Transfer of rights of possession with Machinery not taxable service under ‘Supply of tangible goods’: CESTAT upholds demand of Service Tax [Read Order]

The Kolkata Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), upheld the demand of service demand and held that transfer of rights of possession with machinery not taxable service under the category of Supply of tangible goods.

The Appellant, Uttam Chand Sethia, was a proprietorship firm engaged in the activities of construction of civil structures and roads. A show cause notice was issued to the Appellant on the basis of an investigation conducted by the officers and demanding service tax of Rs.5,24,85,909/- along with interest and penalty.

The Notice was adjudicated by the Commissioner Service Tax vide Order-in-Original, wherein the Service tax demand was confirmed along with interest and the remaining demands made in the Notice was dropped. Penalty equal to service tax confirmed was also imposed under Section 78 of the Finance Act, 1994. Rs.5000/- was imposed under Section 77 of the Act, on the Appellant. Aggrieved against the impugned order, the Appellant has filed the present appeal.

The counsel for the appellant submitted that service tax of Rs.3,99,282/- was confirmed in the impugned order on the charges received for machinery hiring. Since the machinery was supplied with rights of possession and effective control thereof, it would not fall under the taxable service of ‘Supply of tangible goods.

The counsel for the Revenue reiterated the findings in the impugned order.

A Two-Member Bench comprising Ashok Jindal, Member (Judicial) and K. Anpazhakan, Member (Technical) observed that “Regarding the demand of service tax of Rs. 3,99,282/-on hiring of machinery, we observe that the Appellant has claimed that the machinery was supplied with rights of possession and effective control thereof and hence it would not fall under the taxable service of ‘Supply of tangible goods.” “However, we observe that the claim of Appellant was not supported by any documentary evidence. We find that the impugned order has confirmed the demand on this service only for the period 16.05.2008, ie, after introduction of supply of tangible goods service. Accordingly, we uphold the demand of service tax on this count, along with interest” the Bench noted.

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