The Hon’ble CESTAT Delhi vide its order dated 07.12.2023 in the matter of M/s R.V. Infrastructure Pvt. Ltd. Vs. Commissioner of Central Tax in Service Tax Appeal No. – 50616 of 2018, allowed the appeal filed by the assessee by setting aside the adjudication order confirming the demand of Service Tax, finding that show cause notice issued to assessee without properly analysing the activity carried on by the assessee, which is incumbent upon the department to ascertain the actual nature of services and simply classifying the activity of supply of transit mixers under the category of ‘Commercial and Industrial Construction Service’ ‘Works Contract Service’ for the purpose of proposing Service Tax Liability, would be absolutely vague.  There is not even a whisper of ‘Supply of Tangible Goods Service’ in the show cause notice and its applicability to the services provided by the assessee, yet the Commissioner in the order going beyond the scope of the Show Cause notice has held that the services provided by the assessee would fall under the category of ‘Supply of Tangible Goods’, which is not sustainable.  Further, the control of transit mixers with respect to method, manner and time of using them was absolutely vested in M/s L& T.  The appellant had not rendered any service to L&T by providing the transit mixers on hire rather have transferred the right to use goods to L&T chargeable to VAT only.  Lastly, the sale of RMC by the assessee would amount to sale transaction and the appellant is not liable to pay service tax on the supply of RMC.

The Appellant filed appeal before the Hon’ble CESTAT, Delhi challenging The Order-in-original No. 05/GST-West/KAM/2017-18 dated 30.11.2017 passed by the Commissioner confirming the demand of service tax and also the penalty as proposed in the show cause notice.

Facts of the Case: –

• The appellant has been issued with demand-cum-show cause notice dated 23.10.2012, inter-alia stating that, audit of M/s Larsen & Toubro Limited, New Delhi was conducted by the office of Director General of Audit (Central Revenue) New Delhi from 8^th May, 2009 to 12th May 2009 for the period 2007-08 to 2008-09.
• During the audit, it was noticed that M/s R. V. Infrastructural Pvt. Ltd. working as sub-contractor has provided taxable services in respect of construction activities undertaken on behalf of M/s Larsen & Toubro Limited which may be classified as “Commercial or Industrial Construction” Services as per Section 65(105) (zzq) defined as per Section 65(25b) and “Works Contract Services” as per Section 65(105) (zzzza) of the Finance Act, 1994. However, not paying Service Tax on the amount received from M/s Larsen & Toubro Limited.
• That vide office letter dated 08.07.2011 & 25.11.2011, the appellant was requested to furnish the details of gross amount received and service tax paid for the period 2007-08 to 2010-12. The assessee replied vide their letter dated 04.09.2012 which was incomplete and therefore the reply of the assessee was found inadmissible.  Under the circumstances, the Department was left with no alternative but to issue a demand cum show cause notice on the basis of facts and records available.
• The Appellant was accordingly called upon to show cause as to why: – Assessment in terms of Section 72(a) should not be resorted and the Service Tax amounting to Rs. 1,98,91,415/- should not be demanded and recovered from them under Section (1) of Section 73 along with interest under Section 75 and penalties under Section 76, 77 & 78.
• That as per the charges in the show cause notice the services rendered by the appellant to M/s L&T Limited was proposed to be classifiable as ‘Commercial or Industrial Construction Services’ as per Section 65 (105) (zzq) and ‘Works Contract Services’ as per Section 65(105) (zzzza) of the Finance Act, however they have not paid service tax on the amount received from M/s L&T Limited.
• Though, according to the appellant he is engaged in providing machineries i.e. Transit Mixer on hire to M/s L&T Limited, sold Ready Mix Concrete (RMC) and also provided transportation of concrete direct to M/s L&T Limited to Delhi Airport Project Site in their own vehicles on which they were not liable to pay service tax under the Act.
• The case of the revenue is that the appellant had failed to provide any information to make the assessment and therefore the show cause notice for the period following the one for which the show cause notice was envisaged was to be issued on identical irregularity for the period 2008-09 to 2011-12 on the basis of best judgement assessment under Section 72 (b) assuming 50% increase in value of the services provided as compared to the previous year.
• In adjudication proceedings, the Ld. Commissioner after the analysis of clauses of the agreement between the Appellant and L&T Limited, and relying on the decision of this Tribunal in the case of Greatship (India) Ltd., vs. Commissioner of Service Tax, Mumbai-I-2015 (37) STR 533 (Tri. Bom.), concluded that the final effective control and right of possession of the transit mixer remained with the appellant and hence they were liable for service tax under the category of ‘Supply of Tangible Goods Service’. With respect to sale of RMC, the learned Commissioner distinguished the decision of this Tribunal as upheld by the Supreme Court relied upon by the appellant in the case of GMK Concrete Mixing Pvt. Ltd., vs. Commissioner of Service Tax, Delhi -2012 (25) STR 357 (Tri. Del.) and observed that the appellant has not submitted sufficient documents for sale of RMC and hence they were liable to pay service tax on this activity.  Similarly, on the transportation charges, learned Commissioner observed that the appellant has not submitted the requisite documentary evidence to establish that they have rendered any transportation services to their client and therefore liable to service tax.  Accordingly, the Ld. Commissioner invoking extended period of limitation under Section 73(1) held that the Appellant is liable to service tax amounting to Rs. 2,04,88,240/- along with interest under Section 75 and penalties under Section 76, 77 & 78.

Appellant’s Submissions: –

• The preliminary objection taken by the appellant is that the show cause notice is vague and the impugned order is beyond the scope of the show cause notice and hence the proceedings need to be dropped. The Appellant referred to series of decisions to support its stand.
• It was argued that the invocation of Section 72(a) of the Act is not tenable.
• On merits, it was submitted that the appellant submitted that hiring of Transit Mixer is covered under ‘right to use’ and not under the service of ‘Supply of Tangible Goods’ and sale of RMC is not liable to service tax as it is a simple sale of transaction and there is no element of service in it and therefore, they have been paying VAT thereon.
• With respect to transportation of concrete, it was submitted that in case of Goods Transport Agency service (GTA), the service tax is levied on reverse charge mechanism in terms of Rule 2(1)(d)(b) of Service Tax Rules, 1994 on the service recipient or the person who has paid the freight.
• Further, it was submitted that they were under a bonafide belief that the activities undertaken by them were not liable to service tax as they were paying VAT. Therefore, extended period is not invocable.

Revenue’s Submissions: –

• On the other hand, the findings of the Commissioner in the impugned order were reiterated on the behalf of the revenue.
• In addition, it was submitted that the appellant is working under self-assessment system and therefore they were duty bound to correctly assess the service tax liability and filed the return accordingly but they never disclose the correct facts to the Department which were honoured only at the time of audit and even thereafter though opportunity was granted but the appellant had not submitted the requisite reply along with necessary documents. Consequently, the Department had no option but to invoke the provisions under Section 72 for making the assessment.
• Since there are several activities which are composite in nature and involves both transfer of the material as well as the service activities and therefore VAT as well as the service tax liability arises, however it cannot be said that if anybody has paid VAT he would not be liable to pay the service tax and therefore, prays that the appeal is to be dismissed.

Held: –

• The Hon’ble CESTAT, Delhi after considering the submissions made and facts of the case and on perusal of the show cause notice, found that the contents of the show cause notice are vague and there is no clarity on the actual activity carried out by the appellant. The show cause notice is completely silent on the nature of respective activities so as to fall under any specific ‘service’ as defined under the Finance Act. The authorities while issuing the show cause notice merely proceeded on the footing that the appellant has not submitted the relevant figures and therefore the department is left with no option but to issue the show cause notice on the basis of available facts and record with them.
• The Hon’ble Bench took note of the decision of Hon’ble CESTAT, Delhi in Shubham Electricals Vs. Commissioner of C. Ex. and ST, Rohtak – 2015 (40) STR 1034, wherein it was held that ‘the failure to gather relevant facts for issuing a proper show cause notice cannot provide justification for a vague and incoherent show cause notice which has resulted in a serious transgression of the due process of law.’ & the decision of Indo Nippon Chemicals Co. Ltd. Vs. Commissioner of C. Ex. Vadodara – 2009 (16) S.T.R. 639, wherein it was observed that ‘law gives sufficient powers to officers to conduct enquiries and investigations to bring out the truth, and without making any efforts, on the basis of non-production of documents, on the basis of assumptions and presumptions, a case cannot be made out against the appellant’ which is the case here.
• The Hon’ble Bench, from the records, found that in response to the query made by the department vide their letter dated 8.7.2011, the appellant duly submitted its response vide its letter dated 04.09.2011. And, vide its letter dated 15.10.2012 submitted Form ST-2 dated 15.7.2010, whereby they were registered under the taxable services, i.e., “supply of tangible goods for use service” and also placed on record the turnover details of L&T during the period 2007–08 to 2011–12 separately for each of the activities.
• Therefore, when the show cause notice was issued by the department on 23.10.2012, the department was aware of the nature of the services which the appellant was rendering to M/s L & T. However, the department while issuing the show cause notice did not even made any efforts to make out a case of applicability of services of “supply of tangible goods” – Section 65 (105) (zzzzj).
• It was found by the Hon’ble Bench that the twin conditions for its applicability of ‘Supply of Tangible Goods’ have been considered by the Bombay High Court in Indian National Ship Owners Association 2009 (14) STR 289 and affirmed by the Supreme Court in 2011 (21) STR 3. The department completely ignored the provisions of law as well as the interpretation placed thereon by the judicial decisions resulting in absolutely vague show cause notice.
• Therefore, it was found by the Hon’ble Bench that the department cannot take shelter on account of failure of the appellant to produce and supply the documents, and it was incumbent upon them to have ascertained the actual nature of the services for the purpose of levying the service tax under the respective clause.
• The contents of the show cause notice as referred above, only stated that the appellant working as sub-contractor provided taxable services in respect of construction activities, undertaken on behalf of M/s L&T Limited which may be classified as “Commercial or Industrial Construction Services” as per section 65 (105) (zzq) as defined in section 65(25b) and “Works Contract Service” as per section 65 (105) (zzzza) of the Finance Act. We have no hesitation in holding tht the show cause notice needs to be quashed being vague.
• While dealing with the other aspect that the impugned order is not sustainable being beyond the scope of show cause notice, the Hon’ble Bench found that there is not even a whisper in the show cause notice about the provisions of section 65(105)(zzzzj) defining “Supply of Tangible Goods for use Service” and its applicability to the services rendered by the appellant yet the Commissioner in the impugned order has levied service tax holding that services provided by the appellant falls in the category of “Supply of Tangible Goods for use Service”.
• Repeatedly the Apex Court as well as this Tribunal has reiterated the principle that confirmation of service tax being beyond the allegations raised in the show cause notice, is not sustainable and on this legal infirmity, the proceedings will fail. Thereafter, the Hon’ble Bench took note of the decisions relied upon by the Appellant in Futura Interiors vs. Commissioner of GST & C Ex, Chennai 2019 (24) GSTL 261, JSEL Securities Ltd vs. Commissioner of C. Ex & S, Jaipur-I 2017 (4) GSTL 8, and also the decision of Hyderabad bench of Tribunal in Inox Leisure Ltd. Vs. Commissioner of Service Tax, Hyderabad – -2022 (61) GSTL 326, which was later on affirmed by Hon’ble Supreme Court in 2022 (61) GSTL 342.
• On merits, it was found that activity pertains to supply of Transit Mixers on hire by the appellant to M/s L&T and the Hon’ble bench agreed with the submissions made on the behalf of the appellant that the services rendered by them cannot be classified under the activity of Construction just because the main Contractor M/s L&T was engaged in providing the construction services.
• The Hon’ble Bench found that the Circular No. 147/16/2011 dated 21.10.2011 relied upon by the Appellant is rightly applicable to the present case, as it clarified that just because the main contractor is providing the WCS service in respect of projects involving construction of roads, airports, railways, transport, terminals, bridges, tunnels, dams, etc., it would not automatically lead to the classification of services being provided by the sub-contractor to the Contractor as WCS.
• It was found by the Hon’ble Bench that This issue of classifying the supply of “Transit Mixer” on hire is squarely covered by the decision of High Court of Andhra Pradesh in S. Lamba & Sons vs. State of Andhra Pradesh, 2015 (324) ELT 316 (AP), where the learned Division Bench in view of the principle to construe the document as a whole, considered the various clauses of the agreement in that case and concluded that supply of transit mixers was transfer of the right to use transit mixers. Also, the Principal Bench of this Tribunal in Express Engineers & Spairs Pvt. Ltd. vs. Commissioner of CGST, Ghaziabad, 2022 (64) GSTL 112, referring to the decision of the Apex Court in Bharat Sanchar Nigam Ltd vs. Union of India 2006 (2) STR 161, observed that the term “transfer of right to use goods” has neither been defined in the Constitution nor in any of the State VAT Acts or Central Sales Tax Act provided five attributes for a transaction to constitute a transfer of right to use goods.
• The Tribunal also distinguished the decision of the Andhra Pradesh, High Court in Rashtriya Ispat Nigam Ltd., and affirmed by the Supreme Court, 2013 (31) STR 513, the Tribunal took note of the fact that if under the terms of the contract, under which there was a transfer of the right to use, that it was held that since the effective control of the machinery, even while the machinery was in the use of the contractor, was that of the company that had given the machinery on hire, sales tax could not have been charged from the appellant under the provisions of the State Sales Tax Act. Further, taking note of the circular dated 29.2.2008 and also the earlier circular dated 23.8.2007, the Tribunal held that the supply of diesel generator sets to the customers would not amount to supply of tangible goods use service.
• The Hon’ble Bench in view of the above decisions, examining the facts of the present case and on analysis of the terms of the contract entered with L&T i.e., the operating crew would be provided by noticee for this transit mixer; (b) It was further mentioned at S.No. 8 of Agreement that the responsibility of repair and maintenance of transit mixer would be of noticee at their own cost and no charges would be paid for breakdown perio;. (c) It was mentioned at S. No. 10 of Agreement that log book for the equipment indicating details of working hours, breakdown hours, overtime, fuel/lubricants drawn etc. was to be maintained and to be signed jointly by the representative of notice;. (d) It was mentioned at S. No. 16 of Agreement that safety and security of the operator and machine shall be the responsibility of noticee and not of L&T.” found that similar clauses have been considered in the decisions referred above by us, but they have not been held to be of such nature so as to classify the same as services for levy of service tax under the Finance Act.
• In Express Engineers & Spares, (supra), the Tribunal specifically held that merely because the appellant was responsible for the maintenance and repair of the diesel generator sets does not mean that he has retained effective control and it will not change the nature of the transaction. Similarly, it was also held that maybe the appellant is providing operators to the customer, but these operators were working entirely under the direction and control of the customers and the appellant had no control over them and therefore providing of operators who are actually under the direction or control of the customers would not mean that the transaction was not that of sale.
• It was found by the Hon’ble Bench that from the terms & conditions of the agreement, it is quite evident that the Appellant did not have any direct or indirect control on the transit mixers once they are provided on hire to M/s L & T. Therefore, it was held that the full control of the transit mixers, i.e., on the method, manner, and time of using them is absolutely vested in M/s L&T. The appellant had not rendered any service to L&T by providing the transit mixers on hire rather have transferred the right to use goods to L&T chargeable to VAT only. 
• Further, the reliance placed by revenue on the decision of Greatship (India) Ltd., (Supra), is misplaced.
• With respect to activity of supply of RMC, it was found by the Hon’ble Bench that the appellant has paid VAT considering it to be a sale transaction has been considered earlier by this Tribunal in the case of GMK Concrete Mixing Pvt. Ltd., vs. Commissioner Service Tax, Delhi, 2012 (25) STR 357, wherein it was held that ‘Noticing that Contract between the parties was to supply ready mix concrete and not to provide any taxable service, Finance Act, 1994, not being a law relating to commodity taxation, but services are declared to be taxable under this law and therefore the adjudication made under mistake of fact and law fails’. The said order was affirmed by the Apex Court as reported in 2015 (38) STR J113.  The issue therefore, whether the supply of RMC by the appellant would amount to sale transaction or an activity of service stands decided.  Following the same, it was held that the appellant is not liable to pay service tax on the supply of RMC to M/s L&T and hence the demand of service tax in that regard is not sustainable.
• Dealing with the issue of transportation of concrete from L&T to Delhi airport project site during the period 2008–09 and 2009–10 using their own vehicle, the Hon’ble Bench referred the Budget Speech of the Hon‟ble Finance Minister for the year 2004–05, where it was said, “I may clarify that there is no intention to levy service tax on truck owners or truck operators”, also considered the submissions made on the behalf of the appellant that ‘service tax is levied on the activity of transport agency or concerns or transport companies who provide facility for the transportation of goods and issue consignment note but when a producer or manufacturer provides the services for transportation of goods by his own transport and does not issue any consignment note, the same is not covered under the service of Goods Transport Agency (GTA).’
• Thereafter, on perusal of definition of ‘Goods Transport Agency’ as provided under Section 65 (105) (zzp) and section 65(50b) of the Act, and referring to the decisions of Laxmi Narayan Mining Company vs Commissioner of ST, Bangalore, 2009 (16) STR 691; K.M.B. Granites Pvt. Ltd., vs. Commissioner of Central Excise, Salem, 2010 (19) STR 437. Also, the decision of South-Eastern Coalfields Ltd. vs. Commissioner of CEX, Raipur, 2017 (47) STR 93, wherein it was held that ‘in order to be called as „Goods Transport Agency‟ a person should fulfil two conditions, namely, he should provide service in relation to transport of goods by road, and issue consignment note, by whatever name called and since in the present case, admittedly, there was no consignment note issued, the said transporter cannot be called goods transport agency, and therefore the liability under the goods transport agency service was held to be unsustainable’, found that we are in complete agreement with the submissions of the  the appellant in view of our discussion above and hence we set aside the service tax liability on the appellant under the category of Goods Transport Agency.
• Since, the issue both on the preliminary grounds as well as on merits were decided in favour of the appellant and against the revenue, the Hon’ble Bench set aside the impugned order and consequently, the demand of service tax proposed in the show cause notice under Commercial or Industrial Construction services as per section 65 (105) (zzq) defined as per section 65 (25b) and Works Contract Services as per section 65 (105) (zzzza) of the Act nor are they chargeable to service tax under “Supply of Tangible Goods Use of Goods”. Consequently, neither the extended period of limitation is invocable nor the penalty and interest is leviable under the Finance Act.

The Hon’ble CESTAT, Delhi with the above findings and observations, allowed the appeal of the appellant by setting aside the impugned order.

To read the complete judgment 2023 Taxo.online 1451