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Judgment
The present appeal has been filed by the assessee being aggrieved with the Order-in-Original dated 28th March 2018 passed by the learned
Commissioner, whereby the demand of service tax of Rs.5,71,11,725/- has been confirmed for the period 2011-12 to 2014- 15, along with interest and
penalty as proposed in the Show Cause Notice dated 14th August 2017.
Briefly stated, the facts of the case are that the appellant manufactures aerated water and sells the same in glass bottles of assorted sizes to its
various customers such as distributors and institutional buyers for sale to the ultimate consumers. The said product is assessed under MRP based
valuation under Section 4A of the Central Excise Act, 1944. While delivering such aerated water in the glass bottles, plastic crates are required to
keep the glass bottles properly arranged in order to prevent any breakage of same. The right of possession and effective control of such glass bottles
and plastic crates is transferred by the appellant to its purchasers against payment of rental charges, which is included in the sale price of the aerated
water in the tax invoice prepared by the appellant. The appellant’s customers have the legal right to use the bottles and crates in respect of which
tax invoice is raised by the appellant. On such rental charges in respect of glass bottles and plastic crates, the appellant has duly paid tax under the
West Bengal Value Added Tax Act, 2003 (hereinafter referred to as the 2003 Act). Under the provisions of the 2003 Act, the transfer of right of
possession andeffective control of the glass bottles and plastic crates is treated as a transfer of the right to use such bottles and crates and as
amounting to a deemed sale of goods within the meaning of Article 366(29A) of the Constitution of India for the purpose of levy of VAT. Such
definition of sale in clause (39) of section 2 of the 2003 Act is in line with the provisions of clause (29A) of Article 366 of the Constitution. The sales
tax authorities have all along taken the view that the appellant is liable to pay VAT on the rental charges of bottles and crates. Whereas the appellant
paid VAT @ 4%/5%, as applicable, the said authorities sought to demand tax @13.5%/14.5%. However, there is no dispute between the appellant
and the sales tax authorities that such rental charges are liable to VAT as consideration for transfer of right to use the goods amounting to deemed
sale thereof within the meaning of section 2(39)(c) of the 2003 act and Article 366(29A) of the Constitution of India. Tax on the sale or purchase of
goods within the State is a subject which falls in the State List under the Seventh Schedule to the Constitution and it is beyond the competence of the
Central Government to levy Service Tax on such sale or purchase. The transfer of right to use the bottles and crates having been taxed as deemed
sale of goods, there can be no question of charging any service tax in respect thereof. On August 25, 2014 a spot memo was issued by the Audit
team, inter alia, with regard to taxability of rental charges in respect of bottles and crates. By a letter dated January 30, 2015, the appellant denied
taxability. After nearly 3(three) years, on August 14, 2017, the Commissioner of Central Tax (GST &C.Ex) (hereinafter referred to as the
Commissioner) issued a show cause â€" cum â€" demand notice to the Appellant proposing to demand service tax on amounts received by the
Appellant for the period 2011-12 to 2014-15 on account of rental charges in respect of returnable glass bottles and plastic crates in which aerated
water manufactured bythe appellant was sold to customers on the allegation that the appellant rendered ‘supply of tangible goods for use’
service as defined in Section 65(105)(zzzzj) of the Finance Act, 1994 (hereinafter referred to as the 1994 Act). The appellant by its letter dated March
5, 2018 duly replied to the said show cause â€" cum â€" demand notice pointing out inter alia that under the different statutory provisions governing the
long period in consideration, both from April 1, 2011 to June 30, 2012 and from July 1, 2012 to March 31, 2015, the transfer of right to use goods
treated as a deemed sale on which VAT was chargeable was not to be subjected to any service tax. The appellant further contended that the said
show cause â€" cum â€" demand notice was substantially barred by limitation. Department has raised demand of service tax under supply of tangible
goods service as defined under Section 65(105) (zzzzj) of the Finance Act, 1994 as applicable to service tax. Hence, the present appeal before the
Tribunal.
Shri Ankit Kanodia, learned Chartered Accountant, appeared on behalf of the Appellant. He contended that the service tax demand on glass bottles
and crate rentals is not sustainable for the following reasons:
(i) crate rental has been collected by various bottling units across India while selling the beverages as a consideration towards transfer of right to use
(deemed sale) and such rental was liable to VAT/CST (sales tax). Transfer of Right to use was held to be liable to VAT/Sales tax by the Hon’ble
Andhra Pradesh High Court in W.P. No. 25588 of 2007 in the case of Hindustan Coca Cola Beverages Pvt. Ltd. v. State of Andhra Pradesh W.P.
Nos. 21115 of 2005, 856 of 2006 and 25588 of 2007.
(ii) The department has accepted that the said charges cannot be taxed under service tax in case of other bottling units in West Bengal namely in the
case of M/s. Diamond Beverage Private Limited (OIO No. 33-34/COMMR/ST-II/KOL/2017-18 dated 22nd December 2017) as accepted by the
Committee of Chief Commissioners also vide letter dated 16th April 2018.
3.1 He further relied on the following judgments which have held that Rental on glass bottles and crate cannot be subjected to service tax:
(a) HINDUSTAN COCA COLA BEVERAGES PVT. LTD. Versus COMMR. OF S.T., DELHI [2016 (42) S.T.R. 696 (Tri. - Del.)]
(b) COMMISSIONER OF C. EX. & S.T., LUCKNOW Versus BRINDAVAN BOTTLERS LTD. [2019 (27) G.S.T.L. 354 (Tri. - All.)]
3.2 The learned Chartered Accountant has also produced copies of tax invoice which clearly shows that the Appellant has charged VAT on such
rentals and also produced copies of VAT assessment orders for the relevant years wherein department has accepted the said fact that such rentals
would be liable to VAT under the VAT laws being in the nature of deemed sales.
It is his submission that the demand is also barred by limitation as the demand covers the period from 2011-12 to 2014-15 whereas the SCN was
issued on 14th August 2017 much after the expiry of five years. He further submits that the spot memo was issued in 2014 whereas the SCN was
issued in 2017 and thus the question of invoking extended period of limitation does not arise as the department was fully aware of the facts of the case
of the Appellant and hence, no penalty is imposable.
The learned Authorized Representative appearing on behalf of the respondent department, agreed that the Committee of Chief Commissioners have
accepted the order in case of other assessees.
Heard both sides and perused the appeal records.
In the instant case, it is seen that the Adjudicating Authority has confirmed service tax demand on glass bottles and crate rentals under Supply of
tangible goods service. It is the case of the department that the said rental charges are in the nature of supply of tangible goods service as the
effective control and possession of such crates and glass bottles are not transferred by the Appellant to the customers, though it is not disputed that
the Appellant Company has paid VAT on the same and has been all along assessed by the VAT authorities for such levy of VAT under the deemed
sales clause.
The Appellant has contended that the supply of glass bottles and crates amounted to deemed sale, which was liable to VAT/sales tax as the effective
control and possession of the goods were transferred by the Appellant. It is seen that CGST & CX, Kolkata South Commissionerate, vide Order-in-
Original 33-34/COMMR/STII/KOL/2017-18 dated 22nd December 2017 has dropped the demand on the same issue for another assessee and the
same has been accepted by the Revenue as well. Further, the issue is settled by the judgment of the Hon’ble Andhra Pradesh High Court in the
Writ Petitions No. 21115/2005, No. 856/2006 and No. 25588/2007, where it was held that such crate rentals would be liable to VAT/Sales tax on the
ground that it amounted to deemed sale of crates inasmuch as there was transfer of right to use with effective control and possession of crates. It is
trite that the transactions which are deemed sales cannot be liable to service tax. Also, it is seen from the order of the learned Adjudicating authority
that he has not at all considered the submissions of the Appellant as regards payment of VAT on the said rentals.
6.1 Further, when the aerated beverages are supplied by the Appellant to its customers, the possession as well as effective control of the said bottles
along with crates in which they are supplied to keep them free from spillage and breakage, is also passed by the Appellant assessee as the Appellant
cannot govern the action of its customers as to how the customers would deal with such crates and bottles once supplied. The definition of supply of
tangible goods is as follows:-
Taxable services means any service provided or to be provided to any person, by any other person in relation to supply of tangible goods
including machinery, equipment and appliances for use, without transferring right of possession and the effective control of such
machinery, equipment and appliances
From the above definition, when there is supply of use of goods without transferring right of possession and effective control of the equipment, the
same would fall within the category of supply of tangible goods service. However, in the instant case of the appellant, the entire goods are handed
over to the customer who gets the effective possession as well as control to use the goods. Hence, the observation of the Ld. Adjudicating authority
that the control and possession has not been passed is not justified and hence is liable to be rejected. Further, we find that the decision of this Tribunal
in the case of (a) HINDUSTAN COCA COLA BEVERAGES PVT. LTD. Versus COMMR. OF S.T., DELHI 2016 (42) S.T.R. 696 (Tri. - Del.)
squarely covers the issue at hand.
6.2 Further, on perusal of records, we find that the demand has been raised for the period 2011-12 in 2017 onwards whereas the spot memo was
issued by the Department in 2014 itself. No explanation has been furthered by the Department in respect of such gross delay in proceeding with the
matter. Therefore, we find that invocation of the extended period of limitation is not justified.
In view of the above discussions and the settled legal judicial precedence and provisions contained in statutes referred to above, demand of service
tax on glass bottles and crate rentals cannot be sustained both on merits and on limitation and is accordingly set aside. Since demand of service tax is
set aside, penalty and interest are also not sustainable.
The appeal filed by the Appellant is thus allowed with consequential relief, if any, as per law.
(Order pronounced in the open court on 12 November 2020.)