Import of Machinery on Lease basis

[MALAYANUR PADMANABHARAO]

Our company intends to enter into an agreement with New Zealand company for an import of certain machinery on the following terms:

1) Import on Lease for a period of three years on payment of monthly rentals

2) If the machinery is found suitable for our business we will buy the machinery either at the end of 3 years or earlier at the price to be agreed between the parties.

3) The party may ask for a bank guarantee in USD for certain value of the machinery as security for the machinery kept with us.

4) New Zealand party does not have any office in India and does not have PAN also.

In this connection we wish to know on the following

a) Whether any duty is payable on import of the machinery, if so what value will be adopted.

b)If machinery is to be retained by us at any point of time during or at the end of the lease period, what would be the custom duty implications.

c) Whether any approval is required from RBI for issue of a bank guarantee in forex in favour of non resident and foreign company.

d) What is the tax implications on payment of monthly lease rentals. Whether New Zealand party can claim credit of the tax deducted by us.

e) If the equipment is to be returned for business reasons whether duty paid, if any, shall be claimed back by us on reexport basis.

[Suryanarayana Sathineni]

Dear Mr. Rao,

You may please refer the Notification No. 27/2008- CUS Dated 01.03.2008 ( Amendment to Notification No. 27/2002 -CUS date01.03.2002 which deals with the import of equipment on lease basis prescribing the procedure/conditions and other things. I am confident that this will give clarity for your query

Regards

Suryanarayana.

AI Summary

Import on lease: subject to notification prescribing customs procedure and conditions for duty, purchase, forex security, and tax implications. The enquiry raises customs and tax issues for machinery imported on lease with an optional purchase: duty liability and valuation on import; customs implications of retention or purchase during/after the lease; regulatory clearance for issuing a foreign currency bank guarantee; tax treatment of lease rentals and creditability for the nonresident lessor; and recovery of duty on re export. The respondent refers to Notification No. 27/2008 CUS (amending Notification No. 27/2002 CUS) as prescribing the procedures and conditions applicable to such imports.