The Chennai Bench of the Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) ruled that once the VAT liability is discharged, service tax cannot be demanded.
Sai Infraaequipments Pvt. Ltd., the appellant engaged in leasing JCBs (heavy construction machinery). The appellant classified these leasing transactions as a “deemed sale” under Article 366 (29A) of the Constitution of India, making them subject to Value Added Tax (VAT).
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The appellants already paid VAT on the JCB leasing transactions, considering them as a “Transfer of right to use goods.” However. The tax authorities disputed this classification and demanded service tax on these transactions, stating they fell under “Supply of Tangible Goods Service” (STG) under Section 65 (105) (zzzzj) of the Finance Act, 1994.
Aggrieved, the appellant approached CESTAT arguing that since they treated JCB leasing as a “deemed sale,” they were only liable for VAT and not service tax.
On the contrary, the revenue counsel argued that the appellants’ JCB leasing should fall under “Supply of Tangible Goods Service” because the appellant retained effective control over the equipment. According to the Revenue, this classification is warranted irrespective of the VAT payment.
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The two-member bench comprising Vasa Seshagiri Rao (Technical Member) And P. Dinesha (Judicial Member) referenced the Supreme Court ruling in Imagic Creative Pvt. Ltd., (2008) which held that service tax cannot be demanded on transactions where VAT is discharged.
The tribunal agreed that VAT and service tax cannot be applied simultaneously on the same transaction due to their mutual exclusivity. It noted that since the appellant had already paid VAT on the JCB leasing transactions, imposing service tax on the same transaction was unjustified.
In addition to this, the tribunal recognized the appellant’s adherence to VAT requirements, supporting their classification of the JCB leasing as a “deemed sale.” Therefore, the tribunal set aside the impugned orders related to the service tax demand, allowing the appeals with any applicable benefits as per the law.
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