SANJAY (CHARTERED ACCOUNTANTS) (943 Points)
27 August 2011Hello Dear Members...
Please sort out a problem stating as under:-
A Comapny is going to transfer the rights to use Tangible Goods (Here Tangible Goods are mainly Cars) by an agreement for a period of time on receiving lumpsum amount. My question is that whether there is Service Tax applicable or VAT applicable? Remember here ownership is not transfered only right to use goods is transferred.
Please Reply Soon!!! Its Most urgent!!!
Thanks in Advance
Sanjay Verma
Siddarth R Sunder Ram
(Finance Professional)
(230 Points)
Replied 27 August 2011
On the face of it, it would ideally be only a leasing of cars and not a sale, since there is no "transfer of ownership" as you have rightly mentioned. There is no specific provision in the service tax laws, which makes this sort of a transaction liable to service tax. However, you would need to check the VAT laws of the concerned state, since under the Karnataka VAT, this is a deemed sale and accordingly VAT is levied. Just see the below provision of the Karnataka VAT, where transfer of right to use is included in definition of "sale" (have highlighted the relevant portion in yellow)
"Sale" with all its grammatical variation and cognate expressions means every transfer of the property in goods (other than by way of a mortgage, hypothecation, charge or pledge) by one person to another in the course of trade or business for cash or for deferred payment or other valuable consideration and includes,-
(a) a transfer otherwise than in pursuance of a contract of property in any goods for cash, deferred payment or other valuable consideration;
(b) a transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;
(c) a delivery of goods on hire purchase or any system of payment by installments;
(d) a transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration.
SANJAY
(CHARTERED ACCOUNTANTS)
(943 Points)
Replied 29 August 2011
But Dear Siddarth,
There is a provision of Service Tax too in this case.. It covers under the service of "Supply of Tangible Goods Service"
And When this service has been introduced in the Service Tax that time there are lot of disputes regarding taxability under Service Tax and Sales TAx/VAT. But Now after long time i want to know that whether this type of cases is still in disputes or any Court decision has resolved it..
Please reply if anybody knows?
Amit Bajaj
(Tax Attorney)
(9085 Points)
Replied 15 April 2012
Depends upon the terms of the agreement. for better understanding may refer the article at below link:
https://blog.amitbajajadvocate.com/2012/04/transfer-of-right-to-use-goods-deemed.html
Vinod Ram
(C A)
(165 Points)
Replied 16 April 2012
It is such an uncanny coincidence that I am facing similar problmes. I went through a few reads on the web on https://smallbusinessindia.intuit.in/category/money-finance/. They halped to quite some extent. Do go through them and get back with your response.
CAclubindia
