2026 (1) TMI 1489 - AT - Service Tax

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 ... Transfer of right to use - deemed sale - classification supply of tangible goods service - VAT versus service tax - effective possession and control - precedent and coordinate bench decisions - Appellate Tribunal (CESTAT) - Finance Act, 1994 Section 65(105)(zzzzj) - Article 366(29A)(d) of the Constitution - taxable event under the sales law section 5-E - HELD THAT:- According to the Department, there was no transfer of right of possession and effective control when such plastic crates and bottles were sent by the respondent to the distributor and customer and thus, it would be covered under supply of Tangible Goods Service. We find that exactly similar factual matrix in respect of same appellants, as well in relation to another bottler namely M/s Bengal Beverages Pvt Ltd.[2020 (11) TMI 580 - CESTAT KOLKATA], was examined by the Co-ordinate Benches examined this issue and have held that in these transactions it can’t be said that there is no transfer of right to use, hence, such transactions would be deemed sales leviable to VAT and not service leviable to Service Tax. Therefore, we find that this issue is squarely covered by the judgment of the Hon’ble High Court of the Andhra Pradesh, as also by the Co-ordinate Benches at Delhi and Kolkata cited, supra, and, therefore, we do not find any merit in the appeal filed by the Department against impugned order. Accordingly, the appeal filed by the Department is liable to be dismissed. Appeal dismissed. 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).