TIL Ltd. Vs Commissioner of CGST & Central Excise (CESTAT Kolkata)
The CESTAT Kolkata allowed the appeal against an order confirming a service tax demand of ₹2,10,17,326 along with an equal penalty under Section 78 of the Finance Act, 1994. The dispute concerned whether the appellant’s equipment rental transactions were taxable as “supply of tangible goods service” under Section 65(105)(zzzzj) of the Finance Act, 1994 or constituted deemed sales liable to VAT/CST.
The appellant was engaged in manufacturing, trading, and renting earthmoving and other equipment. Under the rental agreements, the equipment was deployed at customers’ sites for specified periods. During the tenure of the agreement, the equipment remained under the customers’ possession, control and custody, although ownership continued with the appellant. The agreements provided that the equipment was at the customer’s sole risk, could be operated either by the customer’s operators or operators provided by the appellant, and that responsibility for claims arising from operation rested with the customer. The appellant also could not withdraw or use the equipment for any other purpose during the contract period. Treating these transactions as transfers of the right to use goods, the appellant charged and paid VAT/CST as deemed sales.
The Department nevertheless issued a show cause notice alleging that the transactions constituted “supply of tangible goods service” under Section 65(105)(zzzzj) because effective control and possession allegedly remained with the appellant. The adjudicating authority confirmed the demand, holding that the appellant retained effective control, remained responsible for legal consequences arising from operation of the equipment, maintenance of accounts under AS-19 was not determinative, and penalty could not be waived.
