Taxes on machinery/equipment

Taxes on machinery/equipment

We have 7 Industrial units in Mumbai. We are planning to shift machinery/equipment to one big factory in Vasai, Maharashtra. The new factory in Vasai does not have enough capital to buy the machinery? So I am planning for the new company to rent or hire/purchase(after a year or 2) these machines. If the machines comes with an operator from the old factories will tax be less. What will be the service tax/Vat/other taxes in the following cases
1) Outright sale of machines
2) Machine/equipment given on rent to the new company without operator
3) Machine/equipment given on rent to the new company with operator  
(Is transaction between Mumbai and Vasai considered as interstate?)
Basically I am looking for the cheapest way to reduce work in my existing units by shifting equipment and start work immediately in my new unit which is in a rented place in Vasai.

Asked 8 years ago in Service Tax

Hello Sir,

As per the description provided by you, it appears like you are planning to lease or hire some machineries from one of your company to the other.

1. In case you plan to sell all the assets, that means if you sell all the assets in a block then it will be liable for Short Term Capital Gain.

2. If you the give the Machine on Rent on Lease, then Service Tax will be applicable if the lease rent exceeds Rs. 10 Lacs in one Financial Year and TDS may also be applicable depending upon the status of the lessee.

3. No transaction between Mumbai and Vasai is not considered as Interstate.

Trust this clarifies your query.

Feel free to get back/ call back for any further clarifications.

Thanking You.

Regards,

Rohit R Sharma

BCOM, ACA, LLB - GEN, CERT. FAFP

Rohit R Sharma

CA, Mumbai

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Talk to Rohit R Sharma

Hi,
Thanks for your response
I don't want to sell all my machines in a block. The plan is the if I have 10 machines, it will go part by part to the new company over a period of 2 to 5 years. (Does that have any impact on Capital Gain).
Some of these machines are over 3 years old and some are not. (Does this make any difference in Short Term Capital Gain)
If the new company is under CENVAT, can this service tax be reclaimed against sale of finished goods. I believe part of the rent can also be reclaimed.
I am looking for the most economical way of shifting this machines to start my new factory. Please suggest whatever comes to your mind regarding this.

Asked 8 years ago

Dear Sir,

1. Unless your block is completely sold out it does not have any impact on Capital Gains.

2. Yes, if the new Company is registered under Excise then you can surely claim the CENVAT against the Excise Duty payable.

In my opinion, leasing is a better option than purchasing if you are planning to run both the Firms.

Trust this clarifies your query.

Feel free to get back/ call back for any further clarifications.

Thanking You.

Regards,

Rohit R Sharma

BCOM, ACA, LLB - GEN, CERT. FAFP

Rohit R Sharma

CA, Mumbai

2104 Answers

95 Consultations

5.0 on 5.0

Talk to Rohit R Sharma

Dear Sir,

As you mentioned you have 7 industrial unit and you want to transfer some machines from one unit to another. If the two transacting units are under same legal entity then there will be no tax implications.

If the 2 units are under different legal entities the implications are as follows:

1. In case of sale of depreciable machineries, short term capital gain tax will be payable irrespective of life of the asset.

2. I did not understood with operator and without operator part. But if you wanna give it in rent, service tax will be payble. However that service tax paid by the entity can be claimed as cenvat credit.

3. No, it will not be an interstate transaction.

Looking at the facts, prima facie it seems that lease rental is a good option if the value of capital gain works out to be high. Because, service tax can be claimed as cenvat credit.

Thanks and Regards,

CA Abhishek Dugar