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TMI Blog2012 (7) TMI 924X X X X Extracts X X X X X X X X Extracts X X X X ..... 2011 as the lead cases ---- the first being the appeal by the Revenue and the second being appeal by the assessee against orders of learned Single Judge in identical matters. In Writ Appeal No.286 of 2010 one learned Single Judge has taken view in favour of the assessee while in Writ Appeal No.279 of 2011 another learned Single Judge following an earlier Division Bench judgment dated 25.11.2009 in Writ Appeal No.138 of 2007 (M/S Dipak Nath vs. Oil & Natural Gas Corp. Ltd.) has taken a view in favor of the Revenue. In Writ Appeal No.286 of 2010, the respondent-assessee challenged deduction of tax at source under the Act in respect of the transaction covered under the contract dated 22.06.2009 between the assessee-contractor and the Oil and Natural Gas Corporation Ltd. (ONGC), contractee on the ground that no transfer of right to use was involved, the transaction being in the nature of service. Case of the assessee was that it owned cranes and in pursuance of notice inviting tenders issued by the ONGC for hiring cranes, the assessee had entered into the contract. The cranes were placed at the disposal of the contractee ONGC on day to day basis, without transfer of possession and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of chargeability of VAT. Providing of service for operating the cranes was incidental to the contract of transfer of right to use the cranes. Even if the transaction involved two overlapping taxable events, distinctiveness of the aspect of sale enabled levy of VAT on the transaction. Learned Single Judge, after considering the rival submissions, upheld the plea of the assessee. The Division Bench judgment of this Court in Dipak Nath was held to be distinguishable on the ground that the transaction involved therein was not unequivocal that cranes were being made available for services of ONGC, though substantially identical, the plea of indivisibility of composite contract was not decided therein and the transaction was prior to amendment of provisions of service tax by the Finance Act, 2008. It was further held that as per the recital in the scope of work, dominion of the contractee ONGC, without cessation of duty of the contractor assessee to maintain the cranes could not give rise to the interference of transfer of control of the cranes. The operative part of the observations in the said judgment are : "27. The various clauses referred to hereinabove if considered in conjuncti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the clauses bearing on the minutiae of the operations did not contemplate transfer of right of use of the cranes by the contractors in favour of the Corporation divesting themselves of their authority and control over the same. 28. The determination made by a Division Bench of this Court in Writ Appeal No.138/2007 Dipak Nath v. Oil & Natural Co. Ltd. and Ors. and a batch of other writ appeals and writ petitions accompanying the same in view of the apparent distinguishable features in the contract agreements involved, in the present adjudication does not wrest the issue in favour of the Revenue. Not only the contract agreements scrutinized in the aforementioned appeals, though otherwise substantially identical with those in hand did not inscribe the striking and unequivocal recital that the services of the manned Cranes to be made available for performing the duties of the Corporation would not be by way of lease or transfer of rights for use thereof by the contractors to it (Corporation), the parties thereto, in clear terms contemplated realization and payment of service tax at the rate of 10.3 % thereon under the Finance Act, 1994. Moreover, the plea of indivisibility of a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lause 8.7 of the contract agreement day-to-day operations are to be performed as per instructions given to the contractor's representatives by the authorized representatives of the ONGC. Under clause 8.11 normal working hours is to commence from 7.00 hours for 10 hours everyday with half an hour as lunch break. However, the said clause has specifically mentioned that the timings indicated therein are subject to change and cranes may be asked for services beyond the normal working hours at the sole discretion of the ONGC. Under clause 8.12, a contractor is required to provide the crane on all days in the calendar month except 4 (four) days which are to be treated as maintenance off days. Even on such maintenance off days the ONGC can demand operation of the cranes by the contractor. Under clause 8.14 the employees provided by the contractor are to be provided with suitable residence at a convenient place near the site of operations so as they can be available for duty for 10 hours starting from 7.00 hours to 1700 hours or as directed by the authorized representative of the ONGC. Under clause 9.10 of the contract agreement the contractor is to arrange the fuel lubricants and othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ys, yet, 50% of the operational charges is paid by the ONGC for the maintenance off days and the terms of the contract make it clear that even on the off days the crane can be called for operation by the ONGC at its sole discretion. 20. The above features of the contract, in our considered view, makes it abundantly clear that it is the ONGC and not the contractor who has exclusive control and dominion over the crane during the subsistence of the contract, though, during the aforesaid period, at times, physical possession of the crane may come back to the contractor. Such temporary physical possession of the contractor, according to us, would hardly be relevant as under the contract the ONGC is vested with the authority to requisition the crane for operational purposes at any time. Besides, such temporary possession of the crane by the contractor does not mitigate against the transfer of the right to use the crane which event, as already indicated on the authority of the decision of the Apex Court in 20th Century Finance Corpn. Ltd. (supra), constitutes the taxable event under article 366(29A)(d) of the Constitution." We have heard learned counsel for the parties. Learned counse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to transfer the right to use, that the goods are available and deliverable. If the goods, or what is claimed to be goods by the respondents, are not deliverable at all by the service providers to the subscribers, the question of the right to use those goods, would not arise. 76. In State of A.P. v. Rashtriya Ispat Nigam Ltd. (2002)3 SCC 314 it was claimed by the Sales Tax Authorities that the transaction by which the owner of certain machinery had made them available to the contractors was a sale. The Court rejected the submission saying that: (SCC p. 315, para 4) "[T]he transaction did not involve transfer of right to use the machinery in favour of contractors. ... the effective control of the machinery even while the machinery was in use of the contractor was [(1984) 280 SC 138] that of the respondent Company; the contractor was not free to make use of the machinery for the works other than the project work of the respondent or...." 77. But in Aggarwal Bros. v. State of Haryana (1999) 9 SCC 182 when the assessee had hired shuttering in favour of contractors to use it in the course of construction of buildings it was found that possession of the shuttering materials was tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transferee to use the goods to the exclusion of the transferor during the period of the contract and not merely a licence therefor, (2) the legal right of the transferee to use the goods with all legal consequences thereof including permissions or licence to be available to permit the exercise thereof. The transfer of right would thus imply relinquishment of both possession and control of the goods by the transferrer in favour of the transferee whereafter during the transaction the former would have absolute dominion thereupon to the alienation of the latter. The enjoinments proclaimed by the various clauses of the contract agreements albeit are to secure the maximum utilization of the manned Cranes and the quality services to be rendered thereby, (i) all permeable supervision of the contractors over the works to be executed on the instructions of the representatives of the Corporation, (ii) their singular responsibilities and liabilities to guarantee the availability of the manned Cranes while ensuring the perfect working condition thereof (iii) the insulatory stance of the Corporation from all liabilities, risks, hazards, claims etc. that may arise from the operations and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e gathered from the totality of the terms of the contract. As held in BSNL, for determining whether transfer of right to use the goods was involved, there must be goods available for delivery; there should be consensus as to identity of goods; the transferee should have legal right to use the goods, to the exclusion of the transferor. Applying these tests, the Division Bench of this Court in Dipak Nath held that transfer of right to use the goods was involved in the transaction. We are in respectful agreement with the view taken therein. The distinguishing features pointed out by the learned Single Judge are of no consequence to the core issue. Question whether it was transfer of right to use did not depend on the provisions of the Service Tax law and thus amendment by Finance Act, 2008 had no relevance to determine the said question. Plea of indivisibility of the contract also did not make any difference, if the transaction clearly involved transfer of right to use. The terms of the contract have already been analyzed in the Division Bench judgment in Dipak Nath and present contract is substantially identical. The agreement is for hiring of the cranes. The heading and the reci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (slushy)/installations etc. The area of operation shall normally be in connection with the activities of Assam asset of ONGC or anywhere as per requirement of ONGC in and around Sivasagar, Jorhat, Dibrugarh Districts Assam. 2. CRANES AND ITS OPERATION: 2.1 Cranes placed at the disposal of ONGC should be available through out the contract duration with the required efficiency/fitness to handle loads upto the designed capacity." "9. RATES AND MODE OF PAYMENT: 9.1. The contractors shall raise crane wise monthly bills in TRIPLICATE in the prescribed proforma in the name of FINANCE & ACCOUNTS OFFICER, ONGC and submits the same to Incharge-Logistic-Operations, ONGC, or any other authority advised from time to time for arranging payment. These bills will be duly supported by the completed logbook sheets to him duly signed by the authorized officers for record by the Logistic Department. The bills after verification and checks by an authorized officer of ONGC (Logistic Department) will be sent to Finance & Accounts Department for payment. The payment shall be made to the contractor by cheque drawn on State Bank of India. The payment shall normally be made within 30 days of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Clause 1.31 of Section A of Annexure II of the contract, as the case may be. No other payment for this period will be made. The decision of ONGC with regard to stuck up condition will be final and binding and the contractor will abide by the decision of ONGC. vi. The payment of hired charges of crane(s) will be made on the basis of crane utilization record (date/time/period etc.) entered in the log book of crane(s) provided to the contractor by ONGC, the contractor should maintain logbook and see that proper crane utilization/operations are recorded in the log book of the crane and Log book is completed in all respect duly signed by ONGC's user/representative without any erasing, overwriting, cutting whatsoever. Whenever necessary and if any entry is cut/rewritten it should be got signed by the user. Lob Book should be completed every day before closing. 9.3. The above rates are inclusive of all expenses, which means every expenditure necessary for the continuance of the services of the cranes throughout the contract duration. Such expenses shall also include(but not restricted to) payments to Regional Transport Authorities, Labour Authorities, any Government/semi-governmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne which is entitled to exclusively use the cranes and not the assessee. On totality of above factors, we, conclude that the transaction clearly involved transaction of right to use. Coming now to the judgments relied upon on behalf of the assessee, the judgment of Hon'ble Supreme Court in Bhopal Sugar Industries relates to interpretation of words in a transaction and holds that the Court has to see thesubstance than the form. There is no dispute with this proposition. Judgments in (1) Commissioner, Trade Tax, U.P., Lucknow vs. Jamuna Prosad Jaiswal, (2008) 13 VST 403 (All), ( 2) Rungta Projects Limited and another vs. State of Bihar and others, (1998) 108 STC 234 (Pat) and ( 3) Commissioner, VAT, Trade and Taxes Department vs. International Travel House Ltd., (2009) 25 VST 653 (Del) are on individual fact situations. The nature of contract involved therein being different, the said judgments are of no assistance. As regards HLS Asia Limited, the transaction involved therein is also not identical. Moreover, the said judgment in referring to the impugned judgment of the learned Single Judge with approval cannot be read as dissenting from the Division Bench judgment of this Co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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