ledger extract of SEZ sales and corresponding invoices raised to clients
located in SEZ area. According to the ledger for the period 2010-11, I find that the
said assessee has received an amount of Rs.10,42,609/- against hire charges of DG
sets supplied to their clients located in SEZ. In this regard, I find that Notification
No.09/2009-ST dated 03.03.2009, issued by the Government of India, laid down the
conditions under which the service tax on the services provided to a unit situated in
SEZ were exempted. Notification No.09/2009-ST dated 03.03.2009 is reproduced
hereinbelow:
[TO BE PUBLISHED IN THE GAZETTE OF INDIA, EXTRAORDINARY, PART II, SECTION 3,
SUB-SECTION (i)]
GOVERNMENT OF INDIA
MINISTRY OF FINANCE
(Department of Revenue)
New Delhi, the 3rd March, 2009.
Notification No.9/2009-Service Tax
G.S.R.
(E).- In exercise of the powers conferred by sub-section (1) of section 93 of the Finance
Act, 1994 (32 of 1994), and in supersession of the notification of the Government of India, Ministry
of Finance ( Department of Revenue), No. 4/2004-ServiceTax, dated the 31st March, 2004,
published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section ( i ) dated the 31st
March, 2004, vide, G.S.R.248(E), dated the 31st March, 2004, except as respects things done or
omitted to be done before such supersession, the Central Government, on being satisfied that it is
necessary in the public interest so to do, hereby exempts the taxable services specified in clause
(105) of section 65 of the said Finance Act, which are provided in relation to the authorised
operations in a Special Economic Zone, and received by a developer or units of a Special
Economic Zone, whether or not the said taxable services are provided inside the Special Economic
Zone, from the whole of the service tax leviable thereon under section 66 of the said Finance Act:
Provided that–
(a)
the developer or units of Special Economic Zone shall get the list of services specified in
clause (105) of section 65 of the said Finance Act as are required in relation to the
authorised operations in the Special Economic Zone, approved from the Approval
Committee (hereinafter referred to as the specified services);
(b)
the developer or units of Special Economic Zone claiming the exemption actually uses the
specified services in relation to the authorised operations in the Special Economic Zone;
(c)
the exemption claimed by the developer or units of Special Economic Zone shall be
provided by way of refund of service tax paid on the specified services used in relation to
the authorised operations in the Special Economic Zone;
(d)
the developer or units of Special Economic Zone claiming the exemption has actually paid
the service tax on the specified services;
(e)
no CENVAT credit of service tax paid on the specified services used in relation to the
authorised operations in the Special Economic Zone has been taken under the CENVAT
Credit Rules, 2004;
(f)
exemption or refund of service tax paid on the specified services used in relation to the
authorised operations in the Special Economic Zone shall not be claimed except under this
notification.
2.
The exemption contained in this notification shall be subject to the following conditions,
namely:-
21
(a)
the person liable to pay service tax under sub-section (1) or sub-section (2) of section 68 of
the said Finance Act shall pay service tax as applicable on the specified services provided
to the developer or units of Special Economic Zone and used in relation to the authorised
operations in the Special Economic Zone, and such person shall not be eligible to claim
exemption for the specified services:
Provided that where the developer or units of Special Economic Zone and the person liable
to pay service tax under sub-section (2) of section 68 for the said services are the same
person, then in such cases exemption for the specified services shall be claimed by that
person;
(b)
the developer or units of Special Economic Zone shall claim the exemption by filing a claim
for refund of service tax paid on specified services;
(c)
the developer or units of Special Economic Zone shall file the claim for refund to the
jurisdictional Assistant Commissioner of Central Excise or the Deputy Commissioner of
Central Excise, as the case may be;
(d)
the developer or units of Special Economic Zone who is not registered as an assessee
under the Central Excise Act, 1944 (1 of 1944) or the rules made thereunder, or the said
Finance Act or the rules made thereunder, shall, prior to filing a claim for refund of service
tax under this notification, file a declaration in the Form annexed hereto with the respective
jurisdictional Assistant Commissioner of Central Excise or the Deputy Commissioner of
Central Excise, as the case may be;
(e)
the jurisdictional Assistant Commissioner of Central Excise or the Deputy Commissioner of
Central Excise, as the case may be, shall, after due verification, allot a service tax code
(STC) number to the developer or units of Special Economic Zone within seven days from
the date of receipt of the said Form;
(f)
the claim for refund shall be filed, within six months or such extended period as the
Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise,
as the case may be, shall permit, from the date of actual payment of service tax by such
developer or unit to service provider;
(g)
(i)
the refund claim shall be accompanied by the following documents, namely:a copy of the list of specified services required in relation to the authorised operations in the
Special Economic Zone, as approved by the Approval Committee;
documents for having paid service tax;
a declaration by the Special Economic Zone developer or unit, claiming such exemption, to
the effect that such service is received by him in relation to authorised operation in Special
Economic Zone.
(ii)
(iii)
(h)
the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central
Excise, as the case may be, shall, after satisfying himself that the said services have been
actually used in relation to the authorised operations in the Special Economic Zone, refund
the service tax paid on the specified services used in relation to the authorised operations
in the Special Economic Zone;
(i)
where any refund of service tax paid on specified services is erroneously refunded for any
reasons whatsoever, such service tax refunded shall be recoverable under the provisions
of the said Finance Act and the rules made thereunder, as if it is a recovery of service tax
erroneously refunded.
3.
The exemption contained in this notification shall apply only in respect of service tax paid
on the specified services on or after the date of publication of this notification in the Official Gazette.
……………………………
[F.No.354/163/2006-TRU]
(Unmesh Sharad Wagh)
Under Secretary to the Government of India
22
36.1
On verification of the documents submitted by the said assessee, it is
found that they have only tried to bring out the fact that the unit to which they had
supplied DG sets was located in SEZ. However, they have not provided any
documents with regard to the conditions as laid down under Notification
No.09/2009-ST dated 03.03.2009. In absence of such vital evidences, I do not
consider the said assessees plea that the rental charges charged by them on DG sets
supplied by them to SEZ units are exempted from service tax and therefore amount
of Rs. 10,42,609/- should be treated as exempt service. Hence, I hold that the
demand of service tax on the amount of Rs.10,42,609/- is proper.
37.
I now take up the issue of imposition of penalty under section 76 and
77 of the Act.
37.1
As regards the issue of imposition of penalty under Section 76 of the
Finance Act, 1994, I observe that as discussed above the said assessee failed to pay
service tax on the Generator hiring charges received from various customers under
the category of “Supply of tangible goods service”. Therefore, I hold them liable for
penalty under Section 76 of the said Act.
37.2
As regards imposition of penalty under section 77 of the Finance Act,
1994, I observe that as discussed above the said assessee were liable to pay service
tax under the category of “Supply of tangible goods services” under Section 65
(105)(zzzzj) of the Finance Act, 1994 as provider of service, but they failed to
obtain registration as required under section 69 of the Finance Act, 1994 read with
Rule 4 of the Service Tax Rules, 1994. The said assessee had provided “Supply of
tangible goods services” prior to obtaining the service tax registration in the said
category. The said contraventions have made the said assessee liable to penalty
under section 77(1) (a) of the Finance Act, 1994.
37.3
As regards their contention for invoking Section 80 of the Finance
Act, 1994 for waiver of penalty, I find that the said assessee have not produced any
reasonable cause for the failure to pay service tax except that it was their bonafide
belief that service tax was not payable by them and it was an interpretational issue. I
have already discussed the issue of classification and taxability under the category
of “Supply of tangible goods services”. I observe that if the said assessee had any
doubt with regard to classification or taxability, then they should have approached
the service tax authorities for clarification of doubt to ascertain the taxability of the
23
service provided by them and their liability to pay service tax. Therefore, I consider
it appropriate to hold the said assessee liable to penalty under Section 76 and 77 of
the Finance Act, 1994.
38.
In view of the foregoing discussion, I pass the following order:
ORDER
(i)
(ii)
(iii)
(iv)
I confirm the demand of service tax of Rs.60,71,628/- (Rupees Sixty
Lakh Seventy One Thousand Six Hundred Twenty Eight only) for the
period from 01.04.2010 to 31.03.2011 detailed in Annexure – A to the
show cause notice under the category of “Supply of tangible goods
services” under Section 73(2) of the Finance Act, 1994 and order to
recover the same from the said assessee;
I order to recover interest on the above confirmed demand of
Rs.60,71,628/- (Rupees Sixty Lakh Seventy One Thousand Six Hundred
Twenty Eight only) at the prescribed rate from the said assessee under
Section 75 of the Finance Act, 1994;
I impose a penalty of Rs.200/- (Rupees Two Hundreds Only) per day
for the period during which failure to pay the tax continued or at the rate
of 2% of such tax, per month, whichever is higher, till the date of actual
payment of the outstanding amount of service tax upon the said assessee
under Section 76 of the Finance Act, 1994; provided further that the
amount of penalty payable in terms of this section shall not exceed the
service tax payable by the said assessee for the period from April’2010 to
March’2011.
I impose penalty under section 77(1)(a) on the said assessee who shall be
liable to pay a penalty of five thousand rupees or two hundred rupees for
every day during which such failure continues, whichever is higher,
starting with the first day after the due date, till the date of actual
compliance as required under section 69 of the Finance Act, 1994 read
with Rule 4 of the Service Tax Rules, 1994.
( Tejasvini P. Kumar)
Commissioner, Service Tax,
Ahmedabad
BY SPEEDPOST
F. No.STC/4-67/O&A/10-11
Date: 20.12.2012
To
M/s. Gujarat Powerfield Pvt. Ltd,
“Powerfield House”,
Near Yash Motors, Narol,
Ahmedabad – 382 405.
Copy to:
1. The Chief Commissioner, Central Excise & Service Tax, Ahmedabad Zone,
Ahmedabad.
2.
The Additional Director General, DGCEI, AZU, 1st Floor Preema Chambers, Near
Mithakhali Six Roads, Ahmedabad.
3. The Deputy Commissioner, Service Tax, Division-II, Ahmedabad.
4. The Superintendent of Service Tax, Range-VI, Division-II, Ahmedabad.
5. Guard File.
24