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TMI Blog2014 (5) TMI 570X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the charging provision does not arise. Evidencing the fact that the effective control of the rigs remained with the contractor, that the assessee merely gave a directions where the rigs were to operate, even in the context of the assessee giving directions to the contractor to take the rigs to the specified points, the said direction per se does not mean that the assessee had complete control over the machinery – Thus, a reading of the various terms show that what is given to the assessee by the contractor was his services through the rigs owned by the contractor and going by the decision referred to above, there is no hesitation in accepting the assessee's case. Considering the various clauses in the agreement, indicating that the effective control ever remained with the assessee, the mere fact that the area of operations were as stated by ONGC does not make rigs as come under the effective control of the ONGC to bring transactions as assessable under Section 3-A of the Act - Thus, applying the decision of the Apex Court reported in [2002] 126 STC 114 STATE OF A.P. v. RASHTRIYA ISPAT NIGAM LIMITED and the subsequent decision reported in BHARAT SANCHAR NIGAM LIMITED v. U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es laid down by the Supreme Court reported in 126 STC page 114 in the case of Rashtriya Ispat Nigam Ltd. Whether there is transfer of right to use so as to attract the levy of tax under section 3-A of the TNGST Act? 2. The assessment year relates to 1987-88. It is seen from the facts herein that the assessee had an agreement with ONGC for conducting drilling operation in the offshore waters of India. The contention of the assessee was that drilling equipment always remained with the assessee, who are the contractors. The effective control and possession was never handed over to ONGC. The drilling operations were done only by the personnel of the assessee. In the circumstances, there was no transfer of right to use goods to fall under Section 3-A of the Tamil Nadu General Sales Tax Act. The assessee also placed reliance on the various clauses in the agreement only to point out that the nature of work executed was more in the nature of services. In the circumstances, the assessee contended that receiving of service charges would not fall under Section 3-A of the Tamil Nadu General Sales Tax Act. However, the contention of the assessee was rejected by the Assessing Authority by ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y falls within the scope of the decision of the Supreme Court in the case of STATE OF A.P. v. RASHTRIYA ISPAT NIGAM LTD., - 126 STC 114. He contended that even if the machines were handed over to the contractor therein, the principle is that so long as no effective control over the goods remained with the owner, there is no transfer of right to use goods. Learned counsel for the assessee also placed reliance on the decision of the Apex Court in the case of AGGARWAL BROTHERS v. STATE OF HARYANA 113 STC 317 and submitted that mere handing over of possession by itself would not result in the transfer of right to use goods. Thus, so long as the machineries are under the effective control of the operator, direction given by the ONGC as to the location where drilling operation are to be conducted does not result in transfer of right to use goods so as to attract Section 3-A of the Tamil Nadu General Sales Tax Act. 7. Per contra, learned Special Government Pleader (Taxes) appearing for the Revenue took us through Annexure D of the agreement and contended that the operation of the rigs was specifically at the disposal of the ONGC to operate in areas specified by ONGC. Thus, even if the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mal drilling operation due to the requirements of personnel or equipments or the unit could not move in water depths. Article 3.12 provides for personnel mobilization and performance bond. Article 4 deals with materials, supplies, equipment, service and personnel to be furnished by contractor. Article 5 deals with materials, supplies, equipment, services and personnel to be furnished by operator. The Tribunal placed emphasis on this article to hold that there was transfer of right to use the goods. It held that given the fact, the operator has responsibility of supply of materials and personnel, it indicated that there was effective control over the machinery by the operator. Article 5 refers to materials, supplies, equipment, services and personnel to be furnished by ONGC. They are listed under Annexure D. A perusal of the same shows supply of fresh water for drilling, cementing and wash down of ONGC equipment, spare parts and operating supplies for operator's (ONGC) equipment was on the ONGC. The maintenance of operators equipment upto the ability of the contractors on board personal was on the contractor. For obtaining third party drilling services, was on the ONGC operator. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Sales Tax Act which is similar to Section 3A of the Tamil Nadu General Sales Tax Act, in the decision reported in [1990] 77 STC 182 (RASHTRIYA ISPAT NIGAM LIMITED v. COMMERCIAL TAX OFFICER, COMPANY CIRCLE, VISAKHAPATNAM), the Andhra Pradesh High Court held that since there is no transfer of right to use goods, there could be no occasion for levying tax under Section 5E of the Andhra Pradesh General Sales Tax Act. A mere provision of a facility which involves the use of goods or even the right to use goods, per se, is not sufficient to attract the charging provision. There must be a transfer of that right. The High Court further held that the transfer of right to use goods necessarily involves delivery of possession by the transferor to the transferee. Delivery of possession to a thing must be distinguished from its custody. On the terms of agreement, it was held Thus the essence of transfer is the passage of control over the economic benefits of the property, which results in terminating the rights and other relations in one entity and creating them in another. Going through the agreement, the Court held that all that the contractor was entitled was to make use of the machi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xcept in the case of deemed sale falling under sub clause (b). Nor can the service element be disregarded and the entirety of the transaction be treated as a sale of goods (even when it is assumed that there is any goods at all involved) except when it falls under sub clause (f). This will also result in an anomaly of the entire payment by the subscriber to the service provider being for alleged transfer of a right to use goods and no payment at all for service. The licence granted by the Central Government fixes the tariff rates and all are for services. 17. Thus, the decision of the Apex Court show that in the case of deemed sale relating to transfer of right to use any goods for any purpose, what is required to be seen is the intention of transfer of right to use the goods, which in turn imply transfer of effective control for goods. Read in the context of the decision reported in [2002] 126 STC 114 (State of A.P. Vs. Rashtriya Ispat Nigam Ltd. (S.C.), so long as the owner retains effective control over the goods, mere possession given without a right accompanying thereto to result in the transfer of right to use the goods as he likes, the question of bringing the transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f right to use. The said decision arrived at not only after noting the decision of the Apex Court referred in the preceding paragraph, but by referring to the various clauses in the agreement. Thus, going by the facts therein, the Karnataka High Court upheld the Revenue's contention as to the assessability of the transactions. 20. As far as the case before us is concerned, as already pointed out, considering the various clauses in the agreement, indicating that the effective control ever remained with the assessee, the mere fact that the area of operations were as stated by ONGC does not make rigs as come under the effective control of the ONGC to bring transactions as assessable under Section 3-A of the Act. Thus, applying the decision of the Apex Court reported in [2002] 126 STC 114 STATE OF A.P. v. RASHTRIYA ISPAT NIGAM LIMITED and the subsequent decision reported in [2006] 145 STC 91 BHARAT SANCHAR NIGAM LIMITED v. UNION OF INDIA, we have no hesitation in accepting the assessee's contention thereby setting aside the order of the Tribunal. We hold that the transactions did not amount to transfer of right to use the goods to fall under Section 3-A of the Tamil Nadu Gen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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