Subscription   Feedback   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Articles Highlights TMI Notes SMS News Newsletters Calendar Imp. Links Database Experts Contact us More....
Extracts
Home List
← Previous Next →

Service Tax versus VAT on Renting of Goods

Service Tax - By: - Ravi Kumar Somani - Dated:- 12-2-2016 - Currently, there is lot of confusion among the industry, trade and the taxmen on whether the activity of Renting of movable goods or supply of tangible goods attracts Service Tax or whether it attracts Sales Tax. The confusion has only been used as a tool by the departmental officials in issuing demand notices under both the tax laws and therefore a tug of war. Before we begin our discussion, let us understand the various illustrative b .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ect issue considering the business of renting of Motor cabs/motor vehicles as an illustration. However, the principle enunciated herewith may equally apply to renting of other movable goods also (i.e. other than motor vehicles). Currently, many individuals owning Motor vehicles would give the same on rent to other body corporates or to other travel companies/ agents for use. Further, business entities or travel agents also prefer hiring of vehicles on lease instead of purchasing the same as it i .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ve, fees etc involved in the execution of the said agreement; Vehicle would be given with or without driver as agreed between both the parties and the consideration could be fixed monthly rentals, or variance rentals based on the kilometers run or both. In light of the above business transaction, let us examine whether it attracts sales tax or service tax and the factors triggering the levy. For the ease of discussion, let us assume the person giving the vehicle on hire as the Transferor and per .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ideration is considered as a Deemed Sale . Contrary to this, as per clause (f) to Section 66E of the Finance act, 1994 Transfer of goods by way of hiring, leasing, licensing or in any such manner without transfer of right to use such goods is a Declared Service . Therefore, currently in order to tax the transaction of renting or hiring of movable goods a deeming fiction has been created under both sales tax as well as service tax law with the difference that, Sales tax shall be levied on renting .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

o transferred in a transaction and as a consequence demand sales tax as deemed sale and similarly as per service tax officials rights are never transferred in such transactions and the same is always held liable for Service tax as Declared Service . DISCUSSION ON TRANSFER OF RIGHTS TO USE GOODS A test to determine whether or not the rights to use goods has been transferred in a particular transaction has not been explained in both service tax law and also in sales tax law and therefore the said .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

triya Ispat Nigam Ltd 2002 (3) TMI 705 - SUPREME COURT OF INDIA M/S G S Lamba and Sons v State of 2011 (1) TMI 1196 - Andhra Pradesh High Court Following five principles emerge from reading of all the above landmark judgments, i.e. if it has to be concluded that the right to use has been transferred in a particular transaction of hiring, leasing etc. then the following five principles must be satisfied: First Principle: Identification of the goods for delivery There must be goods available for D .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s. Second Principle: Effective control over the goods Transferee must hold the effective control over the goods - The effective or general control does not mean always physical control and even if the manner, method, modalities and the time of the use goods is decided by the lessee or the customer, it would be under the effective or general control over the goods ; Paper writers Comments: In order to understand who possesses the effective control over the motor vehicles needs to be understood ba .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nsferee has the right to inspect the vehicle to ensure a serviceable condition; A regular log of customers and other details in relation to the daily plying of the vehicle should be maintained as per the requirements of the transferee; The driver shall operate the vehicle properly and safely at all times in accordance with the regulations and instructions as may be prescribed by the transferee; The driver of the vehicle observes and complies with all rules, regulations or directives, applicable .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

vels, regular cleaning etc shall be solely the responsibility of the transferor or his driver; Transferor or driver shall be fully responsible for the regular up-keep or maintenance of the vehicle; The above are only illustrative list of terms, there can be many other terms in the agreement and therefore one has to look into all the terms of the agreement in totality to understand which party possesses the effective control over the usage of the vehicle. The right to use of the vehicle is availa .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

me of owner (transferor) of the goods ; Paper writers Comments: In order to establish the transfer of right to use of the vehicle, it must be proved that the legal rights and legal consequences of the usage of the vehicle have also been transferred. Generally, in case of a vehicle hire agreement, the legal rights to use can be said to have been transferred, since the transferor and the transferee have entered into a vehicle hire agreement duly signed by both the parties thereby legally allowing .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

sferred or not, we need to look into the various terms of the agreement to understand who bears the liability for any fines, penalties for mis-use of the vehicle or contravention of the any law, rules, regulations while using the vehicle. Generally, from the following illustrative terms of the contract it can be said that the legal consequences arising out of the mis-use of the vehicle vests upon the transferor as under: Transferor shall make the payment to the appropriate authorities and transf .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the legal consequences of the usage of the vehicle. Fourth Principle: Exclusivity of use During the period of contract exclusive right to use goods along with permits, licences, etc., vests with the lessee ; For a period during which the transferee has such legal right, it has to be the exclusion to the transferor this is the necessary concomitant of the plain language of the statute - viz. a transfer of a right to use and not merely a license to use the goods; Having transferred the right to us .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ms, various terms would be fixed in the agreement granting the rights of exclusive usage of vehicle to the transferee as under: This agreement and all rights and obligations hereunder, are personal to the vehicle owner and the vehicle owner shall not assign or attempt to assign any such rights or obligations to any third party without the prior written consent of the transferee; The vehicle owner cannot be a party or privy to any contract, deed or document whereby or by reasons whereof the vehic .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

and later the same can be used by the vehicle owner as per its own requirement; Transferor shall not allow the usage of vehicles to any other vendor during weekdays between Monday to Friday, however transferee is not concerned over usage of vehicle by the transferor during weekends i.e. Saturdays and Sundays. Fifth Principle: Terms of the Contract: Whether the transaction amounts to transfer of right or not cannot be determined with reference to a particular word or clause in the agreement. To .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 

what is new what is new
  ↓     bird's eye view     ↓  


|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version