service tax on hiring of goods

1.      Hiring of goods

1.1.     Declared service:

As per section 66E(f) of the act, transfer of goods by way of hiring, leasing, licensing or in any such manner without transfer of right to use such goods would be constitute as declared service.

1.2.     Clarification from CBEC

CBEC has clarified in Guidance notes on service tax issued on 20^th June, 2012 on Transfer of right to use goods: ‘Transfer of right of goods’ involves transfer of possession and effective control over such goods. (State of Andhra Pradesh vs. Rashtriya Ispat Nigam Ltd [Judgment dated 6/2/2002 in Civil Appeal no. 31 of 1991]. Further as per Bharat Sanchar Nigam Limited vs. Union of India [2006 (2) STR 161 (SC)] test to determine ‘transfer of right to use goods’:

·         There must be goods available for delivery;

·         There must be a consensus ad idem as to the identity of the goods;

·         The transferee should have legal right to use the goods – consequently all legal consequences of such use including any permissions or licenses required therefore should be available to the transferee;

·         For the period during which the transferee has such legal right, it has to be the exclusion to the transferor – this is the necessary concomitant of the plain language of the statute, viz., a ‘transfer of the right to use’ and not merely a license to use the goods;

·         Having transferred, the owner cannot again transfer the same right to others.

·         Examples on transaction not involve transfer of right to use:

o    A car is given on hire by a person to a company along with a driver on payment of charges on per month/mileage basis

o    Supply of equipment like excavators, wheel loaders, dump trucks, cranes, etc for use in a particular project where the person to whom such equipment is supplied, is subject to such terms and conditions in the contract relating to the manner of use of such equipment, return of such equipment after a specified time, maintenance and upkeep of such equipment.

o    Hiring of bank lockers

o    Hiring out of vehicles where it is the responsibility of the owner to abide by all the laws relating to motor vehicles

o    Hiring of audio visual equipment where risk is of the owner

1.3.     Exemption on hiring services:

As per entry no. 22 of mega exemption notification no. 25/2012-ST dated 20-6-2012: Services by way of giving on hire-

(a)     to a state transport undertaking, a motor vehicle meant to carry more than twelve passengers; or

(b)     to a goods transport agency, a means of transportation of goods

1.4.     Cenvat credit on goods used in providing hire service:

CBEC letter no. 137/120/2008-CX4 dated 23-10-2008: Cenvat credit of excise duty / CVD paid on goods used in providing service of ‘supply of tangible goods’ would be eligible.

1.5.     Judgments on hire of goods:

·         Viceroy hotels v. CTO (2011) 43 VST 424 (AP HC DB), audio visual equipment given on hire for conference under effective control of person hiring the equipment would be transfer of right to use the good and VAT is payable

·         Commissioner, VAT v. International Travel house Ltd (2009) 25 VST 653 (Del HC), Cabs hired by company but control and possession was with service provider. Service tax would be required to pay and not VAT.

·         Tamil nadu v. Essar Shipping Ltd (2012) 47 VST 209 (Mad HC): Time charter-party agreement to hire out vessels to charters is not transfer of right to use goods. Hence, service tax would be required to pay.

·         State of Tamil nadu v. Elcome Surveys P. Ltd (2012) 47 VST 258 (Mad HC): Physical possession and effective control of Off-shore equipment was with hirer; however hirer has no right to use equipment on its own. Hence, there is no transfer of right to use goods and service tax would apply.

·         Alpha Clays v. State of Kerala (2004) 135 STC 107 (Ker HC): Machinery has been provided with men to carry out specified work would be a service contract. It would not be consider as ‘hire charges’

State of Andhra Pradesh v. Prakash Arts (2008) 18 VST 39 (AP HC): Hire charges for advertisement hording is lease of immovable property and not transfer of right to use goodsTo join google group regular updates or query on service tax send mail to handbookonservicetax@gmail.com

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