Hiring of Machinery - Right to Use

[saket s]

Hi,

We are hiring machinery for parties on rental basis for execution of works contract and returning back the machinery after work. We are also issuing our company way bills for bringing in the material from other states. Department says that this will fall under the ‘Right to Use Act“ and VAT is applicable.

Whether such transaction fall under right to use, because the machine registration is in the name of the contractor and the operator is also provided by the contractor and we are only authorized to use the equipment for a specific work. Pls let me know if there is any judgement on this.

Thank You.

Saket

[KASTURI SETHI]

In this case VAT and Service Tax both are applicable. For VAT it is deemed sale.

[KASTURI SETHI]

There are judgements these are pro-revenue.

[Ganeshan Kalyani]

The subject is contentious. If it is said that machinery is given on rent then service tax may be applicable and under VAT it is deemed sale so VAT becomes applicable. Both the tax cannot be charged on one transaction so in my view paying either of the tax would be better than not to pay tax.

AI Summary

Right to Use classification can trigger VAT as deemed sale, potentially overlapping with service tax obligations. Whether hiring machinery for execution of a works contract constitutes a transfer of the Right to Use and therefore a deemed sale for VAT is contested. Revenue treats contract-specific temporary provision of equipment (with interstate waybills) as right-to-use attracting VAT; alternative characterisation as rental may attract service tax. The core practical issue is classification and the potential overlap between VAT and service tax, with practice favouring payment under the applicable head rather than exposing the transaction to dual levy.