Characterizing ‘Hire Purchase’ as Supply of ‘Goods’ versus ‘Services’ : Reflections from the European Court of Justice

In a recent decision the European Court of Justice (‘ECJ') had a chance to examine characterization of a hire-purchase transaction as being one of the supply of ‘goods' or ‘services'. In this decision the ECJ has adverted to the innate nature of the hire-purchase transactions and the peculiar factual position before it to opine that in the context of European VAT regulations a transaction is a supply of ‘goods' only if the agreement stipulates for passing of a property upon the conclusion of the installment system without there being a substantial additional amount payable at the end of the installments. To arrive at this conclusion the ECJ has adverted to a number of aspects peculiar to leasing activity and enumerated the tests to determine the characterization of the supply. Inasmuch as the rules relating to such characterization under the GST legislations in India are very closely aligned to the European VAT regulations, this decision presents interesting insights on the likely interpretation issues which may arise in the context of the GST regime