Summary
Hiring vehicles, cranes and trailers does not amount to a deemed sale merely because the customer may use them. Under the contracts considered, the contractors retained control and responsibility for the equipment and its operation, so the right to use the goods was not transferred and the transactions were not taxable as sales under the Assam sales-tax and VAT laws.
Issues
- Whether contracts for the provision or hiring of cranes, trucks, tankers, trailers and other vehicles transferred the right to use goods within Article 366(29A)(d) of the Constitution and the Assam VAT Act.
- What features distinguish a transfer of the right to use goods from a contract that merely permits their use or provides a service using them.
- Whether the Union could pursue service-tax recovery for transactions falling within Section 65(105)(zzzzj) of the Finance Act, 1994.
Provisions considered
- Article 366(29A)(d), Constitution of IndiaA deemed sale requires transfer of the right to use goods for consideration. Permission to use goods is not enough. Applying the five attributes identified in BSNL, the Court found that the contracts did not give the hirers the legally exclusive right and control required for such a transfer. (¶¶ 2, 20, 26, 28, 30, 31, 32, 33, 35, 36, 38, 40, 42, 44)
- Section 2(43)(iv), Assam Value Added Tax Act, 2003The inclusive definition of sale covers a transfer of the right to use goods. Because the contracts did not transfer that right, the transactions did not constitute sales under this provision. (¶¶ 21, 26, 44)
- Section 2(33), definition of sale, Assam General Sales Tax Act, 1993The Act’s definition required transfer of property in goods. The Court held that the contracts did not transfer the right to use the equipment and were not sales under the relevant sales-tax provisions. (¶¶ 21, 26, 44)
- Section 65(105)(zzzzj), Finance Act, 1994After this provision came into force, service in relation to supplying tangible goods for use without transferring possession and effective control was a taxable service. Where the contractor retained substantial control, the transaction was a service; the Union was left free to pursue recovery in accordance with law. (¶¶ 41, 42, 44)
Held
- A transfer of the right to use goods under Article 366(29A)(d) requires: goods available for delivery; agreement on the identity of the goods; a legal right in the transferee to use them and bear the legal consequences of that use; exclusion of the transferor during the period of the right; and the transferor’s inability to transfer the same right to another. A contract must be read as a whole to determine whether those attributes are present; mere permission to use goods may instead be a licence or service. (¶¶ 31, 32, 33)
- Under the crane contracts, the contractors supplied and controlled the operating crew, maintained and fueled the cranes, could replace equipment, bore accident and third-party liabilities, and retained responsibility for the equipment. ONGC therefore received permissive use as part of a crane service, not a transfer of the right to use the cranes. The same conclusion applied to the materially similar truck-mounted crane contracts. (¶¶ 34, 35, 36)
- The trailer contract left the contractor in control of the trailers, including responsibility for the driver, parking, indemnity and insurance. The IOCL tank-truck contracts likewise left operation, maintenance, costs, custody and delivery responsibility with the contractors. Neither category transferred the right to use the vehicles to the customer; the contracts were for services using the vehicles. (¶¶ 37, 38, 39, 40)
- Where substantial control of the supplied vehicles or equipment remains with the contractor, the transaction is not a transfer of the right to use the goods. For the period governed by Section 65(105)(zzzzj) of the Finance Act, such a supply without transfer of possession and effective control falls within the described taxable service; the Court did not determine any service-tax recovery amount. (¶¶ 41, 42, 44)
Result
The appeals preferred by the assessees were allowed; the contracts were held not to transfer the right to use the goods or fall within the relevant sales-tax and VAT provisions. The Union’s appeal was disposed of, with liberty to initiate service-tax recovery proceedings in accordance with law. No order as to costs.