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 months ago in Service Tax from Mumbai, Maharashtra
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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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
719 Answers
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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
caabhishekdugar@gmail.com
Abhishek Dugar
CA, Mumbai
766 Answers
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Agreed with Mr.Abhishek Dugar
Shiv Kumar Agarwal
CA, Delhi
195 Answers
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