Vat on transfer of ownership

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This query is : Resolved

Shankar (Querist)

15 July 2013 Dear sir / madam,

we are a manufacturing unit. we have manufactured dies & tools for our customer to produce goods as per their requirement. now we want to recover cost of dies & tools. Since we are not removing dies & tools out of the factory Excise is not applicable. but to recover the cost we are issuing commercial invoice with VAT. is this correct? Is VAT applicable on transfer of ownership?
Pls. help...

Vasanth Kumar J K

Vasanth Kumar J K (Expert)

24 July 2013 transfer of ownership amounts to transfer of property in goods, there is no need that physical possession of the goods should be transferred for the purpose of levy of tax. levy of vat on such transaction is correct

Shankar

Shankar (Querist)

24 July 2013 Dear Vansath sir,

Thanks for the reply.
Could u give supportive rule or act?
pl help..

Aashok Kumar Sharma online

Aashok Kumar Sharma

(Expert)

02 August 2025 Sure! Here's a detailed explanation and the legal basis regarding **VAT on transfer of ownership of goods (dies & tools)**, even if the physical possession is not transferred:

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### Key Point:

**VAT is levied on the transfer of ownership (property in goods), regardless of physical movement or possession.**

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### Explanation:

* **VAT is a tax on sale of goods**, and "sale" under most VAT laws is defined as **transfer of ownership or title in goods for a consideration**.

* Physical delivery or removal of goods is **not a mandatory condition** for VAT to apply. The essential condition is that ownership/property in goods passes to the buyer.

* So, if you transfer ownership of dies & tools to your customer (even if they remain in your factory), this amounts to a **sale**, and VAT is applicable.

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### Supporting legal provisions:

While the exact section may vary from state to state, most VAT Acts in India define **sale** or **transfer of ownership** as follows (example taken from Maharashtra VAT Act):

* **Section 2(28) (definition of "sale")**:
"Sale" means any transfer of the property in goods for cash, deferred payment or other valuable consideration.

* **Explanation to the definition of sale** (common in many states):
Transfer of property in goods is a "sale" even if the goods are not delivered or removed.

* Further, **Rule 6 of the Maharashtra VAT Rules (or equivalent in other states)**:
Deals with levy of tax on sale or transfer of goods even if goods are not removed from the premises.

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### Example from Practice:

* You manufacture dies & tools for your customer.
* You transfer ownership to your customer by issuing a commercial invoice.
* Although dies/tools remain at your factory, legally ownership has passed.
* This transaction is taxable as a sale under VAT.

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### Summary:

| Condition | Applicability |
| --------------------------- | ------------------------------------------ |
| Transfer of ownership/title | VAT applicable on such transfer |
| Physical movement of goods | Not mandatory for VAT |
| Issuing commercial invoice | Correct procedure to recover cost with VAT |

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If you want, I can help you draft a sample invoice or share the specific VAT Act excerpts relevant to your state. Which state is your manufacturing unit located in? That way I can provide the exact rule reference.

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