2003 (8) TMI 504 - HC - VAT and Sales Tax

Tax revision - whether the hire-charges received by the assessee in respect of the excavator owned by it and used for excavating clay mine of M/s. Sulekha Clay Mines is liable to be assessed u/s 5(1)(iii) of the Kerala General Sales Tax Act, 1963, the Act - HELD THAT - A reading of the orders of the assessing authority would also show that the excavator was operated by a person engaged by the assessee and the operational expenses are also incurred by the assessee. It would also appear that as part of the arrangement between the assessee and M/s. Sulekha Clay Mines, 50 per cent of the operational expenses have to be met by the customer. However, we note that the Tribunal in the appellate order has stated that in this case, even the maintenance cost is met by the hirer and therefore there must have some right over the excavator to M/s. Sulekha Clay Mines. It is not clear from the order as to the basis for arriving at such a finding, for, this aspect of the matter is not seen mentioned either by the assessing authority or by the first appellate authority. Thus, we are of the view that the question as to whether there was a transfer of the right to use the excavator in favour of M/s. Sulekha Clay Mines has to be considered afresh, in the light of the principles laid down by this Court and by the Supreme Court. It is open to the assessing authority to collect all materials regarding arrangement between the assessee and M/s. Sulekha Clay Mines before deciding the said question. It is also open to the assessee to produce all materials and evidences in support of their contention that there is no transfer of right to use the goods. We accordingly, set aside the orders of the three authorities on this aspect and remit the matter to the assessing authority for passing fresh orders in accordance with law and in the light of the observations made hereinabove. It is open to the assessee to place all evidences before the assessing authority in support of his claim. The tax revision cases are disposed of as above. A copy of this judgment under the seal of this Court with the signature of the Registrar shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench, Ernakulam. dismissed.

Summary

Issues Involved:
1. Whether the hire-charges received by the assessee for the excavator used for excavating clay mine are liable to be assessed u/s 5(1)(iii) of the Kerala General Sales Tax Act, 1963.
2. Whether there was a transfer of the right to use the excavator in favor of M/s. Sulekha Clay Mines.

Summary:

Issue 1: Liability to be Assessed u/s 5(1)(iii) of the Act

The primary question was whether the hire-charges received by the assessee for the excavator used for excavating clay mine are liable to be assessed u/s 5(1)(iii) of the Kerala General Sales Tax Act, 1963. The assessee contended that there was no transfer of the right to use the excavator to M/s. Sulekha Clay Mines, and thus, the charges should not be included in the turnover for tax purposes. The assessing authority, however, included these charges, stating that the customer incurred expenses for the use of the excavator, indicating possession was delivered to M/s. Sulekha Clay Mines. This was confirmed by the first appellate authority and the Tribunal.

Issue 2: Transfer of Right to Use the Excavator

The assessee argued that effective control of the excavator remained with them, and the customer only reimbursed a portion of the expenses. The Government Pleader countered that the customer met the expenses for operating and maintaining the excavator, suggesting a transfer of the right to use the excavator. The court noted that u/s 5(1)(iii) of the Act, there must be a parting with possession of the goods for the limited period of its use by the lessee. The court referred to several precedents, including the Supreme Court's decisions in 20th Century Finance Corpn. Ltd. v. State of Maharashtra and State of Andhra Pradesh v. Rashtriya Ispat Nigam Ltd., which clarified that effective control must be transferred to the lessee for the provisions to apply.

Conclusion:

The court found that the assessing authority and appellate authorities had not adequately established that there was a transfer of the right to use the excavator. The only material evidence was the accounts showing a portion of the expenses was due from M/s. Sulekha Clay Mines. The court concluded that this was insufficient to prove a transfer of possession and control. The orders of the authorities were set aside, and the matter was remitted to the assessing authority for fresh consideration in light of the principles laid down by the court and the Supreme Court. The assessee was allowed to present further evidence to support their claim.

The tax revision cases were disposed of accordingly, and the orders on C.M.P. Nos. 4714, 4717, and 4719 of 2001 were dismissed.