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TMI Blog2011 (3) TMI 1506X X X X Extracts X X X X X X X X Extracts X X X X ..... rit petition, made under article 226 of the Constitution of India, has put to challenge the constitutional validity of certain provisions of the Tripura Sales Tax Act, 1976 (in short, the TST Act, 1976 ) to the extent that the same permits imposition of tax on the transfer of right to use goods. The prominent challenges, in the present writ petition, are to the constitutional validity of section 2(b), which defines the term dealer , section 2(d), which defines the term sale and section 3 of the TST Act, 1976, which contains the charging provisions. Facts of W.P. (C) 127 of 2005 The material facts, which have led to the institution of the present writ petition, may, first, be noted. In response to the NIT, floated by pro forma respondent No. 4, namely, Oil and Natural Gas Corporation Ltd., AD Nagar, West Tripura, Agartala (in short, the ONGC ), for the work well logging, perforating and other wireline services for its oil and natural gas exploration and exploitation to be carried out on land in the States of Gujarat, Tamil Nadu, Andhra Pradesh, Pondicherry, Madhya Pradesh, Rajasthan, Assam, Nagaland, Tripura, etc., under the jurisdiction of the Union of India, the petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seeking to get set aside and quashed the impugned communications dated 18/20th March, 2004, 11/12th January, 2005 whereby respondent No. 3 directed respondent No. 4 to deduct sales tax at four per cent from the bills of the petitioner. Before we answer the questions, which have been raised in this writ petition, it is necessary to take note of the bare minimum facts, which led to the making of transfer of the right to use any goods a subject of the State s power to impose sales tax. Before introduction of the 46th Amendment of the Constitution of India, composite contracts, such as, works contract , hire-purchase contract and catering contracts , etc., were not assessable, as contracts, for sale of goods inasmuch as the contracts, which were indivisible, could not have become subject of levy. Before the Constitution (46th Amendment) Act, 1982, the word sale , which occurred in the expression sale of goods , in the Seventh Schedule to the Constitution of India, had carried the same meaning as a sale defined in section 4 of the Sale of Goods Act, 1930. Hence, prior to the 46th Amendment, sales tax could be imposed only upon transfer of property in goods from one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt, in State of Punjab and Haryana v. Associated Hotels of India Ltd. [1972] 29 STC 474 (SC), closed the door of a big revenue earning area by the States, when the court held that supply of food by the hotelier was essentially one of services by the hotelier and as a part of the amenities incidental to the service, the hotelier served meals at specified hours. By the 46th Amendment Act of the Constitution, the definition of the word sale , as given in article 366, was widened by insertion of clause (29A), whereunder various transactions, enumerated therein, which were, otherwise, not sales , have to be deemed, by a legal fiction, as sales . Such sales are commonly called deemed sale as against the traditional concept of sales , which are popularly called actual sales . Under clause (29A)(d), a transfer of the right to use goods for any purpose and for any period, for cash, deferred payment or other valuable consideration, shall be deemed to be a sale of goods by the person making the transfer, delivery or supply, and a purchase of those goods by the person to whom transfer, delivery or supply is made. The Constitution (46th Amendment) Act, 1982, also added sub-clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause (d) of clause (29A) of article 366, namely, deemed sales arising out of execution of works contract, delivery of goods on hire-purchase and transfer of the right to use any goods for any purposes, respectively, shall be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of tax as Parliament may by law specify. While examining the power of the State Legislature under entry 54, List II, as held by the Supreme Court in Bengal Immunity Company Limited v. State of Bihar [1955] 6 STC 446 (SC); AIR 1955 SC 661 the situs of a sale , as regards inter-State trade or commerce, is wholly immaterial. The State Legislature cannot, by fixing the situs of sale in the definition of sale , treat sales made outside the State, or sales made in the course of import, or sales made in the course of export, as sales within the State for, it is within the exclusive domain of the appropriate Legislature, i.e. Parliament, alone to fix the location of sales by creating legal fiction or otherwise. The Constitution Bench of the Supreme Court in 20th Century Finance Corporation Ltd. v. State of Maharashtra [2000] 119 STC 182 (SC); [2000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y irrespective of the place where they are located the situs of such sale would be where the property in goods passes, namely where the contract is entered into. While examining the taxable events in the case of transfer of the right to use the goods , the Supreme Court, in 20th Century Finance Corporation Ltd. [2000] 119 STC 182 (SC); [2000] 6 SCC 12 held as under: . . . In our view, therefore, on a plain construction of sub-clause (d) of clause (29A), the taxable event is the transfer of the right to use the goods regardless of when or whether the goods are delivered for use. What is required is that the goods should be in existence so that they may be used. And further contract in respect thereof is also required to be executed. Given that, the locus of the deemed sale is the place where the right to use the goods is transferred. Where the goods are when the right to use them is transferred is of no relevance to the locus of the deemed sale. Also of no relevance to the deemed sale is where the goods are delivered for use pursuant to the transfer of the right to use them, though it may be that in the case of an oral or implied transfer of the right to use goods, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the taxable event on the transfer of right to use any goods is on the transfer which results in right to use and the situs of sale would be the place where the contract is executed and not where the goods are located for use. (d) In cases where goods are not in existence or where there is an oral or implied transfer of the right to use goods, such transactions may be effected by the delivery of the goods. In such cases the taxable event would be on the delivery of goods. (e) The transaction of transfer of right to use goods cannot be termed as contract of bailment as it is deemed sale within the meaning of legal fiction engrafted in clause (29A)(d) of article 366 of the Constitution wherein the location or delivery of goods to put to use is immaterial. In the backdrop of the abovestated position of law, let us, now, examine the submissions made on behalf of the petitioners. Relying on the definition of dealer as given in section 2(b) of the Tripura Sales Tax Act, 1976 (hereinafter referred to as the, TST Act ) and the definition of sale as given in section 2(g) thereof, Mr. Somik Deb, learned counsel, appearing for the petitioners, contends that section 2(g) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e manifest from the expression, . . . but inclusive of any sum charged for anything done by the dealer in respect of the goods or services at the time of or before delivery thereof, excise duty, special excise duty or any other duty or taxes except the tax imposed under the Act , which appears in section 2(26). It is submitted by Mr. Deb that the definition of sale price , as contained in the TVAT Act, does not provide for any deduction otherwise admissible under the Constitutional scheme. In support of his submissions, Mr. Deb relied on 20th Century Finance Corporation Ltd. v. State of Maharashtra [2000] 119 STC 182 (SC); [2000] 6 SCC 12, Builders Association of India v. Union of India [1989] 73 STC 370 (SC), and Gannon Dunkerly Co. v. State of Rajasthan [1993] 88 STC 204 (SC). Reliance has also been placed on the decisions of the Supreme Court, in State of Uttar Pradesh v. Union of India [2003] 130 STC 1 (SC); [2003] 3 SCC 239 and Goa Carbon Ltd. v. Commissioner of Trade Tax [2008] 13 VST 456 (SC); [2008] 11 SCC 176. Resisting the writ petitions, Mr. N. Adhikari, learned Advocate-General, Tripura, has submitted that the definition of sale , as given in the TST Act, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods specified in such notification; and thereupon the Schedule shall be deemed to be amended accordingly: Provided further that the rate of tax on any transfer of the right to use any goods for any purpose (whether or not for a specified period) shall be four per cent. (2) If the State Government is of opinion that it is necessary or expedient so to do for increasing the production of goods or for protection or encouragement of industry within the State, it may, by notification in the Official Gazette subject to such restrictions and conditions, exempt from payment of tax, either in whole or in part the sale of any taxable goods or class of taxable goods or any dealer or class of dealers for such period as may be specified therein. (3) Subject to such restrictions and conditions as may be prescribed, the State Government may make an exemption, or reduction in rate, in respect of any tax payable under this Act on the sales of any taxable goods to such person or class of persons as may be prescribed. (4) Where exemption from the levy of tax under this Act on any sale of taxable goods is claimed by a dealer under the provisions of this section the burden of proof sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lear that every dealer , dealing in taxable goods, is liable to pay tax on its turnover , which is aggregate of the sale price of the goods. In order to attract the liability to pay sales tax under the TST Act, the following preconditions have to be fulfilled: (i) A person must be a dealer under the TST Act, 1976. (ii) There must be a sale of any taxable goods. (iii) Tax shall be payable on the turnover of the dealer , which would mean the aggregate of the sale price of the goods. From a careful reading of the definition of the word dealer , as given in section 2(b), what clearly emerges is that every person, who sells taxable goods in the State of Tripura, is not a dealer , for, he becomes a dealer only when he sells taxable goods manufactured, made and processed by him in Tripura or brought by him into Tripura from any place outside Tripura for the purpose of sale in Tripura. This, in turn, shows that if a person purchases taxable goods in the State of Tripura and sells the same within the State of Tripura, he does not become a dealer and on such a sale , no sales tax can be imposed by invoking the provisions of section 3. What is, now, necessar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erson, if not a dealer cannot be made to pay tax under the TST Act, we, now, turn to the Tripura Value Added Tax Act, 2004 (in short, the TVAT Act ) and determine, for the purpose of sheer comparison, if the definition of dealer , as given under the TVAT Act, includes (in contrast to what section 2(b) of the TST Act embodies) a person, who transfers the right to use any goods for any purposes. It is interesting to note, with regard to the above, that in contrast to the fact that the definition of the term dealer as given by section 2(b) of the TST Act, 1976, does not include, within its ambit, a person, who makes transfer of the right to use any goods for any purpose, or a person, who makes delivery of any goods on hire-purchase, such persons are covered, within the meaning of the word dealer , as given in the TVAT Act inasmuch as section 2(8) of the TVAT Act defines a dealer to mean a person, who is engaged in the business of delivery of goods on hire-purchase or any other system of payment by instalments as well as a person, who carries on the business of buying, selling, supplying for commission, remuneration or other valuable consideration, and includes (a) an i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a specified period) for cash, deferred payment or commission or remuneration or any other valuable consideration is a dealer . Thus, a comparative analysis of the definition of dealer , as given in the TST Act vis-a-vis the TVAT Act, makes it abundantly clear that while the definition of dealer , as given under the TST Act does not include a person, who is engaged in the business of transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or commission or remuneration or any other valuable consideration. The definition of dealer as given in the TVAT Act, does include, within clause (k) of section 2(8) of the TVAT Act, a person who is engaged in the business of transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or commission or remuneration or any other valuable consideration. We may also pause here to point out that Mr. Deb, learned counsel for the petitioners, submits that since the TST Act, 1976, has not created any charge in so far as it relates to transfer of right to use any goods, the question of deduction of tax, at source, in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for such deduction is beyond the provision of the Act and, therefore, rule 3A(2) of the TST Rules, 1976, has already been held to be ultra vires in Smti Namita Paul v. Food Corporation of India reported in [2009] 20 VST 799 (Gauhati); [2008] 1 GLT 49 wherein one of us (I.A. Ansari, J.) speaking for the court observed (pages 813-819 of 20 VST): (19) In the backdrop of the definition of dealer given in section 2(b), when sections 3A and 3AA of the TST Act are carefully analysed, it becomes abundantly clear that a person, who executes a works contract, shall, by a legal fiction, which section 2(b) creates, be treated as a dealer and such a person, for being a dealer , becomes, under section 3A, liable to pay sales tax for transfer of property in goods involved in the execution of works contract, for, such transfer of property in goods would be deemed to be a sale of the goods by the person making the transfer. Section 3AA makes it obligatory for a person, responsible for making payment of any sum to any person, who is liable to pay sales tax under section 3A, to deduct, at the time of credit of such sum, to the account of the person or at the time of payment thereof in cash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these appeals, a faint attempt was made to show that sub-section (1) of section 44 of the TST Act empowers the State Government to make rules for carrying out the purposes of the TST Act and rule 3A(2) is within the ambit of sub-section (1) of section 44. Because of the submissions, so made, a careful analysis of section 44 of the TST Act is imperative. Section 44 reads as follows: 44. Power to make rules. (1) The State Government may, make rules for carrying out the purposes of this Act. (2) Without prejudice to the generality of the foregoing power, such rules may, in particular, prescribe (a) all matters required by this Act to be prescribed; (b) the classes and duties of officers appointed for the purpose of enforcing the provisions of this Act; (c) the procedure to be followed and the forms to be adopted in proceedings under this Act; (d) the intervals at which, and the manner in which, the tax under this Act shall be payable; (e) the dates by which and the authority to which returns shall be furnished; (f) the manner in which refunds shall be made; (g) the fees if any, for petitions, certificates and other matters; (h) the nature of accounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made. Non-production of the accounts or omission to maintain the accounts would amount to contravention of the provisions of the statute, for, the rules, framed under a statute, are also law. In such circumstances, a person, who is directed to make deduction, would expose himself to criminal prosecution if he does not comply with these requirements. When the statute itself has not made a person liable for making deduction, at source, in respect of transfer of the right to use goods, such a liability cannot be imposed by making rules or by issuing executive instructions and thereby expose the person, who is so made liable to make deduction, to criminal prosecution for contravention of the provisions of law. Thus, the effect of making rule 3A(2) would expose a person, who has not been made liable by the Legislature, to criminal prosecution. Rule-making power cannot be exercised in a manner, which would bring, within the penal provisions of a statute, a person, who has not been brought within the scope of the statute by the Legislature. (27) It is very common for the Legislature to provide for a general rule-making power to carry out the purpose of an enactment. When such a pow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ictly. If a person has not been brought within the ambit of the charging section by clear words, he cannot be taxed at all . (31) Since the TST Act is a fiscal legislation, the general rule-making authority, conferred on the State Government by section 44(1), cannot be resorted to for the purpose of bringing in, within the scope of the definition of dealer , a person, who transfers his right to use goods for valuable consideration, when the Legislature has not brought, within the scope of the word dealer , a transferor of the right to use goods. It is well-settled that all financial enactments are to be construed strictly and no tax can be imposed by any law or rules or regulations unless the statute, whereunder the law is made, specifically authorises such an authority. In fact, in the case of State of Kerala v. Madras Rubber Factory Ltd. reported in [1998] 108 STC 583 (SC); [1998] 1 SCC 616, the apex court, while dealing with the question of payment of cess under the Kerala General Sales Tax Act, 1963, held that a charge under a taxing statute can only be under the statute and not even under the rules ; hence, the deduction, at source, by executive instructions, such as, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er is conferred without prejudice to the generality of the general power already specified, the particular power is only illustrative and does not in any way restrict the general power. In the instant case also, the general power is in sub-section (1) and sub-section (2) contains illustrations and does not, in any way, restrict the general power under sub-section (1). Thus, even assuming that rule 498A is not covered by clause (i) of sub-section (2), it is quite immaterial inasmuch as such a rule can be framed in exercise of the general power under subsection (1) for the purpose of carrying into effect Chapter VI relating to control of traffic. There is, therefore, no substance in the contention of the petitioner that rule 498A is ultra vires the provision of the Act. (34) In the case at hand, the decision in Ajay Canu s case [1988] 4 SCC 156 cannot be taken recourse to, when the transferor s right to use goods has not been brought within the net of the sales tax by the charging section, i.e., section 3. (35) What crystallizes from the above discussion is that unless the TST Act is suitably amended by either expanding the definition of dealer or by making appropriate changes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticle 366(29A)(d), that levy of tax is not on use of goods, but on the transfer of the right to use goods and that the right to use goods accrues only on account of the transfer of right . In other words, explains, Supreme Court, in 20th Century Finance Corporation Ltd. [2000] 119 STC 182 (SC); [2000] 6 SCC 12 , that in order to attract sales tax, the right to use arises only on the transfer of such a right and unless there is transfer of such a right, the question of the transfer of the right to use does not arise. Having held that it is the transfer of the right to use any goods , which is exigible to sales tax, and that without such a transfer , no sales tax can be imposed, the Supreme Court goes on to observe, in 20th Century Finance Corporation Ltd. [2000] 119 STC 182 (SC); [2000] 6 SCC 12, that if the goods are available, then, the transfer of the right to use goods takes place, when the contract, in respect thereof, is executed, for the right to use goods would stand transferred to the lessee, no sooner the contract is executed. The Supreme Court further observed, in 20th Century Finance Corporation Ltd. [2000] 119 STC 182 (SC); [2000] 6 SCC 12, that if the goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis for levy of tax on the transfer of right to use any goods and where the goods are in existence, the taxable event, on 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 the place, where the contract is executed. Thus, where goods, to be transferred, are available and a written contract is executed between the parties, it is at that point of time (i.e., at the time of execution of the written contract) that the situs of taxable event, on the transfer of right to use goods, would occur and the situs of sale of such a transaction would be the place, where the contract is executed. Relying upon the decision in 20th Century Finance Corporation Ltd. [2000] 119 STC 182 (SC); [2000] 6 SCC 12, the Supreme Court held, in State of Uttar Pradesh v. Union of India reported in [2003] 130 STC 1 (SC); [2003] 3 SCC 239, that handing over of possession of the goods is not sine qua non for completing the transfer of the right to use goods. However, Bharat Sanchar Nigam Ltd. v. Union of India reported in [2006] 3 VST 95 (SC); [2006] 145 STC 91 (SC); [2006] 3 SCC 1, a threeJudge Be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the State concerned. It is, points out the Supreme Court in Bharat Sanchar Nigam Ltd. [2006] 3 VST 95 (SC); [2006] 145 STC 91 (SC); [2006] 3 SCC 1, that the third view, which found approval by the Constitution Bench in 20th Century Finance Corporation Ltd. [2000] 119 STC 182 (SC); [2000] 6 SCC 12, for, the Constitution Bench took the view that the transfer of the right to use took place, where the agreements were executed, and not at the place, where the goods were used, nor at the place, where the goods (pursuant to the agreement) were delivered. In Bharat Sanchar Nigam Ltd. [2006] 3 VST 95 (SC); [2006] 145 STC 91 (SC); [2006] 3 SCC 1, the Supreme Court, however, clarified that delivery of goods, at some stage, is necessary in order to complete the transfer of the right to use the goods. To put it a little differently, though situs of a deemed sale does not depend on the place of delivery of goods, the taxable event is not complete, in the light of decision in Bharat Sanchar Nigam Ltd. [2006] 3 VST 95 (SC) ; [2006] 145 STC 91 (SC); [2006] 3 SCC 1, until the time the delivery of the goods takes place, for, it is upon delivery of the goods that the transfer of the right to use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods, the court had not observed, in 20th Century Finance Corporation Ltd. [2000] 119 STC 182 (SC); [2000] 6 SCC 12, that the delivery of goods was in essential for the purpose of completing the process of transfer of the right to use; rather, the Constitution Bench had held, in 20th Century Finance Ltd. [2000] 119 STC 182 (SC); [2000] 6 SCC 12, points out the Supreme Court, in Bharat Sanchar Nigam Ltd. [2006] 3 VST 95 (SC); [2006] 145 STC 91 (SC); [2006] 3 SCC 1, that the goods must be available, when the transfer of the right to use the goods takes place, and that the Constitution Bench, in 20th Century Finance Corporation Ltd. [2000] 119 STC 182 (SC); [2000] 6 SCC 12, had further recognized that for oral contracts, the situs of the transfer may be the place, where the goods are delivered. The Supreme Court, therefore, held, in Bharat Sanchar Nigam Ltd. [2006] 3 VST 95 (SC); [2006] 145 STC 91 (SC); [2006] 3 SCC 1, that the delivery of the goods may not take place simultaneously with the transfer of the right to use the goods, but the goods must be in existence, deliverable , when the right is sought to be transferred, and must, at some stage, be delivered. It is, therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll as in Aggarwal Brothers [1999] 113 STC 317 (SC); [1999] 9 SCC 182, the goods were in existence and the same were delivered to the contractors for their use. However, while in one case, namely, in Rashtriya Ispat Nigam Ltd. [2002] 126 STC 114 (SC) ; [2002] 3 SCC 314, the transaction was not treated as sale, because there was no intention to transfer the right to use the goods and the effective custody and control of the machinery remained with the transferor, notwithstanding the delivery thereof, the other case, namely, Aggarwal Brothers [1999] 113 STC 317 (SC); [1999] 9 SCC 182 is one, wherein not only that the delivery of the shuttering materials took place, but even the right to use the shuttering materials, in any manner as the contractor wanted, stood permitted and it was for this reason that this transaction was held to be a transaction, which amounted to deemed sale . The relevant observations made, in this regard, by the Supreme Court in Bharat Sanchar Nigam Ltd. [2006] 3 VST 95 (SC); [2006]145 STC 91 (SC); [2006] 3 SCC 1, read as under (page 128 in 3 VST): . . .when the assessee had hired shuttering in favour of contractors to use it in the course of construction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orm, in any case other than the exceptions, which article 366(29A) makes, the State would have no power to separate the agreement to sell from the agreement to render service, and thereby impose tax on the component of sale unless the transaction, in truth, represents two distinct and separate contracts and is discernible as such. In other words, if a contract is a composite contract for the sale of goods and services, it is not permissible for the State Legislature to tax composite contracts comprising of both, sale and services . Not only the contracts cannot be artificially split up so as to enable the sale element to be taxed, the State cannot treat the contract as only a contract of sale of goods and tax thereby the whole value of the transaction as a sale of goods. Thus, a composite contract of sale of goods and service, i.e., consisting of both transfer of right to use and of rendering of service, has to be treated as a contract of service and no sales tax can be imposed on such a type of contract. This takes us to the question as to whether the contract, in the present case, is a contract for transfer of right to use goods. The question whether there is transfer of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . including any extension thereof, three months equipment rental charges as per section A-2 of the price list will be charged as mobilization charges. No mobilization charges are payable for the unit/equipment available in India with the contractor. (b) Demolization charges per unit to place or deportation out of India. Nil demobilization charges at the successful completion of first 36 months of the contract for Nazira and Agaratala or if equipments/ tools released is immediately (without any break) reassigned to nay active CNGC rig/location within India. Otherwise a flat demobilization charge equivalent to three months equipment rental charges for each equipment/tool as per section A-2 of the price list shall apply. These demobilization charges shall also apply for all (optional/additional) equipment/tools mobilized subsequent to initial mobilization of project, unless such (optional/additional) equipments/tools have been on rentals, for a duration of at least 36 months. (l) Payment, if any, on account of contractor s equipment, accessories lost, destroyed or damaged during operation under the circumstances described in article 15.1.1 will be made in accordance wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenses for all necessary documents, invoices for passport and visas for any of the contractor s personnel. The contractor shall pay all wages and salaries to the contractor s personnel deployed under the contract. Notwithstanding anything contained herein to the contrary contractor agrees that the law and the ordinance of the country of origin and the country of the area of operation relating to the employment and welfare of its personnel and their entrance into and exit from the country shall apply. (e) Contractor shall furnish to corporation in area operation, the contractor s list of personnel who will perform the services under the contract. (f) The corporation shall have the full right for good cause to request the removal of any contractor s personnel, either for incompetency, unreliability or misbehaviour, etc., on or off the job. Contractor shall observe any such request at its own cost and will forthwith replace such contractor s personnel at contractor s expenses. The contractor will be allowed a maximum of 2 (two) days to conduct an investigation and correct any such limitation. (g) Contractor shall be responsible for and shall provide at its expenses unless ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uipment. 19.0 Insurance and indemnity insurance The contractor shall arrange comprehensive insurance to cover all risks assumed by contractor under this contract, in respect of its personnel deputed to work under this contract as well as the logging units, tools, equipments, materials and any other belongings of the contractor or their personnel during the entire period of their engagement in connection with this contract. The corporation shall have no liability in this regards whatsoever, except for the tools/equipment and other accessories lost/damaged inside the wells as mentioned in clause 15.0. 22.1 Independent contractor The contractor is an independent contractor performing services as requested by corporation. Corporation is at all times in full care, custody and control of the well. Corporation shall have a responsible representative present to furnish full and adequate instructions relating to the service or services to be performed and corporation s representative shall have full responsibility for all decisions regarding whether to drill or abandon the well, for completion, well treatment and production procedures, and all other activities relating to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge that the data processing charges and the perforating charges to be paid by the contractor are for data processing as per the provisions of the contract and the service performed is pursuant to the provisions of the contract based on service order/job order issued by the ONGC. Similarly, clause 1.23, whereby personnel charges are to be paid to the contractor, is in respect of the personnel employed exclusively for the performance of the services under the contract. The special charges and special operating charges payable to the contractor, as defined in clauses 1.25 and 1.26, are charges for performing operations pursuant to the provisions of the contract based on service order/job order issued by the ONGC. The mobilization charges and demobilization charges payable to the contractor, under clause 4.1.1, are also not for the transfer of right to use any goods. From a reading of clause 5.2, it would further emerge that the contract is for execution of the works in accordance with the specification, drawing and other terms and conditions of the contract and the duty of the contractor s representative is to act, on behalf of the corporation, for overall coordination and the proj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent is read clause by clause, it becomes abundantly clear that in the contract agreement, there is no transfer of right to use the equipment and the contract agreement is merely for rendering services. The transfer of right to use goods would imply relinquishment of both possession and control of the goods by the transferor in favour of the transferee, whereafter, during the transaction, the former would have absolute dominion thereupon to the exclusion of the latter. In the concurring judgment, Dr. Ar. Lakshmanan, J, spelt out the essential attributes of a transaction to constitute transfer of right to use goods, in paragraph 97 of Bharat Sanchar Nigam Ltd. [2006] 3 VST 95 (SC); [2006] 145 STC 91 (SC); [2006] 3 SCC 1 in the following words (page 133 in 3 VST): To constitute a transaction for the transfer of the right to use the goods the transaction must have the following attributes: (a) there must be goods available for delivery; (b) there must be a consensus ad idem as to the identity of the goods; (c) the transferee should have a legal right to use the goods consequently all legal consequences of such use including any permissions or licences required theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of hiring without more, is a species of contract of bailment. Transfer of a right to use goods implies that full liberty is vested in the transferee to have the right to use the goods to the exclusion of all others including the owner of the goods. We respectfully agree with the above observations made in Ahuja Goods Agency [1997] 106 STC 540 (All). There cannot be, therefore, any doubt that a contract agreement has to be read, as a whole, in order to determine the intention of the parties. We also profitably take note of a decision of this court in D.P. Agarwala v. Oil and Natural Gas Corporation Ltd. reported in [2010] 32 VST 8 (Gauhati); [2010] 5 GLR 38, wherein a learned single judge of this court, while examining the issue as to whether the contract of hiring of cranes, amounts to a transfer of right to use the goods, held as under (page 38 in 32 VST): The various clauses referred to hereinabove if considered in conjunction along with the unqualified recital in the scope of work, in the estimate of this court do not comprehend a lease or transfer of right of use of the crane(s) and propel the transaction out of the purview of lease/sale as contemplated by article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h conclusion arrived at in D.P. Agarwala 2010] 32 VST 8 (Gauhati); [2010] 5 GLR 38. What emerges from the above discussion is that the contract agreement, in the present case, obliges the contractor to render the services of welllogging, perforating and other wireline services by using its own equipments and thereby no transfer of right to use equipments can be said to have taken place in the present case. Situated thus, it becomes clear, and we do hold, that the petitioner is not liable to pay tax, under the TST Act, 1976, in respect of the consideration received for the execution of contract, in question; hence, the action of the revenue authority, in raising the demand for deduction of sales tax at source treating the contract, in question, as transfer of the rights to use goods is wholly without jurisdiction and liable to be set aside and quashed, which we hereby accordingly do. The impugned communications, dated 18/20th December, 2004, and 11/ 12th January, 2005, aforementioned, shall stand set aside and quashed. With the above observations and directions, this writ petition shall stand disposed of. No order as to costs. - - TaxTMI - TMITax - CST, VAT & Sales ..... X X X X Extracts X X X X X X X X Extracts X X X X
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