Transfer of right to use goods was rejected for tanker supply, but time-bar and invalid charging basis defeated the demand.

Supply of tankers and bowsers for crude oil transportation was held to be a taxable supply of tangible goods service because possession and effective control did not pass to the user; the supplier retained repair, maintenance, fuel, crew and compliance obligations, so the arrangement was not a deemed sale by transfer of right to use goods. The demand for the period from 01.07.2012 was unsustainable because it was founded on a charging provision not applicable under the negative list regime then in force. Extended limitation and penalty were also not invokable, as the transactions were treated as deemed sales in a bona fide manner and there was no suppression with intent to evade tax. Consequential interest and penalty were set aside.

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Issues: (i) Whether the supply of tankers/bowsers for transportation of crude oil amounted to "supply of tangible goods service" or a transfer of right to use goods amounting to deemed sale; (ii) whether the demand for the period from 01.07.2012 onwards could be sustained when the notice proceeded on a provision not in force for the negative list regime; (iii) whether extended limitation and penalty were invokable.

Issue (i): Whether the supply of tankers/bowsers for transportation of crude oil amounted to "supply of tangible goods service" or a transfer of right to use goods amounting to deemed sale.

Analysis: The applicable test for transfer of right to use goods requires transfer of possession and effective control. The contract clauses showed that the appellant retained responsibility for repair and maintenance, fuel and consumables, supply of crew, and compliance with statutory requirements. These features indicated that possession and control did not pass to the user in the manner required for a deemed sale. The Circular on supply of tangible goods for use was also relied upon to distinguish taxable service from deemed sale based on possession, control, and the incidence of VAT.

Conclusion: The service was liable to service tax as "supply of tangible goods service"; this issue was decided against the assessee.

Issue (ii): Whether the demand for the period from 01.07.2012 onwards could be sustained when the notice proceeded on a provision not in force for the negative list regime.

Analysis: The demand for the later period was confirmed by invoking Section 65(105)(zzzzj) of the Finance Act, 1994, although the negative list regime had come into force from 01.07.2012 and the notice did not invoke the applicable provisions for that regime. A demand founded on a non-existent charging provision for the relevant period could not be sustained.

Conclusion: The demand for the period from 01.07.2012 onwards was not sustainable; this issue was decided in favour of the assessee.

Issue (iii): Whether extended limitation and penalty were invokable.

Analysis: The dispute involved a bona fide understanding that the transactions were deemed sales under the VAT law, and the transactions were reflected in the balance sheet. In such circumstances, suppression with intent to evade tax was not established. Consequently, demand beyond the normal limitation period could not be sustained, and once the demand failed, interest and penalty also could not survive.

Conclusion: Extended limitation and penalty were not invokable; this issue was decided in favour of the assessee.

Final Conclusion: The demand and consequential interest and penalty were set aside, and the appeal was allowed.

Ratio Decidendi: Where the facts show that the dispute turns on whether possession and effective control passed so as to constitute a transfer of right to use goods, and the demand for the relevant period is founded on a provision not applicable to the governing regime, the demand cannot be sustained beyond the normal period absent proof of suppression with intent to evade tax.

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