Hospital Equipment Leasing Taxable as Tangible Goods Service

Centax Editorial Board

May 12, 2026May 13, 2026

• 2 min. read

Case Details: Healthware Pvt. Ltd. vs. Commissioner of Central Excise & Service Tax, Hyderabad-II (2026) 40 Centax 157 (Tri.-Hyd)

Judiciary and Counsel Details

S/Shri Angad Prasad, Member (J) & A.K. Jyotishi, Member (T)
Shri S.C. Kamra, Adv., for the Appellant.
Shri K. Raji Reddy, AR, for the Respondent.

Facts of the Case

The appellant, engaged in procuring and leasing out medical equipment to hospitals, entered into agreements with hospitals for the leasing of such equipment and paid sales tax/VAT, treating the transactions as a transfer of the right to use goods taxable as a deemed sale under the State VAT Act. The department, on scrutiny of financial records and agreements, observed that lease charges were being received from hospitals and Central Sales Tax was being paid, but formed a view that the activity fell within the category of ‘Supply of Tangible Goods Services’ under Section 65(105)(zzzzj) of the Finance Act, 1994. A demand was accordingly raised, and the adjudicating authority held that there had not been a transfer of effective control and legal right of possession to the hospitals. The Commissioner (Appeals) upheld the adjudication order, observing that the hospitals did not possess the goods and that space and facilities were arranged only to facilitate the installation of equipment within hospital premises. The appellant relied upon Article 366(29A) of the Constitution and the decision in Bharat Sanchar Nigam Ltd. v. UOI [2006 (2) S.T.R. 161 (SC)] to contend that the agreements established transfer of legal right to use and effective control and, therefore, the transactions constituted a deemed sale and not a supply of tangible goods or services. The matter was accordingly placed before the CESTAT.

CESTAT Held

The CESTAT held that the agreements had to be read as a whole to determine whether there was a transfer of legal right to possess and effective control. Upon examination of the agreement clauses and invoices, it held that the equipment was provided for specialised procedures ‘as and when required’, ownership and right of repossession remained with the appellant, and bills were raised procedure-wise and patient-wise instead of fixed rentals. The CESTAT further held that effective control continued to remain with the appellant and that there was no transfer of legal right to possess the equipment. Accordingly, it held that the transactions constituted ‘supply of tangible goods service’ under Section 65(105)(zzzzj) of the Finance Act, 1994 and not deemed sale, and dismissed the appeal.