LINDSTORM SERVICES INDIA PVT LTD  VERSUS C.C.E. & S.T.-Vadodara-I 

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.

  1. 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 ofcustomers;

Selection and fitting of individualise work-wear

dying ofgarments as per the requirements;

Period of washing of the garments ( that is

includes removal ofhazardous material etc.,)

Transportation of the garments

  1. 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.

  1. 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 providedwith logos and name tags. The

sewing work of the workwears is made by

Lindstrom and charged at the process valid at any

given time.

……………….

……………….

  1. 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.

  1. 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;

  1. To constitute a transaction for the transfer of the

right to use the goods the transaction must have the

following attributes:

  1. There must be goods available for delivery;
  2. There must be a consensus ad idem as to the

identity of the goods;

  1. 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; 

  1. 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;

  1. 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.

  1. 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.

  1. 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.”

  1. 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.”

  1. 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.

  1. 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:-

  1. The assessee will only lease the work wear to their

customers / clients.

  1. 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.

  1. 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.

  1. 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.

  1. In case of termination of the contract, customers / clients

shall redeem from the assesse, the work wear that have

been in the use.

  1. In all circumstances like cancellation of agreement, the

work wear remains the property of LSIP.”

  1. 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”

  1. 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.

  1. 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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