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TMI Blog2024 (1) TMI 137X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of GS. LAMBA AND SONS VERSUS STATE OF ANDHRA PRADESH [ 2011 (1) TMI 1196 - ANDHRA PRADESH HIGH COURT] Hon ble Andhra Pradesh has held that The existence of goods is identified and the transit mixers operate and are used for the business of Grasim. Therefore, conclusively it leads to the only conclusion that the petitioners had transferred the right to use goods to Grasim. In the case of GIMMCO Ltd. [ 2016 (12) TMI 394 - CESTAT MUMBAI] , Mumbai Tribunal has held that the transaction involved herein is transfer of right to use which is a deemed sale and not supply of tangible goods for use service. Under the identical set of facts it was viewed that the right of possession and effective control has been transferred particularly considering the fact that the lessor have paid the VAT considering the transaction as deemed sale in terms of Article 366 29 (A) of the Constitution of India. Since the same facts and issue involved in the present case, the ratio of above judgments are directly applicable in the present case also. The demand of service tax under tangible goods for use service in the present case is not sustainable - the impugned order is set aside - A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the following judgments:- M/s. G.S Lamba Sons 2015 (324) ELT 316 (AP) Kalpataru Power Transmission Ltd 2022 (1) Centax 56 (Tri.Ahmd) AIMS Pharma Pvt Ltd 2019 (5) TMI 240 CESTAT Ahmedabad GIMMCO Ltd 2017 (48) STR 476 (Tri. Mumbai) Circular No. 334/2008 TRU dated 29.02.2008. 2.1 He alternatively submits that the captioned issue was under litigation in various cases before the Tribunals and High Courts and appellant was always under bonafide belief that the transactions are to be treated as deemed sale and accordingly appropriate VAT was paid by the appellant. Therefore, there is no willful suppression on the part of the appellant with intent to evade the payment of service tax during the material period. Therefore, the demand is time bar as the entire period is under extended period. 3. Shri Anoop Kumar Mudvel, Learned Superintendent (AR) appearing on behalf of the Revenue reiterates the finding of the impugned order. 4. We have carefully considered the submission made by both sides and perused the records. We find that to decide whether the leasing of tangible goods falls under the category of supply of tangible goods for use servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e : Whether the petitioners contract is for transfer of the right to use Transit Mixers to M/s. Grasim Industries Limited for transporting the RMC? And whether the State Sales Tax Appellate Tribunal has committed any error warranting interference under Section 22(1) of the Andhra Pradesh General Sales Tax Act, 1957? Revisional jurisdiction under APGST Act 7. We will first deal with second issue. The petitioners would contend that the exercise of jurisdiction under Section 20(2) of the Act is barred when two views are equally possible and one of which is accepted by the original authority. This argument is sought to be sustained relying on Malabar Industrial Co. Ltd. v. Commissioner of Income Tax - (1989) 73 STC 370 : (1989) 2 SCC 645 (para 32), CIT v. Arvind Jewellers - 259 ITR 502 (Guj.), Commissioner of Income Tax v. Greenworld Corporation - (2009) 314 ITR 81 (SC) and Commissioner of Income Tax v. Associated Food Products and Popular Bread Factory - (2006) 280 ITR 377 (MP). These judicial decisions were rendered in the context of Section 263(1) of the Income Tax Act, 1961, not with reference to the language of Section 20(1) of the APGST Act. The scope of revisional j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erroneous insofar as it is prejudicial to the interest of the revenue . In Malabar Industrial Co., Ltd., the Supreme Court held that, the Commissioner of Income Tax has to be satisfied of twin conditions, namely, (i) the order of the assessing officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the revenue (and) if one of them is absent - if the order of the Income Tax Officer is erroneous but is not prejudicial to the revenue or if it is not erroneous but is prejudicial to the revenue - recourse cannot be had to Section 263(1) of the Act . On the other hand, Section 20(1) of the Act confers suo motu power on the Commissioner of Commercial Taxes and other prescribed authorities to call for the record and modify or set aside the order of any assessing authority, if such order or proceeding recorded is prejudicial to the interests of revenue . Thus, it would be enough to have recourse to Section 20(1) of the Act if any assessment order or proceeding is prejudicial to the revenue. This construction under the APGST Act may have certain exceptions with which we are not concerned here. We are well supported by two decisions of this Court in B.S. Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is to the effect that a transfer of the right to use any goods for any purpose shall be deemed to be sale. When is the right to use goods said to have been transferred? To appreciate this, a brief journey into the past relating to tax on sale of goods under Entry 54 of List II of the Seventh Schedule to the Constitution of India may be necessary. 12. The Sale of Goods Act, 1930 defined sale as a contract of sale of goods whereby the seller transfers or agrees to transfer the property in goods to a buyer for price. Goods means every kind of movable property other than actionable claims and money and includes stock and shares, growing crops, grass and things attached or form part of the land which are agreed to be severed before sale or under the contract of sale . In the pre-constitution era, for the purpose of sales tax law, the expression sale of goods was construed as having the same meaning as in the Sales of Goods Act. Firmly established in State of Madras v. Gannon Dunkerley Co. (Madras) Limited - (1958) 9 STC 353 : AIR 1958 SC 560, this view influenced the sales tax law enormously. In New India Sugar Mills Limited v. CST - (1963) 14 STC 316 : AIR 1963 SC 120 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntithesis exists. Ingredient Antithesis (i) Agreement to transfer title Title passing without agreement, or no transfer of title. (ii) In goods Title passing under the agreement but not for goods. Illustrative situation - Works contracts (No agreement to transfer the very goods which come into existence). (iii) For money Title passing for value other than money. Illustrative situation - Barter. (iv) Passing of title as a result of the agreement Title does not pass because there is only an agreement (or some prior step), and no complete sale. Illustrative situations - (a) Hire-purchase (b) Consignment transfer. 2. The basic defect in the present scheme is that a very limited type of economic activity is taxable by the States, -- and other economic activities are not taxable, except by way of excise duties or indirectly by way of stamp duties. This leaves room for loopholes and gaps. It woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made. 15. The expression tax on sale or purchase of goods is an inclusive definition. It must receive a wide and expansive meaning. The latter part of clause (29A) contemplates that such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods . The sub-clauses (a) and (b) use transfer ; sub-clause (c) uses delivery ; sub-clause (d) uses transfer of the right to use goods , and sub-clauses (e) and (f) use supply of goods while defining deemed sale. Thus under the sub-clause (d) there would be deemed sale if the right to use goods is transferred even though delivery is not an essential part of such transfer of the right to use goods. In other words, the moment the right to use goods is transferred, the taxable event happens. When would such transfer of the right to use goods de facto comes within the gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether or not for a specified period, to any lessee or licensee for cash, deferred payment or other valuable consideration, in the course of his business shall, on the total amount realized or realizable by him by way of payment in cash or otherwise on such transfer or transfers of the right to use such goods from the lessee or licensee, pay a tax at the rate of five paise in every rupee of the aggregate of such amount realized or realizable by him during the year : Provided that no such tax shall be levied if the total turnover of the dealer including such aggregate is less than Rs. 1,00,000. 18. The challenge to the above provision failed before this Court in Padmaja Commercial Corporation v. Commercial Tax Officer - (1987) 66 STC 26 : (1987) 4 APSTJ 26. 19. In all probability, for the first time, the scope of above provision fell for consideration before the Division Bench in Rashtriya Ispat Nigam Limited v. CTO - (1990) 77 STC 182 (AP) (RINL-I) comprising Jeevan Reddy and Syed shah Mohammad Quadri, JJ (as they then were). In certain civil works by contractors, RINL provided special machinery like cranes, docers, dumpers, road rollers, compressors etc., for hire c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when it takes place outside the State, the fact that subsequently the goods have reached the State where the tax is sought to be imposed, cannot be a ground for determining the tax liability. The decision of the Bombay High Court in 20th Century Finance Corporation Limited, (1989) 75 STC 217, proceeds on the footing that a transfer of the right to use is different from sale without considering the fiction introduced by clause (29A) of Article 266 of the Constitution. . . The principle that where a State law while defining the expression sale makes the situs a relevant consideration for the purpose of determining a deemed sale, the same cannot bring within its ambit inter-State sales or sales in the course of import and export was again emphasized by the Supreme Court in Builders Association of India v. State of Karnataka, (1993) 88 STC 248 : AIR 1993 SC 991. 21. In order to get over the above dicta, by A.P. Act No. 22 of 1995, Section 5-E was substituted, which reads as under. 5-E. Tax on the amount realized in respect of any right to use goods : Notwithstanding anything contained in this Act;- (a) Every dealer who transfers the right to use any goods for an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to use goods; sub-clause (e) on supply of goods; and sub-clause (f) on supply of services. The words and such transfer, delivery or supply ... in the latter portion of clause (29A), therefore, refer to the words transfer, delivery and supply, as applicable, used in the various sub-clauses. Thus, the transfer of goods will be a deemed sale in the cases of sub-clauses (a) and (b), the delivery of goods will be a deemed sale in case of sub-clause (c), the supply of goods and services respectively will be deemed sales in the cases of sub-clauses (e) and (f) and the transfer of the right to use any goods will be a deemed sale in the case of sub-clause (d). Clause (29A) cannot, in our view, be read as implying that the tax under sub-clause (d) is to be imposed not on the transfer of the right to use goods but on the delivery of the goods for use. Nor, in our view, can a transfer of the right to use goods in sub-clause (d) of clause (29A) be equated with the third sort of bailment referred to in Bailment by Palmer, 1979 Edn., p. 88. The third sort referred to there is when goods are left with the bailee to be used by him for hire, which implies the transfer of the goods to the bailee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24. In State of Andhra Pradesh v. Rashtriya Ispat Nigam Limited - (2002) 3 SCC 314 : AIR 2002 SC 1305 : (2002) 126 STC 114 (SC) = 2013 (31) S.T.R. 513 (S.C.), the decision of the High Court in RINL-I was affirmed by the Apex Court holding that so as to attract levy of tax under Section 5-E, the essential requirements of the transfer of the right to use must be shown to exist and collection of mere hire charges is not excisable to sales tax. The relevant observations are as under. The High Court after scrutiny and close examination of the clauses contained in the agreement and looking to the agreement as a whole, in order to determine the nature of the transaction, concluded that the transactions between the respondent and contractors did not involve transfer of right to use the machinery in favour of the contractors and in the absence of satisfying the essential requirement of Section 5-E of the Act, i.e., transfer of right to use machinery, the hire charges collected by the respondent from the contractors were not exigible to sales tax. On a careful reading and analysis of the various clauses contained in the agreement and, in particular, looking to Clause 1, 5, 7, 13 and 14, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or licences required therefore should be available to the transferee; (d) for the period during which the transferee has such legal right, it has to be the exclusion to the transferor - this is the necessary concomitant of the plain language of the statute viz., a transfer of the right to use and not merely a licence to use the goods; and (e) having transferred the right to use the goods during the period for which it is to be transferred, the owner cannot again transfer the same rights to others. 26. At this stage, the following principles to the extent relevant may be summed up. (a) The Constitution (Forty-sixth) Amendment Act intends to rope in various economic activities by enlarging the scope of tax on sale or purchase of goods so that it may include within its scope, the transfer, delivery or supply of goods that may take place under any of the transactions referred to in sub-clauses (a) to (f) of Clause (29A) of Article 366. The works contracts, hire purchase contracts, supply of food for human consumption, supply of goods by association and clubs, contract for transfer of the right to use any goods are some such economic activities. (b) The transfer of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lls of Lading (Twenty-first edn., by Stewart C. Boyd CBE Q.C.). He has also invited attention of this Court to the decisions of the Supreme Court in 20th Century, BSNL, RINL-I and RINL-II, and decisions of various High Courts in Ahuja Goods Agency v. State of Uttar Pradesh - (1997) 106 STC 540 (All.), Lakshmi Audio Visual Inc v. Assistant Commissioner of Commercial Taxes - (2001) 124 STC 426 (Kar.), Commissioner, VAT, Trade and Taxes Department v. International Travel House Limited - 2009-10 DST J-77 (Del.), State of Orissa v. Dredging Corporation of India Limited - 25 VST 522 (Ori.) and Indian Oil Corporation v. Commissioner of Taxes - 22 VST 70 (Gau.). 28. The Special Counsel for CT relies on the contract between the petitioners and Grasim, and the observations made by this Court in RINL-I as well as BSNL, to refute the petitioners case. He also brought to our notice an unreported Judgment of this Division Bench in Jasper Aqua (P) Limited v. State of Andhra Pradesh (T.R.C. No. 270 of 2010, dated 3-11-2010). He also pointed out that the Judgment of the learned single Judge in Indian Oil Corporation was expressly disapproved in Deepak Nath v. ONGC - (2010) 31 VST 337. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ship, and to this extent, that he has given to the charterer a power and right independent of him, and without reference to him to do what he pleases with regard to the captain, the crew, and the management and employment of the ship. That has been called a letting or demise of the ship. The right expression is that it is a parting with the whole possession and control of the ship. Time charters almost always contain expression such as letting:, hiring , hire , delivery and redelivery , which are really apt only in charters by demise. These expressions serve to distinguish such charters from voyage charters, but they do not in themselves characterize such charters as chatters by demise. Indeed many time charters expressly provide that the charter should not be construed as a demise of the vessel. (emphasis supplied) We may now tabulate various precedents in the following statement. Statement of Judicial Decisions Sl. No. Citation Goods and nature of transaction Finding of the Court 1. (1997) 67 STC 199 (Cal) (Bank of India v. CTO) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there was a transfer of the right to use bus for consideration, and effective control, general control and possession of the bus vested in the Corporation. 6. (1993) 88 STC 357 (P H) (Harbans Lal v. SoHaryana) Tents, kanats, crockery, utensils, furniture, shuttering material, gas cylinders and buses - These are given on hire to third parties. The authorities levied the sales tax on the hire amount under Haryana Act. The terms of the contract determine whether or not there is transfer of right to use goods. Delivery of possession of goods is essential ingredient. If erected tents are given to customers, it will not be goods and any transfer of right to use shall be exercisable to sales tax. The transfer of chairs, tables, crockery would be deemed sale. Hiring of shuttering material to builders/contractors amounts to transfer of the right to use goods. The supplying of purified acetylene gas cylinders to customers is transfer of the right to use goods. The hiring of buses for transportation of personnel of the company with effective or general control with the transferee amounts to transfer of the right to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods. But if the work is entrusted to the contractor for achieving desired results and such work also involves use of the goods, it will not be deemed sale within the meaning of the transfer of the right to use goods. 10. (2006) 6 SCC 1 : (2006) 145 STC 91 (SC) (BSNL v. UoI) Mobile telephone connections - BSNL and such other service providers - Telephone service connections. The infrastructure/ appliances exchanges through which electro magnetic/radio waves carrying signals are controlled by the service provider. Goods do not include electro magnetic waves or radio frequencies for the purpose of Art. 366(29A)(d). The goods in telecommunications are limited to the handsets supplied by mobile service provider. In composite contract of service and sale, the sale element is liable to the State tax. The attributes that qualify transaction for the transfer of right to use the goods are availability of goods for delivery, consensus ad idem about identity of goods. Legal right of transferee to use goods along with permissions or licences for such use, exclusive use by the transferee and owners disentitlement to tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use of goods is decided by the lessee or the customer, it would be under the effective or general control over the goods; and (v) the approvals, concessions, licences and permits in relation to goods would also be available to the user of goods, even if such licences or permits are in the name of owner (transferor) of the goods, and (vi) during the period of contract exclusive right to use goods along with permits, licences etc., vests in the lessee. 31. The counsel also brought to our notice the decisions in Ahuja Goods Agency, Commissioner, Trade Taxes, Uttar Pradesh v. Jamna Prasod Jaiswal - (2008) 13 VST 403 (All.), R.P. Kakoty v. ONGC - (2009) 22 VST 136 and International Travel House Limited. We, however, do not feel it necessary to refer to these as they involve similar questions. As has been held in a number of precedents, the nature of transaction and the issue whether the contract is for the transfer of the right to use the goods or for providing service depends on the intention of the parties to be determined on a construction of the contract. 32. At this stage, we need to visit the principles of interpretation of contracts. In Dr. K. Subbaiah v. C.N. Krishnama ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lies the exclusion of another], Verba relata hoc maxime operantur per referentiam ut in eis inesse videntur [Words to which reference is made in an instrument have the same operation as if they were inserted in the clause referring to them] and Ad proximum antecedens fiat relatio, nisi impediatur sententia [Relative words refer to the next antecedent, unless by such construction the meaning of the sentence would be impaired] furnish subsidiary rules while discovering the intention of the parties. 35. The third principle is to give literal meaning to the words used in a document. There are five legal maxims relatable to this principle. The legal maxim ut res magis valeat quam pereai [A liberal construction should be put upon written instruments, so as to uphold them, if possible, and carry into effect the intention of the parties] means that statute must be read always in such a manner that it would not lead to absurdity and make the instrument workable. Literal meaning depends on the circumstances of the parties and technical legal terms will always be given their legal meaning. When the language is very clear, the interpreter is precluded from supplying the words or reading s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid : The rule that words shall be construed most strongly against him who uses them gives place to a higher rule; higher because it has a moral element, that the construction shall not be such as to work a wrong. Similarly, in Fausset v. Carpenter, (1831) 2 Dow Cl 232 : 6 ER 715, the House of Lords accepted the submission of counsel that the court : ... in judging of the design and object of a deed, will not presume that a party executing the deed meant to do and did what he was wrong in doing, when a construction may be put on the instrument perfectly consistent with his doing only what he had a right to do. However, the question of construction should not be approached with a leaning in one direction or another. Thus although the law frowns upon covenants in restraint of trade, nevertheless such a covenant should not be approached on the basis that it is prima facie illegal. You are to construe the contract, and then see whether it is legal. 38. On the sidelines, a not so insignificant issue is raised by the Special Counsel. The agreement which is part of the record does not contain the day or date and the place of execution of the contract by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dicate that it was entered into between the parties elsewhere than at Secunderabad. The first page of the agreement in its footnote contains the address of the Marketing Department of Grasim sufficient enough to conclude that it was entered into between the parties at Secunderabad. Even otherwise it is fairly well settled that the transfer of the right to use goods can be effected even under an oral agreement. Hence, submission of the special counsel is rejected. 40. That brings us to the construction of the agreement between the parties which indisputably came into force on 1-10-2002. The intention of the parties as noticed supra has to be understood by reading the entire agreement; reading a word here or a clause there is not sufficient. Grasim was looking for a transporter to take care of the transporting need of their RMC plants in Hyderabad. The petitioners, who are owners of Transit Mixers, were looking for advancing their business interest in Hyderabad. The latter approached the former offering their Transit Mixers to take care of all transporting solution needs. These essentially form part of the recitals. The Habendum of the agreement speaks of the petitioners providi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms and conditions of this agreement will remain unaffected by this change. B. That the Second party will ensure that adequate number of vehicles are made available on a 24/7 basis i.e., 24 hours and everyday of the weeks as per the instructions of the officials of the First party. If the Second party fails to provide the vehicles as desired it shall attract penalties as prescribed later in this document. The First party agrees that the Second party will require upto 2 days a month for the maintenance and upkeep of the vehicles and will, therefore, allow 2 days a month for this activity and will not demand any penalty for these days. C. That the Second party will be solely responsible for ensuring that the produce of the First party reach the destination in time and as per the agreed schedule. No delay on any account will be acceptable and the Second party must ensure safe delivery of the produce. D. That the produce of the First party has a strong Brand Equity in the market and they would like the vehicles to be painted in a particular style and color. The Second party has agreed to get the same done at their cost and have also assured the First party that they s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the petitioners. Though the phrase offer services to take care of transporting solution needs is used the real purpose, as can be seen from the second part, is to enable Grasim to have the right to use the Transit Mixers. The agreement requires the petitioners to provide drivers to be dressed in uniform, and all of them are to obey the lawful instructions issued by Grasim. Further RMC has to be delivered by these drivers in Transit Mixers only at the time and places as instructed by the officials of Grasim, and the petitioners have no right to carry RMC wherever and whenever they like. Thus the full control on the method, manner and time of using the Transit Mixers, owned by the petitioners vests absolutely in Grasim. 43. Clauses A to E and L deal with the second aspect of the agreement. Under these, the petitioners agreed to provide five dedicated fleet of five Transit Mixers 24/7 i.e., twenty-four hours every day of the week as per the instructions of Grasim for transporting RMC during the period from 1-10-2002 to 31-3-2006 (42 months). These dedicated vehicles are to be painted in a particular style and colour which has to be re-painted once in six months. For any th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perused the records. We find that the issue to be considered by us is that whether the supply of cylinders is a deemed sale in terms of Article 366 (29A) of constitution as deemed sale or it falls under definition of supply of tangible goods for use under the Finance Act, 1994. The definition of the alleged services needs to be gone through which is reproduced below: The definition of supply of tangible goods as per the provision of section 65 (105)(zzzzj) of the Finance Act, 1994- taxable services means any service provided or to be provided to any person by any other person in relation to supply of tangible goods including machinery equipments and appliances for use without transferring right of possession and effective control of such machinery, equipments and appliances . From the above definition, it is clear that for the supply of tangible goods is for use by other person but without transferring right of possession and effective control, then only such supply shall classify under the taxable services of supply of tangible goods\service. Now it is to be seen that whether the supply of cylinders are with or without transferring right of possession and effec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated as sale of goods, is treated as service. 4.4.3 Proposal is to levy service tax on such services provided in relation to supply of tangible goods, including machinery, equipment and appliances, for use, with no legal right of possession or effective control. Supply of tangible goods for use and leviable to VAT/sales tax as deemed sale of goods, is not covered under the scope of the proposed service. Whether a transaction involves transfer of possession and control is a question of facts and is to be decided based on the terms of the contract and other material facts. This could be ascertainable from the fact whether or not VAT is payable or paid. As per the above clarification, transfer of the right to use any goods is leviable to sales tax/VAT as deemed sale of the goods when transfer of right to use involves transfer to both possession and control of the goods to the user of the goods. In the present case also, transfer of right to use is clearly with transfer of both possession and control of goods to the lessee, accordingly the transaction is clearly of deemed sale of goods in terms of Article 366 (29A)(d) of the Constitution of India. Since the entire value of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be paid by the hirer to the assessee in case of damage to the equipment during the period of use. These responsibilities cast on the hirer clearly show that the right of possession and effective control of the equipment rest with the hirer; otherwise the hirer cannot be held responsible for misuse/abuse, safe custody/security, liability to settle disputes with third parties in relation to use etc. Further Cl. 4.3 of the agreement provides for charging of VAT at 12.5% on the monthly invoice value which shall be payable by the hirer. These terms and conditions stipulated in the agreement, lead to the conclusion that the transaction envisaged in the agreement is one of transfer of right to use which is a deemed sale under Section 2(24) of the Maharashtra Value Added Tax Act, 2002. The Finance Minister s speech and the budget instructions issued by the C.B.E. C. also clarify that if VAT is payable on the transaction, then service tax levy is not attracted. 5.3 A similar issue arose for consideration before the Hon ble High Court of Andhra Pradesh in the G.S. Lamba case cited supra. The petitioners therein entered into a contract with M/s. Grasim, manufacturer of ready mix ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he present case, the transaction involved herein is transfer of right to use which is a deemed sale and not supply of tangible goods for use service. 6. In view of the foregoing, we are of the considered view that the assessee s activity of giving various equipments on hire does not fall under the category of Supply of tangible goods for use , hence the same is not liable to service tax w.e.f. 16-5-2008. Now coming to the Revenue s appeal, we find that the ld. Commissioner dropped the demand for the period prior to 16-5-2008 mainly on the ground that the service is of Supply of tangible goods for use which came into effect on 16-5-2008, therefore prior to that date the service was not taxable. However, we, in our above findings, held that the service in question is not the service of Supply of tangible goods for use . In this position the main ground of the ld. Commissioner for dropping of demand does not exist and not relevant. Though the ld. Commissioner in a passing reference mentioned in the impugned order that the service prior to 16-5-2008 does not fall under the Business Auxiliary Service but not given the detailed findings. Therefore when the main ground for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. Such a view of the revenue does not appear to be tenable when we read carefully the provisions of the agreement. Cl. 13 of the agreement provides for Hirer s Covenants. As per Cl. 13.1, the hirer will use the equipment only for the purpose it is hired and shall not misuse or abuse the equipment. Similarly in Cl. 13.3, it is provided that the hirer will ensure the safe custody of the equipment by providing necessary security, parking bay, etc., and will be responsible for any loss or damage or destruction. Cl. 13.5 provides that the hirer shall be solely responsible and liable to handle any dispute entered with any third party in relation to the use and operation of the equipment. Further Cl. 14 dealing with title and ownership specifically provides that equipment is offered by GIMMCO Ltd. only on rights to use basis . Cl. 15 relating to damages provides for compensation to be paid by the hirer to the assessee in case of damage to the equipment during the period of use. These responsibilities cast on the hirer clearly show that the right of possession and effective control of the equipment rest with the hirer; otherwise the hirer cannot be held responsible for misuse/abuse, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mean always physical control and even if the manner, method, modalities and the time of the use of goods is decided by the lessee or the customer, it would be under the effective or general control over the goods; (5) the approvals, concessions, licences and permits in relation to goods would also be available to user of the goods, even if such licences or permits are in the name of transferor of the goods; and (6) during the period of contract exclusive right to use goods along with permits, licences, etc., vests with the lessee. Applying these principles and examining the terms of the contract, the Hon ble High Court held that the transaction involved was a transfer of right to use Transit Mixers and not transport service and the petitioners had transferred the right to use goods to Grasim. If we apply the ratio of the above decision to the facts of the present case, the transaction involved herein is transfer of right to use which is a deemed sale and not supply of tangible goods for use service. 6. In view of the foregoing, we are of the considered view that the assessee s activity of giving various equipments on hire does not fall under the category o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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