Transfer of possession and control in cylinder leasing is deemed sale, excluding service tax on tangible goods supply.

Leasing of gas cylinders was treated as a deemed sale where the lessee obtained possession and effective control, with operational responsibility and maintenance obligations. On that basis, the transaction fell within Article 366(29A)(d) as a transfer of the right to use goods and was liable to VAT, not taxable as supply of tangible goods for use under the Finance Act, 1994. Applying the settled test of whether possession and effective control had passed to the user, the service tax demand, interest, and penalties could not be sustained, and the assessee's appeal succeeded.

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Issues: Whether leasing of gas cylinders with transfer of possession and effective control constituted a deemed sale under Article 366(29A)(d) of the Constitution of India or fell within the taxable service of supply of tangible goods for use under the Finance Act, 1994.

Analysis: The relevant statutory definition taxes only supply of tangible goods for use without transfer of the right of possession and effective control. On the terms of the lease arrangement, the lessee had peaceful possession, operational responsibility, maintenance obligations, and the transaction was treated as liable to VAT. The controlling test was whether possession and effective control had passed to the user. Applying that test, and following the settled principle that a transaction involving transfer of the right to use goods is a deemed sale, the leasing arrangement was not a service transaction under the service tax entry.

Conclusion: The cylinders were given on lease with transfer of the right to possession and effective control, so the transaction was a deemed sale and not taxable as supply of tangible goods for use.

Final Conclusion: The service tax demand, interest, and penalties could not be sustained and the assessee's appeal succeeded.

Ratio Decidendi: Where possession and effective control of goods are transferred under a lease or similar arrangement and the transaction is liable to VAT as a deemed sale, it does not fall within the service tax category of supply of tangible goods for use.

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