Transfer of right to use goods: container leasing treated as deemed sale, excluding service tax on the same transaction.

Leasing of identified containers was treated as a transfer of the legal right to use goods where the agreement gave the lessee exclusive possession and effective control, shifted maintenance and risk obligations to the lessee, and prevented the lessor from dealing with the same containers during the lease period. On those attributes, the transaction amounted to a deemed sale under Article 366(29A)(d) and fell within the VAT regime, so it was outside the scope of service under Section 65B(44) and the declared service of hiring, leasing or licensing without transfer of right to use under Section 66E(f). Service tax could not also be levied on the VAT component, since the two taxes are mutually exclusive for the same taxable element. The service tax demand was quashed.

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Issues: Whether leasing of containers on the facts shown amounted to a transfer of right to use goods constituting a deemed sale under Article 366(29A)(d) of the Constitution of India and the Maharashtra Value Added Tax Act, so as to exclude the transaction from service tax under the Finance Act, 1994, and whether service tax could in any event be levied on the VAT component already paid.

Analysis: The agreement showed identified goods made available to the lessee, transfer of the legal right to use the containers, exclusive possession and effective control during the lease period, allocation of risk and maintenance obligations to the lessee, and a prohibition on the lessor simultaneously dealing with the same containers for the same period. These features satisfied the settled attributes of transfer of right to use goods. Such a transaction is a deemed sale under Article 366(29A)(d) and falls within the VAT regime under the Maharashtra Value Added Tax Act. It is outside the scope of service under Section 65B(44) and outside the declared service of transfer by hiring, leasing or licensing without transfer of right to use under Section 66E(f). The demand was also computed by including the VAT component, and service tax and VAT are mutually exclusive in respect of the same taxable element.

Conclusion: The transaction was a deemed sale and not a taxable service, and the service tax demand was unsustainable.

Final Conclusion: The impugned order confirming service tax was quashed, and the petition succeeded.

Ratio Decidendi: Where goods are identified and the contract transfers possession, effective control, and the legal right to use them to the exclusion of the transferor, the transaction is a deemed sale and cannot simultaneously be subjected to service tax on the same consideration.

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