Service Tax Not Payable on Equipment Supply Treated as Deemed Sale with VAT Already Paid: CESTAT [Read Order]

The Kolkata Bench of Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) held that Service Tax was not payable on the supply of equipment like JCB, Hydra, and Excavator when the transaction had already been treated as a deemed sale and VAT was paid.

Mithun Samanta,appellant-assessee,was engaged in supplying machines like JCB, Hydra, and Excavators to various clients. He transferred both possession and control of the machines and charged VAT, treating the activity as a ‘deemed sale’ under Article 366(29A) of the Constitution. As a result, he did not pay Service Tax.

A Show Cause Notice dated 22.04.2022 demanded ₹48.23 lakh in Service Tax (including cess) for the period 2015-16 to June 2017, along with interest and proposed penalties. The adjudicating authority, through order dated 04.10.2023, confirmed the demand with interest and imposed equal penalty under Section 78(1) and ₹10,000 under Section 77 of the Finance Act, 1994.

The Commissioner (Appeals) upheld this order on 28.01.2025, leading to the present appeal.

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The assessee counsel stated that the State Tax Department, West Bengal, had issued a Final Assessment Order on 28.11.2024 under the WBVAT Act for the period April to June 2017. The order treated the supply of excavator machines on hire as a ‘deemed sale’ involving transfer of the right to use. He argued that since VAT was already paid on the activity, no Service Tax was applicable.

The departmental representative supported the findings of the lower authority.

A single member bench comprising K.Anpazhakan (Technical Member) noted that the assessee had supplied equipment like JCB, Hydra, and Excavator to clients, and the West Bengal State Tax Department had already treated this as a ‘deemed sale’ and collected VAT. It held that since VAT had been paid, no Service Tax was payable on the same activity.

The appellate tribunal referred to its earlier decision in Sai Infraaequipments Pvt. Ltd., where it was held that leasing of equipment was a deemed sale and not liable to Service Tax if VAT had been paid. This view was supported by the Supreme Court’s ruling in Imagic Creative Pvt. Ltd., which clarified that VAT and Service Tax cannot apply to the same transaction.

Based on this, the bench set aside the Service Tax demand along with interest and penalties and accordingly the appeal was allowed.

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