Vat on hire of machinery

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

24 May 2013 Hello friends

one of my clients had purchased interstate of hitachi and other machines for quarrying purpose against 2% CST and issued C forms for the same.

NOw he is giving the machineries on hire basis and filed the monthly Vat returns as NIL as there is no sales TO.

Now the inspection officer had issued the notice that no sales and output has been since long and proposed penalty of one and half times of the rate of vat tax (14.5%) on purchase value.

my contention is this purchase is capital good not a trade commodity

plz guide me with case laws

thanks in anticipation

MJ Krishnamurthy

MJ Krishnamurthy (Expert)
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25 May 2013 Mr Author,
Here a distinction is to be made between hiring and leasing.Leasing is taxable ,whereas hiring is not.If the owner hands over the machines to the user entirely with an agreement for a certain period it becomess leasing and the receipts are taxable. When the owner keeps full control of the machinery,with his driver,fuels,lubricants and other maintenance,then the receipts are taken as hire charges and not taxable

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Prakash Kochar

Prakash Kochar (Expert)
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26 May 2013 The goods purchased must be specified in the registration certificate and there should not be contravention of recital of C form.
If these conditions are not fulfilled same may attract penalty provision under CST Act.

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Querist : Anonymous

Querist : Anonymous (Querist)

28 May 2013 thankyou very much Sirs for your valuable reply.

the dealer had purchased machineries against 2% CST for purpose of using it in his own quarrying purpose as below;
(b)(i)For use in the manufacture or processing of goods for sale 52.00 04/07/2011 MACHINERY AND PARTS COMPRESSOR, TIPPER, HITACHI, EXCAVATOR

Since the quarry lease permit is still pending in order to pay the interest and installments the same machineries are given on rent and hence filed the NIL Vat returns.

the officer has now issued notice U/s 10-A of CST Act for misutilization of C_Form and levied 1 & 1/2 times of 14.5% VAT. quoting M Pais and sons and another V/s State of Mysore 1965 STC161(Mys) case law.

Is the notice issued by officer is proper please help me with contra case laws.

thanks a lot Sirs..

Prakash Kochar

Prakash Kochar (Expert)
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29 May 2013 Query is related to which State ?
Whether own mining business was shown in registrations obtained under CST & local Act?

Querist : Anonymous

Querist : Anonymous (Querist)

30 May 2013 Query is related to Karnataka.
yes shown in both registrations.

MJ Krishnamurthy

MJ Krishnamurthy (Expert)
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30 May 2013 You have taken up registration as a quarrying dealer under VAT and CST Acts.Before issuing a registartion the department should have checked for quarying licence.Also 'C" form should not have been issued. If you had registered as a leasing dealer there would have been no problem. The notice issued by the officer is in order.You may note that along with own use hiring is not illegal.If do not do any quarrying in contravention of terms of registration penalty is leviable under sec10 A of CST Act. So the best remedy possible is to get the licence and start production,at the earliest,and cover it up quoting some Mining dept delay. Otherwise penalty has to be paid. ....mjk

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Prakash Kochar

Prakash Kochar (Expert)
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31 May 2013 For contraventions of recitals penalty attracts. In case you may prove from the other correspondence regarding mining - permission was awaited, therefore for time being machine was given on hire, but the intention for purchase was to use in mining business. There is no intention to disregard the statutory provisions but intention was to purchase the machine for mining business.

A decided case of State of Tamilnadu Vs. Photo Centre (1997) 114 STC 55 (Mad) may be of help if the facts are similar. It is not necessary to operate the machine for own mining business, if it is used for mining work of others that will not be treated as contravention to attract penalty.
Mob. 919850350854 (Mah.)

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C A S.S.Agarwal, M.Com.,LL.B,

C A S.S.Agarwal, M.Com.,LL.B, (Expert)
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14 July 2013 At the time of purchase of the machinery you have paid CST and then you are giving it on hire. On hire Service Tax is applicable and no VAT. If you sale the machinery then VAY will be attracted.

Kindly hire good CA and represent your case properly nothing will happen.

Prakash Kochar

Prakash Kochar (Expert)
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15 July 2013 Agrawalji,
Under Sales Tax Act The transfer of right to use any goods for any purpose is covered by definition of sale. In some of the states receipts from Hiring and/ or leasing are covered by definition of sale, attracts liability for VAT also.