By TIOL News Service

BANGALORE, JUNE 04, 2018: APPEAL filed by the assessee was earlier dismissed for non-prosecution by the Tribunal.

A Miscellaneous Application came to be filed for restoration of the appeal and the same was allowed by the CESTAT.

The issue - Two cranes ‘owned' by the appellant were given on hire to various customers.

The lower authorities confirmed the demand of Service Tax on the 'hire charges' under the category of Supply of Tangible Goods Services (SOTG).

The appellant places reliance on the agreement executed with their customer and submits that in view of the TRUletter D.O.F.No. 334/1/2008-TRU dt 29/02/2008 and the decision in Kinetic Communications Ltd. - 2017-TIOL-762-CESTAT-MUM no service tax is payable by them.

Clause 5 of the Agreement reads –

5. Possession: The owner shall give legal possession of the equipments to the 'USER' and 'USER' shall have the effective control of the equipments and shall run the equipments by his own suitably trained persons, maintain the equipments, and meet the cost of such maintenance.

The TRU has clarified as follows in paras 4.4.1 & 4.4.2.-

4.4.1 Transfer of the right to use any goods is leviable to sales tax/VAT as deemed sale of goods [Article 366(29A)(d) of the Constitution of India]. Transfer of right to use involves transfer of both possession and control of the goods to the user of the goods.

4.4.2 Excavators, wheel loaders, dump trucks, crawler carriers, compaction equipment cranes, etc., offshore construction vessels & barges, geo-technical vessels, tug and barge flotillas, rigs and high value machineries are supplied for use. with no legal right of possession and effective control. Transaction of allowing another person to use the goods, without giving legal right of possession and effective control, not being treated as sale of goods, is treated as service.

The Bench adverted to the above and observed -

++ This clause of the agreement (supra) makes it clear that the appellant has handed over legal possession of equipments to the user.

++ The above clarification makes it clear that service tax will be liable to be paid only in those cases where the legal right of possession and effective control is not transferred. In the present case, we note that such legal right of possession and effective control is transferred. Consequently, the service does not fall within the category of SOTG service.

Noting that an identical issue was decided in the case of Kinetic Communications (supra) by setting aside the demand of Service Tax under the category of SOTG, following the same, the impugned order was set aside and the appeal was allowed.

(See 2018-TIOL-1706-CESTAT-BANG)