2009 (2) TMI 749 - HC - VAT and Sales Tax

Whether the transactions do not amount to transfer of the right to use the goods? Held that - The petitioner-company is not bound to deduct tax, at source, in respect of the transactions, which form the subject-matter of this writ petition. In such circumstances, the impugned order(s) and notice(s) are liable to be set aside and quashed.

Issues Involved:
1. Whether the hiring of trucks/tankers by the petitioner-company amounts to a transfer of the right to use the vehicles.
2. Whether the petitioner-company is liable to deduct tax at source under section 27(a) of the Assam General Sales Tax Act, 1993.
3. Whether the notices issued by the Senior Superintendent of Taxes were valid and lawful.
4. Whether the petitioner-company can challenge the order directing it to deduct tax at source.

Detailed Analysis:

Issue 1: Transfer of Right to Use Vehicles
- The petitioner-company hires trucks/tankers for delivery of petroleum products, paying hire charges to contractors who bear all operational costs, including maintenance, insurance, and salaries.
- The respondents contend that this arrangement constitutes a transfer of the right to use the vehicles, making it a "lease" under section 2(19) and a "sale" under section 2(33) of the Act, thus subject to sales tax.
- The court examined various clauses of the contract agreement and concluded that the possession and effective control of the vehicles remain with the contractors, not the petitioner-company.
- The court referred to the Supreme Court's rulings in 20th Century Finance Corpn. Ltd. and Bharat Sanchar Nigam Ltd., which clarified that the transfer of the right to use goods must involve parting with possession and effective control of the goods.
- The court held that since the contractors retain possession and control of the vehicles, there is no transfer of the right to use the vehicles, and thus, the transaction does not amount to a "deemed sale."

Issue 2: Liability to Deduct Tax at Source
- The petitioner-company challenged the notices directing it to deduct tax at source, arguing that there was no transfer of the right to use the vehicles.
- The court agreed, stating that under section 27 of the Act, tax at source can only be deducted if there is a transfer of the right to use goods.
- Since the court found no such transfer in this case, the petitioner-company is not liable to deduct tax at source.

Issue 3: Validity of Notices Issued
- The notices issued by the Senior Superintendent of Taxes directed the petitioner-company to deduct tax at source and show cause for penal action for non-compliance.
- The court held that these notices were invalid as they were based on an incorrect interpretation of the contract agreement.
- The court quashed the notices, stating that the petitioner-company could not be compelled to make deductions at source when it was not legally obliged to do so.

Issue 4: Right to Challenge the Order
- The court addressed whether the petitioner-company could challenge the order directing it to deduct tax at source.
- It was noted that under Article 226, a person can invoke the court's jurisdiction if compelled by the State to perform an act they are not legally obliged to do, especially under threat of penal action.
- The court cited various precedents, including S.R.F. Finance Ltd. and Steel Authority of India Ltd., to support the petitioner's right to challenge the order.
- The court concluded that the petitioner-company's legal rights were infringed by the State's direction to deduct tax at source, justifying the challenge.

Conclusion:
- The court found that the contract agreement between the petitioner-company and the contractors did not involve a transfer of the right to use the vehicles.
- Consequently, the petitioner-company was not liable to deduct tax at source under section 27(a) of the Assam General Sales Tax Act, 1993.
- The notices issued by the Senior Superintendent of Taxes were invalid and were set aside.
- The petitioner-company had the right to challenge the order directing it to deduct tax at source, and the court quashed the impugned orders and notices.

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