The Hon’ble CESTAT vide order dated 02.02.2022 in the matter of M/s Subash Light House Vs Commissioner, Central Goods and Service Tax, Audit-II in Service Tax Appeal No. – 50176 of 2019 held that the supply of generators with technician and transfer of effective control and possession would be covered under Right to use and is not liable to Service tax under the category of Supply of Tangible Goods.

The Appellant preferred the appeal before the Hon’ble CESTAT assailing order dated 23.10.2018 passed by the Ld. Commissioner, CGST (Audit-II) where in the demand of Service Tax was confirmed against the Appellant under the category of Supply of Tangible Goods Section 65(105) (zzzzj) for supply of mobile generators.

Facts: –

• The Appellant is registered under Sales Tax/VAT law and engaged in the supply of fixed and mobile generator sets on rental basis to their clients.
• The department demanded Service Tax on the aforesaid activity under the category of Supply of Tangible goods.
• Thereafter the Ld. Commissioner while passing the impugned order and considering the submissions made by the Appellant dropped the demand for the supply of fixed generators relying on the decision of Supreme Court in the matter of Bharat Sanchar Nigam Ltd – 2006 (2) STR 161 – SC and on the decision of Rashtriya Ispat Nigam Ltd. – (RINL) (2002) 126 STC 114 (SC) and held that the supply of fixed generators being ‘deemed sale’ would be covered under ‘transfer of right to use’.
• However, the demand on the supply of mobile generators provided with operators was confirmed against the Appellant considering it to be falling under the category of Supply of Tangible Goods and not covered under ‘transfer of right to use’.
• The demand was confirmed on the ground that the Appellant has provided the operator, who operated and carried out repair and maintenance, thus the effective control and possession was with the Appellant.

Appellants Plea: –

• The Appellant relying on CST, Delhi Vs. ITD ITD Chem Joint Venture – 2019 (24) GSTL 568 (Tri. – Del.), contended that in the present case it has transferred the D.G. sets to its clients along with effective control and possession and would be covered under ‘deemed sale’ in terms of Article 366(29A), thus the transaction is subject to VAT not Service Tax.
• Further for the period 01.04.2011 to 30.06.2012, the supply of generators along with transfer of right to use would not be covered under the ‘supply of tangible goods’ and thereafter for the period 01.07.2012 to 31.01.2016 cannot be covered under declared service – Section 66E (f).
• The said activity is excluded from the definition of ‘service ‘as defined under Section 65B (44) and the Appellant is paying VAT on the supply of generators.
• Even if it is assumed that the transaction is leviable to Service Tax the appellant may be allowed to avail CENVAT credit of excise duty paid on Generators.

Held: –

• In View of Article 366(29) (d) of the Constitution transfer of right to use any goods for any purpose, whether or not for a specified period, for cash, for deferred payment or other valuable consideration, has to be considered as ‘deemed sale’ or purchase of goods.
• The appellant is providing the mobile gensets to its client which have been used as per the desire and will of the clients in case when there is no electricity or the electricity goes off.
• The use of gensets is purely on the requirement and directions of the client, thus the effective control was completely in the hands of the clients as the client was at liberty to run or not to run the gensets hired.
• The Hon’ble Bench referring to the decision of Hon’ble Apex Court in Bharat Sanchar Nigam Ltd. – 2006 (2) STR 161 (SC) held that all the five criteria mentioned by the Apex Court in the judgment are fulfilled in favour of the Appellant as the gensets were available for delivery and were supplied as per the agreement, the clients have legal right to use the gensets supplied, the appellant i.e. owner cannot transfer the gensets to any other client during the period of agreement.
• Referring to the Circular No. – 198/08/2016 – ST dated 17.08.2016 observed that in order to distinguish such transaction as sale of goods or supply of services, it is essential to determine that as per the contract there is a transfer to right to use or not.
• Since the supply of gensets is sale of goods in terms of Article 366(29A) of the Constitution of India and the appellant has duly discharged its liability under the VAT/Sales Tax law on the transaction, there remains no liability on the part of the appellant under the Service Tax Law.

 

The Hon’ble CESTAT with the above findings allowed the appeal filed by the Appellant with consequential relief as per law.