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

Dispute Over Taxation: Service Tax Applies to Equipment Rental Without Control Under Supply of Tangible Services, Section 65B. 'X' rents a generator set, dumpers, and machinery for coal handling from 'Y', with 'Y' responsible for staff and maintenance, while 'X' covers diesel costs. The discussion revolves around whether sales tax or service tax applies to this transaction. Neeraj Kumar explains that if 'X' does not have possession and control, service tax applies under the supply of tangible services. Pradeep Khatri notes that taxability depends on who has effective control, affecting whether service tax or VAT applies, and mentions CENVAT credit eligibility. Neeta Shete concludes that 'Y' is liable for service tax, but 'X' may not claim CENVAT credit.