Transfer of right to use goods excludes supply of tangible goods tax when possession, control and VAT indicate deemed sale.

Hiring of earthmoving equipment was treated as a transfer of right to use goods, not as the taxable service of supply of tangible goods for use, because the agreement gave the hirer effective possession and control while allocating custody, misuse, third-party dispute and damage risks to the hirer. VAT on the monthly invoice value further supported the characterisation as a deemed sale. On that basis, the transaction was said to fall outside service tax under that category, and the appellant established a strong prima facie case for waiver of pre-deposit and stay of recovery; the stay petition was allowed.

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Issues: Whether the hiring of earthmoving equipment under the agreement was a transfer of right to use goods amounting to a deemed sale and, therefore, outside the taxable service of supply of tangible goods for use, so as to justify waiver of pre-deposit and stay of recovery.

Analysis: The agreement showed that the hirer was restricted to the contractual purpose of use, but was responsible for safe custody, misuse or abuse, third-party disputes, and damage during the period of use. The hirer also bore VAT on the monthly invoice value. These terms indicated that possession and effective control had passed to the hirer, and that the transaction was on a rights-to-use basis. The budget clarification relied upon by the parties also supported the view that where VAT is payable on a deemed sale, service tax is not attracted under the category of supply of tangible goods for use. On that basis, the transaction was treated as a transfer of right to use goods rather than a taxable service.

Conclusion: The appellant had made out a strong prima facie case for waiver of pre-deposit and stay of recovery. The stay petition was allowed in favour of the appellant.

Ratio Decidendi: A transaction in which the hirer obtains the right to use goods with effective possession and control, and on which VAT is payable as a deemed sale, does not fall within the taxable service of supply of tangible goods for use.

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