2026-VIL-711-CESTAT-ALH-ST
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SERVICE TAX CESTAT Cases

Service Tax – Renting out of equipments such as diesel generator sets and earthmoving equipments, Effective control and possession of the equipments - The appellant had entered into agreements with various customers for renting out such equipments for specific periods on rental basis - Whether service tax under the category of 'supply of tangible goods service' is leviable on the appellant for renting various equipments to customers or whether the transaction amounts to 'deemed sales' on which VAT was paid by the appellant - HELD - To examine this issue it has to be ascertained is whether the effective control and possession of the equipments was transferred to the customers or it was retained by the appellant for if it was transferred to the customers then it would amount to deemed sales - Based on the terms of the agreements, the appellant had transferred the effective control and possession of the equipments to the customers. The equipments delivered on rent by the appellant to the customers were at the sole risk of the customers and the customers were required to indemnify the appellant against any losses, damages, or destruction to the equipment or any component. The equipments were also required to be returned to the appellant on the expiry of the contract period. The agreements also provided that the appellant, upon delivery of the equipment at the site of the customer, shall not use the equipment for any other purpose or withdraw the same. The appellant could not use or withdraw the equipments for any other purpose. These factors indicate that the transaction amounted to 'deemed sales' on which VAT was paid by the appellant, and not a service that is liable to service tax – Since the effective control and possession of the equipments was transferred by the appellant to the customers, therefore, it would result in deemed sales for which VAT would be payable and service tax cannot be levied upon the appellant under the category of ‘supply of tangible goods for use’ - As the demand of service tax does not sustain, the imposition of penalty and interest on the appellant is also not sustainable - The impugned order is set aside and the appeal is allowed
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