Transfer of goods by way of hiring, leasing, licensing or in any other manner - Service Tax Practice Manual / Ready Reckoner - Service Tax

Chapter 6 Transfer of goods by way of hiring, leasing, licensing or in any other manner Effective date: 1.7.2012 Scope of Declared Service - Section 66E (f) Transfer of goods by way of hiring, leasing, licensing or in any such manner without transfer of right to use such goods. Analysis: State governments do not have any power to tax a transaction where there is no transfer of right of possession and effective control to the other party. There are so many transactions in which only use of goods are permitted to other party while control remains with the owner of goods. For example cranes hired on rent, in which only use of cranes are permitted to other party while control is with owner of cranes. To cover these transactions, this service tax entry introduced. Without transfer of right to use such goods: Transfer of right to use such goods involves transfer of possession and effective control over such goods. In this entry those cases where possession and control has transferred to other party are not covered. For example transfer of an air conditioner, in which both possession and control transferred to other party. Clarification by the Board (Taxation Guide - Guidance Note -6 - Exemptions dated 20.06.2012) 6.6.1 What is the meaning and scope of the phrase transfer of right to use such goods Transfer of right to use goods is a well-recognized constitutional and legal concept. Every transfer of goods on lease, license or hiring basis does not result in transfer of right to use goods. Transfer of right of goods involves transfer of possession and effective control over such goods in terms of the judgment of the Supreme Court in the case of State of Andhra Pradesh vs Rashtriya Ispat Nigam Ltd [2002 (3) TMI 705 - SUPREME COURT OF INDIA]. Transfer of custody along with permission to use or enjoy such goods, per se, does not lead to transfer of possession and effective control. The test lay down by the Supreme Court in the case of Bharat Sanchar Nigam Limited vs Union of India [2006 (3) TMI 1 - Supreme court] to determine whether a transaction involves transfer of right to use goods, which has been followed by the Supreme Court and various High Courts, is as follows: 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. Whether a transaction amounts to transfer of right or not cannot be determined with reference to a particular word or clause in the agreement. The agreement has to be read as a whole, to determine the nature of the transaction. 6.6.2 Whether the transactions listed in column 1 of the table below involve transfer of right to use goods? S. no. Nature of transaction Whether transaction involves transfer of right to use 1 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 Right to use in not transferred as the car owner retains the permission and license relating to the cab. Therefor possession and effective control remains with the owner. 2 Supply of equipment s like excavators, wheel loaders, dump trucks, cranes etc. for use in a particular project have 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 after a specified time, maintenance and upkeep of such equipment. The transaction will not involve transfer of right to use such equipment as in terms of the agreement the possession and effective control over such equipment has not been transferred. 3 Hiring of bank lockers No, as possession of the locker is not transferred to the hirer even though the contents of the locker would be in possession of the hirer. 4 Hiring out of vehicles where it is the responsibilities of the owner to abide by all the laws relating to motor vehicles No 5 Hiring of audio visual equipment where risk is of the owner No