2009 (6) TMI 935 - HC - VAT and Sales Tax

Whether, on the facts and in the circumstances of the case and on a true and correct interpretation of section 2(10) of the Maharashtra Sales Tax on the Transfer of the Right to use any Goods for any Purpose Act, 1985, the Tribunal was justified in holding that the impugned transaction does not amount to a sale under the provisions of the Lease Act? Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that even after consideration that the constructive possession of the computer being given to the contractee mentioned in the impugned invoice the computer continues to be under effective control of the respondents-contractor and, therefore, transfer of right to use the computer by the contractee could not be held to have taken place as covered by the term sale occurring in the Lease Act? Held that - In the present case, from the facts noted earlier, it is clear that the goods, i.e., computers and terminals were always in possession of the respondents. They were never delivered or handed over to the ONGC. It may be that as per the requirement of ONGC, fixed time was assigned to them and during that fixed time of the day, staff members of ONGC would come to the office of the respondents to get their work done but during all that period, computers would be operated by the employees of the respondents and not by the employees of the ONGC. In view of the language of sections 3 and 4 tax shall be leviable on the turnover of sales in respect of transfer of right to use any goods. Unless there is transfer of right to use any goods, the provisions of the said Act will not be attracted and sales tax cannot be levied on such transactions. Taking into consideration the nature of the contract between the respondents and the ONGC and the legal position, it must be held that the Tribunal correctly interpreted the provisions of section 2(10) of the Act while holding that the transaction is not taxable. Decided in favour of the respondents and against the Revenue.

Summary

Issues:
1. Interpretation of section 2(10) of the Maharashtra Sales Tax on the Transfer of the Right to use any Goods for any Purpose Act, 1985.
2. Determining whether the transaction between the parties amounts to a sale under the Lease Act.

Issue 1: Interpretation of section 2(10) of the Maharashtra Sales Tax Act:
The case involved a dispute regarding the application of sales tax on the transfer of the right to use computers and terminals in a service contract between the respondents and ONGC. The Commissioner of Sales Tax sought clarification on the interpretation of section 2(10) of the Act. The Tribunal held that the transaction did not constitute a sale under the Lease Act as the constructive possession of the computers remained with the respondents, and the right to use was not effectively transferred to ONGC. The Tribunal's decision was based on the fact that the goods were never physically delivered or handed over to ONGC, and the computers were operated by the respondents' employees, not ONGC's staff.

Issue 2: Determination of Sale under the Lease Act:
The Tribunal analyzed previous legal judgments, including the case of Bharat Sanchar Nigam Ltd. v. Union of India, to determine the essential attributes required for a transaction to be considered a transfer of the right to use goods. The Tribunal emphasized that while physical delivery of goods is not mandatory, the goods must be available, deliverable, and delivered at some stage. In this case, the computers and terminals were always in possession of the respondents, and there was no evidence of delivery to ONGC. The nature of the contract was deemed a service contract, where the respondents provided services to ONGC without transferring the right to use the goods. Therefore, the Tribunal concluded that the transaction was not taxable under the Act, as there was no transfer of the right to use any goods to ONGC.

In conclusion, the High Court upheld the Tribunal's decision, ruling in favor of the respondents and against the Revenue. The judgment clarified that for the provisions of the Act to apply, there must be a clear transfer of the right to use goods, which was not established in the case between the respondents and ONGC.