Transfer of right to use equipment, not taxable supply of tangible goods, where possession and effective control passed to the hirer.

Contractual rental of earth-moving equipment was treated as a transfer of the right to use goods, not as a taxable supply of tangible goods for use, because the hirer had possession-related obligations, restrictions on use, liability for damage, and effective control under a rights-to-use arrangement. The presence of VAT treatment and the contract terms supported the conclusion that the transaction amounted to a deemed sale rather than a service. Applying the settled tests for transfer of the right to use goods, the tribunal held that service tax was not payable and the impugned order could not stand.

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Issues: Whether renting of earth moving equipment under the contract in question falls within the taxable category of supply of tangible goods for use, or amounts to a transfer of right to use goods as a deemed sale.

Analysis: The contract terms showed that the hirer was responsible for safe custody, use restrictions, liability for damage, and disputes arising from operation of the equipment, while the arrangement was expressly on a rights-to-use basis and VAT was charged on the transaction. Applying the settled tests for transfer of the right to use goods, the arrangement indicated transfer of possession and effective control to the hirer. The Tribunal also followed its earlier decision on identical terms and the supporting legal position that such a transaction is not service provision when it constitutes a deemed sale.

Conclusion: The renting of equipment did not fall under supply of tangible goods for use and was not liable to service tax; the appeal was allowed and the impugned order was set aside.

Ratio Decidendi: Where the contractual terms show transfer of possession and effective control of equipment to the hirer, the transaction is a transfer of right to use goods and not a taxable service of supply of tangible goods for use.

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