Lindstrom Service India Private Limited Vs Commissioner of Central Excise & Serive Tax (CESTAT Chandigarh)
In the instant case, in terms of agreement work-wear rented out always remains within the exclusive possession of their clients and nobody else can use the those work-wear at the same time and hence effective control to lie with the user/ clients. The appellant, therefore, does not have control over the use of the work-wear. Thus the activity is not in the nature of service under the Finance Act in both during the period prior to negative list regime and thereafter.
FULL TEXT OF THE CESTAT JUDGEMENT
1. This appeal is filed against the Order-in-Original No. 07/GDL/COMMR./FBD-2/ST/2015-16 dated 27/11/2015 passed by the Commissioner of Central Excise and Service Tax, Faridabad-II. A demand of Rs. 92,22,321/- of service tax, for period from 2010-11 to 2014-15 up to October, 2014 has been confirmed along with equal amount of penalty and applicable interest and also a penalty of Rs. 10,000/- under the provisions of Finance Act, 1994 (hereinafter referred to as “Act”) under Section 73,78,75,77 (1) (a) of the Act ibid. The demand was confirmed as per the proposal contained in the demand/ show cause notice dated 11/02/2015.
2. Brief facts of the case required for disposal of the appeal, are that the appellants are holding service registration under the Act, for providing/ receiving various services under the provisions of the Act. Acting on the intelligence that the appellant was not paying the applicable service tax in terms of the Act for providing of work-wear to their clients on rental basis in terms of agreements, a visit of the departmental officer was made on 03/11/2014. During the visit statement of Shri Syed Asif, Raja the accountant of the appellant was recorded and also various documents, including agreements for providing work-wear to the clients on the rental basis were resumed. The two such agreements, namely, with M/s Mother Diary Fruits and Vegetables Private Limited and M/s Ecocat (India) Private Limited were also provided by the appellant. Further a statement of Shri Manas Kumar, Business Unit Manager of the appellant was also recorded under Section 14 of the Central Excise Act as made applicable to the service tax matter vide Section 83 of the Finance Act. On scrutiny of document submitted by the appellant and submissions made and deposition made by Shri Syed Ali Raja and Shri Manas Kumar, Department concluded that the service provided by the appellant is covered under the category of service of „supply of tangible goods‟ classifiable under Section 65 (105) (zzzzj) of the Act prior to 01/07/2012 and thereafter under Section 65 (b) (44) read with Section 69 (f) of the Act. In the impugned order, it was, therefore, held that the activity involves supply of tangible goods, without transferring the right of effective control, which amounted to providing of taxable service for their clients that period prior to 01/07/2012 being activity of supplying of tangible goods ad defined under Section 65 (105) (zzzzj) of the Act and after 01/07/2012 under the definition of service, as per the Section 65 (b) (44) of Finance Act read with Section 67 (e) (f) of the Act, ibid.
3. Ld. Advocate on behalf of the appellant submits as under;
3.1 That the appellant is a subsidiary of M/S Lindstrom, Netherlands and is engaged in leasing work-wear to their clients on the conditions mentioned in the Agreements with their clients. Two of the agreements are enclosed as Representative Agreement.
3.2 The salient features of the agreement with Mother Dairy are;
(i) That the appellant undertook to deliver, wash and service work-wear to the clients. Each worker will be provided with the work-wear of his size which will be measured by the appellant.
(ii) The appellant would own the work-wear and will have exclusive right to wash and service the same.
(iii) If the delivery is delayed or defective, the same shall be compensated by Lindstrom.
(iv) The work-wear shall be collected by the customer once a week for being sent to Lindstrom for servicing.
(v) If the work-wear cannot be leased because of wear and tear, it will be returned to Lindstrom but the customer shall pay the price as per the price list (depreciated price).
If the work-wear is to be replaced by the customer, the same is to be redeemed at agreed upon price.
(vi) The leasing fee and other charges are based on the current price of the work-wear.
(vii) If the Customer withdraws from the contract at any time, he shall pay to Lindstrom the invoicing value of the termination period.
(viii) Retail Price will increase every year by 10%.
(ix) Service Fee of the Garment included in the price.
(x) VAT is being charged on the rental charges. (see invoice)
There are separate provisions for pricing of replacement and valuation of redemption price. These conditions have been briefly noted at internal page 2 of the impugned SCN.
3.3 Similar Provisions are for in the agreement with M/S ECOCAT INDIA.
3.4 In paragraph 4 of the SCN issued to M/S Lindstrom, it has been inferred that M/S Lindstrom is providing various services including exclusive right for washing and service the work-wear. In Para 5 of the SCN, after discussing the definition of Supply of Tangible Goods Service as incorporated in Section 65(105)(zzzzj) before the introduction of Negative List, it was alleged that the services provided by the appellant was taxable under the aforementioned provision of the Finance Act, 1994. In the SCN, the essential features of the decision of the apex court in the case of Bharat Sanchar Nigam Vs UOI reported in 2006 (2) STR 161 (SC) was also discussed to allege that the transaction was not covered under supply of tangible Goods.
3.5 For the period after 01/07/2012 that is after the introduction of Negative List of Services, it was alleged that the identified service was neither covered by the Negative List nor by the Mega exemption notification. It was further alleged that Section 65B(44) defines Service to include a declared service. The activity is well covered under clause (f) of Section 66E of the Act, 1994 and hence taxable.
3.6 It was also alleged that the appellant was carrying out several services for the customer and hence that will be considered as bundle of services, it will be considered as provision of single service having highest rate of Tax under Section 65F(3)(b). They also invoked the larger period for demanding the Tax. The Adjudicating Authority (hereinafter also referred to as Commissioner) formulated 8 issues to be decided by him a in Para 7.1 of the impugned Order at internal page 11 of the Order-in-Original. For examining the issue whether the right to use the impugned goods was transferred to the customer was basic issues which was required for deciding whether the service is “supply of Tangible Goods‟ covered under Section 65(105)(zzzzj) or alternatively can it be considered a deemed sale under sub-clause 29A of Article 366 of the Constitution and hence not a service. Other questions will be relevant only when the above issues are decided against the appellant.
4. The Commissioner based his conclusion on the above issues on following reasoning:
(i) In Para 8.2 at internal page 14 of the OIO, the commissioner observes that the dispute is whether the transaction entered into between the appellant and the customer is transferring the right to use by the appellant or allowing the customer to use the work-wear. He referred to the decision of Hon’ble Supreme Court in the case of Bharat Sanchar Nigam (supra) to reason out that for a transaction to be considered as “deemed sale”, both possession and control are to be transferred to the Customer. Referring to the decision of Hon’ble High Court of Allahabad in the case of Commissioner Trade Tax vs Jamuna Prasad Jaiswal reported in (2008) 013 VST 0403 he inferred that if the owner of the goods have the effective control over the same, merrily handing over the goods cannot be considered as Deemed sale. In Deemed sale, all rights except the ownership right is to be transferred. By referring to the advertisement on the website of the appellant, the Commissioner inferred that the appellant retains the exclusive right to wash and service the work-wear.
(ii) In Para 8.5 of the impugned Order, the Commissioner observes that the appellant is providing not merely renting of work-wear by way of transferring right to use but a complete wear solution that includes designing the work wear, washing and maintaining it, repairing it when necessary, storing providing locker service, delivering clean and maintained clothing on weekly basis. The appellant provides a bundle of services and right of effective control remains with the appellant.
(iii) He, therefore concluded that it is not an activity of transfer of right to use the goods, particularly as there was no transfer of effective control.
(iv) In Para 8.6 of the Order, he observes that the transaction between the appellant and customer does not fulfil the ingredients enumerated in BSNL and Rashtriya Ispat Nigam case.
(v) He, therefore, held that the activity undertaken by the appellant was taxable service for both the periods i.e. prior to 1/07/2012 as activity of supplying Tangible Goods as defined under Section 65(105)(zzzzj) of the Act and after 01/07/2012, under the definition of service defined under Section 65B(44) read with section 66E(f) of the Act. (Para 9 of the OIO at internal page 22)
He allowed the CENVAT Credit on the input/input service. He also allowed benefit of Notification 6/2005 dated 01/03/2005 for exemption from duty if the total service provided was less than Rs. 10 lakhs for the year 2010-2011. He also allowed the Cum-Tax benefit. He therefore confirmed the reduced demand of Rs. 92,22,321/-imposed a penalty of the same amount under section 98 of the Act and a penalty of Rs. 10,000/0 under section 77(1)(a) ibid.
5. Ld. Advocate pleaded that the appellant had fulfilled all the conditions enumerated by Justice Lakshmanan in para 91 of the Judgement in the case of Bharat Sanchar Nigam (supra)
“91. To constitute a transaction for the transfer of the right to use the goods the transaction must have the following attributes :
a. There must be goods available for delivery;
b. There must be a consensus ad idem as to the identity of the goods;
c. The transferee should have a legal right to use the goods-consequently all legal consequences of such use including any permissions or licenses required therefore should be available to the transferee;
d. For the period during which the transferee has such legal right, it has to be the exclusion to the transferor this is the necessary concomitant of the plain language of the statute – viz. a “transfer of the right to use” and not merely a licence to use the goods;
e. Having transferred the right to use the goods during the period for which it is to be transferred, the owner cannot again transfer the same rights to others.”
6. It was submitted that the appellant has fulfilled all the conditions as enumerated in the aforementioned criteria laid down in the BSNL case.
