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IV Authority of Advance Ruling
Activity of making available system to customer would qualify to be “transfer of right to use goods” and would not be liable to service tax provided possession and effective control is transferred to customers.
Facts
Applicant entered into “system delivery agreements” with liquor companies, distilleries, breweries, wineries (customers) for providing a system comprising of various machines/equipments, installed and commissioned by applicant for provision of automated, online bar code printing system, label application system, aggregation system, dispatch system etc. Additionally, applicant also provided training to customers for handling systems, undertook preventive & corrective maintenance activities and supplied consumables to customers on the basis of orders placed by them. However, routine and operative maintenance of system was responsibility of customers. Applicant submitted that said activity would not be chargeable to service tax as it involves a transfer of right to use goods wherein effective control and possession of system stands transferred to customers. However, revenue contended that perusal of agreement indicates that applicant is providing non-exclusive licenses to customers and hence, effective control of system remains with applicant only and thus the said activity would get covered in definition of ‘service’ given in section 65B(44) of Finance Act, 1994 and accordingly, would be chargeable to service tax.
Held
AAR observed that the phrase “right to use” and “license to use” have been interchangeably used by applicant. Phrase “grant of license to use the system on nonexclusive basis” was used by applicant to indicate that intellectual property in the system was utilized by applicant in similar transactions with other customers and that it is not exclusively used for one particular customer. A reference was made to judgment of Hon’ble Karnataka High Court in case of Indus Towers Ltd. wherein it was held that whether the transaction amounts to transfer of right or not, cannot be determined with reference to particular word or clause in the agreement and agreement has to be read as a whole to determine the nature of the transfer.
Further, AAR observed that training to customer was provided only to make the customers ready to take control of system, also scope of agreement involved supply of consumables by applicant to customer which would constitute a part of value/consideration and it was clearly mentioned in the agreement that overall operations and maintenance was responsibility of customer. Accordingly, it was ruled that activity involved transfer of right to use goods and would be out of purview of service tax.
