Cylinder holding charges for delayed return of gas cylinders were treated as taxable consideration for the right to use goods.

Cylinder holding charges for delayed return of gas cylinders were treated as consideration for the continued use of goods, not as a mere penalty. The cylinders formed part of the supply arrangement, and the over-retention charges arose only after the free loan period expired. In light of the constitutional concept of deemed sale under Article 366(29A) and the charging provision under the Tamil Nadu General Sales Tax Act, the amounts collected for continued possession of the cylinders were held taxable as consideration for transfer of the right to use goods.

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Issues: Whether demurrage or cylinder holding charges collected for delayed return of gas cylinders are exigible to tax under Section 3-A of the Tamil Nadu General Sales Tax Act as consideration for transfer of the right to use goods.

Analysis: The cylinders supplied with industrial gas and medical oxygen were not merely incidental containers but formed part of the transaction by which the goods were supplied. The over-retention charges were levied only after the free loan period for retention of the cylinders had expired. In the light of the constitutional concept of deemed sale under Article 366(29A) of the Constitution of India and the charging provision under Section 3-A of the Tamil Nadu General Sales Tax Act, the amount collected for continued use of the cylinders answered the description of consideration for transfer of the right to use goods. The earlier view treating such charges as penalty could not be accepted in view of the later binding Supreme Court ruling on the same commercial arrangement.

Conclusion: The cylinder holding charges were taxable under Section 3-A of the Tamil Nadu General Sales Tax Act and the issue was decided against the assessee.

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