Rate of VAT on Rent of machinery.

This query is : Resolved 

22 December 2008

Pls. tell me whether vat is applicable on rent on machinery & if yes what is the percentage? Whether we can take input credit or set-off on that. Pls tell me why vat is charged on rent on machinery. u/s which section or rule of vat it comes.

Also, service tax is applicable for the same under Section 65, Clause 105, Sub Clause zzzzj.[Ref.:Services for use of tangible goods (Section 65 clause (zzzzj)): Services provided to any person, by any other person in relation to supply of tangible goods including machinery, equipment and appliances for use, without transferring right of possession and effective control of such machinery, equipment and appliances]

Clarify whether both taxes are applicable on same product. If yes, what shall be the invoice format?

G Muralidharan (Expert)
23 December 2008

Rent on machinery comes under "Right to use" and tax is leviable under the respective state VAT Act.

Recently under service tax, right to use of is being brought to tax net.

But to note that transfer of right to use goods is leviable to salestax/VAT as deemed sale. when the transaction comes under VAT, it shall not be liable for tax under Service tax. Both are mutually exclusive.

In situations, where right to use is not treated as sale then the same transaction would be liable under service tax.

Vinod Pillai (Querist)
24 December 2008

We provide Diesel Generating (D.G.) sets on rent basis & our place of business is Gujarat. Usually, we provide operator along with D.G. sets. In some cases, as per customer's requirement we do not provide operating person. Kindly reply my above query in accordance to this details. Especially, we would like to know which tax (VAT/Service tax) apply for this. Also, if possible provide me the Clause / Document supporting the answer.

G Muralidharan (Expert)
26 December 2008

D G Sets are movable goods. Once you provide DG Sets without operator, right to use is attracted. Hence liable for VAT Tax under deemed sale concept. I do not know the exact proviso in Gujarath State VAT Act. But the rate applicable to DG Sets would be the rate for lease of DG Sets.

If D G Sets are provided alongwith operator. Then there may be chances that right to use may not get attracted on the simple reason, "right to use' was not absolute.

It is better to check with your State commercial taxes department about the taxability of the above transactions. If the transactions are not liable under VAT, then Service tax would be attracted.

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