The New Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has ruled that the transfer of a license qualifies as a “deemed sale” under Article 366(29A)(d) of the Constitution of India. Consequently, any consideration received from such a transfer cannot be subjected to service tax.
Case Background
The bench, comprising Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member), analyzed a dispute where the assessee had executed a Lease Deed with Skol Breweries Ltd., renting out land, buildings, plant, and machinery. Alongside this, a License Agreement was executed to transfer a brewery license to Skol. Later, a renewed License Agreement was signed with Sab Miller India Ltd. (formerly Skol), which the assessee treated as a “deemed sale” under Article 366(29A)(d) and paid Value Added Tax (VAT) accordingly.
The department argued that the amounts received under the License Agreement should be included in the assessable value of “renting of immovable property” services for service tax purposes. A show-cause notice was issued, alleging that without the license endorsement, Skol could not have utilized the leased plant and machinery for brewing operations. The Commissioner upheld this view, leading the assessee to challenge the decision before the Tribunal.
Key Arguments
- Assessee’s Stand:
The assessee contended that the License Agreement constituted a deemed sale since it transferred the right to use the brewery license to Skol/Sab Miller. As such, it fell outside the purview of service tax. - Department’s Stand:
The department maintained that the License Agreement was inseparable from the Lease Agreement, designed to evade service tax. It further argued that paying VAT did not exempt the transaction from service tax liability, as the license transfer did not amount to a deemed sale.
Tribunal’s Observations
- Deemed Sale Under Article 366(29A)(d):
Article 366(29A)(d) defines a tax on the sale or purchase of goods to include a tax on the transfer of the right to use goods. This transfer can be for cash, deferred payment, or other valuable consideration. - License Agreement Analysis:
The Tribunal examined the License Agreement and noted that it was not merely the use of the license but the right to use that was transferred to Skol/Sab Miller. The assessee no longer retained any right to use the brewery license after transferring it, establishing that a deemed sale had occurred. - Service Tax Applicability:
The Tribunal clarified that if possession and effective control are transferred with the right to use, the transaction falls outside the scope of service tax. Conversely, if control and possession remain with the transferor, service tax may apply. In this case, effective control and possession of the brewery license were fully transferred.
Tribunal’s Ruling
The bench concluded that the transfer of the brewery license under the License Agreement constituted a deemed sale under Article 366(29A)(d). Therefore, the consideration received for the License Agreement could not be subjected to service tax. Furthermore, this consideration could not be combined with the amounts received under the Lease Deed to classify the transaction as “renting of immovable property” for service tax purposes.
In summary, the Tribunal ruled that the consideration for transferring the right to use the brewery license falls within the ambit of a deemed sale and is subject to VAT, not service tax. This judgment underscores the distinction between deemed sales and services in tax liability determinations.
