2024 (12) TMI 1234 - HC - VAT / Sales Tax

Sale u/s 2 (g) (iv) CST Act or not - transfer of right to use - hiring of helicopters - transfer of effective control and possession and right to use the helicopters to its customer - Deemed Sale or not - HELD THAT - On a consideration of the contractual stipulations, it becomes apparent that while the appellant was obliged to place a helicopter or an equivalent model at the service of the A N Administration, the right to operate and maintain remained with the appellant. The helicopter was to be maintained, flown and operated by the appellant. The appellant was required to ensure that the requirements of the A N Administration were duly met. However, at no point of time was the helicopter placed in the hands of the latter to be operated as it thought fit. The pilot and crew who actually worked the helicopter were to be provided by the appellant. It becomes evident that there was no transfer of dominion or control of the helicopter to the A N Administration. This was essentially an agreement in terms of which the A N Administration acquired an exclusive medium of transportation as opposed to an absolute right over an aircraft, helicopter or means of conveyance which could be said to be under its dedicated and undivided control. There is an occasion to notice a decision of recent vintage rendered by the Supreme Court in Commissioner of Service Tax vs. Adani Gas Ltd. 2020 (8) TMI 789 - SUPREME COURT . As the Supreme Court succinctly explained in Adani Gas, the key elements which are liable to be found to exist in order to qualify what is spoken of in Article 366 (29A) (d), are a transfer of a right of possession as well as effective control being conferred upon the transferee. It is these precepts on the basis of which the contractual stipulations may now be examined. There was no contractual relationship that existed between those operators and staff on the one hand and the A N Administration on the other. Additionally, the obligation to keep the equipment insured was also one which stood placed upon the appellant. There was also no transfer of permits and licenses which were necessarily required in order to undertake the operations contemplated under the agreement. Those permits and licenses undisputedly remained in the hands of the appellant. The Supreme Court in Aggarwal Bros. 1998 (9) TMI 532 - SUPREME COURT had on facts found that there was a complete transfer of shuttering for consideration and the same being exclusively placed in the hands of the hirer to be used and utilized as it thought fit. Article 366 (29A) (d) is not concerned with delivery of goods for use but envisages the levy of a tax on the transfer of a right to use goods. It proceeded further to explain that clause (d) of Article 366(29A) cannot be placed in the same category as that of bailment where goods are left in the possession of the bailee solely for the purposes of use on a hire basis. The conclusions rendered by the Tribunal cannot be suatained - appeal allowed.

Summary

Issues Involved:

1. Whether the hiring of helicopters under the agreements constituted a "sale" under Section 2(g)(iv) of the CST Act.
2. Whether the appellant transferred effective control and possession and the right to use the helicopters to its customers, thereby constituting a "Deemed Sale."

Issue-Wise Analysis:

1. Whether the hiring of helicopters constituted a "sale":

The appeal questioned whether the supply of helicopters to the Andaman and Nicobar Islands Administration (A&N Administration) was a "transfer of a right to use" under Section 2(g)(iv) of the CST Act and Section 2(zc)(vi) of the DVAT Act. The appellant argued that the agreement did not involve such a transfer, urging that the tax authorities and the Tribunal erred in their interpretation. The Tribunal upheld the assessments, noting that the helicopters were provided for exclusive use, and the agreement's terms indicated a transfer of the right to use. The Tribunal relied on several precedents, including BSNL v. Union of India, to conclude that the transaction amounted to a deemed sale.

2. Whether effective control and possession were transferred:

The Tribunal focused on whether effective control and possession were transferred to the lessee. It noted that the helicopter was stationed at a specific base, and the lessee had exclusive use during the lease term. The Tribunal found that the lessee had effective control, as evidenced by the helicopter's exclusive availability and the lessee's ability to requisition flights. The Tribunal distinguished this case from Hari Durga Travels, noting the special features of the agreement, such as confidentiality and security clauses, which were not present in Hari Durga Travels. The Tribunal concluded that the appellant had transferred the right to use the helicopters, thus constituting a deemed sale.

Appellate Court's Analysis:

The appellate court disagreed with the Tribunal's findings, emphasizing that the agreement did not result in a transfer of dominion or control over the helicopters. The court highlighted that the appellant retained operational control, maintained the helicopters, and provided pilots and crew. The licenses and permits remained with the appellant, and the A&N Administration did not have the authority to substitute crew or make operational decisions. The court noted that the agreement was akin to providing a transportation service rather than transferring the right to use the helicopters. The court found that the Tribunal erred in its interpretation, as the facts did not support a transfer of right to use under Article 366(29A)(d) of the Constitution.

Conclusion:

The appellate court allowed the appeal, holding that the Tribunal erred in concluding that the appellant transferred effective control and possession. The court set aside the Tribunal's order, determining that the agreements did not constitute a deemed sale under the CST Act or the DVAT Act.