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'?

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.