The main legal point established is that the transfer of the right to use goods constitutes a deemed sale under the MVAT Act and is subject to VAT, while being excluded from the definition of 'service' and 'declared service' under the Finance Act, 1994.

JUDGMENT :

(K.R. Shriram, J.) :

1. By consent of the parties, petition is taken up for hearing at the admission stage since pleadings are completed. Rule. Rule made returnable forthwith.

2. Petitioner is impugning an order dated 31st January 2022 passed by respondent no.3 demanding service tax on a transaction, which according to petitioner was deemed sale under the Maharashtra Value Added Tax Act (MVAT Act) and admittedly on which VAT is levied and collected by respondent no.5.

3. Petitioner is the Liquidator of a company - Swire Oilfield Services India Private Limited [hereinafter referred to as the company (in liquidation)]. The company (in liquidation) was engaged in providing Cargo Carrying Units (CCU or containers) on rental basis to its customers. Admittedly, the containers were not owned by the company (in liquidation) but were taken on lease from one Monument Containers Limited, England (hereinafter referred to as Monument). The containers were used in the offshore exploration industry to transport and store all types of goods such as consumables, equipment, spares etc. that were required during the offshore exploration activity.

4. As per the lease agreement with Monument, the company (in liquidation) was permitted to give the containers on sub-lease to any party deemed fit and proper. Accordingly, the company (in liquidation) had, vide a lease agreement dated 1st April 2011, given on lease various containers on hire for consideration to one CU Inspection India Private Limited (hereinafter referred to as the lessee). On the lease rental/hire earned by the company (in liquidation), admittedly, the company (in liquidation) discharged VAT at the rate of 12.5%.

5. Respondent no.3 during the course of verification of ITR/TDS data found that the company (in liquidation) had declared turnover of Rs.1,40,70,443/- to the Income Tax Department for FY 2015-2016 (AY 2016-2017). Respondent no.3 alleged that the company (in liquidation) did not pay service tax or obtain service tax registration even after crossing the threshold limit of Rs.10 lakhs and the fact of providing taxable services during FY 2015-2016 came to the notice of respondent no.3 only during the course of enquiry conducted by the department. Therefore, respondent no.3 came to a conclusion that the company (in liquidation) has failed to pay service tax and also failed to obtain service tax registration with the sole intent to evade due service tax on the taxable service provided by them and thereby suppressing those facts from the Service Tax Department. A notice dated 11th December 2020 accordingly came to be issued calling upon the company (in liquidation) to show cause as to why service tax amounting to Rs.20,40,215/- that was not paid by the company (in liquidation) during the period April 2015 to March 2016 plus interest plus penalty etc. be recovered.

6. Petitioner filed reply to the said show cause notice and petitioner’s submissions were reproduced in the impugned order. Petitioner made it clear to respondent no.3 that the turnover as per the audited financials was only Rs.1,25,07,056/- and VAT paid was Rs.15,63,387/-. Copies of the income tax returns, Form 26AS, annual finance statements etc. were all provided to respondent no.3. One thing, therefore, is very clear that the turnover of the company (in liquidation) was only Rs.1,25,07,056/- and not Rs.1,40,70,443/-as alleged in the show cause notice. Petitioner explained to respondent no.3 that in terms of the agreement between the company (in liquidation) and the lessee, the containers were given on a “transfer of right to use” basis and there was transfer of possession and effective control of the containers to the exclusion of the transferor, i.e., the company (in liquidation). It was also brought to the notice of respondent no.3 that during the period of agreement petitioner could not simultaneously lease such