Supply of tangible goods tax cannot apply where containers are used under the buyer's control in manufacturing operations.

Rental charges for specialised containers used to receive helium gas from a foreign supplier were held not liable to service tax under supply of tangible goods for use on reverse charge. The containers remained under the appellant's effective control and possession during transport and unloading, were re-exported after use, and were deployed as part of the manufacturing and repacking process. The arrangement was therefore integrally connected with manufacture rather than an independent taxable service. The position was also revenue neutral because any service tax paid would have been available as credit against output duty. The demand was consequently unsustainable.

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Issues: Whether rental charges paid for specialised containers used to receive helium gas from a foreign supplier were liable to service tax under the category of supply of tangible goods for use under reverse charge.

Analysis: The containers remained under the effective control and possession of the appellant while the gas was transported and unloaded, and were re-exported after use. The arrangement was part of the appellant's manufacturing and repacking activity, on which central excise duty was discharged on the finished product. In such circumstances, the payment treated as rental was integrally connected with the manufacturing process and not a taxable service. The tax position was also revenue neutral because any service tax paid would be available as credit against the output duty liability.

Conclusion: The transaction was not chargeable to service tax as supply of tangible goods for use, and the demand was unsustainable.

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