Renting of generator set / dumpers etc.

[Common Issues]

‘X’ has obtained the generator set, vehicles (Dumper) and Machinery for loading and unloading of coal from ‘Y’. ‘X’ pays the rent on monthly basis for these machines. The staff and all the repair and maintenance of the vehicle and machinery is born by the owner (‘Y’)of such vehicles and machinery. Cost of Diesel is born ‘X’. 

Whether there can be any sales tax or service tax liability on that transaction in the hands of 'X' or 'Y'?

[NEERAJ KUMAR, RANCHI]

The services as described  by you fall with in the meaning of Supply of Tangible services. The provision in this regard is any service provided or to be provided to any person, by any other person in relation to supply of tangible goods including machinery, equipment and appliances for use, without transferring right of possession and effective control of such machinery, equipment and appliances [section 65(105)(zzzzj)]

If there is a transfer of right of possession and effective control of machinery, equipment and appliances, Vat will apply and not service tax, as it is deemed sale of goods.

If contract is for doing some work, it is not contract for supply of tangible goods for use.

[YAGAY andSUN]

Depending on the concept of effective control the taxability will be finalised. If you have effective control then Service tax will be applicable otherwise VAT will be applicable.  Further, you can avail the CENVAT credit on dumper also.

[NK SHETE]

As per foregoing discussions and  assuming it is  'Supply of Tangible services' , ‘Y’ is liable to pay service tax.

Now as per provisions of Cenvat Credit Rules 2004 in perticular exclusion clause (B) to Rule 2(l) , it appears that 'X' may not be entitled to avail cenvat credit. 

AI Summary

Supply of tangible services: renting equipment without transferring possession triggers service tax liability on the provider. Supply of equipment on rent without transferring right of possession and effective control is supply of tangible services and attracts service tax payable by the owner/provider; transfer of possession and effective control yields a deemed sale subject to VAT. Owner-borne maintenance and hirer-borne fuel affect the effective control analysis. If treated as supply of tangible services, the hirer may be ineligible for CENVAT credit due to the exclusion in the Cenvat Credit Rules.