Plant & Machinery On rent

[Ashok Chopra]

I have given my entire unit on Lease. I am charging Rs. 200000 on account of Lease Rent  of Land and Building and Charging Service Tax.  Also charging Rs. 300000 on account of Lease rent of Plant and Machinery.

My Queries:-

1. Whether VAT and Service Tax both will be charge on Lease Rent of Plant and Machinery or any one from above,  either VAT or Service Tax?

2. If both will be charge, how first Service Tax and thereafter VAT on both amount (Lease Rent+Service Tax) or first VAT and thereafter Service Tax on both amount (Lease Rent+VAT).

3. Please also provide me the copy of notification/clarification/guideline, order or judgement of the court with regard to above.

Thanks and regard

[YAGAY andSUN]

Dear Ashok,

The principle of effective control would be the deciding factor in this transaction that whether the HVAT would be applicable on the leasing of the plant or service tax would be applicable.  Further, it would also depend on the terms and conditions of the agree entered by you with the lessee.

If lessess has the effective control on the plant then VAT would be applicable otherwise service tax would be applicable if you have the effective control.

We are also attaching herewith a relevant judgment of Madras High Court for your kind consideration.

Regards

Pradeep Khatri

(Founder of YAGAY & SUN)

(Indirect Tax Consultants)

The State of Tamilnadu rep. By the Deputy Commissioner (CT) Versus Elcome Surveys Pvt. Ltd. (2014 (3) TMI 305 - MADRAS HIGH COURT )

 

AI Summary

Effective control determines whether leasing plant and machinery attracts VAT or is treated as a taxable service under service tax. The tax characterisation of leasing plant and machinery depends on the effective control over the assets and the lease terms: if the lessee obtains effective control the transaction is treated as supply of goods attracting VAT; if the lessor retains effective control it constitutes a taxable service attracting service tax. Whether both taxes apply depends on that factual and contractual determination.