2026-VIL-1451-CESTAT-CHE-ST
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SERVICE TAX CESTAT Cases

Service Tax - Supply of Tangible Goods - Aircraft Lease - Possession and Control - Appellant offers flight training and placed aircraft with its related concern under a dry-lease arrangement. The lease agreement provided for per-hour charges with a monthly minimum commitment, with the lessor retaining the right to use aircraft when idle and requiring the lessee to return the aircraft in the same condition after each trip - Whether the arrangement between the appellant and its related concern constitutes Supply of Tangible Goods service or involves transfer of possession and effective control of the aircraft – HELD - In the instant case, the clause allowing the lessor to use the aircraft when not in use by the lessee means the lessee does not have exclusive custody. Legal possession cannot constantly shift based on hourly usage. The aircraft must be returned to the lessor's custody after each trip. The stipulation that the price includes running cost and all expenses are borne by the lessor indicates the lessor is paying for operational costs and maintenance, thus retaining proprietary control over the asset. The per-hour charges with a monthly minimum resemble a commercial hiring or service level agreement. The simple thirty-day termination clause unlike a typical asset lease with heavy penalties gives the agreement the character of an ongoing service agreement for supply of tangible goods. Though the agreement uses terms like lease and lessee, the actual operational clauses show the lessor retains effective control and legal possession. Therefore, the activity is rightly classifiable as Supply of Tangible Goods service and not transfer of right to use with possession and control - Further, the other collections reflected in the balance sheet which were not subject of any allegation in the show cause notice and bore no nexus with the lease transaction are not includible in the taxable value as an adjudicating authority cannot travel beyond the show cause notice which constitutes the foundation of proceedings. Also, as the identical lease receipts had already formed part of the demand raised on the related concern under an earlier show cause notice, confirmation of tax on the same receipts in the hands of the appellant would result in double taxation. The extended period of limitation cannot be invoked where the facts constituting alleged suppression were already within the Department's knowledge at the time of an earlier notice issued on the same or similar facts. Penalties under Section 78 for fraud, collusion, wilful misstatement or suppression with intent to evade tax are not sustainable as these ingredients have not been established - Appeals partly allowed, demands confined to normal period upheld, all penalties set aside
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