2026-VIL-1056-CESTAT-KOL-ST
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SERVICE TAX CESTAT Cases

Service Tax - Transfer of Right to use Goods - Service Tax and VAT Mutually Exclusive - Renting equipment for specified periods. As per the agreements, the equipment was deployed at customers' sites with possession, control, and custody transferred entirely to the customers, while ownership remained with the appellant. The appellant treated these transactions as "deemed sales" and paid applicable VAT/CST - Whether the transfer of equipment to customers for use on rental basis constitutes a "deemed sale" chargeable to VAT/CST or falls within the scope of service tax as "supply of tangible goods service" under Section 65(105)(zzzzj) of the Finance Act, 1994, and whether service tax and VAT are mutually exclusive taxes – HELD - The Supreme Court in Bharat Sanchar Nigam Limited v. Union of India establishes five essential attributes for "transfer of right to use goods". In the instant case, all five attributes stand fulfilled as the equipment were delivered to customers, the exact equipment were identified in schedules, customers possessed requisite permissions, entire control and custody vested exclusively with customers who could operate equipment at their discretion or appoint their own operators, and the appellant could not use equipment for any other purpose or withdraw them during the agreement tenure - Service tax and VAT are mutually exclusive taxes, and when a transaction involves transfer of possession and effective control of goods, it attracts VAT/CST and not service tax. The determination of whether a transaction involves transfer of possession and control is a question of fact based on contract terms and material facts, ascertainable from whether VAT is payable or paid. The appellant's obligation to undertake periodical routine and scheduled maintenance of equipment does not affect the transfer of right to possession and effective control to customers. Similarly, the fact that operators were generally provided by the appellant with an option for customers to appoint their own operators subject to prior concurrence does not negate the transfer of effective control and possession to customers - The appellant is not liable to pay service tax as the transaction constitutes a "deemed sale" falling within the scope of VAT/CST, and the appellant has duly paid the applicable VAT/CST thereon – The impugned order is set aside and the appeal is allowed
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