GST Tax Rate for Rental/Leasing of Industrial Equipment with Operators

In re Ventair Engineers (GST AAR Telangana)

Ventair Engineers gets clarity from GST AAR Telangana on tax rates for industrial equipment leasing. Detailed analysis of HSN codes and applicable rates.

Introduction: The Authority for Advance Ruling (AAR) in Telangana has recently provided clarity on the applicable GST tax rate for the rental or leasing charges of industrial equipment with operators in the case of Ventair Engineers. This ruling addresses concerns raised by the applicant regarding potential conflicts in tax rates and provides a comprehensive analysis based on the relevant provisions.

Background: Ventair Engineers, engaged in the manufacture of machinery and equipment, sought an advance ruling on the GST tax rate applicable to the rental or leasing charges for industrial equipment provided with operators. The applicant faced objections from customers, specifically the Naval Dock Yard in Visakhapatnam, regarding the uniform application of an 18% GST rate on all varieties of industrial equipment.

Key Questions Addressed: The primary question posed to the AAR was the applicable GST tax rate on rental or leasing charges for industrial equipment falling under specific HSN codes (84151090, 84798920, 84145930).

Analysis of the Ruling:

1. HSN Code Analysis:

• 84151090: This code covers air-conditioning machines, and the applicable rate of tax is 14% each under CGST and SGST.
• 84798920: Pertains to air humidifiers or dehumidifiers and attracts a combined GST rate of 6% (CGST 6% + SGST 6%).
• 84145930: Involves industrial fans with an electric motor exceeding 125 W, falling under a GST rate of 9% each (CGST 9% + SGST 9%).

2. Classification under GST Notification: The AAR referred to Notification 11/2017, emphasizing sub-entry (viia) of entry 17, which deals with leasing or renting of goods with operators. The ruling clarified that the applicant’s services fall under this category, and the tax rate is the same as applicable on the supply of such goods.

3. Applicable GST Tax Rates:

• 84151090: CGST 14% + SGST 14%
• 84798920: CGST 6% + SGST 6%
• 84145930: CGST 9% + SGST 9%

Conclusion: The AAR, through a thorough analysis of the HSN codes and relevant GST notifications, ruled that the applicable tax rates for the rental or leasing services provided by Ventair Engineers are based on the rates applicable to the supply of similar goods. This clarification is expected to resolve conflicts raised by customers and provide a clear understanding of the GST implications for industrial equipment leasing with operators.

Impact and Significance: The ruling not only addresses the concerns of Ventair Engineers but also sets a precedent for similar cases in the industry. It emphasizes the importance of aligning GST tax rates on leasing services with the rates applicable to the supply of corresponding goods. This clarity is crucial for businesses engaged in leasing industrial equipment, providing them with a clear framework for GST compliance and avoiding disputes with customers over tax rates.

FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, TELANGANA 

1. M/s. Ventair Engineers, 1st Floor, 15-19-1/45/A/1, Plot No.45, Teachers Co Operative Housing Society, Balaji Nagar, Khammam, Telangana-507002 (36ATWPR2686Q1Z9) has filed an application in FORM GST ARA-01 under Section 97(1) of TGST Act, 2017 read with Rule 104 of CGST/TGST Rules.

2. At the outset, it is made clear that the provisions of both the CGST Act and the TGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to any dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the TGST Act. Further, for the purposes of this Advance Ruling, the expression ‘GST Act’ would be a common reference to both CGST Act and TGST Act.

3. It is observed that the queries raised by the applicant fall within the ambit of Section 97 of the GST ACT. The Applicant enclosed copies of challans as proof of payment of Rs. 5,000/- under SGST and Rs. 5,000/- under CGST towards the fee for Advance Ruling. The Applicant has declared that the questions raised in the application have neither been decided nor are pending before any authority under any provisions of the CGST/TGST Act’2017. The application is, therefore, admitted after examining it and the records called for and after hearing the applicant as per section 98(2) of TGST Act’2017.

4. BRIEF FACTS OF THE CASE:

4.1 M/s. Ventair Engineers have submitted that they are providing Industrial Equipment falling under HSN Codes: 84151090, 84798920, 84145930 on Rent/Leasing with Operators and are charging GST tax at the same rate as applicable for such new equipment sales according to equipment’s HSN code which is provided on Rent/Lease.

4.2 According to the applicant objections are being raised by few customers on Rate of Tax on Rent/Lease with operator being charged, as customer’s claim the applicable tax rate is uniform at 18% on all variety of industrial equipment and not according to the tax rate applicable on such new equipment’s sales according to HSN code resulting in conflict and losing business.

4.3 According to the applicant the Naval Dock Yard, Visakhapatnam raised objection on applicability of tax rate on Equipment (HSN Code: 84151090) Rent/Leasing with Operator as 18% and not according to the GST tax rate of 28% applicable on sale of new equipment according to the HSN Code: 84151090. Navel Dock Yard has released a conditional order as they are not accepting to the GST tax rate applicable according to HSN code, stating as GST tax shall be paid only after obtaining the clarifications from the competent authority in writing on applicability of GST Tax rate on Industrial Equipment HSN Code: 84151090 Rent/Leasing with operator and also furtherance of continuation of rent/lease order for the entire rate contract period.

4.4 Company Background:

The major activity of the applicant M/s. Ventair Engineers is Manufacture of machinery and equipment and is primarily engaged in the Manufacture of refrigerating or freezing equipment for industrial use. It has its unit situated at Khammam, Telangana.

5. QUESTIONS RAISED:

1. Applicable GST Tax Rate on Rental / Leasing Charges for Industrial Equipment’s provided with operator falling under HSN Codes: 84151090, 84798920, 84145930

6. PERSONAL HEARING:

The Authorized representatives of the unit namely Sri. R.T.R.N. Bhan Sing, Manager & Sri Shanker, Accounts & authorized representative attended the personal hearing held on 24.05.2023. The authorized representatives reiterated their averments in the application. Further, the Authorised Representative/Applicant M/s. Ventair Engineers, Khammam, reiterated that their case /Similar Case is not pending in any proceedings in the applicant’s case under any of the provision of the Act and have not already decided in any proceedings in the applicant’s case under any of the provisions of the Act.

7. DISCUSSION & FINDINGS:

7.1 The applicant sought clarification on the applicable GST Tax Rate on Rental / Leasing Charges for Industrial Equipment’s provided with operator falling under HSN Codes: 84151090, 84798920, 84145930.

7.2 Renting & Leasing services are given under section 7 of Notification 11/2017, as amended upto 18-07-2022. The entry at serial No. 17 enumerates heading 9973 & the service description for leasing or renting of goods is enumerated at (vii a) & (viii) as follows:

As seen from the above the sub entry (viii) which enumerates Leasing or renting of Goods without operator attracts a rate of tax of 9% CGST & 9% SGST, therefore in the present case the service wherein the applicant is supplying goods along with an operator does not fall under this classification. Therefore this services will fall under sub entry (viii a) where Leasing or renting of goods in enumerated without reference to operator. Under this entry the rate of tax is same as rate of central tax and state tax as applicable on supply of goods involved.

7.3 The rate of tax of supply of goods involved in supply of service discussed above are elaborated as under:

(i) HSN Code 84151090 the question raised by the applicant is basing on the issue is verified with the Heading 8415 reads as below as schedule IV of notification 1/2017, dated.28.06.2017 which was amended from time to time which are taxable @14% Each under CGST and SGST.

8415 Air-conditioning machines, comprising a motor-driven fan and elements for changing the temperature and humidity, including those machines in which the humidity cannot be separately regulated.

841510 Of A Kind Designed To Be Fixed To A Window, Wall, Ceiling Or Floor, Self-Contained Or “Split-System”

84151010 “Split-System”

84151090 Other

(ii) The Heading 8414 reads as below:

8414 Air or vacuum pumps, air or other gas compressors and fans; ventilating or recycling hoods incorporating a fan, whether or not fitted with filters; Gas­tight biological safety cabinets, whether or not fitted with filters [other than bicycle pumps, other hand pumps and parts of air or vacuum pumps and compressors of bicycle pumps.

The applicant supplies Industrial Equipment which falls under HSN Code 84145930. That the electric motor of these fans have an output exceeding 125 W. These fans are Industrial fans and attracting HSN 84145930. These industrial fans are liable to CGST at 9% vide Sr no. 317B to Schedule III of notification 1/2017, dated.28.06.2017.

(iii) The Heading 8479 reads as below:

8479 Machines and mechanical appliances having individual functions, not specified or included elsewhere in this Chapter [other than Composting Machines.

8479 89 20 Air humidifiers or dehumidifiers (other than those falling under heading 8415 or 8424)

As per the notification 1/2017, dated.28.06.2017 which is amended from time to time at Schedule – II with S. No:201, the applicable Rate of Tax is 6 % CGST.

8. In view of the foregoing, we rule as follows: