Lessee has ‘right to use’ if responsibilities casted on him to safeguard earthmoving equipment; no service-tax March 11, 2014[2014] 42 taxmann 370 (Mumbai - CESTAT) Service Tax : Where hirer of an earthmoving equipment is responsible for misuse/ abuse, safe custody, liability to settle disputes with third parties and compensation for damages, said transaction, prima facie, amounts to transfer of right to use and deemed sale and not liable to service tax under supply of tangible goods for use services [2014] 42 taxmann 370 (Mumbai - CESTAT) CESTAT, MUMBAI BENCH GMMCO Ltd. v. Commissioner of Central Excise, Nagpur* Section 65(105)(zzzzj), read with section 66E(f), of the Finance Act, 1994 and Section Article 366(29A)(d) of the Constitution of India - Taxable services - Supply of tangible goods for use services - Stay order - Assessee was engaged in renting of earthmoving equipment, such as Caterpillar, Excavators, etc. to various customers - Department sought levy of service tax thereon - Assessee argued that activity amounted to leasing machinery/equipment with transfer of right to use on which VAT was being paid regarding it as deemed sale - Department argued that : (a) effective possession and control of equipment remained with assessee; (b) equipment was being operated by operator provided by assessee, who was under control of assessee; (c) routine maintenance and repairs were carried out by assessees personnel only; (d) hirer could use equipment only for purpose it was hired and could not remove equipment from site without consent of assessee; and, therefore, it did not amount to deemed sale and was liable to service tax - HELD : Merely because restrictions are placed on lessee, it cannot be said that there is no right to use by lessee - Responsibilities on hirer such as : (a) using equipment for specified purpose and not misusing/abusing it; (b) ensuring safe custody of equipment and being responsible for any loss or damage or destruction; (c) handling any dispute in relation to use and operation of equipment; (d) compensating assessee for damages to equipment, would clearly show that right of possession and effective control of equipment rest with hirer; otherwise hirer cannot be held responsible for misuse/abuse, safe custody, liability to settle disputes with third parties, etc. - Agreement itself provided for charge of VAT at 12.5 per cent of invoice value - Hence, transaction envisaged in agreement was one of transfer of right to use i.e., deemed sale - Hence, in view of aforesaid as well as principles laid down in G.S. Lamba & Sons v. State of A.P. [Tax Revision Nos. 154 to 157, 160, 169, 170, 181, 205 and 243 of 2010, dated 28-1-2011] impugned transaction amounted to transfer of right to use which is a deemed sale and not supply of tangible goods for use service - Hence, requirement of pre-deposit was waived [Paras 5.1 to 5.4] [In favour of assessee]
Posted on: Thu, 13 Mar 2014 10:54:00 +0000