Last updated: February 10th, 2020 3:13 AM

Transfer of Right to use Goods

Transfer of rights to use goods for any purpose, regardless of a time period, whether it is for cash, delayed payment, or valuable objects is generally considered to be “supply of services”. Supply of services would cover important commercial aspects that are based on giving goods on hire and below are major aspects:

• Hiring a movable and immovable property
• Construction of civil structures and their related property for full or partial sale to buyers
• Modification or revamping of civilian building property

On the contrary, hiring without transfer of right to use goods is called a “supply of tangible goods for use”. GST is applicable in this particular context and treated as services. This category includes mostly mechanical equipment from a commercial standpoint.

Exclusive Possession to Transferee

Exclusive possession is meant by transfer of property or other items from a transferer to the particular or concerned transferee. In such a case, it is classified as “transfer of right to use” which is taxable. However, this term cannot be interchanged with “right to use” as it is not taxable. The most important aspect of the possession transfer is a transaction without which transfer is impossible. Transaction pertaining to the transfer of right to use goods to be authenticated, the transaction is supposed to comprise the following attributes:

• Availability of goods necessary for the purpose of delivery
• Mandatory agreement between the parties of a contract they desire to keep and maintain pertaining to the identity of goods
• The legal right of the transferee to utilize goods. The use of all legal matters which includes documentation, permissions, or licenses are to be made necessarily available to the transferee
• During the period of legal rights to use by the transferee, the nature of the transfer of rights to use is maintained, and this is not equivalent to a license to use goods.
• The important fact is that, following the transfer of the right to use goods during the given period, the same rights cannot be transferred to other people by the owner.
• The transaction can be taxed only when the possession of goods and the right to enjoy them freely are duly given for a given period of time. Contrary to that, if the owner keeps control of the possession, then this situation cannot be deemed as “transfer of rights to use goods”.

Meaning of “transfer of right” to use Goods

• The word transfer is often used in the context of the transfer of property, transfer of shares, and transfer of other items, like commodities. This indicates that transferrors lose possession of the goods or property (per), including his/her/their rights to the transferees. This definition is also applicable in “transfer of right to use good” context.
• However, only the transfer of goods alone cannot be deemed as a transfer of rights to use goods. It needs to be used/implemented by the transferee in order to attain the status of the “transfer of right to use good”.
• For better understanding, if goods, like - shuttering materials are supplied by the transferrer to the builders (transferee) for a given time frame to construct a building or civil entities, the transferee is in control of the materials (possession) during that period. Hence, it falls within the scope of “transfer of right” to use.
• From another standpoint, transfer of the right to use, at times, is misinterpreted with “allowed to use”, “permitted to use”, or “right to access”. For instance, if a passenger boards a bus, then the right cannot or is not transferred by the owner to the passenger. In this situation, the passenger is only allowed, permitted, or allowed access to the use of bus from a non-exclusive standpoint.

Taxability of Hiring of Goods

• Goods and Service Tax (GST) needs to be paid if materials or possessions are transferred or not. Hence, previous laws pertaining to Central Sales Tax (CST) Act and State Value Added Tax (VAT) Act are not relevant.
• Home items like - furniture, utensils, mattresses, and machinery are given on a hire basis. After use within a given time frame, they are given back to the owner and charges based on hiring basis are paid. This is so-called “transfer of right to use for consideration”.