Service Tax for Lease of Packaging Equipments

[Guest]

We are leasing the Metal Pallets to various mfg industries on lease and the control and possession of the said equipments while on lease period lies with the customer. We currently charge VAT as well as Service Tax and some companies are advises that if the control and possession lies with the customer( not the service provider) there is no service tax payable. Please clarify.

[YAGAY and SUN]

Applicability of VAT or Service Tax on the transfer of right to use or supply of tangible goods will depend on the Effective Control and possession.

If the Effective Control and possession of goods/equipment/Machinery lies with you then service tax will be applicable otherwise it will attract Service Tax.

AI Summary

Effective control and possession determines service tax applicability on leased packaging equipment, not VAT treatment. The operative test is Effective Control and possession: applicability of service tax or VAT on the transfer of right to use tangible goods depends on which party retains effective control and possession; the advisory states that if effective control and possession lies with the lessor service tax will be applicable, and if it does not lie with the lessor it will attract service tax.