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Machine given on hire- Service Tax or VAT applicable

04 September 2009

A Manufacturing concern based Maharashtra lets out its machinery on hire and invoices rental charges on its customers. Please advise whether this would attract Service Tax or VAT ???

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6 Replies

Jeevesh Mehta (Advocate- Corporate Commercial & Indirect Tax Advisory) (861 Points)
Replied 04 September 2009

Dear Pradeep,

Levy of VAT or Service tax on supply of machinery on hire/ rent would depend on the nature of the Tranfer of such machinery. Such renting of the machinery may be called as transfer of right to use. But if such transfer of right to use involves transfer of both possession and control of the goods to the user of the goods then the state government may charge VAT on such activity as this is considered as deemed Sale. In case the machineries are supplied for use with no legal right of possession and effective control it is treated as a Service and not being treated as sale of goods.

A seperate head of service has been provided as " Supply of Tangible Goods Serviice" for the services provided or to be provided on or after 16.5.2008 is taxable.

Eg; The machinery/ equipment is transfered along with the operator. This is example of transfer of goods without transfering right of possession and effective control.

Hope this clarifies your query.

Regards

3 Like

chanderbhan garg (ACCOUNTANTS) (23 Points)
Replied 05 April 2010

why the renting on computer is applicable service tax

(Guest)

So, in any situation either service tax or VAT will be applicable but not both right?

CA Prabhat Gupta (Manager (Indirect Taxes)) (821 Points)
Replied 05 January 2012

Yes, either of the two taxes could be levied. Supply of tangible goods for use and leviable to VAT / sales tax as deemed sale of goods, is not covered under the scope of this service.

Please refer to Para F(3) on clarifications issued by the Board on this issue, in the file attached below.

Attached File : 483027 900137 supply tagiblegoods.pdf downloaded: 4251 times

CA Prabhat Gupta (Manager (Indirect Taxes)) (821 Points)
Replied 05 January 2012

Mr. Garg,

Please refer to Definition of Taxable Service given u/s 65(105)(zzzzj) of Finance Act, 1994 as amended. It is as follows:

“Taxable Service” means any service provided or to be 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.”

If conditions as included in above definition (in bold) are satisfied, Service Tax would be levied.

1 Like

Sagar (Accounts Executive) (44 Points)
Replied 12 May 2017

Dear Sir

As VAT Applies to Fully possesed Material.

Is there any provision of VAT Refund in case of material is return back to hirer after completion of stipulated terms?

What to consider that VAT amount in Books.. are they Expense or Credit.

As per my sense if Equipment is given on rent whereby VMVAT is attracted. in other term we there is an Inward of Equipement as an asstes in our Enterprise in same way if assets is return back to Hirer we're either disposing of or Consider as outward from our enterprise.