Right to use of tangible goods Services

September 19, 2016   admin  Service Wise Implications
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  • Understanding of the service

  • Services are provided or to be provided to any person.
  • Services are rendered by any other person.
  • The services shall be provided or to be provided in relation to supply of tangible goods including machinery, equipment and appliances for use, without transferring right of possession and effective control of such machinery, equipment and appliances.
  • The imperative point to be noted in this service is that while goods are being supplied but the right to effective control and possession is not being transferred thereby making it an activity distinct and different from hire-purchase of goods. It is apprised that the moment effective control and possession is transferred the activity would be out of purview of this taxable service and would not be chargeable to service tax.

  • Accounting codes

Such codes are no longer statutory but used for statistical purpose for the purpose of registration and for payment of tax as specified vide Circular No.165/16/2012 –ST dated 20.11.2012:

 

Tax Collection of Service Interest and penalties on such service
00440445 00440447

 

  • Taxability as settled by Precedents / Circulars / Trade notices

Activity Whether falls within the scope of present service Reference
Erection of tower and leasing out to telecom/ cellular operator Yes State of AP and Anr.  V Rashtriya Ispat Nigam Ltd. 2002 (126) STC 0114 SC
When there is only hiring of audio visual and multi-media equipment, where the equipment is at the risk of the owner and possession and effective control remains with the owner, in such circumstances, can it be said that the customer has the right to use the equipment and there is no deemed sale, accordingly can it be covered under the present category. Yes Laxmi Audio Visual v Assistant Commissioner of Commercial Taxes 124 STC 426
Supply of tangible goods for use and leviable to VAT/sales tax as deemed sale of goods No Para 5 of Circular/Letter D.O.F. No. 334/1/2008-TRU, dated 29-2-2008
Charter aircrafts Yes Instruction No Dy 20/Comm (ST)/2009, dated 9.02.2009

  • Value of Taxable Service

Section 67 read along with Service Tax (Determination of Value) Rules, 2006 provides the manner of determining the value of taxable services on which services tax should be levied.

In respect of Right to use tangible goods Services, no specific provision for determination of taxable value has been provided.  However it has been clarified that the value of taxable services is the total amount of consideration consisting of all components of the taxable service and it is immaterial that the details of individual components of the total consideration are indicated separately in the invoice. Thus, the value of taxable Right to use tangible goods Services is to be determined in terms of provision of Section 67 read with the prescribed Rules.

  • Abatement

No abatement has been granted to any person liable to pay service tax under the Section.

Exemptions available

  1. General Exemption
  • Small Service Provider

Vide Notification No 33/2012-ST, dated 20.06.2012 – Exemption to Small service providers having taxable turnover of less than 10 Lakhs and providing services other than by way of under a brand name.

  • Import of Technology

Vide Notification No. 14/ 2012-ST, dated March 17, 2012 – Exemption in respect of Taxable service involving import of technology, from so much of service tax, as is equivalent to the extent of amount of R&D Cess payable on the said transfer of technology under the provisions of section 3 of the Research and Development Cess Act, 1986. 

  • To Foreign Diplomatic missions and their personnel

Vide Notification No 27/2012-ST, dated 20.06.2012 – Exemption for all the taxable services provided by any person, for the official use of a foreign diplomatic mission or consular post in India, or for personal use or for the use of the family members of diplomatic agents or career consular officers posted therein.

  • Services by TBI or STEP

Vide Notification No 32/2012-ST, dated 20.06.2012 – All taxable services provided by TBI or STEP have been exempted

  • Services provided to SEZ

Vide Notification No 40/2012-ST, dated 20.06.2012, all taxable services received by a Unit located in a Special Economic Zone (SEZ) or Developer of SEZ for the authorized operations, has been exempted from the levy of whole of the service tax.

  1. Specific Exemptions:
  • Exemption has been provided vide Notification No. 25/2012-ST, to services which are by way of giving on hire to a state transport undertaking, a motor vehicle meant to carry more than twelve passengers.
  • Exemption has been provided vide Notificaiton No. 25/2012-ST, to Services by way of giving on hire to a goods transport agency, a means of transportation of goods

  • Related Circulars and Notification

  • Para 5 of Circular/letter D.O.F. No. 334/1/2008-TRU, dated 29-2-2008
  • Board’s letter F. No. 137/120/2008-CX 4, dated 23-10-2008, [issued from file C. No.iv/16/6/2009-stu]/trade notice no. 12/2009, dated 13-3-2009, Madurai Commissionerate
  • Para 5 of Circular/Letter D.O.F. No. 334/1/2008-TRU, dated 29-2-2008

 

4.4.1Transfer of the right to use any goods is leviable to sales tax/VAT as deemed sale of goods[Article 366(29A)(d) of the Constitution of India]. Transfer of right to use involves transfer of both possession and control of the goods to the user of the goods.

4.4.2 Excavators, wheel loaders, dump trucks, crawler carriers, compaction equipment, cranes, etc., offshore construction vessels and barges, geo-technical vessels, tug and barge flotillas, rigs and high value machineries are supplied for use, with no legal right of possession and effective control. Transaction of allowing another person to use the goods, without giving legal right of possession and effective control, not being treated as sale of goods, is treated as service.

4.4.3 Proposal is to levy service tax on such services provided in relation to supply of tangible goods, including machinery, equipment and appliances, for use, with no legal right of possession or effective control. Supply of tangible goods for use and leviable to VAT/sales tax as deemed sale of goods, is not covered under the scope of the proposed service. Whether a transaction involves transfer of possession and control is a question of facts and is to be decided based on the terms of the contract and other material facts. This could be ascertainable from the fact whether or not VAT is payable or paid.

  • Board’s letter F. No. 137/120/2008-CX 4, dated 23-10-2008, [issued from File C. No. IV/16/6/2009-STU]/Trade Notice No. 12/2009, dated 13-3-2009, Madurai Commissionerate

 

Supply of tangible goods including machinery, equipments and appliance for use, without transferring right of possession and effective control of such tangible goods is a taxable service in terms of provision of section 65(105)(zzzzj) of the Finance Act, 1994. In some cases, vehicles, aircrafts, vessels etc., are also supplied in the above manner and such activities also fall under the said taxable service. In this regard, a doubt has arisen whether the credit of excise duty/Additional duty of Customs (commonly known as CVD) paid on such items are available to the provider of such taxable service and if so whether such goods should be considered as’ inputs’ or ‘capital goods’, for the purposes of the CENVAT Credit Rules, 2004.

  1. The matter has been examined. It is possible that some of such goods may either fall within the definition of ‘capital goods’ or may not be covered under the said definition. However, as these goods are primary requirements for providing the above-mentioned ‘output services’ for such service providers, the goods including vehicles, aircrafts, vessels etc., are in the nature of’ inputs’. It is emphasized here that this clarification is valid only when the output service is in the nature of service defined under the provisions of section 65(105)(zzzzj) of the Finance Act, 1994and the goods in question are the tangible goods supplied during the course of providing the taxable service.

3.     This may be brought to the notice of all constituent members of your trade associations.

 

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