The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), Delhi bench has held that the service tax cannot be levied on the supply of gensets since the same constitutes the sale of goods within the meaning of the Article 266(29A) of the Constitution of India.
The appellants are engaged in the business of supply generator sets on a rental basis to their clients. The department was of the view that the appellants shall pay service tax on such receipts.
The appellant had contended that supply of gensets made by them, in both the manners, was governed under the provisions of VAT or Sales Tax considering the same as ‘deemed sales’ and paid VAT/Sales Tax on the consideration charged by him, as the effective control and possession of gensets was with clients. Such supply of gensets was ‘deemed sales’ in terms of Article 366(29A) of the Constitution of India read with Sales Tax Laws, accordingly VAT/Sales Tax was paid on the consideration received by the appellant.
The Tribunal bench comprising Judicial Member Mr. Anil Chaudhary and Technical Member Mr. C J Mathew found that for the period 01.07.2012 to 31.01.2016, the activity of the appellant i.e. supply of generators alongwith transfer of right to use and effective control & possession cannot be covered under-declared service as provided under Section 66E(f) of the Act. Further, the said activity has also been excluded from the definition of ‘service’ as defined under Section 65B(44) of the Act. Hence, service tax demand for the said period is also not sustainable and is liable to be set aside.
“That the appellant is paying VAT on the amount received from clients for the supply of D.G. sets. Thus, the imposition of service tax on the same transaction is contrary to law as it is a settled law that VAT and service tax are mutually exclusive. Therefore, on a particular transaction either VAT or service tax can be levied,” the Tribunal said.
“The CBEC vide Circular No. 198/08/2016-SERVICE TAX, Dated: August 17, 2016, has provided that in order to distinguish such transactions as the sale of goods or supply of services, it is essential to determine whether, in terms of the contract, there is a transfer of the right to use the goods. Since the supply of the gensets meets the criteria mentioned by the Apex Court, we consider the supply of gensets is the sale of goods in terms of Article 266(29A) of the Constitution of India,” the Tribunal added.
CA Abhinav Kalra appeared for the petitioner.
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