In a landmark decision, the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) Bench at Ahmedabad has quashed a hefty service tax demand imposed. The tribunal held that leasing of scaffolding equipment, while not involving a transfer of ownership, constitutes a “deemed sale” for VAT purposes due to the transfer of the right to use, possession, and effective control to the lessee.
Between 2012-13 and 2016-17, Standard Belex India Pvt Ltd leased various scaffolding items—including U heads, base jacks, and planks—to multiple parties. Under the terms of the lease agreements, the lessees were granted full rights to use and control the equipment, with the lessor retaining ownership. Accordingly, the company discharged VAT on the lease rentals as a deemed sale. However, the service tax department challenged this treatment, arguing that because there was no transfer of ownership, the transactions should attract service tax instead of being treated as a sale. The department issued a Show Cause Notice and later demanded service tax of approximately ₹47.95 lakh, along with interest and penalties, on the basis that mere possession by the lessee did not amount to a transfer of right to use.
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Standard Belex countered by emphasizing that the lease contracts unambiguously transferred not only possession but also effective control and the right to use the scaffolding equipment. The appellant argued that VAT was rightly paid on these deemed sales and that the imposition of service tax amounted to double taxation.
The appellant-assessee supported the contention by referencing several precedents, including notable decisions in cases such as MSPL Ltd v Commissioner and Gujarat Gas Ltd v CCE, which underscore that a transfer of right to use—even in the absence of an ownership change—qualifies as a deemed sale subject to VAT, not a service subject to service tax.
Presiding over the matter, Judicial Member Ramesh Nair and Technical Member C L Mahar examined the contractual clauses in detail. The tribunal observed that the agreements provided for the lessee’s exclusive right to use, possession, and control of the equipment during the lease term, clearly satisfying the criteria for a deemed sale under Article 366(29A)(d) of the Constitution.
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The bench further clarified that the absence of an ownership change is inherent to the concept of a deemed sale and does not automatically render the transaction a supply of service liable to service tax.
Consequently, the tribunal set aside the service tax demand, reinforcing the legal interpretation that leasing transactions of this nature fall squarely within the ambit of VAT on deemed sales.
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