The Central Board of Excise and Customs (CBEC) yesterday issued Circular to its officials regarding service tax liability in case of hiring of goods without the transfer of right to use goods.
The Circular states that representations have been received in respect of section 66E(F) of the Finance Act, 1994 which provides for transfer of any 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 transactions involving the right to use of goods are covered under the Sales Tax/ Value Added Tax. As per Article 366(29A)(d) of the Constitution, the transfer of the right to use any goods for any purpose (whether or not for a specific period), for each, deferred payment or other valuable consideration is deemed to be a sale of those goods by the person making the transfer, delivery or supply is made.
The Board directs all the officials to follow the criteria laid down by the Supreme Court in the case of Bharat Sanchar Nigam Limited’s Case, if it is essential to determine whether there is transfer of use, in terms of the contracts, in matters involving hiring, leasing or licensing of goods.
It is stated that “it is not possible to either give an exhaustive list of illustration or judgments on this issue. Cases decided under the Sales Tax/ Value added Tax legislations have to be considered against the background of those particular legislative provisions and terms of contract in the case.”
The Board further instructed to refer the judgments in Commissioner VAT v. International Travel House Ltd., State Bank of India v. State of Andhra Pradesh, Ahuja Goods Agency v. State of Uttar Pradesh, Lakshmi A.V Inc. v.. Asst Commercial tax Officer, Karnataka and G.S Lamba & Sons v. state of Andhra Pradesh in the above matters. In connection with this, it was stated that “these should not be applied mechanically but their applicability to the facts of a given case, the terms of the Contract in the given case and the criteria laid down by the Supreme Court should be examined carefully.”
Recently, the Bombay High Court in Mahyco Monsanto Biotech (India) Pvt. Ltd and Others Case, held that sub-licensing of technology is a ‘transfer of right to use’ which attracts ‘Service Tax’ which was reported by the Tax Scan. The Court reached to this conclusion by applying the ration of G.S Lamba & Sons case.
Read the full text of the circular below.
