Whether equipment leasing between distinct persons constitutes supply of services

This ruling clarifies whether leasing equipment between different registered units of the same company, treated as 'distinct persons' for GST purposes, constitutes a taxable supply of services. The Maharashtra Advance Ruling Authority determined that such leasing falls under the definition of 'supply' and is a 'deemed service' as per GST law. The ruling also touched upon valuation, suggesting that the value provided by the end customer might be considered for branch transfers.

Question

Whether equipment leasing between distinct persons constitutes "supply of services"?

FACTS OF THE CASE

1. The Applicant is a part of a global organisation dealing with renting of reusable equipments for shared use amongst industrial and retail sectors throughout the supply chain.

2. The Applicant was considering a business model wherein the ownership of all equipments will lie with its unit in the State of Maharashtra.

3. The Maharashtra registration would be entering into arrangements with its other GST registrations / units across other States (viz. distinct persons) for leasing the equipment to them at agreed leasing or hiring charges.

4. The other units would thereafter be issuing the equipment to its customers based on their business requirement.

5. The Applicant accordingly sought an Advance Ruling on whether such a transaction with its other units would be a "lease transaction" and therefore a taxable supply.

6. If yes, what is the value on which GST has to be charged (i.e. lease charges or value of equipment)

RULING

1. The Maharashtra AAR observed that:

(i) definition of supply is wide and includes lease within its ambit and
(ii) in terms of Entry 5(f) of Schedule II, "transfer of right to use goods…" is a deemed service.

2. A conjoint reading of Section 25 of the CGST Act and Schedule I creates a deeming provision wherein two registrations of the same company are considered as "distinct persons" and such "supply" is taxable under the GST even if carried out without consideration.

3. On the issue of valuation, it was held that when the movement from one state to another happens on account of an order from the customer, the value as offered by the ultimate customer for the said services may be considered for adopting the value of branch transfer.

4. The Maharashtra AAR refused to entertain question on the taxability of goods moving from Karnataka to Tamil Nadu on the instructions of the head office. It was inter alia held that if the situs of transaction is not within the state, the Maharashtra AAR cannot acquire jurisdiction qua the questions raised.