2026-VIL-1099-CESTAT-CHE-ST
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SERVICE TAX CESTAT Cases

Service Tax - Transfer of Right to Use Goods Service – Hiring of diesel generator sets on rental basis - Supply of Tangible Goods for Use (STGU) service or deemed sale of goods - The appellant disputes the demand under STGU contending that the work orders demonstrate delivery of identified generator sets at customer premises with customer exercising effective control and right to use, the appellant's obligation being limited to attending breakdowns, maintenance and spares, and that payment of VAT was made indicating the true nature of arrangement as deemed sale of goods – HELD - Whether a transaction involves transfer of possession and control is a question of fact to be decided based on terms of contract and material facts. Applying the test enunciated in BSNL to instant case, the generator sets were specifically identified as 380 KVA diesel generator sets, customer alone had effective right to use generator for business purposes during rental period, appellant's obligation was confined to attending breakdowns and providing maintenance and spares – The right to use could not be transferred by appellant to any other person during same period, ownership remained with appellant as appellant bore obligations consistent with ownership including maintenance and optional supply of operator. Mere permission to use goods does not constitute transfer of right to use as it may be merely a licence to use - On examination of the facts and applying the statutory test, the transaction evidences transfer of right to use diesel generator sets by customer without transferring ownership and satisfies the attributes laid down for deemed sale of goods under Article 366(29-A)(d) of the Constitution, and therefore does not fall within the taxable category of Supply of Tangible goods for use without transferring right of possession and effective control as stipulated under Section 65(105)(zzzzj) of the Finance Act, 1994 - The demand for service tax on hiring of diesel generator sets is unsustainable as the transaction constitutes transfer of right to use goods attracting sales tax/VAT and not service tax - The impugned order is set aside and the appeal is allowed
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