2026-VIL-1371-CESTAT-MUM-ST
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SERVICE TAX CESTAT Cases

Service Tax – Taxability of Leasing of equipment - Deemed sale or supply of taxable service - Appellant collected lease rental charges from dealers and distributors on account of supply of computerized tinting machines used for mixing base paint with colour shades - Department interpreted the leasing activity as taxable service under category of Banking and Other Financial Services for leasing of equipment and raised service tax demand invoking extended period of limitation - Whether the leasing of tinting machines to dealers and distributors constitutes a taxable service or a deemed sale not liable to service tax - HELD - For determining whether a transaction involves transfer of right to use goods, the five-point criteria established by the Supreme Court in BSNL case must be examined. The agreement entered into by the appellant with dealers and distributors satisfied all five conditions laid down by the Supreme Court - The lease agreement specifically provided that goods are identified and delivered to lessee with acknowledgment of receipt, lessee uses equipment without intervention of lessor in daily activities, lease rentals are paid by lessee to lessor, equipment is kept and used only at lessee's premises and is returned upon completion of lease period in same condition - The CBIC Circular No. 198/08/2016-ST dated 17.08.2016 clarified that where goods or equipment is given under lease arrangement wherein both possession and effective control have been handed over to lessee, it would be categorised as deemed sale leviable to VAT and service tax will not be charged on such activities. The fact that VAT was already paid by the Appellant on lease rental charges and reflected in periodical VAT returns acknowledged that these activities are in nature of deemed sale not taxable service - In present case operating lease constitute deemed sale. The activities undertaken by appellant do not amount to taxable service under Finance Act, 1994. Extended period of limitation cannot be invoked for interpretation of law issues. Penalty cannot be imposed when service tax demand is not sustainable on merits - The impugned order is set aside and the appeal is allowed
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