Sir! Kindly clarify Service tax and VAT both are payable on Machinery hire charges. Sales department is also collecting VAT on Machinery hire charges. Actually we have to pay one tax either service tax or VAT.
Please review the text of the service category "Supply of Tangible Goods Serviice" for the said Taxable services provided or to be provided on or after 16.5.2008.
The terms of arrangement would need to be evaluated since levy of VAT or Service tax on supply of machinery on hire/ rent would depend on the nature of the Transfer of such machinery.
The Renting of the machinery may be termed as transfer of right to use. But if the transfer of right to use involves transfer of both possession and control of the goods to the user then the state government may charge VAT on such activity as this is construed as deemed Sale.
In case machinery is supplied for use without legal right of possession and effective control it shall be treated as a Service.
Eg; The machinery/ equipment is transferred along with the operator. This is example of transfer of goods without transferring right of possession and effective control.