Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
 
 
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
 
 
 
 
Popular Search: cpt :: due date for vat payment :: empanelment :: articles on VAT and GST in India :: TAX RATES - GOODS TAXABLE @ 4% :: VAT Audit :: ACCOUNTING STANDARD :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: form 3cd :: list of goods taxed at 4% :: TDS :: Central Excise rule to resale the machines to a new company :: ARTICLES ON INPUT TAX CREDIT IN VAT :: VAT RATES :: ACCOUNTING STANDARDS
 
 
Service Tax »
 IT infrastructure firm of GST under scrutiny for tax evasion
 GST council OKs draft law on relief to states
 GST Network gets notice for avoiding service tax
 GSTN contract may attract tax
 GST Council may discuss tax rate on gold at Udaipur meet
 Govt may rework indirect tax estimates mid-way after GST
 GST Council meeting: States allowed to tweak taxpayer division after consulting Centre
 Government may rework indirect tax maths mid-way after GST entry
 Govt may rework indirect tax mid-way after GST entry
 GST rollout will reduce disparity among states
 GST: E-tailers oppose tax laws

Service Tax Or VAT The Dilemma Continues
December, 13th 2013

By: Anjlika Chopra, Director, Deloitte Touche Tohmatsu India
When the law makers introduced the concept of deemed sale, little did they realize that, they have opened a Pandora’s box! Amongst various matters dealt with on a regular basis, supply of tangible goods on a ‘right to use’ basis frequently invites trouble. It is amazing to witness that, even after decades of introduction of the concept of ‘deemed sale’, coupled with approximately two decades on service tax law, industry is still struggling to ascertain which division of the Exchequer should get the revenue: service tax or VAT. Or whether the right conferred would be a State or a Central subject.

The key phrases are ‘effective control’ and ‘possession’. Levy of service tax on such supply was introduced in 2008, to bring under the scanner, transactions which involve supply of tangible goods, such as, excavators, high value machinery, etc. for use, with no legal right of possession and effective control, to the hirer. To rephrase, where such hiring arrangement involves transfer of effective control and possession, pay VAT, else, service tax. But, alas, the practical world is not that simple. The law makers did not oblige us by defining ‘effective control’ and ‘possession’. The interpretation of this terminology was left open for the industry and revenue authorities. Simultaneously, the role of judiciary was confined, since, each case has to be decided on peculiar facts and circumstances. Nonetheless, the judicial precedents have provided certain benchmarks for us to follow.

The one, leading the frontier is the Apex Court’s judgment, in the case of Bharat Sanchar Nigam Ltd. of 2006, which provided some specific guidelines to ascertain whether or not a transaction involves a transfer of right to use. Various other pronouncements, including HLS Asia, in 2003 and 2007, RashtriyaIspat Nigam, in 1990, have highlighted distinguishing attributes of ‘effective control’, each providing a distinct parameter to structure a transaction. For instance, ascertainment of goods taken on hire, exclusivity of goods to others, legal rights and obligations arising in relation to those goods for the supplier and hirer, ownership of risk and rewards, intention of the parties, each attribute holding its own ground.

In this regard, it is relevant to highlight a recent decision by the Hon’ble Delhi Tribunal, in the case of Petronet LNG. The issue involved was similar; assessee hired LNG tankers from a consortium of ship owners, for a period of 25 years. The service tax department contended that, the transaction qualified as a service and should attract service tax, on the following grounds:

- All the statutory licenses, insurance for the tankers were in the name of the ship owners;
- Right of inspection to Petronet LNG would not detract the authority of owners over the ships; and
- In case the ships are requisitioned by Government, the hire charges paid by Government shall be detained by the owners.
Service tax authorities adopted the view that, the transaction lacked the necessary elements of transfer of possession and control.
However, on a careful analysis of the relevant clauses of the agreement, such as, license in owners’ name, it emerges that, these were merely to facilitate legitimate use of supplied goods; owners were restricted from subsequent sale of ships; the ships were to be operated as per assessee’s directions; further, requisition of ships, by Government would only be in exercise of statutory power, which prevails over any other right. The Delhi Tribunal refuted the department’s case and decided in favor of the assessee.

The above decision brought to light another important aspect, of location of goods. The erstwhile service tax import rules provided for levy of service tax under reverse charge, only where the goods given on hire were located in India during the entire period of rendition of service. Post replacement of the erstwhile service tax import rules, by the Place of Provision of Services Rules, 2012, the reverse charge implications could be different. For example, in case the hiring transaction of a means of transportation is for a period of one month, the place of provision of service would be the location of the service provider in terms of Rule 9, which in such a case, would be outside India and thus no service tax implications would arise. However, for a longer duration of hiring, Rule 3 would assume relevance and the location of the service recipient would determine the place of provision of service, resulting in taxability under reverse charge. Moreover, as per CBEC’s Education Guide, cryogenic vessels could be classifiable as ‘containers used to store or carry goods while being transported’ and therefore not a ‘means of transportation’ in which case Rule 3 and not Rule 9 would be applicable. As is apparent, such related additional issues could continue to vex the industry and there is a dire need for the law makers to put a lid on the Pandora’s box.

 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2017 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Binarysoft Technologies - Our Team

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions