{"id":281119,"date":"2023-01-05T18:00:24","date_gmt":"2023-01-05T12:30:24","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=281119"},"modified":"2023-01-24T19:35:18","modified_gmt":"2023-01-24T14:05:18","slug":"service-tax-not-payable-for-deemed-sales-for-import-transactions-holds-cestat-legal-news-legal-research-updates","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2023\/01\/05\/service-tax-not-payable-for-deemed-sales-for-import-transactions-holds-cestat-legal-news-legal-research-updates\/","title":{"rendered":"Service tax not payable for \u2018deemed sales\u2019; CESTAT sets aside the order passed by the Commissioner LTU, Delhi"},"content":{"rendered":"
\n

   <\/p>\n

Customs, Excise and Services Tax Appellate Tribunal (CESTAT), New Delhi:<\/b> The division bench of Dilip Gupta, (President) and P.V. Subba Rao (Technical member) sets aside the order passed by the Commissioner LTU (Audit), New Delhi which confirmed the demand of service tax with interest and penalty for the reason that the appellant had received ‘supply of tangible goods for use’ (‘STGU’) service from foreign suppliers, for which service tax was to be paid by the appellant under reverse charge mechanism and held that service tax can’t be levied in transactions where the ‘right to use’ had been transferred along with the ‘possession and effective control’ of the machinery.<\/p>\n

Facts<\/b><\/p>\n

The appellant had taken the ISO containers on lease\/rental basis from a foreign supplier who did not have office in India for the supply of the containers. The appellant had claimed that it had effective control and possession over the ISO tankers during the lease period. Therefore, the entire transaction would qualify as a ’deemed sale’ under article 366(29A)<\/a> of the Constitution of India<\/a>; as a result, no service tax liability would arise.<\/p>\n

However, a show cause notice was issued to the appellant alleging that the appellant had received services in the nature of STGU from foreign suppliers, which would be taxable. Further, the Commissioner LTU, New Delhi affirmed the demand for service tax with interest and penalty under Section 65(105)(zzzzy)<\/a> of the Finance Act, 1994<\/a> (‘Finance Act’).<\/p>\n

    \n
  1. \n

    The Commission was dealing with the following: Whether the transaction between the appellant and the foreign buyer would involve the transfer of right of possession and effective control?<\/p>\n<\/li>\n

  2. \n

    Whether the supply of ISO Tankers on lease to the appellant by foreign suppliers would amount to STGU service?<\/p>\n<\/li>\n

  3. \n

    Whether the appellant would be charged service tax?.<\/p>\n<\/li>\n<\/ol>\n

    Decision<\/b><\/p>\n

    The Tribunal laid down the principles as to which transaction can be seen as a taxable service:<\/p>\n

      \n
    1. \n

      There must be a transfer or supply of goods<\/p>\n<\/li>\n

    2. \n

      The transfer must be by way of hire, lease, or license<\/p>\n<\/li>\n

    3. \n

      The right of possession and effective control over such goods must not have passed on to the transferee<\/p>\n<\/li>\n<\/ol>\n

      The Tribunal while navigating through Section 65(105)(zzzzj)<\/a> of the Finance Act<\/a>, Entry 54 of List II, and Article 366(29A)<\/a> of the Constitution<\/a>, held that the transaction between the appellant and the foreign buyer qualified as a transfer of ‘right to use’ goods with the ‘control and possession’ over the ISO Tanker passing on to the appellant.<\/p>\n

      The Tribunal explained that had there been no transfer of ‘effective control and possession’ of the machinery and would have remained with the person who had given it on hire, the authority would have then been liable to levy service tax. However, if the ‘right to use’ was transferred along with ‘possession and effective control’, the transaction then fell outside the purview of service tax liability.<\/p>\n

      The Tribunal stated that the fact that the containers had not been sold to the appellant did not negate the appellant’s right to possession and effective control over them.<\/p>\n

      The Tribunal was of the view that the Commissioner did not appreciate the difference between a ‘sale’ and a ‘deemed sale’ contemplated under Article 366(29A)<\/a> of the Constitution<\/a> since in a ‘deemed sale’ it is necessary to examine who has the possession and effective control over the goods.<\/p>\n

      Further, the Tribunal stated that the Commissioner had erred in holding that since the appellant had not paid the sale tax, the transaction would not be considered as a ‘deemed sale’ by overlooking the fact that since it involved the sale or purchase of goods in the course of import of goods into India, no sales tax\/VAT was required to be paid<\/p>\n

      In conclusion, it was held that the supply of ISO Tankers on lease\/rental basis by foreign suppliers to the appellant would amount to a ‘deemed sale’ under Article 366(29A)<\/a> of the Constitution<\/a> as the appellant throughout had effective control and possession over the ISO Tankers.<\/p>\n

      Accordingly, the Tribunal set aside the Commissioner’s order [SRF LTD. (Chemical Business) v. Commissioner LTU, 2023 SCC OnLine CESTAT 2<\/a>, decided on 03-01-2023<\/span>]<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

      The supply of ISO Tankers on lease\/rental basis by foreign suppliers to the appellant would amount to a ‘deemed sale’ under Article 366(29A)<\/a> of the Constitution<\/a> as the appellant throughout had effective control and possession over the ISO Tankers.<\/i><\/p>\n","protected":false},"author":67011,"featured_media":279710,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[3,11],"tags":[6651,29538,54259,54260,54258,2634,2758,3208],"class_list":["post-281119","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-casebriefs","category-tribunals_commissions_regulatorybodies","tag-cestat","tag-customs","tag-deemed-sale","tag-effective-control","tag-excise-and-services-tax-appellate-tribunal","tag-possession","tag-sales_tax","tag-service_tax"],"yoast_head":"\nService tax not payable for \u2018deemed sales\u2019; CESTAT sets aside the order passed by the Commissioner LTU, Delhi | SCC Times<\/title>\n<meta name=\"description\" content=\"The division bench of Dilip Gupta, (President) and P.V. 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A freight forwarder may act as principal and raise invoice to the exporter on his own account, providing transportation of goods and is not acting as \u201cintermediary\u201d.","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"CESTAT","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/04\/CESTAT.webp?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/04\/CESTAT.webp?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/04\/CESTAT.webp?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/04\/CESTAT.webp?resize=700%2C400&ssl=1 2x"},"classes":[]},{"id":271192,"url":"https:\/\/www.scconline.com\/blog\/post\/2022\/08\/05\/cestat-sets-aside-penalty-on-umed-bhawan-palace-for-delay-in-service-tax-situation-found-revenue-neutral\/","url_meta":{"origin":281119,"position":1},"title":"CESTAT sets aside penalty on Umed Bhawan Palace for delay in service tax; Situation found revenue neutral","author":"Editor","date":"August 5, 2022","format":false,"excerpt":"Customs, Excise and Services Tax Appellate Tribunal (CESTAT): Anil Choudhary (Judicial Member) allowed an appeal which was filed involving the question of as to whether penalty under Section 78 of Finance Act, 1994 was rightly imposed. 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Pursuant to audit,\u2026","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"Customs, Excise and Services Tax Appellate Tribunal","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/02\/CESTATNew-Logo.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/02\/CESTATNew-Logo.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/02\/CESTATNew-Logo.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/02\/CESTATNew-Logo.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/02\/CESTATNew-Logo.jpg?resize=1050%2C600&ssl=1 3x"},"classes":[]},{"id":353511,"url":"https:\/\/www.scconline.com\/blog\/post\/2025\/07\/16\/cestat-service-tax-for-film-screening-distributor-theatre-owner\/","url_meta":{"origin":281119,"position":2},"title":"\u2018To be paid by distributors\u2019: CESTAT sets aside order directing theatre owner to pay service tax for film screening","author":"Editor","date":"July 16, 2025","format":false,"excerpt":"For getting the films exhibited in their theatre, the owner of the said Multiplexes\/theatres enter into agreements with the film distributors\/producers. 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