Deemed sale analysis for exclusive licence use excludes licence consideration from service tax and lease rent valuation

A licence agreement that transfers exclusive use of a brewery licence for the contractual term, with the transferee protected from interference and the transferor retaining no right to use it during that period, is treated as a transfer of the right to use goods and therefore a deemed sale under Article 366(29A)(d). On that basis, the consideration under the licence agreement falls outside service tax. The licence arrangement is also a separate transaction from the lease deed, so its consideration cannot be clubbed with lease rent for valuation under renting of immovable property service. The stated effect is that service tax, interest, and penalty are not sustainable on that amount.

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Issues: Whether the licence agreement amounted to a deemed sale under Article 366(29A)(d) of the Constitution of India so as to exclude the consideration from service tax liability, and whether the amount received under the licence agreement could be clubbed with the lease rent for levy under renting of immovable property service.

Analysis: The agreement had to be examined as a whole to determine the true nature of the transaction. The decisive question was whether there was a transfer of the right to use the brewery licence, not merely permission to use it. The terms of the agreement showed that the transferee was entitled to use the licence and permitted capacity free from interference, objections, encumbrances, hindrance, or limitation during the agreed term, while the appellant retained no right to use the licence itself for that period. In such circumstances, the transaction satisfied the attributes of a transfer of the right to use goods and constituted a deemed sale. The lease deed and the later licence agreement were separate arrangements, and the licence consideration could not be absorbed into the assessable value of the lease transaction.

Conclusion: The licence agreement was a deemed sale under Article 366(29A)(d) of the Constitution of India, and the consideration received under it was not chargeable to service tax or includible in the value of renting of immovable property service.

Final Conclusion: The demand of service tax, interest, and penalty could not be sustained, and the impugned order was set aside.

Ratio Decidendi: Where an agreement transfers the right to use a licence or other goods with exclusive enjoyment for the contractual term, the transaction is a deemed sale and falls outside service tax levy.

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