Issues Involved: 1. Scope of exigibility of sales tax u/s 5-E of the Andhra Pradesh General Sales Tax Act, 1957 on hire charges for machinery. 2. Determination of whether there is a transfer of the right to use the machinery. 3. Validity of the provisional assessment levying tax on hire charges.
Summary:
1. Scope of Exigibility of Sales Tax u/s 5-E: The primary issue in this writ petition is the scope of exigibility of sales tax u/s 5-E of the Andhra Pradesh General Sales Tax Act, 1957, on the hire charges collected by a person on the supply of machinery for execution of work to any contractor. The insertion of clause (29A) in article 366 by the Constitution (Forty-sixth Amendment) Act, 1982, significantly expanded the tax base for sales tax, including the transfer of the right to use any goods for any purpose.
2. Determination of Transfer of Right to Use: The court examined whether the transaction between the petitioner and the contractors involved a transfer of the right to use the machinery. It was noted that the effective control of the machinery remained with the petitioner-company, and the contractor was not free to use the machinery for other works or move it out during the period of use. The court concluded that there was no transfer of the right to use the machinery in favor of the contractor, as the fundamental requirement of section 5-E was absent.
3. Validity of Provisional Assessment: The respondents made a provisional assessment levying tax on the hire charges u/s 5-E of the Act, arguing that the petitioner lent machinery to contractors for use in the execution of project work, thereby attracting tax liability. However, the court found that the transaction did not involve a transfer of the right to use the machinery, making the imposition of sales tax on the hire charges illegal.
Conclusion: The court held that providing machinery to the contractor by the petitioner for the execution of its work does not amount to a transfer of the right to use the machinery. Consequently, the imposition of sales tax on the hire charges of the machinery u/s 5-E of the Act is ultra vires and illegal. The writ petition was allowed, and the parties were directed to bear their own costs.
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