Diesel generator hire not taxable as service: Tribunal rules in favor of appellant

The Tribunal held that the supply of diesel generators on hire basis did not amount to 'supply of tangible goods for use' (STGU) service liable to service tax. The Tribunal found that the transaction involved the transfer of the right to use the generators, constituting a deemed sale rather than a service. As a result, the appeals filed by the Appellant and its Director were allowed, and the demands for service tax, penalties, and interest were quashed.

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Issues Involved:
1. Whether the supply of diesel generators on hire basis by the Appellant amounts to 'supply of tangible goods for use' (STGU) service liable to service tax.
2. Whether the extended period of limitation could be invoked for the demand.
3. Whether the penalties and interest imposed were justified.

Issue-Wise Detailed Analysis:

1. Supply of Tangible Goods for Use (STGU) Service:
The core issue was whether the Appellant's activity of supplying diesel generators on hire constituted an STGU service liable to service tax under section 65(105)(zzzzj) of the Finance Act for the period up to June 30, 2012, and under section 66E(f) for the period from July 1, 2012, to 2014-2015.

The Commissioner (Appeals) held that the Appellant retained possession and effective control over the diesel generators, thus satisfying the criteria for STGU service. However, the Appellant contended that the legal right to use the generators was transferred to the customers, making it a deemed sale, not a service.

The Tribunal analyzed the nature of the transaction, noting that:
- Specific equipment was agreed upon for hire.
- The Appellant received a fixed monthly amount.
- Customers complied with statutory regulations and provided fuel.
- Operators provided by the Appellant worked under the customer's direction.
- Effective control over the equipment was with the customer.

The Tribunal referred to several judicial precedents, including Rashtriya Ispat Nigam Ltd. and G.S. Lamba, which emphasized that the transfer of right to use goods, along with possession and effective control, constituted a deemed sale, not a service. The Tribunal concluded that the transaction between the Appellant and its customers involved the transfer of right to use the generators, thus falling outside the purview of service tax.

2. Extended Period of Limitation:
The Appellant argued that there was no suppression of facts, and thus, the extended period of limitation could not be invoked. The Tribunal, having concluded that the transaction was not liable to service tax, found it unnecessary to examine this contention in detail.

3. Penalties and Interest:
Given the Tribunal's finding that the supply of diesel generators did not amount to an STGU service, the imposition of penalties and interest was also deemed unsustainable.

Conclusion:
The Tribunal set aside the orders passed by the Commissioner (Appeals), holding that the supply of diesel generators did not constitute an STGU service liable to service tax. Consequently, the appeals filed by the Appellant and its Director were allowed, and the demands for service tax, penalties, and interest were quashed.

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