Express Engineers & Spares Pvt. Ltd. Vs Commissioner, Central Goods & Service Tax (CESTAT Allahabad)
Facts- Appellant is engaged in supplies of diesel generators to customers on hire basis. The issue involved in the appeal is whether the appellant renders ‘supply of tangible goods for use service, which is leviable to service tax under section 65(105)(zzzzj) of the Finance Act for the period up to June 30,2012 and under section 66E(f) of the Finance Act for the period from July 01,2012 till 2014-2015.
Conclusion- As per circular dated 23.08.2007 issued by the Department that clarifies that the payment of VAT/ Sales tax on a transaction has to be treated as sale of goods and levy of service tax on such transaction would not arise. Supply of diesel generator sets to the customers would not amount to STGU service for the period from 01.04.2011 to 30.06.2012 or a declared service from 01.07.2012 to 2014-15.
FULL TEXT OF THE CESTAT ALLAHABAD ORDER
Service Tax Appeal No. 70537 of 2018 has been filed by M/s Express Engineers and Spares Private Limited1 to assail the order dated February 19, 2018 passed by the Commissioner (Appeals) dismissing Appeal for the reason that there was no infirmity in the order dated February 28, 2017 passed by the Additional Commissioner, Central Excise and Service Tax, Ghaziabad2 confirming the demand of service tax under section 73 (1) of the Finance Act, 19943 with interest under section 75 of Finance Act and penalty under section 78 of the Finance Act.
2. Service Tax Appeal No. 70592 of 2018 has been filed by the Director of M/s Express Engineers & Spares Pvt. Ltd. to assail the aforesaid order dated February 19, 2018 passed by the Commissioner (Appeals) that has confirmed order passed by the Additional Commissioner imposing a penalty of Rs. 1 lakh upon the Director under section 78A of the Finance Act.
3. The Appellant supplies diesel generators to customers on hire basis. The issue involved in the Appeals is whether the Appellant renders ‘supply of tangible goods for use4 service, which is leviable to service tax under section 65(105)(zzzzj) of the Finance Act for the period upto June 30, 2012 and under section 66E(f) of the Finance Act for the period from July 01, 2012 till 2014-2015.
4. A show cause notice dated April 11, 2016 was issued to the Appellant proposing to recover service tax for the period 2011-12 to 2014-15 with interest and penalties.
5. The Additional Commissioner confirmed the demand by order dated February 28, 2017 and the Appeal filed by the Appellant before the Commissioner (Appeals) was dismissed by order dated February 19, 2018. The reasons given by the Commissioner (Appeals) are as follows:
(a) As per the work orders, the Appellant was responsible for loading, transportation, unloading, erection, installation and commissioning, operation, maintenance and repair of diesel generator sets. The Appellant also provided operator/technician to operate the diesel generators sets in many cases. All this meant that possession and effective control of the diesel generators sets remained with the Appellant;
(b) All the three ingredients namely, that service should be provided in relation to supply of tangible goods, supply is without transferring right of possession and effective control of goods and service is provided by any person to any other person for it to be taxable under section 65(105)(zzzzj) of the Finance Act were satisfied;
(c) The Appellant is paying VAT/Sales Tax on the hiring charges of diesel generator sets and is it being assessed by the concerned authorities. However, section 65(105)(zzzzj) of the Finance Act does not specifically provide that where VAT has been paid, service tax will not be leviable; and
(d) As the Appellant had mis-represented facts with intension to evade payment of servicer tax, the extended period of limitation was invokable and interest and penalties were also imposable.
6. To appreciate the issue involved in the Appeals, it would be pertinent to refer to the nature of the transaction between the Appellant and its customers.
7. It has been described by the Appellant that specific equipments for specific duration for hire are agreed upon between the Appellant and its customer before the equipments are delivered to the premises of the customer. The Appellant receives a fixed amount on monthly basis, which is based on the maximum number of hours specified in the work order. If the equipments are operated beyond the maximum working hours per month, overtime charges are recovered on pro-rata basis. All statutory Regulations concerning the deployment of diesel generator sets and its operation are required to be complied with by the customer. If the customer specifically requires operator(s), they are provided by the Appellant with the equipment. The customer is responsible for issuing directions to the operator regarding the operation of the equipment. During the period of hire, the Appellant does not have any control over the equipment and the effective control over the use of the equipment vests with the customer as the customer draws plans and issues instructions to the operator for operating the diesel generator sets according to the work requirement. Infact, the operator neither uses the equipment as per his own accord nor can the Appellant issue any directions to the operator pertaining to the operation of the equipment. The operator acts as per the directions given by the customer and the method, manner and duration of use of the equipment is as per the discretion of the customer. There is no minimum or maximum number of hours that the machine can be operated as the duration of use of the equipment is entirely at the discretion of the customer. In some cases, the responsibility for maintenance of diesel generator sets is on the Appellant. The diesel/ fuel and lubricant required to run the diesel generator sets is to be provided by the customer. The Appellant cannot demobilize the equipment without the approval of the customer and the equipments cannot leave or enter the premises of the customer without a gate pass issued by the customer.
8. The Commissioner (Appeals) relied upon the work order dated May 03, 2011 issued by Niho Construction Ltd., the work order dated May 30, 2011 issued by Jubilant Clinsys Ltd., and the work order dated October 18, 2011 issued by MGF Estates Managements Private Limited. Since the terms of the work orders are more or less the same, it will be useful to refer to the relevant clauses of the work order dated May 03, 2011 issued by Niho Construction Ltd. It is as follows:
