In a recent case before Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) it was ruled that machinery supplied under a lease agreement shall be treated as Sale and is exempt from Service Tax under Supply of Tangible Goods for use.
A number of appeals were filed in the Customs, Excise & Service Tax Appellate Tribunal, Ahmedabad, since appeals involved common issue and facts they were taken up together for disposal.
The department had conducted an audit and it was observed that the assessee had supplied machinery on lease rent to to M/s. Arvind Ltd under lease agreements, but had failed to pay the service tax under the category of tangible goods for use service.
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Periodical show cause notices ( SCN ) were issued for recovery pf service tax along with interest and penalty. Aggrieved by the Orders-In-Original the Assessee filed the appeals before the Commissioner (Appeals), who upheld the Order-in-original and rejected the Assessee’s appeals.
Advocate S.J Vyas counsel of assessee submitted that the Assessee had leased out their textile machineries to to M/s. Arvind Ltd along with transfer of right to possession and effective control. He submitted that the appellant had paid VAT considering the transaction as deemed sale.
Deputy Commissioner, Tara Praksah and Superintendent Anoop Kumar Mudvel, on behalf of the Revenue submitted that on the ground of the ground of conditions of agreement by the Assessee on the lessee and the said transaction falls within the definition of taxable service of supply of tangible goods for use service.
The tribunal considered the submissions made by both sides and found that the assessee had rented out the textile machineries to M/s. Arvind Ltd for manufacture of textile products.
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Reading the agreement it was clear that right to possession and effective control of machineries had transferred, the transaction is of deemed sale in terms of Article 366 ( 29A ) of the Constitution of India and the Assessee admittedly paid the said VAT.
Therefore, the transaction is of deemed sale and not of supply of tangible goods for use service, so the same is not liable for service tax.
The bench of Justice Ramesh Nair and C.L. Mahar set aside the impugned order and the appeals filed by the assessee was allowed dismissing the revenue’s appeal.
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