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Presentation on theme: "© 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG."— Presentation transcript:

1 © 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 0 AICAS – 4 th Service tax Workshop Supply of tangible goods: Service tax v. VAT implications July 2011

2 © 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 1 1 Contents 2 1 Service tax implications on supply of tangible goods VAT implications on supply of tangible goods 3 Conclusion

3 © 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 2 VAT Implications

4 © 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 3 VAT implications on supply of tangible goods  State Legislature to impose sales tax on the sale and purchase of goods emanates from entry 54 of List II of the Seventh Schedule to the Constitution of India.  By the 46th Amendment to the Constitution of India (dated 2 February 1983), clause (29A) was inserted in Article 366 of Constitution of India whereby scope and ambit of "tax on sale and purchase of goods" was widened and a tax on the transfer of the right to use goods was included within the purview of the meaning of sale and purchase of goods.  After the 46th Amendment of the Constitution came into effect, State legislators amended their respective sales tax laws (now Value Added tax-VAT) to include sales tax on “ transfer of right to use goods”. However, the Central Sales Tax Act, 1956 (CST Act, 1956) was amended with effect from 11 May 2002.  In light of above, a transaction entailing sale of movable goods is generally chargeable to VAT and includes a transaction involving ‘transfer of right to use’ such goods.  In order to determine whether an arrangement is chargeable to VAT or not, it is important to analyze whether the arrangement contemplates a transfer of right to use the goods.  The key test applied by the Courts in determining whether a transaction would qualify as transfer of right to use goods is whether or not there is transfer of effective control, custody and possession of the goods from the lessor to the lessee.  The landmark judgment of Bharat Sanchar Nigam Ltd. v. Union of India [2006] 3 STT 245, the apex court laid down essential attributes which are imperative for a transaction to constitute transfer of right under VAT:

5 © 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 4 VAT implications on supply of tangible goods (Contd..) -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 a 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 of 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 right to use the goods during the period for which it is to be transferred, the owner cannot again transfer the same rights to others  Basis the above, in general, for a transaction to qualify as a transfer of right to use goods, all of the above mentioned conditions should cumulatively stand satisfied; thereby implying that effective control and possession of the goods would stand transferred from the transferor to the transferee. However, precise facts of each case would become relevant in determining the taxability

6 © 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 5 Key Judicial Precedents Rashtriya Ispat Nigam Ltd 2002-(126)-STC-0114-SC: FactsThe petitioner supplied machinery to a works contractor for the purpose of executing the works contract of the petitioner and received hire charges for this. The department’s contended that since machinery was in possession of the contractor, there is transfer of right to use machinery from the petitioner to contractor and hence the transaction should be subject to sales tax. HeldThe effective control of machinery even while the machinery was in use with the contractor was that of the petitioner and the machinery could only be used by the contractor for the said work of the petitioner and could not be used by the contractor for any other purpose at its will. The condition that contractor would be liable for the machinery during the period of the execution of the works contract does not prove that the possession and control of machinery was not with the petitioner. Delivery of possession of a thing must be distinguished from its custody. It is not uncommon to find the transferee of goods in possession while transferor has custody. Accordingly, the transaction does not involve transfer of right to use the machinery in favour of the contractor and therefore Sales tax not applicable on the transaction. VAT implications on supply of tangible goods (Contd..)

7 © 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 6 VAT implications on supply of tangible goods (Contd..) CST v. Rolta Computer & Industries Pvt. Ltd. – (2009) 25 VST 322 (Bom) FactsRespondents had an agreement with ONGC to process their quotation inventory and financial accounting applications. In this case, at no point of time physical possession or effective control of computers was given to ONGC since the employees of ONGC would come to the office of the respondents to get their work done and at all times the computers were operated by the employees of the respondent. It was held by the Tribunal that the since the computers were never delivered to ONGC, such transaction would not be taxable as ‘sale’. It was contended by the department that as soon as ONGC is allowed to use the terminal, transfer of right to use to the computer starts and it continues till the use of the terminal is continued and therefore it attracts the sales tax. HeldHeld that since ONGC was never given constructive possession of the computers and the transaction was nothing more than a service contract whereby certain services were provided by the respondents to ONGC. the transaction is not taxable under VAT.

8 © 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 7 HLS Asia Limited v. State of Assam (2007) 8 VST 314 FactsThe appellant entered into a contract with OIL for carrying out wire-line logging and perforation activities by utilizing its own high tech equipment. It was contended that the equipment remained in absolute possession of the appellant-company and used by it to provide the required data and other professional services. The equipment was operated by utilizing the services of highly technically qualified and experienced personnel of the appellant-company. It was categorically pleaded that the appellant-company used its own equipment, which were never handed over to OIL. HeldBasis the term of agreement between parties, it was observed that the equipments supplied by petitioner were exclusively meant for use of OIL on payment of charges and After having placed the equipment on site, the petitioner was not entitled to use it for any other purpose or to withdraw the same at its own sweet will The operation was subject to inspection and supervision of OIL and that there was clear element of implied possession with OIL and accordingly amounted to lease subject to sales tax.* *Although the subsequent appeal w.r.t. the order of the Guwahati High Court was dismissed by the Supreme Court for lack of factual adjudication, the principle emanating out of the said judgment may still hold relevance. VAT implications on supply of tangible goods (Contd..)

9 © 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 8 VAT implications on supply of tangible goods (Contd..) Onaway Engineering Pvt Ltd. Vs. State of A.P. [2006] 146 STC 0634 FactsThe petitioner operated a crane for Hindustan Shipyard Limited (HSL) for which it received a consideration which was inclusive of fuel, lubrication, operation and maintenance of cranes. The department assessed the petitioner on the basis of the said receipts under Section 5-E of the Andhra Pradesh General Sales Tax Act, 1957 which provides for levy of tax on the amounts received in respect of transfer of right to use goods which is a deemed sale. HeldThe Court relied on the decisions given in the case of Rashtriya Ispat Nigam Ltd. v. Commercial Tax Officer, Company Circle, Visakkapatnam and 20th Century Finance Corpn. Ltd. v. State of Maharashtra. Held, that since the cranes were given on hire and the possession thereof was transferred for utilization by HSL only, transaction would be subject to sales tax Peerless Shipping and Oil Field Services Ltd. & Anr. v. State of Assam and Ors. 2006-(ST3)- GJX-0623-GAU FactsThe petitioners were in contract with OIL and ONGC for providing services of crane for drilling equipment. Petitioners contended, inter alia, that such transaction is not taxable as "sale" since the effective control on cranes at all times remained with them.

10 © 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 9 VAT implications on supply of tangible goods (Contd..) Lakshmi Audio Visual Inc., Bangalore and Another v. The Assistant Comm of Commercial Taxes, 17th Circle, Bangalore and Another,(2001) 51 Kar. L.J. 233 (HC) FactsPetitioner carried on the business of hiring audio and visual and multimedia equipments. The customer contacted the petitioner and after assessing the need and availability of the equipment, equipment is transported to the venue. It is installed, operated, dismantled and returned to the petitioner’s office by the petitioner’s employees. HeldThere is merely use of goods to render certain service or to achieve result desired by customers, without parting with possession and control of goods used, hence, there is no transfer of right to use goods; accordingly, these would not be subject to sales tax. Peerless Shipping and Oil Field Services Ltd. & Anr. v. State of Assam and Ors. 2006-(ST3)- GJX-0623-GAU (Contd..) HeldThe court observed that the contract in question clearly disclosed that after the placement of the materials of contract, viz., machinery, vehicles, it is the absolute will and discretion of OIL & ONGC as to how or in what manner those are to be used. Accordingly, it discloses that the transaction in question amounts to transfer of right to use the equipment. Accordingly, due to the jural relationship existing between parties, the transaction amounts to transfer of right to use such equipment and was a taxed under VAT.

11 © 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 10 In nutshell, the condition to qualify as transfer of right to use:  Effective control and possession should be transferred from the Transferor to Transferee  Mere custody without the effective control and possession would not amount to transfer of right to use  The transfer of the right to use entails the transfer of possession, control and rights of beneficial enjoyment while ownership remains with the transferor Applicable Rate on transfer of right to use  VAT generally applicable at scheduled rates for respective goods in terms of State VAT laws  Concessional CST applicable at 2% against statutory declaration in Form C Criteria for export/ import  Where transfer of right to use goods takes place in course of export, no tax applicable  Where transfer of right to use takes place in course of import, no tax applicable VAT implications on supply of tangible goods (Contd..)

12 © 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 11 Situs of Sale:  In a Lease transaction while the right to use the asset may be transferred, the ownership of asset may or may not get transferred from the Lessor to the Lessee  The taxable event is transfer in law of right to use the goods  Therefore, to determine the situs of sale what would be relevant: -situs of contract which has the effect of transferring the right to use the goods or the -location of the goods VAT implications on supply of tangible goods (Contd..)

13 © 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 12 20th Century Finance Corporation Limited v. State of Maharashtra 2000-(ST3)-GJX-0121-SC :  Merely because the goods are located or delivery of which has been effected for use within the State, it would not necessarily be the situs of deemed sale for levy of tax, if the transfer of right to use has taken place in some other state  The delivery of goods may be one of the element of transfer of right to use but the same would not be condition precedent for the contract of right to use the goods  The taxable event is the transfer of right to use the goods regardless of when and where the goods are delivered for use  The goods are not required to be left with the transferee, all that is required is the transfer of right to use the goods. What is required is that the goods should be in existence so that they may be used and the contract in respect thereof is executed  If the goods are in existence, the transfer of right to use takes place when the contract in respect thereof is executed. As soon as the contract is executed, the right is vested in the lessee. The situs of taxable event of such event would be the transfer which legally transfers the right  The transfer will be completed where the contract is executed and the control / domain of goods which are the subject matter of contract, is given to hirer VAT implications on supply of tangible goods (Contd..)

14 © 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 13 Section 4 of CST Act, 1956 (as it stood on 11.05. 2002) When is a sale or purchase of goods said to take place outside a State (1) Subject to the provisions contained in Section 3, when a sale or purchase of goods is determined in accordance with sub-section (2) to take place inside a State, such sale or purchase shall be deemed to have taken place outside all other States. (2) A sale or purchase of goods shall be deemed to take place inside a State if the goods are within the State - (a) in the case of specific or ascertained goods, at the time the contract of sale is made; and (b) in the case of unascertained or future goods, at the time of their appropriation to the contract of sale by the seller or by the buyer, whether assent of the other party is prior or subsequent to such appropriation. Explanation - Where there is a single contract of sale or purchase of goods situated at more places than one, the provisions of this sub-section shall apply as if there were separate contracts in respect of the goods at each of such places.” VAT implications on supply of tangible goods (Contd..)

15 © 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 14 Prior to 11-5-2002 - Situs of Sale (As per 20th Century Finance judgment):  Goods are ascertained– -Situs of sale would be place where contract is executed and not where goods are located  Goods are not ascertained- -Situs of sale would be location where the delivery of goods is made Post 11-5-2002 - Situs of Sale (As per Section 4 of CST Act, 1956):  Goods are ascertained– -Situs of sale would be where the goods are located at the time of execution of contract  Goods are not ascertained -Situs of sale would be the place where the goods are appropriated VAT implications on supply of tangible goods (Contd..)

16 © 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15 Illustrations: For ascertained goods Lessor ( Mumbai) Contract executed in Mumbai Lessee (Hirer) Delhi Car is in West Bengal  The keys of the car are handed over in Mumbai  At the instruction of the Lessor the car is moving from WB to Delhi  The said deemed sale occasions the movement of goods from WB to Delhi Position prior to 11-5-2002 based on 20th Century Finance – Taxable event (ascertained goods):  As the contract is executed in Mumbai and the control of the car is given in Mumbai by handing over the keys, situs of sale arises at Maharashtra Position post 11-5-2002 as per Section 4 of CST Act, 1956– Taxable event (ascertained goods):  As the goods are placed in West Bengal at the time of execution of the contract, situs of sale arises at West Bengal VAT implications on supply of tangible goods (Contd..)

17 © 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 16 Illustrations: For unascertained goods  Contract executed with a clause to deliver the car after 3 months  The car is not in existence on the date of execution of contract  Based on instruction of the Lessor, manufacturer manufactures car and the key of the car is handed over to the hirer along with details of the car (e.g. engine no., chassis no. etc.) in Delhi Position prior to 11-5-2002 based on 20th Century Finance – Taxable event (ascertained goods):  Sale of car from manufacturer to Lessor is complete when car delivered to Lessor or at his instruction to the Lessee  As car is delivered to the Lessee in Delhi, situs of sale arises at Delhi Position post 11-5-2002 as per Section 4 of CST Act, 1956– Taxable event (ascertained goods):  As the appropriation of the car takes place in Delhi, the situs of sale would be Delhi VAT implications on supply of tangible goods (Contd..) Lessor ( Mumbai) Contract executed in Mumbai Lessee (Hirer) Delhi Manufacturer of Car is in West Bengal

18 © 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 17 Service Tax Implications

19 © 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 18  In many cases, equipment/machinery is of highly technical nature and operation of same requires special skill and experience and in such cases, control and possession is not transferred to user.  Supply of tangible goods without transferring effective control and possession does not qualify as a deemed sale under VAT laws but qualifies as a service, liable to service tax under taxable category of ‘Supply of tangible goods service’. The same has been brought under Service tax net wef 16 May 2008  In terms of Section 65(105)(zzzzj), the taxable service category of ‘Supply of tangible goods service’ intends to levy Service tax on service 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 equipment, machinery and appliances.  Therefore, a transaction of allowing another person to use the goods, without giving legal right of possession and effective control, not being deemed sale of goods is treated as service.  Given this, Service tax implications under the aforementioned category would arise on a transaction only in a situation where supply of tangible goods does not entail transfer of right of possession and effective control. Service tax implications on supply of tangible goods

20 © 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 19  Circular No. 334/1/2008-TRU, dated 29-2-2008 issued by the Service Tax Department states that the transfer of right to use goods where effective control and possession is transferred is subject to VAT, whereas a transaction where effective control and possession of the goods remain with service provider would be subject to Service tax. “Transfer of the right to use any goods is leviable to sales tax/VAT as deemed sale of goods. Transfer of right to use involves transfer of both possession and control of the goods to the user of the goods. Excavators, wheel loaders, dump trucks, crawler carriers, cranes, etc., offshore construction 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. Proposal is to levy service tax on such services provided in relation to supply of tangible goods, incl. 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 proposed service. Whether a transaction involves transfer of possession and control is a question of fact and is to be decided based on the terms of contract and other material facts. This could be ascertainable from whether or not VAT is payable/paid.” Service tax implications on supply of tangible goods (Contd..)

21 © 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 20 Service tax implications on supply of tangible goods (Contd..) G.Karunakar Reddy v. Commissioner of Service tax, Hyderabad 2010(20) S.T.R. 352 (Tri-Bang.) FactsAppellant leased out buses to Andhra Pradesh State Road Transport Corporation for transporting passengers under a contract. As per the contract, the appellant would be supplying the buses along with driver, who doubled as conductor when required. The authorities demanded Service tax from the appellants finding that it had rendered ‘business auxiliary service’. HeldThe Bangalore Tribunal found that the activity prima facie involved supply of tangible goods which became taxable after the period of dispute. Accordingly, the pre-deposit was waived by the Tribunal. Infotech Software Dealers Association v. Union of India 2010(20) S.T.R. 289 (Mad.) FactsThe developer of the software keeps back the copyright of software and transfers only the right to use to the end user with copyright protection. HeldTo bring the deemed sale under Article 366 (29A)(d) of the Constitution of India, there must be a transfer of right to use any goods and when the goods as such are not transferred, the question of deeming sale of goods does not arise and in that sense, the transaction would be only a service and not a sale.

22 © 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 21 Lease Transactions - Supply of tangible goods service :  The factors determining whether effective control and possession of assets rests with the service provider and has not been transferred to customer includes: -Goods are under direction and control of the service provider -Goods may not be delivered to the customer and continue to be in possession of Service provider -Goods are only allowed to be used for limited purposes by the recipient of services -Service provider is absolutely free to determine the manner of use of the assets -Service provider can change/remove the respective assets (if so required) -Goods cannot be diverted/replaced by the recipient of services for any other project and location -Service receiver is not free to make use of the goods for other works or move them out during the period they are in use Mere custody of goods is not relevant in determining the taxability of the transaction Service tax implications on supply of tangible goods (Contd..)

23 © 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 22 Applicable Rate  Service tax applicable at current rate of 10.3% on the gross amount charged in relation to ‘Supply of tangible goods service’ where the aggregate value of taxable service exceeds INR 10 lakhs Criteria for export of such services  Where such service is provided to a recipient located outside India, then such taxable service shall be treated as ‘export’ of taxable service subject to the condition that the tangible goods supplied for use are located outside India during the period of use of such tangible goods by a recipient located outside India  Where the above criteria is fulfilled, no Service tax is applicable on the Indian Service provider Criteria for import of such services  Where such service is provided to a recipient located in India, then such taxable service shall be treated as ‘import’ of taxable service subject to the condition that the tangible goods supplied for use are located in India during the period of use of such tangible goods by such recipient  Where the above criteria is fulfilled, Service tax is applicable on the Indian Service recipient Service tax implications on supply of tangible goods (Contd..)

24 © 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 23 Conclusion- Key indicators for transfer of right to use: VAT v. Service Tax Contractual terms Effective control & possession Identification and delivery Exclusivity of use

25 © 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 24 Presenter’s contact details Krishan Arora Associate Director KPMG Phone number: +91 124 307 5191 Email: karora@kpmg.com www.in.kpmg.com The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. THANK YOU

26 © 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 25 Annexures

27 © 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 26 VAT implications on supply of tangible goods (Contd..) Article 366(29A) of the Constitution of India “tax on the sale or purchase of goods’ includes (a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; (b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; (c) a tax on the delivery of goods on hire-purchase or any system of payment by instalments; (d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made.”

28 © 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 27 Illustrative extract under VAT laws - Section 2(24) of MVAT Act, 2002 defines ‘sale’ as follows :  "sale" means a sale of goods made within the State for cash or deferred payment or other valuable consideration, but does not include a mortgage, hypothecation, charge or pledge; Explanation.- For the purposes of this clause, - (a) a sale within the State includes a sale determined to be inside the State in accordance with the principles formulated in section 4 of the Central Sales Tax Act, 1956 (74 of 1956); (b) (i) ………; (iii) a delivery of goods on hire-purchase or any system of payment by instalments; (iv) the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; Relevant extract under CST laws: Section 2(g) of CST Act, 1956 defines ‘sale’ as follows :  Sale, with its grammatical variations and cognate expressions, means any transfer of property in goods by one person to another for cash or for deferred payment or for any other valuable consideration, and includes (i) ……….; …….; VAT implications on supply of tangible goods (Contd..)

29 © 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 28 (ii) … (iii) a delivery of goods on hire purchase or any system of payment by installments; (iv) a transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; …. but does not include a mortgage or hypothecation of or a charge or pledge on goods. VAT implications on supply of tangible goods (Contd..)


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