Several representations have been
received seeking clarification on the levy of service tax on the activity of
preparation of place for organizing event or function by way of erection/laying of pandal and shamiana. The doubt that has been raised is that
this may be a transaction involving “transfer of right to use goods” and hence
deemed sale.
2. The issue has been examined. “Service”
defined in section 65B (44) of the Finance Act, 1994, includes a ‘declared
service’. Activity by way of erection of
pandal or shamiana
is a declared service, under section 66E 8(f). The process of erection of Pandal or shamiana
is a reasonably specialized job and is carried out by the supplier with the
help of his own labour. In addition to the erection of pandal
or shamiana the service is generally
coupled with other services like supply of crockery, furniture, sound system,
lighting arrangements, etc.
3. For a transaction to be regarded as
“transfer of right to use goods”, the transfer has to be coupled with
possession. Andhra Pradesh High Court in the case of Rashtriya
Ispat Nigam Ltd. Vs. CTO
[1990 77 STC 182] held that since the effective control and possession was with
the supplier, there is no transfer of right to use. This decision of the Andhra
Pradesh High Court was upheld by the Supreme Court subsequently [2002] 126 STC
0114. In the matter of Harbans Lal
vs. State of Haryana – [1993] 088 STC 0357 [Punjab and Haryana High Court], a view
was taken that if pandal, is given to
the customers for use only after having been erected, then it is not transfer of right to use goods.
4. In the case of BSNL Vs. UOI [2006] 3
STT 245 Hon’ble Supreme Court held that to
constitute the transaction for the transfer of the right to use the goods, the
transaction must have the following attributes:-
a.
There
must be goods available for delivery;
b.
There
must be a consensus ad idem as to the identity of the goods;
c.
The
transferee should have a legal right to use the goods and, consequently, all
legal consequences of such use including any permissions or licenses required
therefor should be available to the transferee;
d.
For
the period during which the transferee has such legal right, it has to be the
exclusion of the transferor : this is the
necessary concomitant or the plain language of the statute, viz., a “transfer of the right to use” and not merely
a license to use the goods:
e.
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 right to others.
5.
Applying the ratio of above judgments
and the test formulated by Hon’ble Supreme Court, the activity of providing pandal and shamiana
along with erection thereof and other incidental activities do not amount to
transfer of right to use goods. It is a service of preparation of a place to
hold a function or event. Effective possession and control over the pandal or shamiana
remains with the service provider, even after the erection is complete and the specially made–up space for temporary use handed over to the
customer.
6.
Accordingly services provided by
way of erection of pandal or shamiana
would attract the levy of service tax.
7.
Trade Notice/Public Notice may be
issued to the field formations and tax payers. Please acknowledge receipt of
this Circular. Hindi version follows.
Download Circular (Click Here)
