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2024 (1) TMI 443 - SC - Service TaxLevy of Service tax or Value added tax (VAT) - Transfer of the right to use any goods - hiring the motor vehicles/cranes - sale within the meaning of clause (iv) of subsection (43) of Section 2 of the VAT Act or not - whether the transactions will amount to service, thereby attracting liability to pay service tax? - HELD THAT - Sub-clause (d) of Clause 29A of Article 366 essentially defines tax on the sale or purchase of goods . Sub-clause (d) provides that tax on the sale or purchase of goods includes a tax on the transfer of the right to use any goods for any purpose. The condition for applicability of the sale of goods under the Sale of Goods Act is that apart from the transfer of possession of the goods, there must be a transfer of the property in goods to the buyer. However, sub-clause (d) of Clause 29A refers not to the transfer of property in the goods to the buyer but to the transfer of the right to use any goods for any purpose for consideration as mentioned in sub-clause (d) of Clause 29A. The transfer of the right to use any goods can be for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration. Only because a person is allowed to use certain goods of the owner, per se, there is no transfer of the right to use any goods. The transaction can be either of transfer of right to use the goods or granting mere permission to use the goods without transfer of the right to use the goods. This Court has interpreted sub-clause (d) of Clause 29A in various decisions. The first important decision on this aspect is a decision of the Constitution Bench in the case of 20th Century Finance Corporation Ltd. 2000 (5) TMI 980 - SUPREME COURT . This was a case where the appellant had entered into a master-lease agreement with the lessee. The lessee was a party that desired to take equipment for use on hire. Under the agreement, the appellant agreed to give diverse machinery/equipment listed in the schedule to the master-lease agreement. The master-lease agreement provided that the appellants would place the orders for individual equipment on the request made by the lessee, and the equipment to be leased would be dispatched by the manufacturer or supplier concerned to the location specified in the lease agreement. In paragraph 27 of the aforesaid decision, the Constitution Bench held that the levy of tax in accordance with Clause 29A(d) is not on the use of goods but on the transfer of the right to use goods. In other words, it was held that the right to use goods accrues only because of the transfer of the right to use goods. It was held that the transfer is sine qua non for the right to use any goods. It was held that if the goods are available, the transfer of the right to use goods occurs when the contract for the goods is executed. In other words, if the goods are available, irrespective of whether the goods are delivered and the written agreement is entered into between the parties, a taxable event on such a deemed sale would be executing a contract to transfer the right to use goods - the Constitution Bench held that it cannot be said that there would be no complete transfer of the right to use goods unless the goods are delivered. When the goods are in existence, the taxable event for the transfer of the right to use goods occurs when a contract is executed between the lessor and the lessee, and the situs of sale of such a deemed sale would be where the agreement in respect thereof is executed. On a conjoint reading of the terms of the contract, it is apparent that the contractor has an option of replacing the cranes in case one of the cranes was not working properly. Only the contractor is liable to take care of the legal consequences of using the cranes. The contractor must maintain the cranes, and it is for the contractor to pay for consumables like fuel, oil, etc. Even the cranes must be moved and operated by the crew members appointed by the contractor. Moreover, in case of any mishap or accident in connection with the cranes or connection with the use of the cranes or as a consequence thereof, the entire liability will be of the contractor and not of the ONGC. Thus, in short, the contract is for providing the service of cranes to ONGC - as regards the contract to provide cranes, the finding of the High Court that there was a transfer of the right to use cranes was not correct as the transactions do not satisfy all the five tests. Essentially, the transfer of the right to use will involve not only possession, which may be granted at some stage (after execution of the contract), but also the control of the goods by the user. When the substantial control remains with the contractor and is not handed over to the user, there is no transfer of the right to use the vehicles, cranes, tankers, etc. Whenever there is no such control on the goods vested in the person to whom the supply is made, the transaction will be of rendering service within the meaning of Section 65(105) (zzzzj) of the Finance Act after the said provision came into force. Thus, to conclude, the contracts are not covered by the relevant provisions of the Sales Tax Act and of the VAT Act, as the contracts do not provide for the transfer of the right to use the goods made available to the person who is allowed to use the same. Appeals of the assessee allowed. Central government may initiate service tax recovery proceedings in accordance with law.
Issues Involved:
1. Liability to pay tax under the Assam General Sales Tax Act, 1993 and the Assam Value Added Tax Act, 2003. 2. Determination of whether hiring motor vehicles/cranes constitutes a transfer of the right to use goods. 3. Applicability of service tax under Section 65(105)(zzzzj) of the Finance Act, 1994. Summary: 1. Liability to Pay Tax Under the Sales Tax Act and VAT Act: The group of appeals concerns the liability to pay tax under the Assam General Sales Tax Act, 1993, and the Assam Value Added Tax Act, 2003. The primary question is whether hiring motor vehicles/cranes constitutes a transfer of the right to use goods, thereby amounting to a sale under Clause 29A(d) of Article 366 of the Constitution of India. If not, the transactions may attract service tax. 2. Determination of Transfer of Right to Use Goods: The appeals involve various contracts where the assessees provided different categories of motor vehicles to ONGC and IOCL. The Supreme Court analyzed the contracts based on the five tests laid down by Dr. AR Laxmanan, J. in the case of Bharat Sanchar Nigam Limited v. Union of India: - Goods must be available for delivery. - Consensus ad idem as to the identity of the goods. - The transferee should have a legal right to use the goods. - The right to use the goods must be exclusive to the transferee. - The owner cannot transfer the same rights to others during the period of transfer. The Court found that the contracts did not fulfill all these conditions. For instance, in the contract with ONGC for hiring cranes, the contractor retained control over the cranes, provided operational staff, and bore all legal liabilities, indicating a service contract rather than a transfer of the right to use goods. 3. Applicability of Service Tax: The Court also considered Section 65(105)(zzzzj) of the Finance Act, which defines "taxable service" as the supply of tangible goods for use without transferring the right of possession and effective control. Since the contracts did not transfer effective control and possession to the hirers, the transactions were deemed to be services, attracting service tax. Conclusion: The Supreme Court allowed the appeals of the assessees, holding that the contracts did not involve the transfer of the right to use goods and thus were not subject to the Sales Tax Act or VAT Act. The transactions were classified as services, making them liable for service tax under the Finance Act. The appeal by the Union of India was disposed of with the liberty to initiate proceedings for recovery of service tax in accordance with the law. No order as to costs was made.
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