By TIOL News Service

MUMBAI, MAR 09, 2017: THE appellant is engaged in the manufacture of CDI & PCB assembly falling under Chapter 85 of the CETA, 1985. During the course of audit, it was observed that the appellant had provided services i.e. supply of tangible goods services to their joint venture company viz. M/s. Ducati Energia India Pvt. Ltd. (JVC).

During the period April 2009 to June 2011, the appellant had received an amount of Rs.90,79,436/- for renting out capital goods and premises to the JVC and the appellant had allegedly paid VAT on this amount instead of service tax.

SCN dated 12.3.2012 was issued to the appellant proposing recovery of service tax of Rs.9,35,179/-.

The Additional Commissioner, Pune-I confirmed the demand on the ground that in view of the agreement between the appellant and the JVC, the ownership of the impugned capital goods and the premises rests with the appellant and hence the transaction falls within the scope of the definition of "Supply of tangible goods services".

The appeal was rejected by the Commissioner(A).

Before the CESTAT, the appellant submitted that the Board Circulars dated 17.8.2016 and 29.2.2008 squarely cover the issue in their favour as also the decision of the Tribunal in Bhima SSK Ltd 2013-TIOL-775-CESTAT-MUM.

The Bench observed -

"7. It is seen from the records that there is no dispute as to the fact that the capital goods are in the possession of the lessee and is being used by him for the intended purpose without any interference or hurdle from the appellants. On going through the clauses of agreement, as produced before us, we find that the appellants had handed over the capital goods' possession to the lessee as also the right to use. These two important factors that determine the requirement as to whether the service is a taxable service or otherwise under "supply of tangible goods for use services". We find strong force in the contentions raised by the appellant that that case does not fall under supply of the tangible goods for use service. We also find that identical issue is settled by the Tribunal in the case of Praveen Engineering Works and Bhima SSK (supra)."

The impugned order was held to be unsustainable and hence set aside.

The appeal was allowed.

(See 2017-TIOL-762-CESTAT-MUM)