Deemed sale treatment for leased fitouts and equipment excludes service tax where the right to use goods is transferred.

Consideration for leasing fitouts and equipment under separately identified lease arrangements was treated as a deemed sale under Article 366(29A) because the agreements showed identifiable goods and a transfer of the right to use them. On that basis, the transaction fell within the constitutional sales tax/VAT scheme rather than service tax on renting of immovable property. The dominant nature argument was rejected because the fitouts arrangement was legally distinct from the premises lease. Service tax could not be levied on the consideration attributable to the fitouts, and the departmental appeal failed.

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Issues: Whether the consideration received for leasing fitouts and equipment under the lease agreements constituted a deemed sale under Article 366(29A) of the Constitution of India and was therefore outside the levy of service tax under renting of immovable property service.

Analysis: The contractual arrangements for the premises and the fitouts were separately identified, and the fitouts and equipment were provided for use in the leased premises on terms showing identifiable goods and transfer of the right to use. Applying the constitutional scheme for sales tax/VAT on transfers of the right to use goods, and the settled distinction between transfer of goods and transfer of the right to use goods, the transaction was examined as one of deemed sale. Once the consideration for fitouts was found to relate to such transfer, the levy of service tax on the same amount could not be sustained. The dominant nature argument was held to be inapposite in view of the separate and legally distinct treatment of the fitouts transaction.

Conclusion: The fitouts transaction amounted to a deemed sale and was not liable to service tax; the departmental appeal failed.

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