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2005 (8) TMI 649 - HC - VAT and Sales TaxRevision u/s 11 of the U.P. Trade Tax Act, 1948 (the Act) - liability to tax u/s 3F - hiring charges - transportation of the employees - Whether, there was any transfer of effective control of the buses by the assessee to the two companies - HELD THAT - The bare perusal of section 3F of the Act shows that the provision of section 3F is applicable only in cases where there is transfer of right to use the goods. In Rashtriya Ispat Nigam Ltd. v. Commercial Tax Officer, Company Circle, Visakhapatnam 1989 (12) TMI 325 - ANDHRA PRADESH HIGH COURT , the petitioner which owned the Visakhapatnam Steel Project, for the purpose of the steel project, allotted different parts of the project work to contractors. To facilitate the execution of work by the contractors with the use of sophisticated machinery, the petitioner had undertaken to supply the machinery to the contractors for the purpose of being used in the execution of the contracted works of the petitioner and received charges for the same. The respondents made a provisional assessment in view of the enlarged definition of sale . Thus, it is clear that for the transfer of right to use the goods and to invoke the provision of section 3F of the Act, it is necessary that there should be transfer of effective control of the goods in favour of the party. On Perusal of the terms of the contracts shows that the effective control of the buses has never been transferred to the aforesaid two companies and it always remain with the assessee. The assessee only provided the buses for transportation of employees of the companies from one place to another place and the price was stipulated only for the purposes of transportation and not for the leasing of the entire bus as such for a definite period. The entire expenses for running of the buses, namely, diesel charges, salary of driver/conductor, road tax, passenger tax, etc., are to be borne by the assessee. In this view of the matter, I am of the opinion that there was no transfer of right to use the vehicles by the assessee to the aforesaid two companies and the provision of section 3F of the Act is not applicable. The order of the Tribunal is upheld. In the result, revision fails and is, accordingly, dismissed.
Issues Involved:
1. Applicability of Section 3F of the U.P. Trade Tax Act, 1948. 2. Determination of whether the transaction constituted a transfer of the right to use goods. 3. Analysis of the agreements between the assessee and the companies (M/s. IFFCO and M/s. BPCL). Issue-wise Detailed Analysis: 1. Applicability of Section 3F of the U.P. Trade Tax Act, 1948: The present revision under section 11 of the U.P. Trade Tax Act, 1948 is directed against the order of the Tribunal dated May 30, 1996, relating to the assessment year 1987-88. The assessing authority levied tax under section 3F of the Act on the amounts received by the assessee from M/s. IFFCO, Phulpur, Allahabad, and M/s. BPCL, Naini, Allahabad towards hire charges. The Tribunal allowed the assessee's appeal, which led to the current revision. 2. Determination of Whether the Transaction Constituted a Transfer of the Right to Use Goods: The core issue was whether the agreements between the assessee and the companies involved a transfer of the right to use the buses, which would make the transaction taxable under section 3F of the Act. The learned Standing Counsel argued that the charges received were hiring charges liable to tax under section 3F, asserting that the vehicles were for the use of the companies. Conversely, the assessee contended that there was no transfer of the right to use the buses, as the possession and control of the buses remained with the assessee, and the entire expenses for running the buses were borne by the assessee. 3. Analysis of the Agreements Between the Assessee and the Companies: The Tribunal and the High Court analyzed the agreements and found that the effective control of the buses was never transferred to the companies. The agreements stipulated that the buses were provided for transporting employees, and the assessee retained control over the buses, including bearing all operational costs and risks. Legal Precedents and Interpretation: Several legal precedents were cited to support the conclusion that there was no transfer of the right to use the buses: - Kandoi Transport v. S.T.O., Assessment Unit, Barbil: The Orissa High Court held that hire charges do not constitute a transfer of the right to use if the control, custody, and possession remain with the owner. - Rashtriya Ispat Nigam Ltd. v. Commercial Tax Officer: The Andhra Pradesh High Court and subsequently the Supreme Court held that effective control must be transferred for a transaction to be considered a transfer of the right to use. - Ahuja Goods Agency v. State of Uttar Pradesh: The Division Bench of the Allahabad High Court held that transportation charges were not taxable under section 3F if there was no transfer of possession of the vehicle. Conclusion: Upon examining the terms of the contracts, the High Court concluded that the effective control of the buses remained with the assessee, and there was no transfer of the right to use the vehicles to the companies. Consequently, the provisions of section 3F of the Act were not applicable. The order of the Tribunal was upheld, and the revision was dismissed.
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