Transfer of right to use of crates and bottles classified as deemed sale attracting VAT, appeal dismissed by tribunal

Classification of transfers of plastic crates and bottles as transfer of right to use was treated as a deemed sale rather than a supply of a tangible goods service, with reasoning that the factual matrix supported transfer of right to use and effective possession and control; therefore such transactions attract sales law levy (VAT) and not service tax, and the Department's appeal against prior orders was dismissed. Coordinate bench precedents and a High Court decision were applied to reach this conclusion, resulting in dismissal of the appeal.

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Issues: Whether the collection of rental charges for bottles and crates constitutes a taxable service under "Supply of Tangible Goods Service" (service tax) or amounts to a deemed sale (VAT) by virtue of transfer of the right to use goods.

Analysis: The factual matrix concerns rental charges collected on bottles and crates supplied with aerated beverages and whether there is a transfer of the right to use such goods. Coordinate decisions and the relevant High Court reasoning treat transactions where goods are in existence and the hirer obtains control or domain over the goods (including retaining bottles/crates for extended periods) as constituting a transfer of the right to use, thereby attracting the deeming provision for sale under Article 366(29A)(d). The statutory definition invoked for service classification is Section 65(105)(zzzzj) of the Finance Act, 1994, but prior authoritative rulings have held that where the right to use is effectively transferred and the goods remain with the recipient for substantial periods, the transaction is a deemed sale and not a taxable service.

Conclusion: The collection of rental charges on bottles and crates is not leviable to service tax as "Supply of Tangible Goods Service" and is to be treated as a deemed sale; the appeal by the Department is dismissed (decision in favour of the assessee).

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