By TIOL News Service

NEW DELHI, JUNE 08, 2018: THE appellant holds a permit issued by DGCA, New Delhi, to operate non-scheduled air transport service (Passenger /Cargo/ Charter). In terms of their agreement with various clients which are State Governments, appellant provide Helicopters for transportation of persons in India. During the period of agreement, appellant is required to keep their helicopters at a particular place in the State, keeping the same in readiness. The appellants are required to provide their own trained manpower for flying the helicopters and maintenance and for these services, appellant in terms of agreement, receives some fixed amount per month based on certain minimum flying hours and also hourly charges as and when the Helicopter is operated for transportation of the client's personnel by air.

The department viewed that during the period 2006-07 to 2008-09, the activity of appellant was taxable under "Supply of Tangible Goods Service".

Besides these services, appellant during the period of dispute, had received ‘Technical Inspection and Certification service' from Service providers situated abroad for which payment had been made. According to department, appellant as recipient were liable to pay service tax in respect of same under reverse charge basis u/s 66A of the FA, 1994 r/w Rule 2(1)(d) of the STR, 1994.

The total demand of service tax of Rs.1.84 crores on both counts was confirmed alongwith interest and equivalent penalty by the adjudicating authority.

In the matter of the Stay application filed by the appellant, the CESTAT had held thus –

Service Tax - Stay/Dispensation of pre-deposit - Supply of Helicopters to State Governments for transportation of personnel - Demand of service tax under Supply of tangible goods service - Prima facie, it appears that the agreements are for transportation of personnel by air. This cannot be treated as a case where the helicopters are placed by the owner with crew or without crew, of the disposal of another person for a specified period and that person is free to operate the same, subject to terms & conditions, if any, specified. In these agreements the thrust is on transportation of personnel and keeping the helicopter in readiness for this purpose and the charges are also on the basis of flying hours except for some fixed monthly charges on the basis of minimum flying hours - Prima facie, the service is not taxable under Supply of tangible goods service - Pre-deposit waived.

Demand of services tax on the service of Technical Inspection and Certification service received from outside India - No prima facie case made out for waiver of pre-deposit - Rs 8 lakhs ordered to be pre-deposited.

We reported this order as - 2013-TIOL-653-CESTAT-DEL.

The appeal was heard recently.

Before the CESTAT the appellant pleaded that they were providing services of ‘transportation of passengers by air' and not the service of "Supply of Tangible Goods". They submitted that services of transportation of passengers by air within India became taxable u/s 65 (105) (zzzo) of Finance Act, w.e.f. 01.07.2010; that prior to 01.07.2010, only the air transport of passengers embarking in India for international journey in any class other then economy class was taxable and only w.e.f. 01.07.2010 the domestic transportation of passengers by air by any aircraft operator, whether operating scheduled or non-scheduled flights, became taxable; that the period involved in the present case is 2006-07 to 2008-09.

They also relied on the following case laws in support -

King Rotors & Air Charter P. Ltd. vs. CC (ACC& Import), Mumbai – 2011-TIOL-1785-CESTAT-MUM

Global Vectra Helicorp. Ltd. vs. CC (Import) Mumbai – 2015-TIOL-968-CESTAT-MUM

Business Aviation Assoc. For India vs. UOI - 2011-TIOL-464-HC-DEL-ST

Indian National Shipowners' Association vs. UOI - 2009-TIOL-150-HC-MUM-ST

The AR argued that the amount charged by appellant from customers is a fixed charge per month and not on the basis of per passenger or per trip which clearly shows that the agreement is for leasing of helicopter and not for non-scheduled air transportation.

After considering the submissions, the Tribunal observed -

++ As per the terms of agreements, appellant were providing helicopter to State Government for transportation of their personnel as and when required and for this purpose they were required to keep helicopter in readiness at particular places, maintain the same and also provide qualified and experience crew for their operation and maintenance.

++ The expenses on fuel, maintenance and parking are to be borne by the appellant in terms of agreement and they were to receive certain minimum fixed monthly charges on account of certain minimum flying hours per calendar month, in addition to this, they will also receive remuneration on per hour basis during the period when the helicopter had been operated for transportation.

++ In case of Global Vectra Helicorp Ltd. - 2015-TIOL-380-CESTAT-MUM, appellant claimed classification of their service as Transportation of Passengers by Air Service but the Tribunal after very detailed discussion of the facts and various case law on the subject as well as CBEC Circular No. 20/COMMR.(S.T.)/2009 dated 09.02.2009 came to the conclusion that the services will be rightly classifiable under category of "Supply of Tangible Goods for use” Service.

++ By following the decision of Tribunal on identical facts, we order classification of the service rendered under category of "Supply of Tangible Goods for use” Service and uphold the findings of Adjudicating Authority and confirmation of service tax demand with interest and penalty.

The Bench also observed that the demand of service tax under the head ‘Technical Inspection and Certification service' in respect of services received from service providers situated abroad is also correctly payable by the appellant on reverse charge basis.

Concluding that there is no infirmity in the impugned order, the same was sustained and the appeal was dismissed.

In passing: Period of dispute is 2006-07 to 2008-09.

++ D.O. F. No.334/1/2008-TRU dated 29 February 2008 issued pursuant to Union Budget 2008 mentions -

4. FOLLOWING SERVICES ARE SPECIFICALLY INCLUDED IN THE LIST OF TAXABLE SERVICES:

(vi) Services provided in relation to supply of tangible goods, without transferring right of possession and effective control of said tangible goods [section 65(105)(zzzzj) refers];

4.4 SUPPLY OF TANGIBLE GOODS FOR USE:

4.4.1 Transfer of the right to use any goods is leviable to sales tax / VAT as deemed sale of goods [Article 366(29A)(d) of the Constitution of India]. Transfer of right to use involves transfer of both possession and control of the goods to the user of the goods.

4.4.2 Excavators, wheel loaders, dump trucks, crawler carriers, compaction equipment, cranes, etc., offshore construction vessels & barges, geo-technical vessels, tug and barge flotillas, rigs and high value machineries are supplied for use, with no legal right of possession and effective control. Transaction of allowing another person to use the goods, without giving legal right of possession and effective control, not being treated as sale of goods, is treated as service.

4.4.3 Proposal is to levy service tax on such services provided in relation to supply of tangible goods, including machinery, equipment and appliances, for use, with no legal right of possession or effective control. Supply of tangible goods for use and leviable to VAT / sales tax as deemed sale of goods, is not covered under the scope of the proposed service. Whether a transaction involves transfer of possession and control is a question of facts and is to be decided based on the terms of the contract and other material facts. This could be ascertainable from the fact whether or not VAT is payable or paid.

++Also see Notification 18/2008-ST dated 10 May 2008 [provisions come into effect from 16 May 2008].

(See 2018-TIOL-1761-CESTAT-DEL)