Diesel generator hire transactions deemed sales under APVAT Act, not service tax. Appeals allowed.

The Tribunal concluded that the transactions involving the supply of diesel generators on a hire basis constituted deemed sales, transferring possession and control to the hirers. As a result, the transactions were subject to VAT under the APVAT Act and not to service tax under the Finance Act, 1994. The impugned orders demanding service tax were set aside, and both appeals by M/s Power Mak Industries and Power Mak Pvt. Ltd were allowed with consequential benefits in accordance with the law.

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Issues Involved:
1. Classification of services provided by the appellants.
2. Applicability of service tax on transactions involving supply of diesel generators.
3. Determination of whether the transactions constitute a "deemed sale" or "supply of tangible goods for use" service.
4. Analysis of the nature of possession and control in the transactions.
5. Applicability of VAT on the transactions.

Detailed Analysis:

1. Classification of Services Provided by the Appellants:
The appellants, M/s Power Mak Industries (PMI) and Power Mak Pvt. Ltd (PMPL), were registered under service tax for various services. The dispute arose regarding the classification of their transactions involving the supply of diesel generators on hire basis. The department contended that these transactions should be classified under "supply of tangible goods" and subjected to service tax.

2. Applicability of Service Tax on Transactions Involving Supply of Diesel Generators:
The department issued multiple show cause notices to PMI and PMPL, demanding service tax on the consideration received for the supply of diesel generators from 16-05-2008 onwards. The adjudicating authority confirmed the service tax demands but restricted the amounts and waived the proposed penalties.

3. Determination of Whether the Transactions Constitute a "Deemed Sale" or "Supply of Tangible Goods for Use" Service:
The core issue was whether the transactions involved a transfer of possession and control of the diesel generators to the hirers, constituting a "deemed sale" subject to VAT, or if they were merely a "supply of tangible goods for use" service, attracting service tax. The appellants argued that the transactions were deemed sales, as they transferred both possession and control to the hirers, who used the generators exclusively during the contract period. They supported their argument with case laws and an advance ruling from the APVAT Act, which classified the transactions as deemed sales.

4. Analysis of the Nature of Possession and Control in the Transactions:
The Tribunal examined the agreements between the appellants and the hirers, noting clauses that indicated the hirers had exclusive control and possession of the generators. The agreements specified that the generators were the property of the appellants, but the hirers had exclusive use during the contract period, with conditions for safety and maintenance. The Tribunal found that the hirers had legal right to use the generators, and the appellants did not retain effective control, countering the department's argument that the presence of technicians indicated retained control by the appellants.

5. Applicability of VAT on the Transactions:
The Tribunal noted that the appellants were paying VAT on the transactions under the APVAT Act, as confirmed by the advance ruling authority. The Tribunal concluded that the transactions were deemed sales, as they involved the transfer of possession and control to the hirers, and thus were not subject to service tax under the Finance Act, 1994.

Conclusion:
The Tribunal set aside the impugned orders, concluding that the transactions were deemed sales subject to VAT and not "supply of tangible goods for use" services subject to service tax. Both appeals were allowed with consequential benefits as per law.

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