VAT of supply of machinery
This query is : Resolved
26 May 2008
We are giving construciton equipment on rent to any person without transferring right of possession and effective control of such machinery with in India . The machinery operation and maintainence is with us i.e our operator's do the work as per the requirement of the client.
Please advise the applicability of the VAT on the said transactions across India.
Further can we take the MODVAT credit on equipment purchased and use the said credit against the Service Tax Liability
thanks
ravi bhatnagar
Please advise the applicability of the VAT on the said transactions across India.
Further can we take the MODVAT credit on equipment purchased and use the said credit against the Service Tax Liability
thanks
ravi bhatnagar
26 May 2008
hi ravi!
your querry seems to be in respect of Lease TAx which is merged with MVAT. according to facts given by u, the MVAT won't be chargeable on ur transaction but according to recent ammendment service tax may be chargeable. i.e on renting of Machinery.
any one either MVAT or Service tax will be chargeable.
your querry seems to be in respect of Lease TAx which is merged with MVAT. according to facts given by u, the MVAT won't be chargeable on ur transaction but according to recent ammendment service tax may be chargeable. i.e on renting of Machinery.
any one either MVAT or Service tax will be chargeable.
28 May 2008
We are giving construciton equipment on rent to any person without transferring right of possession and effective control of such machinery with in India . The machinery operation and maintainence is with us i.e our operator's do the work as per the requirement of the client.
Please advise the applicability of the VAT on the said transactions across India.
Further can we take the MODVAT credit on equipment purchased and use the said credit against the Service Tax Liability
thanks
ravi bhatnagar
Please advise the applicability of the VAT on the said transactions across India.
Further can we take the MODVAT credit on equipment purchased and use the said credit against the Service Tax Liability
thanks
ravi bhatnagar
14 July 2008
We are giving construciton equipment on rent to any person without transferring right of possession and effective control of such machinery with in India . The machinery operation and maintainence is with us i.e our operator's do the work as per the requirement of the client.
Please advise the applicability of the VAT on the said transactions across India.
Further can we take the MODVAT credit on equipment purchased and use the said credit against the Service Tax Liability
thanks
ravi bhatnagar
We are giving construciton equipment on rent to any person without transferring right of possession and effective control of such machinery with in India . The machinery operation and maintainence is with us i.e our operator's do the work as per the requirement of the client.
Please advise the applicability of the VAT on the said transactions across India.
Further can we take the MODVAT credit on equipment purchased and use the said credit against the Service Tax Liability
thanks
ravi bhatnagar
02 August 2025
Hi Ravi,
Based on your detailed description, here’s a professional analysis of your **VAT and Service Tax** implications in **pre-GST era** (as of May 2008):
---
### ✅ **1. Applicability of VAT on Machinery Rental**
Since:
* You **do not transfer** the **right to use** the machinery,
* You **retain effective control** and **possession**, and
* Your operators are carrying out the job (i.e., it is more of a service),
➡️ **VAT is NOT applicable** on this transaction.
Under various **State VAT laws**, **transfer of the right to use goods** (deemed sale under Article 366(29A)(d) of the Constitution) is liable to VAT **only if**:
* There is a **transfer of possession and control** of goods,
* For a **consideration**.
**In your case**: Since you retain control and provide operators, this is treated as a **service**, **not a deemed sale**, and **not subject to VAT**.
---
### ✅ **2. Applicability of Service Tax (as per 2008 law)**
Your activity falls under **"Supply of Tangible Goods Service"** which was made **taxable from May 16, 2008**, via Notification No. 18/2008-ST.
As per the **Finance Act, 1994** (as amended):
> **If the effective control and possession of machinery is not transferred**, the supply of goods **with operator or supervision** is considered a **taxable service**.
➡️ **Yes, Service Tax is applicable** at the prevailing rate (which was 12.36% in 2008).
---
### ✅ **3. MODVAT / CENVAT Credit on Machinery Purchase**
If:
* The machinery purchased is used for providing **taxable services** (i.e., under the service tax net),
* The machinery falls under the definition of **capital goods** under **CENVAT Credit Rules, 2004**,
➡️ **Yes, CENVAT credit is available** on machinery purchased (up to 50% in the year of purchase, and balance in subsequent years), and it can be **used to pay Service Tax** liability.
> **Note**: Ensure proper invoicing from the supplier showing Excise Duty separately to avail CENVAT.
---
### 📌 **Summary**
| Aspect | Applicability |
| ------------------------ | ---------------------------------------------------------- |
| **VAT** | ❌ Not applicable (no transfer of right to use) |
| **Service Tax** | ✅ Applicable under “Supply of Tangible Goods for Use” |
| **MODVAT/CENVAT Credit** | ✅ Available on machinery used in providing taxable service |
---
If this arrangement continued post-2017, you’d be under the **GST regime**—which treats such services differently.
Let me know if you want a summary of the **same scenario under GST**.
Best regards,
**\[ChatGPT – Tax & Indirect Tax Analyst]**
Based on your detailed description, here’s a professional analysis of your **VAT and Service Tax** implications in **pre-GST era** (as of May 2008):
---
### ✅ **1. Applicability of VAT on Machinery Rental**
Since:
* You **do not transfer** the **right to use** the machinery,
* You **retain effective control** and **possession**, and
* Your operators are carrying out the job (i.e., it is more of a service),
➡️ **VAT is NOT applicable** on this transaction.
Under various **State VAT laws**, **transfer of the right to use goods** (deemed sale under Article 366(29A)(d) of the Constitution) is liable to VAT **only if**:
* There is a **transfer of possession and control** of goods,
* For a **consideration**.
**In your case**: Since you retain control and provide operators, this is treated as a **service**, **not a deemed sale**, and **not subject to VAT**.
---
### ✅ **2. Applicability of Service Tax (as per 2008 law)**
Your activity falls under **"Supply of Tangible Goods Service"** which was made **taxable from May 16, 2008**, via Notification No. 18/2008-ST.
As per the **Finance Act, 1994** (as amended):
> **If the effective control and possession of machinery is not transferred**, the supply of goods **with operator or supervision** is considered a **taxable service**.
➡️ **Yes, Service Tax is applicable** at the prevailing rate (which was 12.36% in 2008).
---
### ✅ **3. MODVAT / CENVAT Credit on Machinery Purchase**
If:
* The machinery purchased is used for providing **taxable services** (i.e., under the service tax net),
* The machinery falls under the definition of **capital goods** under **CENVAT Credit Rules, 2004**,
➡️ **Yes, CENVAT credit is available** on machinery purchased (up to 50% in the year of purchase, and balance in subsequent years), and it can be **used to pay Service Tax** liability.
> **Note**: Ensure proper invoicing from the supplier showing Excise Duty separately to avail CENVAT.
---
### 📌 **Summary**
| Aspect | Applicability |
| ------------------------ | ---------------------------------------------------------- |
| **VAT** | ❌ Not applicable (no transfer of right to use) |
| **Service Tax** | ✅ Applicable under “Supply of Tangible Goods for Use” |
| **MODVAT/CENVAT Credit** | ✅ Available on machinery used in providing taxable service |
---
If this arrangement continued post-2017, you’d be under the **GST regime**—which treats such services differently.
Let me know if you want a summary of the **same scenario under GST**.
Best regards,
**\[ChatGPT – Tax & Indirect Tax Analyst]**
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