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Activity in relation to delivery of goods on instalments

Service Tax - Declared Services - 07 - Chapter 7 Effective date: 1.7.2012 Scope of Declared Service - Section 66E (g) Activities in relation to delivery of goods on hire purchase or any system of payment by instalments. Analysis: It is important to note here that only activities in relation to delivery of goods on hire purchase or any system of payment by instalments covered in this entry. Higher charges amount or instalments are not covered here as these are already subjected to state level VAT .....

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to 10% of such transactions. Also by explanation to this notification, it was clarified that amount charged represents interest i.e. difference between the instalments paid towards repayment of the lease amount and the principal amount contained in such instalments. Further it was clarified that such abatement is available only for interest portion and not for all other charges. Clarification by the Board (Taxation Guide - Guidance Note -6 - Exemptions dated 20.06.2012) 6.5.1 Is the delivery of .....

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2 What is the scope of the phrase delivery of goods on hire-purchase or any system of payment by instalments ? Section 2 of the Hire Purchase Act, 1972 defines a hire purchase agreement as an agreement under which goods are let out on hire and under which the hirer has the option to purchase them in accordance with the terms of the agreement and includes an agreement under which- (i) possession of goods is delivered by the owner thereof to a person on condition that such person pays the agreed a .....

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position of control over thing, either directly or through a custodian, which he held himself immediately before the act . The nature of such arrangements has been explained by the Supreme Court in the case of Association of Leasing & Financial Service Companies Vs Union Of India [2010 (10) TMI 4 - SUPREME COURT OF INDIA]. The relevant extract in para 20 of the said judgment is reproduced below: 20. According to Sale of Goods Act by Mulla [6th Edition] a common method of selling goods is by .....

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rer has the option or obligation to purchase the goods in accordance with the terms of the agreement. 6.5.3 What is the difference between a normal hiring agreement and a hire-purchase agreement? In a mere hiring agreement the hirer has no option to purchase the goods hired and the risks and rewards incidental to ownership of goods remain with the owner and are not transferred to the hirer. In a hire-purchase agreement the hirer has an option or an obligation to purchase goods. 6.5.4 Are finance .....

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of the period of lease. Such arrangements do not qualify as delivery of goods on hire purchase or any system of payment of instalments . On the other hand financial leases or capital leases strongly resemble security arrangements and are entered into for financing the asset. The lessee pays maintenance costs and taxes and has the option of purchasing the lease end. Such arrangements resemble a hire-purchase agreement and would fall under the said deemed sale category. The essence of this deemed .....

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