2023 (8) TMI 116 - HC - VAT and Sales Tax

Nature of transaction - sale or service - Levy of sales tax on the turnover of sale - tankers given on hire - deemed sale or transfer of the right to use any goods for any purpose - HELD THAT - The deemed sale of transfer of right to use any goods for any purpose came up for consideration before the Apex Court in the case of BHARAT SANCHAR NIGAM LTD. (BSNL) VERSUS UNION OF INDIA 2006 (3) TMI 1 - SUPREME COURT . In the said judgment, the Apex Court has considered the judgment of STATE OF ANDHRA PRADESH AND ANOTHER VERSUS RASHTRIYA ISPAT NIGAM LTD. 2002 (3) TMI 705 - SUPREME COURT . The Apex Court in the said case held that to constitute a transaction for the transfer of the right to use the goods, it is necessary that there must be a consensus ad idem as to the identity of the goods, the transferee should have a legal right to use the goods and consequently all legal consequences of such use including any permissions or licences required therefor should be available to the transferee and for the period during which the transferee has such legal right, it has to be to the exclusion of the transferor. The Apex Court held that this is the necessary concomitant of the plain language of the statute, viz., a transfer of the right to use and not merely a licence to use the goods. Another condition was that having transferred the right to use the goods during the period for which it is to be transferred, the owner cannot again transfer the same rights to others. Thus, it could be seen that unless all these ingredients are available, the transaction will not come within the meaning of transfer of the rights to use any goods . The Gauhati High Court in the case of INDIAN OIL CORPORATION LTD. VERSUS COMMISSIONER OF TAXES, ASSAM AND OTHERS 2009 (2) TMI 749 - GAUHATI HIGH COURT considered a similar provision under the Assam General Sales Tax Act. In the said case, petitioner IOCL, which was engaged in the business of sale and supply of petroleum products inside as well as outside the State of Assam, had hired trucks for delivery of petroleum to its dealers and in the course of its business entered into agreement with contractors as regards hiring of trucks/tankers - After taking into consideration the various clauses of contract entered between the assessee and the owners of the vehicles, the Division Bench held that there was no transfer of right to use to make it taxable under the Act. The Court, therefore, found that show cause notice issued was without jurisdiction and as such, allowed the petition, setting aside the show cause notice. In the present case, the clauses in the agreement reveal that oil company is in exclusive possession and use of the tankers to transport its petroleum products and have full control over the tankers and crew for transportation and delivery of petroleum products to customers/other locations. The agreement in clear terms provides for transfer of right to use the trucks for transportation of petroleum products of oil company - the effective control and possession was always with AHS. What was being provided to HPCL was only a transportation service on hire. The Tribunal instead of applying the law as laid down by the judgments in the case of Bharat Sanchar Nigam Ltd., Indian Oil Corporation Ltd., has read the agreement in bits and pieces and referred to only certain clauses which were in place to ensure commitment for uninterrupted efficient transportation service. The Tribunal has referred to the clauses which provides that the tankers are not under agreement with any other party, AHS not to assign right in the tankers or the tankers should not be used for products other than oil of HPCL, HPCL has right to change the loading location etc. The Tribunal has failed to appreciate that these clauses referred to and provided for in the agreement with HPCL were only to ensure uninterrupted transportation services by AHS to HPCL. The right to use of tankers does not get transferred because of these clauses - Merely because of the fact that certain clauses were provided in the agreement in view of the nature of the cargo to be carried and to ensure that the transportation of their products do not get disrupted, it did not necessarily mean that the right to use the tankers stood transferred in favour of HPCL by AHS, more so, when the agreement provided for substitution of the vehicles. The judgments relied upon by Mr. Sonpal (respondent) are of no assistance to him in as much as, as held in STATE OF ANDHRA PRADESH AND ANOTHER VERSUS RASHTRIYA ISPAT NIGAM LTD. 2002 (3) TMI 705 - SUPREME COURT the effective control was with AHS. In BRAHMAPUTRA VALLEY CONSTRUCTION AND SUPPLIERS VERSUS OIL AND NATURAL GAS CORPN. LTD. AND OTHERS 2014 (9) TMI 371 - GAUHATI HIGH COURT also the Gauhati High Court has held that it is the features of the contract which are material and to be looked into - As regards WALTOR BUTHELLO OF MUMBAI VERSUS THE COMMISSIONER OF SALES TAX AND HARROLD BUTHELLO VERSUS THE COMMISSIONER OF SALES TAX 2017 (5) TMI 769 - BOMBAY HIGH COURT , the facts were entirely different in as much as in that case the buses were handed over by the contractor to PMT and the buses, which were handed over to PMT, were registered with the RTO, Pune in the name of PMT as a lessee. In that case, even the conductor of the bus was provided by PMT and not the owner of the bus. It was the conductor of PMT who was to collect the fare from the passengers. The contractor was also permitted to employ other surplus drivers employed with PMT where the post of drivers has become surplus on PMT s establishment. Those were the factors which weighed in the mind of the Court which is not the case in the appeal at hand. Thus, by no stretch of imagination, it can be held that there was any transfer of right to use goods - The Tribunal was not justified in holding that the transportation job with the use of tank trucks (tankers) as per the agreement with HPCL dated 26th June 2006 amounted to transfer of right to use goods and hence, covered by definition of sale under the MVAT Act. Appeal allowed.

Summary

Issues Involved:
1. Whether the transportation job with the use of tank trucks as per the agreement with HPCL amounts to transfer of right to use goods and hence covered by the definition of 'sale' under MVAT Act 2002.
2. Whether Exception III to the definition of 'dealer' in section 2(8) of the MVAT Act is applicable to the appellant in respect of such transaction.

Summary:

Issue 1: Transfer of Right to Use Goods
The High Court examined whether the transportation job using tank trucks (tankers) as per the agreement with HPCL constituted a "transfer of right to use goods" under the MVAT Act. The Sales Tax Officer (STO) had assessed that the receipts towards oil transportation by use of tankers were towards "Transfer of Right to use goods" and thus, receipts from "Sale" under the MVAT Act. The appellant, AHS, contended that there was no delivery of tankers nor parting with possession, and the effective control remained with AHS. The Tribunal upheld the STO's view, but the High Court disagreed, stating that effective control and possession were always with AHS. The High Court referenced the Supreme Court judgment in Bharat Sanchar Nigam Ltd. v. Union of India, which outlined that for a transaction to constitute a transfer of the right to use goods, there must be a consensus ad idem as to the identity of the goods, the transferee should have a legal right to use the goods, and for the period during which the transferee has such legal right, it has to be to the exclusion of the transferor. The High Court concluded that these conditions were not met in this case, and thus, there was no transfer of the right to use the tankers.

Issue 2: Applicability of Exception III to the Definition of 'Dealer'
Given the conclusion on the first issue, the second issue regarding the applicability of Exception III to the definition of 'dealer' in section 2(8) of the MVAT Act was deemed unnecessary to address.

Conclusion:
The High Court allowed the appeals, holding that the transportation job with the use of tank trucks as per the agreement with HPCL did not amount to a transfer of right to use goods and hence was not covered by the definition of 'sale' under the MVAT Act. Consequently, the Tribunal's decision was overturned.