2001 (7) TMI 1253 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the petitioners are "dealers" under the Karnataka Sales Tax Act, 1957.
2. Whether the charges collected for hiring audio/visual equipment are subject to tax u/s 5-C of the Act.
3. Whether the transactions amount to "sale" and are exigible to tax under section 5-C.

Summary:

Issue 1: Definition of "Dealers"
The petitioners contend they are not "dealers" within the meaning of the Karnataka Sales Tax Act, 1957 ("the Act") as they do not transfer possession or control of the equipment to their customers. The respondents did not specifically deny the petitioners' description of their business operations but argued that the transactions are transfers of the right to use the equipment and thus taxable u/s 5-C.

Issue 2: Taxability of Charges Collected
The first respondent issued notices proposing to tax the charges collected for hiring audio/visual equipment u/s 5-C of the Act, alleging that the transactions amounted to "sale" since the customers had the benefit of using the equipment for a specified period. The petitioners sought to quash these notices, arguing that the possession and control of the equipment always remained with them, and what was offered was a package service including transportation, installation, and operation of the equipment by their technicians.

Issue 3: Nature of Transactions
The court examined whether the business of hiring audio/visual and multimedia equipment by the petitioners attracted liability to sales tax u/s 5-C. The court clarified that for a transaction to be taxable u/s 5-C, there must be a transfer of the right to use goods, involving delivery of possession and effective control to the customer. The court cited several precedents to distinguish between mere custody and effective control, concluding that if the customer has effective control over the goods, it constitutes a transfer of the right to use and is taxable.

Judgment:
The court concluded that the petitioners' transactions did not involve a transfer of the right to use the equipment since the equipment was always under the control of the petitioners' technicians. Therefore, the transactions did not amount to deemed sales exigible to tax u/s 5-C. The court quashed the impugned notices dated November 25, 1999, and June 5, 2000, and allowed the petitions. However, it was clarified that if the petitioners engage in transactions where the equipment is delivered to the customer without any additional services, such transactions would be taxable u/s 5-C.

Petitions allowed.