Hiring of equipment with transfer of use is deemed a sale, exempting the transaction from service tax under the Finance Act.

JUDGMENT :

K.R.Shriram, C.J.

Appellant is a supplier of cine equipments, gensets, cranes, etc., to be used in film shooting. These equipments are operated by experts in their respective fields engaged by the hirers and the role of appellant is restricted to hiring out these equipments. According to appellant, the place and use of the equipments is in the production of cinematographic films using the hirer's technicians.

2. Appellant had obtained a service tax registration and was allotted Registration No.AAAFA4996KST001. Appellant had classified the services provided by it under supply of tangible goods services and paid service tax on the services.

3. The department, on verification of records of the assessee, found that no service tax had been paid and no service tax returns were filed for the period from April, 2010 onwards in respect of the supply of the said services. It is alleged by the department that, on examination and verification of records, it was noticed that the service tax not paid on the amounts received by appellant from its clients during the period from August, 2010 to December, 2010 was approximately Rs.90,39,826/-. For the period January, 2011 to September, 2011, the total service tax not paid on the amounts received was approximately Rs.1,33,32,190/-. It is alleged that on being pointed out by the department, appellant paid the entire service tax amount, except Rs.1,87,313/-. Appellant also paid proportionate interest of Rs.26,75,499/-.

4. However, from January, 2011, appellant had stopped paying service tax on the ground that the nature of activity provided by appellant attracts Value Added Tax (VAT) and, hence, service tax was not applicable.

5. In response to the letter received from the department, appellant, vide its letter dated 23.07.2014, furnished details of the amounts billed and received for the period from October, 2010 to March, 2014 and also made a remark that for the period January, 2011 to March, 2014, service tax was not applicable as appellant had filed VAT returns. Further, appellant by a letter dated 20.03.2015 stated that the activity of renting out of cinematographic equipments undertaken by appellant would fall under “right to use” under the sales tax Law and the said activity is thus construed as “deemed sale” under the sales tax Law, as the assessee transfers both possession and control of its equipments to its customers. Hence, service tax was not leviable. The assessee also made available a copy of an agreement dated 22.06.2011 entered into by assessee and one Chennai Cinema Private Limited for hiring of cinematographic equipments.

6. The department thereafter issued appellant a show cause notice dated 15.10.2015 read with corrigendum dated 12.01.2016 calling upon appellant to show cause as to why:

“a) an amount of Rs. 2,25,59,829/- being the service tax, Education Cess and Secondary & Higher Education Cess payable on the payments received during the period from August 2010 to September 2011, should not be demanded under proviso to Section 73(1) of the FINANCE ACT , 1994.

b) an amount of Rs. 2,23,72,016/- already paid by the assessee against the demand made in (a) above should not be appropriated.

c) interest should not be recovered in respect of the demand made in (a) above under Section 75 of the FINANCE ACT , 1994.

d) an amount of Rs.26,75,499/- already paid by the assessee towards the demand made in (c) above which is for the delayed service tax payment of Rs.2,23,72,016/-indicated in (b) above, should not be appropriated.

e) an amount of Rs.13,24,47,421/- being the service tax payable in respe