Mere of hiring of equipment not covered under “ supply of tangible goods for use”.

PJ/Case law/2014-15/2260

Case:-PRAVEEN ENGINEERING WORKS Vs COMMISSIONER OF SEVICE TAX, RAIGAD

Citation:-2014(33) S.T.R 719 (Tri.- Mumbai)

Brief Facts:-The Appellant, M/s Praveen Engineering Works rendered services such as cleaning service, service of supply of tangible goods for use service and manpower recruitment and supply agency service to M/s Mahindra Ugine Steel Co. Ltd. (MUSCO For Short) during the period 2005-06 to 2009-10. However, they did not discharge Service Tax liability. The department was of the view that the activity undertaken by the appellant came under the category of “ Supply of Tangible Goods and Services” and therefore, the appellant was liable to discharge Service Tax Liability of Rs. 23,93,668/- which was confirmed along with interest thereon and also by imposing equivalent penalty. The appeal filed against the said order before the appellate authority met with rejection. Hence the appellant is before the Tribunal.

Appellant’s Contention:- The learned counsel for the appellant submits that the activity undertaken by them in majority of the cases was supply of JPB for which they collected hire charges. The said activity of hiring of equipment does not come under the category of cleaning service. In a few cases, they have undertaken cleaning activity themselves but this forms only a small part of the total amount of service tax demanded from them. As regards the manpower supply service also, this constitute a small portion of their activity. It is contended that, if the hiring activity is excluded, then the turnover of the appellant would be less than the exemption limit for small service providers prevalent at the relevant time and the appellant would not be liable to any Service Tax at all. It is appellant’s contention that the bills raised by them are available with the department which has not been examined and the demand has been confirmed mechanically. Therefore, the learned counsel pleads for grant of stay.

Respondent’s Contention:-The learned Additional Commissioner( AR) appearing for the revenue, on the other hand, relies on the statement given by the proprietor of the appellant-firm, Shri Rajesh Machindra Dhas, u/s 14 of the Central Excise Act,1944 wherein it has been admitted by the appellant that he has been supplying labour /manpower ,rendering cleaning services such as house-keeping and also supply of tangible goods such as JCB, dumpers, Poclain etc. to M/s MUSCO. Since the appellant has admitted to rendering of these services by hiring JCB, Poclain, dumpers etc. the demand is sustainable in law. Accordingly, he pleads for putting the appellant to terms.

Reasoning Of Judgment:- After carefully considering the submissions made by both the sides, the Tribunal was of the view that the appeal itself can be disposed of since the matter needs fresh consideration at the end of the adjudicating authority. Therefore, after waiving the requirement of pre-deposit of the dues adjudged against the appellant, the appeal itself was take up for final consideration.

The Tribunal pursued various invoices raised by the appellant on M/s MUSCO. In a large number of cases, it is seen that the invoices have been raised for hiring of equipment. The learned counsel has clarified that in the case of hiring of equipment, it is MUSCO who had the control over the equipment and the appellant has merely hired the equipment to MUSCO. They did not provide any operators for operating the equipment nor did they undertake any activity using the equipment. If these facts are correct, then the activity of hiring of the equipment would not come under the category of supply of tangible goods for use. The said service envisages operation and control the equipment or capital goods with the service provider. In the absence of operational control in the hands of the service provider, the service cannot be classified under “supply of tangible goods for use.”

Similarly with regard to the other activities undertaken by the appellant such as cleaning service, from the nature of the activity undertaken, it appears that the same involved excavation work also. If that be so, the activity would not be classifiable as a cleaning service. Since the factual position was not clear, Tribunal was of the considered view that the matter has to go back to the original adjudicating authority for fresh consideration for ascertaining the facts and thereafter decide the classification of service. If necessary, relevant information shall be obtained from the recipient of the service i.e. M/s MUSCO and the various bills and documents available on record raised by the appellant shall also be taken into account. If the activity involved was only mere hiring of the equipment without any operational control, it will not amount to supply of tangible goods for use. Similarly, the activity of cleaning said to have been undertaken by the appellant needs examination whether it comes under the scope of cleaning service as defined in law.

Thus, the appeals were allowed by way of remand for fresh consideration. Needless to say, the appellant has to be given reasonable opportunity of being heard before the order. The appellant is also directed to cooperate with the department in providing whatever documents they want for examination of the issue. The appeal is disposed of in the above terms.

Decision:-Appeal allowed by way of remand.

Comment:-The analogy from the case is that in order to be classifiable under “Right to use tangible goods”, it is essential that the operational control to use the equipment lies with the service provider. The said service envisages operation and control the equipment or capital goods with the service provider. Accordingly, the matter was remanded to examine the above issue.

Prepared By: Lovina Surana

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PJ/Case law/2014-15/2260

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