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Sales tax or service tax??

SANJAY (CHARTERED ACCOUNTANTS) (943 Points)

22 October 2011

Dear Members,

Please clarify that if a company is giving its vehicles to second company on RENT without drivers and petrol expenses, then which tax is applicable sales tax or service tax ?? (Ony vehicles are given to second company on the basis of agreement, there is not any other service of goods provided AND hirer can use these vehicles without any conditions for the period as agreed).

As per sales tax it covers under Deemed sales and as per Service Tax it will cover under service of supply of tangible goods for use??

Which should be applicable.

Please reply soon!!

Thanks in advance

Sanjay Verma

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10 Replies

C.A. Sandeep Wawhal (CA, PGDFM, BCom) (1831 Points)
Replied 22 October 2011

Both tax will applicable..........

wait for other's reply

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Madhukar N Hiregange (Chartered Accountant) (39034 Points)
Replied 22 October 2011

When the control and possession is passed onto the other, it is a right to use the goods which is being trasnferred and consequenlty a " sale" liable only for VAT in this case.

Where the transfer of control and possession is not done then ONLY servic etax would apply under - supply of tangible goods.

1 Like

SANJAY (CHARTERED ACCOUNTANTS) (943 Points)
Replied 29 October 2011

But Madhukar sir,

Even if we are not transferring the ownership of vehicles why we should pay the VAT..

Is these vehicles remains the assets of the present owners or it will be treated of the hirer..

Please clarify..

SANJAY (CHARTERED ACCOUNTANTS) (943 Points)
Replied 29 October 2011

& What will be the rate of VAT under UP vat in this case??

SANJAY (CHARTERED ACCOUNTANTS) (943 Points)
Replied 02 November 2011

Should i register for leasing of vehicles in sales tax department or i can pay sales tax under current registration.. ??

Please reply soon!! Its Urgent???

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pradeep mukim (chartered accountant) (35 Points)
Replied 02 November 2011

hello sanjay,

as far as my knowledge is concerned a simple giving an asset on rent would never be a deemed sale, deemed sale woulds only be in case of leasing of the vehicle, in leasing also the intent of parties to be seen whether it is leasing in the nature of finance lease. only in such a case it would be deemed to be sale . As it is appearing in ur case it just seems to be a rental agreement between the parties so there is no question of sales tax . applicability of service tax is to be seen if it applies to vehicles also .

SANJAY (CHARTERED ACCOUNTANTS) (943 Points)
Replied 02 November 2011

Dear Pradeep,

Please note the following lines under UP VAT act...

Under the U.P. Vat Act as per Schedule II Part ‘A’ ‘All Tangible goods like copy right, Patent, REP license, transfer of right to use goods’ are at present taxable at 4% (1% Addl. Tax). Right to use any goods would include all goods be it vehicle or machinery.

Under the U.P. Vat Act ‘lease’ ‘lessee’ ‘lessor’ are defined as under:

‘lease’ means any agreement or arrangement whereby the right to use any goods for any purpose is transferred by one person to another (whether or not for a specified period) for cash, deferred payment or other valuable consideration without the transfer of ownership and includes a sub-lease but does not include any transfer on hire purchase or any system of payment by installments;

‘lessee’ means any person to whom the right to use goods for any purpose is transferred under a lease;

‘lessor’ means any person by whom the right to use any goods for any purpose is transferred under a lease;

pradeep mukim (chartered accountant) (35 Points)
Replied 02 November 2011

Dear sanjay ,

As far as i know VAT is a tax on sale of goods, intengible assets like patent ,copyright etc can be sold so their levy to VAT is jusfied to me . But transfer of right to use asset cant be said to sale as such transfer of right is temporary i may transfer right to use for some period to some person tn to some other person . there is no involment of sale of such right permanently to any person. permanent transfer of right is associated with sale of such asset. For me basic thing is sale of goods for the purpose of levy of VAT.