Borthakur & Co. Vs Commissioner of Central Excise and Service Tax (CESTAT Kolkata)
Summary: M/s. Borthakur & Co. supplied tankers and bowsers to Oil India Limited for transportation of crude oil in Assam. The Department confirmed service tax of Rs.72,42,802 with interest and an equal penalty, treating the arrangement as supply of tangible goods service . The assessee argued that possession and effective control had passed to Oil India and that VAT had been paid on a deemed sale under the Assam VAT Act.
The Tribunal examined the contractual terms and found that the assessee retained effective control and possession: it maintained the tankers, incurred fuel and consumables expenses, provided the crew and complied with statutory obligations. The activity was therefore liable to service tax as supply of tangible goods service on its merits. Payment of VAT was relevant but did not by itself determine whether control had been transferred.
For the period from 1 July 2012 to March 2014, however, the demand was raised under Section 65(105)(zzzzj) of the Finance Act, 1994, a provision that was no longer in force under the negative-list regime. Following the decision in Commissioner of Central Tax, GST, Delhi East v. Sanjay Electricals, the Tribunal held that this demand could not be sustained.
The Tribunal also held that the extended period of limitation was unavailable because the assessee had acted under a bona fide belief regarding VAT treatment, had disclosed the transactions in its balance sheet, and an intention to evade tax had not been established. The demand outside the normal limitation period was therefore barred.
Consequently, the entire demand, interest and penalty were set aside and the appeal was allowed, even though the Tribunal held that the arrangement was taxable in principle.
Cases Discussed
- Bharat Sanchar Nigam Limited (BSNL) v. Union of India — 2006 (2) S.T.R. 161 (S.C.)
- Imagic Creative Private Limited v. Commissioner of Central Taxes — 2008 (9) S.T.R. 337 (S.C.)
- Commissioner of Service Tax – V, Mumbai v. UFO Moviez India Limited — 2022 (61) G.S.T.L. 4 (S.C.)
- Nayana Premji Savala v. Union of India — 2022 (66) G.S.T.L. 417 (Bom.)
- Arkay Logistics Ltd. v. C.C.E. & S.T., Surat — 2023 (8) TMI 1237 (CESTAT Ahmedabad)
- Commissioner of Central Tax, GST, Delhi East v. M/s. Sanjay Electricals — 2024 (1) TMI 891 (CESTAT New Delhi)
- Carzonrent (India) Pvt. Ltd. v. Commissioner of Service Tax, Delhi–I — 2017 (50) S.T.R. 172 (Tri.–Del.)
- Sant Roadlines v. Commissioner of Central Excise & Service Tax, Panchkula — 2020 (43) G.S.T.L. 206 (Tri.–Chan.)
- M/s. GD Goenka Pvt. Ltd. v. Commissioner of CGST, Delhi South — 2023 (8) TMI 995
- Atwood Oceanics Pacific Ltd. v. Commissioner of Service Tax, Ahmedabad — 2013 (32) S.T.R. 756 (Tri.–Ahmd.)
- M/s. Amit Metaliks Limited v. Commissioner of Central Excise, Bolpur — 2023 (11) TMI 721 (CESTAT Kolkata)
- Black Box Ltd. v. Commissioner of Central Excise & Service Tax, Ahmedabad III — 2023 (73) G.S.T.L. 381 (Tri.–Ahmd.)
FULL TEXT OF THE JUDGMENT/ORDER OF CESTAT KOLKATA
The present appeal has been filed against the impugned Order-in-Original No.15/ ST/ ADJ/ Commissioner/ DIB/ 2014-15 dated 27.03.2015, wherein the Service Tax demand of Rs. 72,42,802/- along with interest and equal amount of tax as penalty has been confirmed.
2. The facts of the case are that the Appellant M/s. Borthakur & Co. have supplied tankers / bowsers to M/s. Oil India Limited (‘OIL’) for the purpose of transportation of crude oil in the OIL’s operational areas in Assam. According to the agreement entered into by the Appellant, the tankers / bowsers are supplied to OIL for their exclusive use and are stored in the premises of OIL during the tenure of the contract. Such a transaction of supplying tankers to OIL was treated as ‘Deemed Sales’ under the Assam Value Added Tax Act, 2003 and OIL made payment to the Appellant on a monthly basis after deducting the VAT at source under Section 47(2) of the Assam VAT Act. The VAT so deducted by OIL was deposited with the State Exchequer. As the transaction was considered as ‘Deemed Sale’ by the Appellant, they have not paid service tax on the said transaction. The Department issued a Show Cause Notice dated 16.09.2014 invoking extended period of limitation, by alleging that the transactions between the Appellant and OIL falls within the ambit of “supply of tangible goods service” as defined under Section 65(105)(zzzzj) of the Finance Act, 1994 and the Appellant has failed to pay service tax for the same. On adjudication, the Ld. adjudicating authority has confirmed the demands of service tax along with interest and penalty. Aggrieved against the impugned order, the Appellant has filed this appeal.
3. The Appellant submits that as per the agreements entered into with OIL, both the possession and effective control over the goods have been passed over to OIL, and therefore, such a transaction constitutes a “Deemed Sale” and accordingly OIL has deducted VAT at source and paid to the Government. However, the impugned order has been passed confirming the demand based on the observation that as per certain clauses in the agreement, the possession and control of the bowsers/tankers lies with the Appellant and hence the same amounts to “supply of tangible goods service” liable to service tax under Section 65(105)(zzzzj) of the Finance Act, 1994.
3.1. The Appellant submits that Article 366 (29A) of the Constitution of India, that defines the term “tax on the sale or purchase of goods”, has widened its scope to include in sub-clause (d) “a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration”. Accordingly, the state of Assam amended their VAT Act to include within its ambit the levy of VAT on such transaction in the nature of transfer of right to use goods. The relevant portion of Section 2(43) of the Assam VAT Act is extracted below: –
“(43) “sale” with all its grammatical variations and cognate expressions mean every transfer of the property in goods (other than by way of mortgage, hypothecation, charge or pledge) by one person to another for cash or for deferred payment or other valuable consideration and includes, – ……
(iv) a transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; ….”
3.2. Therefore it is the contention of the appellant that whenever there involves a transfer of right to use any goods within the State of Assam, the same would be subjected to levy of VAT under Assam VAT Act. In order to ascertain whether a transaction qualifies as a transfer of right to use the goods, it is pertinent to refer to the decision of the Hon’ble Supreme Court in the case of Bharat Sanchar Nigam Limited (BSNL) v. Union of India – 2006 (2) S.T.R. 161 (S.C.) wherein the Hon’ble Supreme Court defined five attributes necessary to constitute to a ‘transfer of right to use goods’. The relevant extract of the said decision is extracted below: –
“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 therefor 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.”
3.3. As per the provisions of the Agreement, the transaction undertaken by them fulfils all the five conditions stated above. Accordingly, the Appellant contended that the transaction amounts to ‘Deemed Sale’ and VAT has been paid by then under Assam VAT Act. Further, a perusal of the clauses in the Agreement would reveal that the Appellant is only responsible for the operation of the tankers / bowsers, and the entire effective control and right to use vests with OIL. As the effective control and possession of the goods have been transferred to OIL and the transaction being in the nature of ‘transfer of right to use the goods’ and thereby being considered as a deemed sale and falling within the ambit of Assam VAT Act, no service tax is payable by them. It is a settled position of law that service tax and VAT are mutually exclusive, and in the instant case, VAT has been undisputedly discharged in the transactions.
3.4. In this regard, the Appellant placed their reliance on the decision of the Hon’ble Supreme Court in the case of Imagic Creative Private Limited v. Commissioner of Central Taxes – 2008 (9) S.T.R. 337 (S.C.), wherein the Hon’ble Supreme Court held that payments of service tax as well as VAT are mutually exclusive. Further reliance is placed on the following decisions wherein it was held that when the assessee has duly discharged VAT liability, liability of service tax cannot be fastened –
(i) Commissioner of Service Tax – V, Mumbai v. UFO Moviez India Limited – 2022 (61) G.S.T.L. 4 (S.C.).
(ii) Nayana Premji Savala v. Union of India – 2022 (66) G.S.T.L. 417 (Bom.).
(iii) Arkay Logistics Ltd. v. C.C.E. & S.T., Surat – 2023 (8) TMI 1237 – CESTAT Ahmedabad.
3.5. The Appellant also relied on Board Circular No. 334/1/2008-TRU dated 29.02.2008 wherein in paragraph 4.4.3 it has been stated that “…Supply of tangible goods for use and leviable to VAT/sales tax as deemed sale of goods, is not covered under the scope of the proposed service. Whether a transaction involves transfer of possession and control is a question of facts and is to be decided based on the terms of the contract and other material facts. This could be ascertainable from the fact whether or not VAT is payable or paid.”
3.6. Therefore, on the basis the aforementioned decisions and Circular, it is clear that VAT and Service Tax are mutually exclusive, and when it is an undisputed fact that VAT has been duly paid on the transaction, the same cannot be subject to service tax again. Hence, on this ground alone, the impugned Order is liable to be set aside.
3.7. The Appellant submits that for the period from July 2012 to March 2014, the impugned Order has confirmed the demand of Service Tax amounting to Rs. 33,41,267/- on the ground that the same falls within the ambit of “supply of tangible goods service” under Section 65 (105)(zzzzj) of the Finance Act, 1994. In this regard, the Appellant submits that post 01.07.2012, the provisions of Section 65(105)(zzzzj) cannot be invoked to demand service tax on “supply of tangible goods service”; Such a provision cited by the Ld. Commissioner in the impugned Order is inapplicable on account of advent of the negative list. Neither the Show Cause Notice nor the impugned order has made any reference to the provisions of the negative list regime for confirming the demand post 01.07.2012. Accordingly, it is submitted that the demand for the period post 01.07.2012 is not sustainable on this ground.
3.8. In this regard, the Appellant placed their reliance on the decision of the CESTAT, New Delhi in the case of Commissioner of Central Tax Goods and Service Tax, Delhi East v. M/s. Sanjay Electricals (vice-versa) – 2024 (1) TMI 891 – CESTAT New Delhi wherein CESTAT, New Delhi has held that demand confirmed by citing the non- existent legal provisions cannot be sustained.
4. The Appellant submits that extended period of limitation cannot be invoked in the instant case since the Appellant was under the bona fide belief that no service tax is payable since the instant transaction in dispute constitutes a ‘deemed sales’ for which VAT was already paid. In this regard, the Appellant placed their on the decision of the CESTAT in the case of Carzonrent (India) Pvt. Ltd. v. Commissioner of Service Tax, Delhi – I – 2017 (50) S.T.R. 172 (Tri. – Del.) wherein it was held that when there is an element of dispute and ambiguity whether a transaction is covered by VAT law or Service Tax, and the same needs to be decided based on the facts and applicable law, then extended period of limitation cannot be invoked.
4.1. Further reliance is placed on the decision of the CESTAT Chandigarh in the case of Sant Roadlines v. Commr. of C.Ex. & S.T., Panchkula – 2020 (43) G.S.T.L. 206 (Tri. – Chan.), wherein it has been held that extended period of limitation is not invokable when the assessee was under the bona fide belief that no service tax is payable under the category “supply of tangible goods” when the agreements clearly show such bona fide belief on the part the assessee.
4.2. Reliance is also placed on the decision of the CESTAT, New Delhi in the case of M/s. GD Goenka Pvt. Ltd. v. Commr. of CGST, Delhi South – 2023 (8) TMI 995, wherein it was held that suppression cannot be alleged to invoke extended period of limitation when there is a difference of view between the assessee and Revenue, and the assessee acted as per their view.
4.3. Further reliance is placed on the decision of the CESTAT Ahmedabad in the case of Atwood Oceanics Pacific Ltd. v. Commr. of Service Tax, Ahmedabad – 2013 (32) S.T.R. 756 (Tri. – Ahmd.), wherein it was held that when there are two possible views, and if the assessee opted for the view that tax is not liable to be paid, then extended period of limitation cannot be invoked.
4.4. The Appellant submits that it is a trite law that when the issue involved is of bona fide interpretation of law, extended period of limitation cannot be invoked. Reliance is placed on the decision of the CESTAT, Kolkata in the case of M/s. Amit Metaliks Limited v. Commr. of Central Excise, Bolpur – 2023 (11) TMI 721 – CESTAT Kolkata.
4.5. Further, it is also submitted that it is an undisputed fact that the VAT remission amount was reflected in the Balance Sheet of the Appellant, and therefore, in such a case no suppression can be alleged. The Ld. Commissioner in the impugned Order has observed that “Mere disclosure about the VAT remission amount in their Balance Sheet cannot prove that the department has the knowledge of service provided by the Noticee.” However, such an observation by the Ld. Commissioner goes against the settled position of law that no suppression can be alleged when a transaction is recorded in the Balance Sheet. Reliance in this regard is placed on the decision of Black Box Ltd v. Commissioner of C. Ex. & S.T. Ahmedabad III – 2023 (73) G.S.T.L. 381 (Tri. – Ahmd.) wherein it was held that when the assessee has disclosed the transaction in the balance sheet, no suppression or mis-declaration can be attributed to invoke extended period of limitation.
4.6. In view of the above submissions, the Appellant contended that the impugned order confirming the demands of service tax along with interest and penalty is not sustainable and prayed for setting aside the same.
5. The Ld. Authorized Representative appearing on behalf of the respondent submits that as per certain clauses in the agreement, the possession and control of the bowsers/tankers lies with the Appellant and hence the same amounts to ‘supply of tangible goods service’ liable to service tax under Section 65(105)(zzzzj) of the Finance Act, 1994. Further, the Appellant carries out the repair and maintenance of tankers, incurred expenditure for fuel and consumable, provides crew, and is responsible to comply with the statutory acts, therefore, the title or ownership vests with the Appellant and is not transferred to OIL. Accordingly, he supported the impugned order.
6. Heard both sides and perused the appeal documents.
7. We observe that the Appellant has supplied tankers / bowsers to M/s. OIL for the purpose of transportation of crude oil. The Appellant were responsible for the operation of the tankers / bowsers, and accordingly they claimed that the entire effective control and right to use vests with OIL. Accordingly, they contended that the effective control and possession of the tankers/bowsers have been transferred to OIL and the transaction was ‘deemed sales’ and falling within the ambit of Assam VAT Act and hence no service tax is payable by them. However, the department contended that the possession and control of the bowsers/tankers lies with the Appellant and hence the same amounts to ‘supply of tangible goods service’ liable to service tax under Section 65(105)(zzzzj) of the Finance Act, 1994. Thus, the issue to be decided in this appeal is whether effective control and possession of the tankers/bowsers have been transferred to OIL or lies with the Appellant.
7.1. We find that Circular 334/1//2008-TRU dated 29/02/2008 has clarified the scope of the service ‘supply of tangible goods for use’. The relevant clarification in para 4.4 of the Circular is reproduced below:
“4.4 SUPPLY OF TANGIBLE GOODS FOR USE: 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.
4.4.3 Proposal is to levy service tax on such services provided in relation to supply of tangible goods, including machinery, equipment and appliances, for use, with no legal right of possession or effective control. Supply of tangible goods for use and leviable to VAT / sales tax as deemed sale of goods, is not covered under the scope of the proposed service. Whether a transaction involves transfer of possession and control is a question of facts and is to be decided based on the terms of the contract and other material facts. This could be ascertainable from the fact whether or not VAT is payable or paid.”
7.2. It is a fact on record that the Appellant has considered the transaction as amounts to ‘Deemed Sale’ and paid VAT under Assam VAT Act. As per the clarification issued by the Circular mentioned above, if VAT / sales tax is payable on the transaction as deemed sale of goods then the supply of tangible goods is not covered under the scope of the “supply of tangible goods service”. We observe that payment VAT is one of the conditions prescribed to ascertain whether a transaction is liable to service tax under the category of ‘supply of tangible goods’. However, whether a transaction involves transfer of possession and control is the primary condition which determines the liability of service tax under the category of ‘supply of tangible goods’. This is a question of fact which is to be decided based on the terms and conditions of the contract and other material facts with respect to each contract separately.
7.3. In this case, we have perused the Agreement signed by the Appellant with OIL to ascertain whether possession and control have been transferred not. From some of the clauses in the Agreement, we find that the Appellant carries out the repair and maintenance of tankers; incurred expenditure for fuel and consumable; provides crew, and is responsible to comply with the statutory acts. These clauses of the Agreement indicate that the title or ownership vests with the Appellant only and not transferred to OIL. Accordingly, we observe that the Appellant is liable to pay service tax under the category of ‘supply of tangible goods service’.
7.4. The Appellant submits that for the period from July 2012 to March 2014, the impugned Order has confirmed the demand of Service Tax amounting to Rs. 33,41,267/- on the ground that the same falls within the ambit of “supply of tangible goods service” under Section 65 (105)(zzzzj) of the Finance Act 1994. In this regard, we observe that post 01.07.2012, the provisions of Section 65 (105)(zzzzj) cannot be invoked to demand service tax on “supply of tangible goods service. We observe that the provisions of the negative list regime has not been invoked in the Notice. we observe that the demand confirmed by citing the non-existent legal provisions cannot be sustained Accordingly, we hold that the demand for the period post 01.07.2012 is not sustainable on this ground. This view has been supported by the decision of the CESTAT, New Delhi in the case of Commissioner of Central Tax Goods and Service Tax, Delhi East v. M/s. Sanjay Electricals (vice-versa) – 2024 (1) TMI 891 – CESTAT New Delhi wherein CESTAT held that demand confirmed by citing the non-existent legal provisions cannot be sustained. The relevant part of the decision is reproduced below: –
“10…..Therefore, this is not a case of mere wrong mention of a provision in the SCN but a confirmation of demand on charging sections which did not exist during the relevant period at all. It is also a case of ascertaining the demand considering exemption notification which also did not exist during the relevant period. Not only were the wrong provisions invoked in the SCN, but the demands were confirmed under them in the impugned order which shows complete non- application of mind. The provisions were not only wrong but were non-existent during the relevant period. We, therefore, answer this question in favour of the assessee and against the Revenue and hold that the demand confirmed in the non- existent legal provisions cannot be sustained.”
(Emphasis supplied)
7.5. In view of the decisions cited and the discussions above, we hold that the demand for the period 01.07.2012 to March 2014 is liable to be set aside.
8. Regarding invocation of extended period of limitation, we observe that the Appellant was under the bona fide belief that no service tax is payable since the instant transaction in dispute constitutes a ‘deemed sales’ for which VAT was already paid. In the case of Carzonrent (India) Pvt. Ltd. v. Commissioner of Service Tax, Delhi – I – 2017 (50) S.T.R. 172 (Tri. – Del.), CESTAT, New Delhi has held that when there is an element of dispute and ambiguity whether a transaction is covered by VAT law or Service Tax, and the same needs to be decided based on the facts and applicable law, then extended period of limitation cannot be invoked. The relevant part of the said decision is reproduced below:
16. We have examined this contention of the appellant with reference to the findings of the Original Authority on the question of time bar. The Original Authority held that the appellant is professionally managed company and it should have followed the provisions of Finance Act, 1994 to comply with the payment of service tax in time. He rejected the contention of the appellant with reference to their bona fide belief. We note that in the present case, the dispute involved is liability of the appellant for service tax for providing vehicles on long term lease basis to various clients. Admittedly, there is a provision in VAT Law for taxing the deemed sale of motor vehicles in certain cases of long term lease arrangement. It is clear that the tax liability with reference to a particular transaction has to be decided based on the facts of transactions and the applicable tax law. The question whether the lease arrangement entered into by the appellant will be covered by VAT Law or Service Tax had some element of dispute and ambiguity. The original order also examined the contract in detail and applied the various principles evolved in the case laws, more specifically the decision of the Hon’ble Supreme Court in BSNL (supra) to decide that the activities of the appellant as falling under service tax domain. The appellant pleaded that they have discharged the VAT on these transactions during the relevant time. Considering these factual background, we find that the allegation of fraud, suppression and wilful misstatement cannot be sustained in the present case against the appellant. The reasons adopted by the Original Authority are not convincing in terms of the provisions of the Section 73(1) of the Finance Act, 1994. Accordingly, we find that the service tax liability of the appellant as upheld by us in this order is to be restricted to the normal period of demand only. Accordingly, the penalty imposed under Section 78 of the Finance Act, 1994 with reference to the extended period of demand can also be not sustained.
…
20. In view of the above discussion and analysis, we hold that the appellants are liable to service tax as confirmed by the Original Authority. However, the demand shall be restricted to the normal period and the penalty under Section 78 is not sustainable. The benefit of abatement in terms of Notification Nos. 9/2004-S.T. and 1/2006-S.T. shall be allowed on production and verification of supporting documents for fulfilment of the conditions stipulated therein. The appeal is disposed of in the above terms.
8.1 We find that CESTAT Chandigarh in the case of Sant Roadlines v. Commr. of C.Ex. & S.T., Panchkula – 2020 (43) G.S.T.L. 206 (Tri. – Chan.), has held that extended period of limitation is not invokable when the assessee was under the bona fide belief that no service tax is payable under the category “supply of tangible goods” when the agreements clearly show such bona fide belief on the part the assessee. Further, we observe that the Appellant has disclosed all the transaction details in the balance sheet and suppression of fact with intention to evade payment of service tax has not been established in this case. Accordingly, we hold that the demand of service tax beyond the normal period of limitation is not sustainable.
8.2. We observe that in the impugned order demand has been confirmed for the period April 2009 to March 2014, by invoking extended period of limitation. The Show Cause Notice in this case was issued vide C. No. V(15)100/ADJ/ST/COMMR/DIB/ 2014/ 11154 on 16.09.2014. Under the normal period of limitation, demand can be issued only for a period of 18 months. Thus, we observe that the demand for the period prior to 2013 demanded in the Notice dated 16.09.2014, is time barred. As discussed in paragraph 7.4 (supra), the demand for the period from July 2012 to March 2014 has been raised by invoking the provisions of Section 65(105)(zzzzj) of the Finance Act, 1994 which was not in existence. We find that the provisions of the negative list regime has not been invoked in the Notice. Accordingly, we hold that the demand for the period post 01.07.2012 is not sustainable on this ground, as held by CESTAT, New Delhi in the case of Commissioner of Central Tax Goods and Service Tax, Delhi East v. M/s. Sanjay Electricals (vice- versa) – 2024 (1) TMI 891 – CESTAT New Delhi. Thus, we hold that the entire demand confirmed in the impugned order is not sustainable and accordingly, we set aside the same. Since the demand itself is not sustainable, the question of demanding interest and imposing penalty does not arise.
9. In view of the above discussions, we pass the following order:
(i) The services rendered by the Appellant is liable to service tax under the category of ‘supply of tangible goods service’, as effective control and possession of the tankers/bowsers lies with the Appellant.
(ii) The demand for the period post 01.07.2012 is not sustainable, as the provisions of the negative list regime applicable during the relevant period has not been invoked in the Notice.
(iii) As intention to evade payment service tax has not been established in this case, the demand of service tax beyond the normal period of limitation is not sustainable. In view of (ii) above, the entire demand confirmed along with interest in the impugned order is not sustainable and accordingly, we set aside the same.
(iv) As intention to evade payment service tax has not been established in this case, no penalty imposable. Accordingly, the penalty imposed is set aside.
(v) The appeal filed by the Appellant is allowed.
(Operative part of the order was pronounced in open court)
