No Service Tax on Equipment Hire Without Retained Control: CESTAT [Read Order]

The Delhi bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) stated that no service tax can be imposed on hire without retained control.

In this case, the department is on appeal. The assessee respondent was engaged in providing construction services for constructing commercial/industrial buildings or civil structures, providing works contract services, supply of tangible goods services, etc.

By going through the assessee’s records, it was found that the appellant has neither paid the service tax nor filed ST-3 returns. However, the appellant had prepared a reconciliation chart for the period 2010-2011 to 2013- 2014 showing the exempted amount but without any documentary evidence.

Read More: CESTAT Holds Agricultural Warehousing and Allied Services as Tax-Exempt Composite Activity

 As per the order issued by the department, a demand of Rs. 1,99,080 (out of Rs. 5.82 crore) and Rs. 9,94,450 (out of Rs. 53.08 lakh) was confirmed, along with interest and penalties. The Committee of Commissioners later reviewed this order on 05.12.2017.

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So, one of the demands that the adjudicating authority dropped was the tax demand on the amount received as income from higher charges.

It is to be noted that the adjudicating authority dropped the demand of hire charges for giving DG sets, motor graders, hydraulic, excavators, etc., by noting that the amount on account of the sale of goods is not taxable under service tax and, therefore, the respondent is not liable to pay service tax on account of the amount booked for sale of goods.

The original authority noted that each equipment hire contract had a common clause, the client had both possession and control of the equipment and could use it freely, and that when goods are transferred with possession and control, it is no longer a taxable service under "Supply of Tangible Goods". Instead, it qualifies as a "deemed sale" under Article 366(29A) of the Indian Constitution (added by the 42nd Amendment). 

CESTAT noted that giving goods on hire with effective control and possession is beyond the scope of service tax liability. The bench further observed that no record was brought by the department to show that the right to possession and effective control of the equipment given on hire was retained by the respondent.

Read More: ‘Extended Limitation Period Invalid without Deliberate Suppression by Manufacturer’: CESTAT sets aside Service Tax Demand

The CESTAT, comprising Dr. Rachna Gupta (Judicial Member) and Hemambika R. Priya (Technical Member), partly allowed the department’s appeal.

To Read the full text of the Order CLICK HERE

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