CESTAT, CHENNAI BENCH
Blue Dart Aviation Ltd.
Commissioner of Service Tax, Chennai
STAY ORDER NO. 281 of 2012
MISC. ORDER NO. 284 OF 2012
APPLICATION NOS. ST/STAY/121/2011 & ST/MISC./759/2011
APPEAL NO. ST/186 of 2011
MAY 4, 2012
Ms. Archana Wadhwa, Judicial Member
The prayer in the application is to dispense with the condition of pre-deposit of service tax of Rs. 1,53,13,956/- confirmed against the applicants for the period May 2008 to Oct. 2008 and penalties imposed under various Sections of Finance Act, 1994.
2. As per the facts on record, the appellants are engaged in the business of aviation cargo services for which purpose they need aircrafts. They entered into an agreement called “Operating Lease Agreement” with M/s. EAT, Brussels. In terms of the said agreement, the aircraft is to be handed over by M/s. EAT to the applicants for the purpose of operating the same in India. The applicants are required to pay a lease rent to M/s. EAT on monthly basis. As per the agreement, the entire control and possession of the aircrafts including maintenance, repair and running of the same, coverage of insurance etc. is the liability of the applicants.
3. Revenue entertain a doubt that the operation of said lease of aircraft by the applicants amounted to providing of services by M/s. EAT, falling under the category of supply of tangible goods and as such liable to service tax on reverse charged basis. Accordingly, proceedings were initiated which culminated into an order passed by the Commissioner confirming the tax and imposing penalties.
4. Learned Senior Advocate Shri N. Venkatraman appearing for the applicants draws our attention to the findings of the Commissioner in which he has clearly held that operation of the aircrafts is being done by the applicants by appointing their crew and aircraft maintenance and services are also undertaken by the applicants. However, he has observed that the above facts do not confer any special right of ownership, title and effective control to the applicants over the leased out aircraft. Such functional permission flows after all out of the temporary possession and operational control of the aircrafts which are bare essentials for operating the lease. As such, he has concluded that it is a case of supply of tangible goods by the lessor, M/s. EAT without transfer of right to ownership, possession and control of the aircraft.
5. At this stage, we may reproduce the definition of “supply of tangible goods”, as appearing in Section 65(105)(zzzzj) of the Finance Act, 1994 as under :-
“to any person, by any other person in relation to supply of tangible goods including machinery, equipment and appliances for use without transferring right of possession and effective control of such machinery, equipment and appliances”.
From the above, we note that the services would get covered under the said category, if there is no transfer of right of possession and effective control of the aircraft to the appellants. However, the findings arrived at by the adjudicating authority clearly point out to one fact that aircraft is required to be maintained, operated and controlled by the appellants. If that be so, at this prima facie stage, we note that the appellants do not satisfy the definition of said service.
6. Apart from the above, we also note the clarification issued by the Board as recorded in the Delhi High Court judgment in the case of Business Aviation Association For India v. Union of India 33 STT 14. The same for better appreciation is reproduced below :-
“Sub. : Service Tax on chartering of Aircrafts.
It has been brought to the notice of the Board that many non-scheduled operator engaged in the business of giving the right to use the aircraft to its customers (Chartering of aircrafts) are not paying service tax.
2. The issue has been examined in the Board. With effect from 16-5- 2008, service provided to any person by any other person in relation to supply of tangible goods including machinery, equipment and appliances for use, without transferring right of possession and effective control of such machinery, equipment and appliances is taxable service under Section 65(105)(zzzj). Chartering of aircrafts by a client only confers him with the right to use the aircraft and the owner of the aircraft in such case does not transfer right of possession. As to whether effective control over the aircraft is transferred or not would be a question of fact to be determined in each case. Where the crew is also provided by the owners of the aircrafts as in a wet lease of aircraft effective control is not transferred.
3. You may examine the facts of each case of aircraft leasing in your jurisdiction and take action to recover tax wherever due. A list of the non-scheduled operators (permit holders) is enclosed herewith. A report in the present position of collection of service tax paid in chartering of aircrafts and the further action based on this reference may be sent to Director General (Service Tax).”
As is clear from above, each case is required to be examined, in the facts of that particular case and a view has to be arrived at accordingly. Admittedly, in the present case, it is the appellant who is exercising the effective control of the aircraft and is running the same. As such, even in view of the above circular, we are of the opinion that the appellants have been able to make out a good case.
7. It also stands argued by the learned Senior Advocate that such type of transfer or right to use the aircraft for any purpose is to be considered as “deemed sale” in view of Article 366(29A) of the Constitution of India, 1950, which was introduced by way of 46th Amendment to the Constitution. For better appreciation of the same, we reproduce the relevant portion of the said Article as under :-
“tax on the sale or purchase of goods” includes –
a tax on the transfer, otherwise than in pursuance of a (a) contract, of property in any goods for cash, deferred payment or other valuable consideration;
(b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;
a tax on delivery of goods on hire-purchase or any system (c) of payment by instalments;
a tax on the transfer of the right to use any goods for any (d) purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration;”
In terms of sub-clause (d) of the said Article, tax on the sale or purchase of goods included a tax on transfer or right to use any goods for any purpose for cash. The fact that the same is for specified period will not alter the status of the deal. Ld. senior advocate clarifies that in terms of the said provision, the deal between the appellants and M/s. EAT is required to be treated as “deemed sale” so as to be covered by the provisions of sales tax. However, on being questioned, he clarifies that no sales tax is being paid on the said deal, on account of import of the aircraft, which is covered by exemption in terms of provisions of section 5 of the General Sales Tax Act, 1956. Nevertheless, he submits that inasmuch as the deal is required to be considered as ‘deemed sale’ and the sales tax and service tax being mutually exclusive to each other, the confirmation of service tax against the appellants is not justified.
8. In view of the said argument of the learned senior advocate also, we find that the appellants has a good prima facie case in its favour.
9. Ld. JCDR, Shri V.V. Hariharan appearing for the Revenue accepts that in view of prima facie nature of the matter, as clarified in the above reproduced clarification of the Board, stay may be granted to the applicants.
10. In view of the above, we dispense with the condition of pre-deposit of service tax confirmed against the applicants and penalties imposed upon them. Stay petition is allowed unconditionally.
11. As the amount is on the higher side, and the issue has recurring effect, we give liberty to the applicants to file an application for early hearing.
12. The MISC application filed by the Revenue is for change in the name of the respondent which stands shown by the applicant as “Commissioner of Central Excise” to “Commissioner of Service Tax”. Ld. senior advocate submits that said modification already stands made by them in their appeal memo. As such, Revenue’s application has become infructuous. The same is accordingly disposed of.