CESTAT ruling on service tax on the sale of goods

CESTAT ruling on service tax on the sale of goods

Coram rejects the order passed by the Income Tax Commissioner (Appeals)

The Allahabad Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that service tax is not leviable on the sale of goods that have already been subjected to Sales Tax or Value Added Tax (VAT).

The appellant, Express Engineers & Spares provides diesel generators to the customers on a hiring basis. The issue involved in the appeal was whether the appellant rendered a supply of tangible goods for use (STGU) service, which is leviable to service tax under the Finance Act. These were for the period from 2011-2012 and 2014-15.

A show-cause notice was issued to the appellant proposing to recover service tax for the two periods with interest and penalties.

The contention of the tax department was that the appellant was responsible for loading, unloading, installation, commissioning, repair and maintenance of diesel generators. It also provided an operator for running these machines.

The transportation and installation of the generators at the site of the customers could not lead to a conclusion that the appellant was rendering STGU service. The agreement provided that the appellant would be responsible for providing the generators to the customers. It was, therefore, imperative for the appellant to ensure that those were transported and installed at the site of the customer.

The finding in the impugned order was that since the appellant was responsible for the maintenance and repair of the generator, it had retained effective control. But it could not be sustained because once the control and possession of the generator was transferred to the customer, mere maintenance or repair work would not change the nature of the transaction

The Coram of Justice Dilip Gupta and PV Subba Rao held that the payment of VAT/Sales Tax on a transaction had to be treated as sales of goods and levy of service tax on such transaction would not arise.

The CESTAT ruled, "It is more than apparent that the supply of the diesel generator sets to the customers would not amount to STGU service. The orders passed by the Income Tax Commissioner (Appeals), therefore, cannot be sustained."