applicability of vat Or service tax

Since the Computer system is given on rent and not sold as such, service tax will be applicable.

Also if manpower services are provided along with renting of computer systems, service tax will be applicable on both.

Kindly correct me if i am wrong

No, VAT will be charged since, the right to use of Goods is transferred and it will be termed as "Deemed Sales" under VAT Act. Hence VAT will be charged

Levy of VAT or Service tax on supply of machinery on hire/ rent would depend on the nature of the Tranfer of such machinery. Such renting of the machinery may be called as transfer of right to use. But if such transfer of right to use involves transfer of both possession and control of the goods to the user of the goods then the state government may charge VAT on such activity as this is considered as deemed Sale.  In case the machineries are supplied for use with no legal right of possession and effective control it is treated as a Service and not being treated as sale of goods.  A seperate head of service has been provided as " Supply of Tangible Goods Serviice" for the services provided or to be provided on or after 16.5.2008 is taxable. Eg; The machinery/ equipment is transfered along with the operator. This is example of transfer of goods without transfering right of possession and effective control.