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September 2016

Service Tax Liability in case of hiring of goods without the transfer of right to use goods

By Tarun Ghia Pratik Mehta
Brijesh Cholera
Chartered Accountants
Reading Time 1 mins
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Circular No. 198/8/2016 dated 17 08 2016

Transfer of Right to use goods for cash, deferred payment or valuable consideration is considered as deemed sales under sub-clause (d) of Article 366(29A) of Constitution of India and consequently liable to Sales Tax/VAT. Whereas 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.

The CBEC, vide this Circular has clarified the issue of applicability of service tax on hiring of goods without transfer of right to use of goods in line with the criteria laid down by the Hon’ble Supreme Court in BSNL case.

CBEC has clarified that whether a transaction is a transfer of the right to use the goods or a service is essentially a question of fact which has to be determined in each case having regard to the terms of the contract. The transfer of effective control and possession of the goods in each case is important in determining whether it is a deemed sale or service.

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