Rental on machinery as per TNVAT Act

[Rambabu Dompaka]

Dear Expert,

We are giving our machines on rental basis to local and outstation customers and we are charging service tax on it.

As per our assessing officer ,he was insisting us to charge VAT or CST on that rental income.

Please let me know, how far it is correct to collect sales tax from our customer.

Some of our customers are not agreeing with us on this matter.Please help us with relevant sec as per TNVAT and if any landmark judgments, whether to charge sales tax or not on rental income.

Regards,

Rambabu.D

Dear Sir,

VAT/CST should be charged only when there is a sale transaction. In other words, Unless you transfer the possession of the machinery used, VAT/CST cannot be charged.

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.

Read more at: http://www.caclubindia.com/forum/machine-given-on-hire-service-tax-or-vat-applicable-46362.asp.

You are only renting the machinery, which is not a sale, so VAT/CST will not be applicable.

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.

Read more at: http://www.caclubindia.com/forum/machine-given-on-hire-service-tax-or-vat-applicable-46362.asp

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.

Read more at: http://www.caclubindia.com/forum/machine-given-on-hire-service-tax-or-vat-applicable-46362.asp

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.

Read more at: http://www.caclubindia.com/forum/machine-given-on-hire-service-tax-or-vat-applicable-46362.asp

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.

Read more at: http://www.caclubindia.com/forum/machine-given-on-hire-service-tax-or-vat-applicable-46362.asp

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.

Read more at: http://www.caclubindia.com/forum/machine-given-on-hire-service-tax-or-vat-applicable-46362.asp

Regards

Muthuraman AL

[Rambabu Dompaka]

Dear Sir,

Thanks for your reply.

Can you refer any sec regarding this.It will be more helpful sir.

Regards,

Rambabu.D

[KASTURI SETHI]

Whether VAT is to be paid or not depends upon the terms and conditions of the agreement/contract, if any ? Who has effective control and possession of the machines ? It is very crucial to determine.

[Rambabu Dompaka]

Dear Sir,

Thanks for your reply.

Regards,

Rambabu.D

[Ganeshan Kalyani]

Sir, with due respect to other experts I agree with Sri Kasturi Sir in toto. The applicability of VAT or Service tax on such transaction depends on terms and agreement.

As per TNVAT Act, the transfer of right to use the goods is termed as "Deemed Sales". So if you have given machines to customer and also transferred the right to use it then VAT is applicable. If you have just rented it and maintenance of that machine is taken care by you and control over that machine is with you only then it is renting service where service tax is applicable.

Now you have decide what is the terms and agreement and construe accordingly. Thanks.

[Rambabu Dompaka]

Thanks alot sir.

Regards,

Rambabu.D

AI Summary

Transfer of right to use determines whether VAT applies or service tax governs machinery rental transactions.
Applicability of VAT/CST versus service tax depends on whether the arrangement transfers the right to use and possession/effective control of the machinery. Transfer of right to use is treated as a deemed sale under the TNVAT framework, attracting VAT/CST; supplying machinery for use without transferring possession and effective control is a taxable service and attracts service tax. The contractual terms allocating possession, control and maintenance are decisive.