ST - Transfer of Goods Without the Right to use - CBEC Clarifies
TIOL-DDT 2912
18 08 2016
Thursday
AS per Section 66E(f) of the Finance Act 1994, the transfer of goods by way of hiring, leasing, licensing or in any such manner without transfer of right to use such goods, is a declared service. This came into force on 01 07 2012.
What is transfer of goods without transfer of the right to use? Who will hire/lease goods if the right to use is not transferred?
Just before the implementation of the new provisions in 2012, CBEC had organized a meeting in Hyderabad to 'sell' the new concepts. Ms Sheila Sangwan, then Member of CBEC and her team tried to explain the complexities of the new era in Service Tax.
In the meeting, a question was asked, "can you tell us a few examples of transfer of goods without transfer of right to use such goods". The CBEC Member and her team had no clue, though they had included it in the Statute.
Four years later, the CBEC has now attempted to clarify this issue.
In a Circular released yesterday, the Board states,
In terms of sub-clause (d) of clause (29 A) of Article 366 of the Constitution of India, the 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 is deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made. It follows that such transactions will be liable for Sales Tax/Value Added Tax. In terms of section 66E(f) of the Finance Act, 1994, transfer of goods by way of hiring, leasing, licensing or in any such manner without transfer of right to use such goods is a "declared service" and hence liable to service tax.
Board says it is essential in any given case involving hiring, leasing or licensing of goods, it is essential to determine whether, in terms of the contract, there is a transfer of the right to use the goods. Further, the Supreme Court in the case of Bharat Sanchar Nigam Limited vs Union of India, reported in - 2006-TIOL-15-SC-CT-LB, had laid down the following criteria to determine whether a transaction involves transfer of the right to use goods, namely,-
a. There must be goods available for delivery;
b. There must be a consensus ad idem as to the identity of the goods
c. The transferee should have a legal right to use the goods - consequently all legal consequences of such use, including any permissions or licenses required therefor should be available to the transferee;
d. For the period during which the transferee has such legal right, it has to be to 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 licence to use the goods;
e. Having transferred the right to use the goods during the period for which it is to be transferred, the owner cannot again transfer the same right to others.
Board states that this criteria (Board is not very fussy about English; what they meant was 'these criteria') must invariably be followed and applied to cases involving hiring, leasing or licensing of goods. The terms of the contract must be studied carefully vis-a-vis the criteria laid down by the Supreme Court in order to determine whether service tax liability will arise in a given case. It is not possible to either give an exhaustive list of illustrations or judgements on this issue. Cases decided under the Sales Tax/VAT legislations have to be considered against the background of those particular legislative provisions and terms of contract in that case.
Board has referred to six cases.
Board has referred to two situations involving either a financial lease or an operating lease and "dry leases" and "wet leases" in the aircraft industry only to explain and emphasize the diverse nature of such transactions.
Board directs that no a priori generalisations or assumptions about service tax liability should be made and the terms of the contract should be examined carefully, against the backdrop of the criteria laid down by the Supreme Court in the Bharat Sanchar Nigam Limited case as well as other judicial pronouncements.
But what is an example of transfer of goods without transfer of right to use such goods?
Board has still not answered the question.
The Board in D.O.F.No 334/1/2012-TRU, dated 16.03.2012 had given certain examples where the transaction does not involve transfer of right to use:
S.No.
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Nature of transaction
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1
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A car is given in hire by a person to a company along with a driver on payment of charges on per month/mileage basis.
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2
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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.
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3
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Hiring of bank lockers.
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4
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Hiring out of vehicles where it is the responsibility of the owner to abide by all the laws relating to motor vehicles.
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5
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Hiring of audio visual equipment where risk is of the owner.
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CBEC Circular No. 198/08/2016-SERVICE TAX, Dated: August 17, 2016
Anti Dumping Duty on Cold Rolled steel Products
INDIA has imposed provisional anti dumping duty on Cold-Rolled flat products of alloy or non-alloy steel originating in, or exported from People's Republic of China, Japan, Korea RP and Ukraine as the goods have been exported to India from these countries below normal value; as the domestic industry has suffered material injury on account of these imports; and as the injury has been caused by the dumped imports of the goods from these countries.
The anti dumping duty shall be effective for a period not exceeding six months from yesterday.
Notification No. 45 /2016-Customs (ADD), Dated: August 17, 2016
CESTAT Member Ashok Arya temporarily Transferred to Delhi
THE president of CESTAT has transferred Mr. Ashok Arya, Member (T) of CESTAT at Bangalore as Member (T) at CESTAT, Delhi for a period of six months on his request.
CESTAT Office Order in F.No. 27(39)/Trans.Policy/CESTAT/admn.08., Dated August 16 2016
VCES - First Instalment not paid - Disqualified from VCES - SC Rejects SLP
YESTERDAY the Supreme Court dismissed an SLP filed by Manpreet Engineering And Construction Co. in a VCES case.
The assessee had been disqualified from the Voluntary Compliance Encouragement Scheme, 2013 (VCES, 2013) and the immunity provided under section 108(1) of the Finance Act, 2013 was withdrawn, as he had not deposited 50% of the tax dues so declared under Section107(1) and submitted the proof of such payment to the designated authority.
On a writ petition, the High Court upheld the impugned order on the grounds: (2016-TIOL-1456-HC-JHARKHAND-ST)
1. The VCES, 2013 is already a liberal scheme floated for those declarants, who have committed breach of the taxing statute
2. the payment of the service tax liability is divided into two instalments. First instalment is of minimum 50% to be paid on or before 31st December, 2013
3. The scheme is nothing but a policy decision of Union of India and this court will be extremely slow and careful in making further liberal interpretation of the VCES, 2013, because this court is not sitting in appeal against the said scheme nor this court can replace an existing scheme with a better one.
4. In a taxing statute interpretation ought to be made strictly. Court can neither replace all these clauses of VCES, 2013 nor further instalments can be given by the court in exercise of powers under Article 226 of the Constitution of the India.
5. 'substantial compliance' has no place in a taxing statute, otherwise every declarant or assessee will partly comply with a scheme or provision of the taxing statute and will say that there is substantial compliance, which will lead to nothing but chaos and court cannot be a party to this.
6. once the clauses of the VCES, 2013 is violated, the declarant is not entitled to get benefit of the said scheme.
The Supreme Court yesterday dismissed the SLP of the assessee. Please see 2016-TIOL-124-SC-ST
It is said that in matters relating to taxes, questions rarely change, but the answers do.
Opening Sentence of TRU JS Letter D. O. F. No 334/1/2012-TRU Dated: March 16, 2012
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Until Tomorrow with more DDT
Have a nice day.
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