Service Tax Appeal No. 10718 of 2021
(Arising out of OIO-VAD-EXCUS-001-APP-443-2019-20 dated 07.11.2019 passed by
Commissioner(Appeals), Commissioner of Central Excise, Customs & Service Tax
VADODARA-I)
LINDSTORM SERVICES INDIA PVT LTD
VERSUS
C.C.E. & S.T.-Vadodara-I
AND
Service Tax Appeal No. 11134 of 2019
(Arising out of OIO-VAD-EXCUS-001-COM-29-18-19 dated 18.03.2019 passed by
Commissioner(Appeals), Commissioner of Central Excise, Customs & Service Tax
VADODARA-I)
C.C.E. & S.T.-Vadodara-I
VERSUS
LINDSTORM SERVICES INDIA PVT LTD
APPEARANCE:
Ms Vandana Singh (Advocate) appeared for the Appellant
Shri Tara Prakash, Assistant Commissioner(AR) for the Respondent
CORAM: HON’BLE MEMBER (JUDICIAL), MR. RAMESH NAIR
HON’BLE MEMBER (TECHNICAL), MR. RAJU
Final Order No. A/ 10091-10092 /2023
DATE OF HEARING: 21.12.2023
DATE OF DECISION: 23.01.2022
RAMESH NAIR
The brief facts of the case are that the appellant is a subsidiary of
Lindstrom OY Finland and is engaged in leasing workwear (uniform) to
their clients on the conditions mentioned in the agreements with their
clients. The salient features of the agreement are as under:
(i)
That the Assessee undertook to deliver, wash and service
individually customised workwear to the clients. Each worker will
be provided with the workwear of his size which will be measured
by the Assessee along with logo and labels as specified.
(ii)
The Assessee would own the workwear and will have exclusive
right to wash and service the same.
(iii)
If the delivery is delayed or defective, the same shall be
compensated by Lindstrom.
(iv)
The workwear shall be collected by the customer once a week
for being sent to Lindstrom for servicing.
(v)
If the workwear cannot be leased because of wear and tear, it
will be returned to Lindstrom but the customer shall pay the price
as per the price list (depreciated price). If the workwear is to be
replaced by the customer, the same is to be redeemed at agreed
upon price.
(vi)
Retail Price will increase every year by 8%.
(vii)
VAT is being charged on the rental charges (see invoice
reproduced at Para 4.3 Page 4 of the SCN).
(viii) There are separate provisions for pricing of replacement and
valuation of redemption price.
On the basis of the above activities under the agreement and conditions
therein, it appears that the appellant is engaged in supply of Work-wear
on rent/ lease basis as per the requirement of each customer. The
activity rendered by the appellant includes renting/ leasing of Work
wear, washing, maintenance, repairing, alteration, designing of Work
wear, providing lockers and transportation of Work-wear. The revenue
after discussing the definition of ‘Supply of Tangible Goods Service’ as
incorporated in Section 65(105)(zzzzg) before the introduction of
negative list and definition of ‘Service’ under Section 65(B)(44) read
with declared service under Section 66 of Finance Act, 1994, it appears
that the nature of services involved supply of Work-wear for use while
transferring possession only without transferring rights of effective
control and thus appeared to be falling under the scope of declared
service. Accordingly, the adjudicating authority was of the opinion that
since the effective control of the goods has not been transferred, the
activity of leasing of Work-wear falls under the category of taxable
service i.e. supply of tangible goods service prior to introduction of
negative list and declared service post negative list regime, therefore,
the demand of service tax was dropped in relation to appeal No.
ST/107182021. Being aggrieved by order in original No. DIV-
V/ADJAC/RV/02/LINDSTORM/19-20 dated 08.05.2019, the Revenue
filed appeal before the Commissioner (Appeals) who vide order-in
appeal No. VAD-EXCUS-001-APP-443-2019-20 dated 07.11.2019
allowed the appeal of the department setting aside the order-in-original,
against this order-in-appeal, the assessee filed appeal bearing No.
ST/10718/2021. As regard the appeal No.ST/11134/2019 filed by the
Revenue, the adjudicating authority has dropped the demand vide
Order-in-Original No. VAD-EXCUS-001-COM-2918-19 dated 18.03.2019
against which the Revenue has filed appeal bearing No.
ST/11134/2019. Since both the appeals involving a common issue,
they are taken up for disposal together.
Ms. Vandana Singh, learned Counsel appearing on behalf of the
assessee, at the outset submits that the similar issue arose out of the
identical service agreement with various service recipient at Chandigarh
and Chennai Bench, which was decided in favour of the assessee at the
following order:
Service Tax Appeal No. 99 of 2016 vide final order No. 60716 of
2019 dated 02.08.2019. [CESTAT Chandigarh]
Service Tax Appeal No. 40498 of 2017 vide final order No. 40818
of 2020 dated 29.10.2020. [CESTAT Chennai]
Service Tax Appeal No. 41249 of 2019 vide final order No. 42148
of 2021 dated 25.08.2021. [CESTAT Chennai]
She submits that with the above Tribunal orders as of now, the issue
stand decided in favour of the assessee. Following the same, these
appeals also deserve to be decided in favour of the assessee.
On the other hand, Shri Tara Prakash, learned (Assistant
Commissioner) Authorized Representative appearing for the Revenue
reiterates the findings of the impugned order in appeal No.
ST/10718/2021 and reiterates the grounds of appeal in respect of
Appeal No. ST/11134/2019. He further submits that in the appellants
case against the Chennai Tribunal order, the Revenue has filed appeal
before the Hon’ble Supreme Court which is pending. On the query from
the bench, he fairly concedes that as of now there is no stay against the
Chennai Tribunal’s order from the Hon’ble Supreme Court.
We have carefully considered the submissions made by both the
sides and perused the records. We find that Tribunal’s two benches one
from Chandigarh and one form Chennai all the three orders decided the
similar matter in the appellant’s own case in their favour. The said
Tribunal’s Order are reproduced below:
CESTAT Chandigarh Order No. 60716 of 2019 dated 02.08.2019
“18. We have heard Ld. Advocate for the appellant and Ld. DR for
Revenue and also perused the appeal records.
- The appellant is engaged in providing work-wear solution to
the various industrial customers in terms of various agreements
where there is transfer of effective control to the client. For the
better appreciation the issue involved, it will be appropriated to
extract the relevant provisions of the agreement entered by the
appellant with their customers. A perusal of the agreement which
has been placed on appeal record between the appellant and
Mother Diary Fruits and Vegetables indicates that the agreement
is for;
Supply of work-wear on rental basis as per the
requirement of customers;
Selection and fitting of individualise work-wear
dying of garments as per the requirements;
Period of washing of the garments ( that is
includes removal of hazardous material etc.,)
Transportation of the garments
- The agreement has the terms conditions with the customers
for the lease the work-wear from the appellant and the appellant
owns the lease product, will have exclusive right to wash the
work-wear and also the Noticee shall have exclusive right to serve
the work-wear.
- The relevant paragraph of other agreement entered between
the appellant M/s Eco Cat (India) Private Limited also reads as
under;
Object of agreement:
Ecocat (India) Pvt. Ltd. shall lease from Lindstrom Services
India Pvt. Ltd. the work-wear and Lindstrom engaged in
delivering, washing and servicing the work-wear and taking
care of the required replacement of the work-wear in
accordance with their purpose of use. Lindstrom owns the
leased products and shall have the exclusive right to wash
and service them.
…………
…………
Servicing Packing and transportation of the work-wears:
Lindstrom shall place the packing and transport equipment
needed for the deliveries at the disposal of the customer and
the customer shall use the equipment only for such as
purpose.
Work-wear to a named collection point in accordance with
the schedule agreed; Lindstrom shall collect the work-wears
for servicing once a weak. The work-wears shall be inspected
and repaired in connection with their servicing; In case of
any nonconformance with the agreed quality after the
servicing of the work-wear, Lindstrom shall replace the work
wear.
Measurement changes, logos and name tags:
Measurement changes and other changes shall be
separately agreed upon.
The work-wear can under a separate agreement
be provided with logos and name tags. The
sewing work of the workwears is made by
Lindstrom and charged at the process valid at any
given time.
……………….
……………….
- Ld. Adjudicating Authority has treated this to be a pure
service relying on the conditions of the agreement and also
various other information available on the website of the
appellant.
- It was held that the work-wear always in the control of
appellant and hence there is no transfer of effective control by the
appellant hence out of the purview of the deemed sale as per the
Article 366 (29A)(d) of the Constitution of India. It is necessary to
have transfer of right to use involving both transfer of possession
and also effective control of the goods by the user of the goods.
The transaction for allowing another person to use the goods
without giving legal right of possession cannot be treated as
deemed sale of the goods, and thus has to be treated as service
only. It is also the contention of the Department that after
introduction of the negative list based tax regime, the activity of
the supply of goods without transfer of right liable to tax by virtue
of Section 66E (f) of Finance Act. On the other hand, we find that
Ld. Advocate as relied upon the Hon‟ble Supreme
Court‟s decision in case of Bharat Sanchar Nigam vs. Union of
India, wherein it is held under;
- To constitute a transaction for the transfer of the
right to use the goods the transaction must have the
following attributes:
- There must be goods available for delivery;
- There must be a consensus ad idem as to the
identity of the goods;
- The transferee should have a legal right to use the
goods-consequently all legal consequences of such
use including any permissions or licenses required
therefor should be available to the transferee;
- For the period during which the transferee has
such legal right, it has to be the exclusion to the
transferor this is the necessary concomitant of the
plain language of the statute – viz. a “transfer of the
right to use” and not merely a licence to use the
goods;
- Having transferred the right to use the goods
during the period for which it is to be transferred,
the owner cannot again transfer the same rights to
others.
- In my opinion, none of these attributes are
present in the relationship between a telecom service
provider and a consumer of such services. On the
contrary, the transaction is a transaction of rendition
of service.
- It is the contention of the Ld. Advocate that simply retaining
the right to wash and maintain work-wear for the clients would
not make it as if the effective control on these goods has been
retained by the appellant. We are in agreement with the
contention made by Ld. Advocate as the same as got approval
from Hon‟ble Supreme Court in BSNL case(supra). We also find
that the similar issue come up for consideration before this
Hon‟ble Tribunal in case of Gimmco Limited vs. Commissioner
of Central Excise and Service Tax, Nagpur [2017 (48) STR
476 (Tri.- Mum). The issue involved in that case was regarding
the renting of earth moving equipments to various Customers by
the M/s Gimmco Limited and based on the clauses in the
agreement, there was restriction of use by the lessee as skilled
workers to operate the equipment was being provided by the
lessor and maintenance and repair of the equipments were also
by the lessor in para 5.1, 5.3, 5.4 and 5.6 of the order it has been
held that there is no service involved in this case relying on yet
another decision of Hon‟ble High Court of Andhra Pradesh in case
of M/s G S Lamba. The paragraph 4 which is relevant is
reproduced as below;
“4. The Petitioners’ counsel contends that five
eventualities to infer the transfer of the right to use
goods are not completely present in the transaction
between the Petitioners and Grasim. He would urge
that the Tribunal was wrong in relying on Clauses
(A), (B) and (D) of the contract in concluding that
the Petitioners had transferred the right to use
Transit Mixers to Grasim. According to him, these
clauses would not lead to any such conclusion and
that there was no intention to create exclusive right
to use the vehicles by Grasim. The clause for
providing dedicated fleet of vehicles with Grasim’s
logo “Birla Concrete” being painted on them is no
indication that the intention was to transfer the right
to use Transit Mixers. The RMC is a product with
short shelf life and its marketability depends on the
quality. So as to assure the product quality to end
user, it was agreed to paint the brand name on the
vehicles. The same, however, does not lead to an
inference that there is consensus ad idem; and that
the Petitioners should keep ready the dedicated fleet
of eight vehicles to be used by Grasim. In the
absence of transfer of possession and effective
control, Section 5-E of the Act is inapplicable. Lastly
it is urged that the Tribunal was in error in not
recording findings on all the issues raised by the
Petitioners. The Counsel relied on various precedents
to which a reference would be made at the
appropriate place.”
- From the perusal of these judgments, it is evidently clear that
the some of the activities of regarding the maintenance and
washing of work-wear rented to the clients, by the appellants will
not mean that effect control as been retained by the appellant.
Further, we have also considered the criteria laid down by the
Apex Court in case of BSNL, (supra) regarding transfer of
effective control in terms of the provisions of Section 366
(29A)(d) of the Indian Constitution.
Further, we also find that Apex court in case of Rashtya Ispat
Nigam Limited has explained the similar issue as well;
“5.4 The Apex Court in case of Rasthya Ispat Nigam
Limited ahs explained the issue in lucid language.
“The essence of transfer is passage of control over
the economic benefits of property which results in
terminating rights and other relations in one entity
and creating them in another. While construing the
word “transfer” due regard must be had to the thing
to be transferred. A transfer of the right to use the
goods necessarily involves delivery of possession by
the transferor to the transferee. Delivery of
possession of a thing must be distinguished from its
custody. It is not uncommon to find the transferee of
goods in possession while transferor is having
custody. When a taxi cab is hired under “rent-a-car”
scheme, and a cab is provided, usually driver
accompanies the cab; there the driver will have the
custody of the car though the hirer will have the
possession and effective control of the cab. This may
be construed with the case when a taxi car is hired
for going from one place to another. There the driver
will have both the custody as well as possession;
what is provided is service on hire. In the former
case, there was effective control of the hirer
(transferee) on the cab whereas in the latter case it
is lacking. We may have many examples to indicate
this differences.” If we equate the observations of
the Court and the activities of the noticee, it would
be seen that the „possession‟ and „custody‟ of the
work-wear always lies with the user. Once the work
wear/clothing is „delivered/handed over to a
particular user, it is up to the user how to put the
same to use as per his choice. There remains no
„control‟ of the noticee over the user so as to restrict
or compel a user to use the articles of clothing in a
particular manner. This proves that the „possession‟
and „custody‟ of goods practically remains with the
user.”
- Accordingly, we find that in the instant case, in terms of
agreement work-wear rented out always remains within the
exclusive possession of their clients and nobody else can use the
those workwear at the same time and hence effective control to
lie with the user/ clients. The appellant, therefore, does not have
control over the use of the work-wear. Thus the activity is not in
the nature of „service‟ under the Finance Act in both during the
period prior to negative list regime and thereafter as held in the
impugned order. The order under challenge is, therefore, not
sustainable.
- In view of above the impugned order is set aside and appeal
is allowed.”
Subsequently in appellant’s appeal before the Chennai Cestat was
decided vide Final Order No. 40818 /2020 dated 29.10.2020, following
the decision of CESTAT Chandigarh Bench is as under:
“6. The issue that arises for consideration is whether the activity
of work wear rental falls under the category of supply of tangible
goods so as to attract service tax. The terms and conditions of the
agreement has been briefly incorporated in the order in original
which is as under:-
“The terms and conditions of the agreement are as follows:-
- The assessee will only lease the work wear to their
customers / clients.
- The assessee arranges the fittings which finally determine
the needed number of specific work wear and service free
per product is charged for the same. LSIP is entitled to
take an inventory of all products.
- The assessee owns the leased work wear and keeps the
exclusive right of washing, maintenance, repairing,
alteration etc. of work wear with itself and their customers
are not free to avail these services from any third party.
- The assessee shall collect the work wear for Servicing,
Packing and Transportation on weekly basis. Thereafter,
they wash, inspect and repair and finish them industrially.
- In case of termination of the contract, customers / clients
shall redeem from the assesse, the work wear that have
been in the use.
- In all circumstances like cancellation of agreement, the
work wear remains the property of LSIP.”
- The Chandigarh Bench of the Tribunal had occasion to analyse
very same issue and terms and conditions of similar agreement
entered into by the appellant with clients. After analysis of the
transaction as seen from the agreements, the Tribunal held as
under:-
“26. Accordingly, we find that in the instant case, in
terms of agreement work-wear rented out always
remains with the exclusive possession of their clients
and nobody else can use those work wear at the
same time and hence effective control to lie with the
user / clients. The appellant, therefore, does not
have control over the use of the work-wear. Thus the
activity is not in the nature of „service‟ under the
Finance Act in both during the period prior to
negative list regime and thereafter as held in the
impugned order. The order under challenge is
therefore not sustainable”
- Further, the Commissioner (Appeals) vide Order-in-Appeal
dated 26.12.2017 of Hyderabad Commissionerate has also held in
the appellant’s own case that work wear does not amount to
supply of tangible goods so as to attract service tax. From the
decisions cited above, we think it is not necessary to take up the
detail discussion of the issue since the same has been already
analysed by the Chandigarh Bench.
- Following the said decision, we are of the considered opinion
that the impugned order cannot sustain. The same is set aside
and the appeal is allowed with consequential relief, if any.”
On the similar issue, the CESTAT Chennai in an another appeal,
following their own above order and CESTAT Chandigarh order once
again decided vide Final Order No. 42148 / 2021 dated 25.08.2021
whereby the demand on the identical service was set aside and appeal
was allowed.
From the above decision, it is observed that the CESTAT’s two
benches have taken a consistent view that the service in question is not
taxable under supply of tangible goods for use or under the declared
service. Therefore, following the aforesaid decisions in the present
cases also, the issue deserve to be decided in the favour of the
assessee. As regard, the submission of learned Authorized
Representative that against the aforesaid two Chennai Tribunal’s order,
the Revenue has filed appeal bearing No. Civil Appeal No. 6459 of 2021,
we find that as of now either side could not produce any stay order
staying the operation of the Chennai Tribunal’s Order, therefore, mere
filing of appeal before the Hon’ble Supreme Court will not of any help to
the Revenue.
Accordingly, in appeal No. ST/11134/2019, the impugned order is
upheld and Revenue’s appeal is dismissed and in appeal No.
ST/10718/2021, the impugned order is set aside and assessee’s appeal
is allowed.
(Pronounced in the open court on 23.01.2023)
(RAMESH NAIR)
MEMBER (JUDICIAL)
(RAJU)
MEMBER (TECHNICAL)
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