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TMI Blog2024 (12) TMI 1234X X X X Extracts X X X X X X X X Extracts X X X X ..... nt that there was no transfer of dominion or control of the helicopter to the A N Administration. This was essentially an agreement in terms of which the A N Administration acquired an exclusive medium of transportation as opposed to an absolute right over an aircraft, helicopter or means of conveyance which could be said to be under its dedicated and undivided control. There is an occasion to notice a decision of recent vintage rendered by the Supreme Court in Commissioner of Service Tax vs. Adani Gas Ltd. [ 2020 (8) TMI 789 - SUPREME COURT] . As the Supreme Court succinctly explained in Adani Gas, the key elements which are liable to be found to exist in order to qualify what is spoken of in Article 366 (29A) (d), are a transfer of a right of possession as well as effective control being conferred upon the transferee. It is these precepts on the basis of which the contractual stipulations may now be examined. There was no contractual relationship that existed between those operators and staff on the one hand and the A N Administration on the other. Additionally, the obligation to keep the equipment insured was also one which stood placed upon the appellant. There was also no tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the challenge which stands raised, we at the outset, take note of the following two questions of law on which the appeal came to be admitted on 12 January 2023: a) Whether as per terms of agreements executed by the Appellant with its customers, hiring of helicopters is covered under the meaning of Sale under Section 2 (g) (iv) CST Act? b) Whether in the facts and circumstances of the case, the hon ble Tribunal has erred in coming to the conclusion that the Appellant has transferred the effective control and possession and right to use the helicopters to its customer so as to consider the activity as Deemed Sale ? 5. The agreement dated 11 February 2003 takes note of the appellant, described as the Lessor therein, as being the owner of a fleet of helicopters and engaged in the business of providing helicopter support services to customers by leasing those helicopters. The A N Administration was described in that agreement to be the Charterer or Lessee. For the purposes of evaluating the challenge which stands raised, we propose to take note of the following salient covenants which formed part of that agreement. 6. Clause 1.1(a) defined the word Base in the following terms: Base ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Charterer shall (before departure of a flight) provide to the Lessor a Manifest containing the number, names weights of the passengers, cargo weight on board and the estimated time of departure/ arrival of the flight. NOTWITHSTANDING the foregoing it shall be the Lessor s sole to determine the acceptable load/passengers before each flight and upon such determination the Lessor may vary the proposed load/ passengers to be carried by the helicopter. 3.5 The Lessor shall carry out the services and perform all the obligations under this Agreement with due diligence and care and in a competent, skillful and professional manner. 3.6 Before any proposed flight it shall be the Lessor s responsibility to determine the route and the suitability of the flying and landing conditions and upon any such determination and after consultation and agreement with the Lessee s Representative, which shall not be unreasonably withheld, the Lessor may vary the proposed route or postpone or cancel the proposed flight. 3.7 If a helicopter becomes total loss or a constructive total loss, the Lessor shall use its best endeavour to replace at its expense the helicopter with an identical helicopter or a helico ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Clause 3.8 then clarified that the liability with respect to expenses and responsibilities with regard to licensing requirements permits and compliances would be of the appellant. 14. We also deem it apposite to extract 4.2, 5.1, 5.2 and 5.3.2 of the agreement hereinbelow: 4.2 The Lessor may make additions or deletions to the equipment or make modifications to the helicopter as deemed fit and proper from time to time for its operational use. xxxx xxxx xxxx 5.1 The Lessor shall make available the helicopter to the Lessee for operations maximum upto 90 hours per month or 1000 hours per year during the term of lease Agreement. 5.2 The Lessor shall in order to carry out the helicopter operations safely and efficiently and to make the helicopter available to Lessee in terms of Clause 5.1 properly maintain, repair, overhaul and service the helicopter in accordance with published airworthiness standards and shall provide at the Base adequate spare parts and tools for the purpose. xxxx xxxx xxxx 5.3 .2 The Lessor will carry out all its maintenance, repair, overhaul or service activities during such times other than the timings of an operational day so that the flying activities during t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our mentioned above. In case fuel is provided by the Lessee at its cost, then in that case a deduction of Rs. 6388/- per hour (ATF consumption: 338 Ltrs/hr@Rs 18 90 per litre) would be given on the Hourly Flying Charges mentioned above. 17. Clause 13 of the agreement embodied the indemnity clause and is extracted hereunder: - 13. INDEMINITY 13.1 The Lessor shall indemnify and hold harmless the Lessee from and against all claims, costs, demands, actions, including legal fees and costs, howsoever, arising out of the use of the Helicopter (including damage or loss of helicopter and air carrier s third party liability) during the period herein mentioned. 18. The appellant was also in terms of the agreement required to ensure that the helicopter was duly insured at its expense during the tenure of the contract. It was in the backdrop of the aforesaid contractual stipulations that the appellant appears to have urged that the leasing of the helicopters did not contemplate or evidence the transfer of a right to use . 19. In the course of assessment, the appellant had submitted objections in respect of the default assessment notices which came to be issued. From the details which have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sees/Charterers making the transaction to clearly fall within the ambit of deemed sale by way of transfer of right to use the goods ie. the helicopters in this case. Simultaneously, from the case record and the documents placed on file, it also transpires and come up that many rights and obligations of the parties are linked with the possession of the goods. One of the most important effects is that Risks prima facie passes with the property; is to say, that the goods are at the risk of party in whose possession the property is. The objector has claimed that effective control and possession of the helicopters during the entire term of agreement remains with the objector and the grounds taken by him for this contention are that (i) clients are required to provide written requisitions on daily basis, (ii) objector was providing experienced IFR and licensed pilots for the helicopters, (iii) possession of helicopters remain with the licensed staff and crew of the objector, (iv) determining the routes and suitability of flying and landing was the prerogative of the objector and (v) the objector alone was bearing the cost of fuel but in this connection, mentioning of the following terms/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the pilots and crews provided by the objector were for the purpose of facilitating the flying of the helicopters including determining of the route and suitability of flying and landing conditions and that once the helicopter has been made available at the base, the lessees as per their absolute will and option were entitled to use the helicopter in the way the manner intended to by them the pilot and the crew were answerable to the lessees liable to follow their direction rather than those of the objector and that the objector was to be paid on monthly/hourly basis irrespective of the fact whether the Agencies used the helicopters during that month or kept them unutilized or grounded. Further, it is also seen that the Andaman Nicobar Islands Administration used the helicopter for commercial purpose and had notified the Schedules of flights and fares in respect of helicopters to various islands which itself proves that the administration was using the helicopters as per their will and the objector had no interference except for technical suggestions on safety grounds. While disposing of objections, learned OHA relied on decisions in Rashtriya Ispat Nigam Ltd. v. Commercial Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the dispute, the Tribunal framed the first issue to be of effective control and possession. After noticing the rival submissions which were addressed, the Tribunal held as follows: 17. As noticed above, admittedly the dealer-appellant did not submit before learned OHA all the agreements arrived at between the dealer-appellant and the other party, and only two agreements appear to have been submitted before learned OHA which were between the dealer-appellant and Andaman Nicobar Island Administration between the dealer-appellant and Government of Punjab. In the impugned order, there is no reference to any other agreement arrived at between the dealer-appellant, and any government or non-government entity/individual. Remaining agreements were also required to be produced by the dealer-assessee before learned OHA for the purpose of complete adjudication of the matter in dispute, so far as the remaining agreements are concerned. It may be mentioned here that before this Appellate Tribunal, initially a paper book containing copies of following agreements only was submitted on behalf of the appellant: 1. between dealer-appellant and Ministry of Home Affairs; 2. between dealer-appellant a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity also finds mention in the agreement between Appellant and Punjab Government, other governments and certain non-govt. entities. In Hari Durga Travel s cast neither any security concerns of the passengers were involved nor there was any such term in the agreement. This special feature of the agreements is a significant factor which distinguishes the case from the facts of Hari Durga Travel s case. 23. The Tribunal also appears to have taken into consideration what it construed to be the exclusive use of the helicopter during the period of the lease agreement as being yet another significant factor for distinguishing the judgment in Hari Durga Travels as well as the decision of Supreme Court in State of A.P. vs. Rashtriya Ispat Nigam Ltd. (2002) 3 SCC 314 which had been cited for its consideration. This becomes apparent from a reading of paragraph 23 and where it held that the essence of transfer is passage of control over the economic benefits of property and which may result in the termination of rights in one entity and a corresponding creation of rights in another. It thus came to the conclusion that effective control of the helicopter was handed over to the lessees and ceased ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant to the other party (lessee) and that De dealer-appellant actually and legally transferred right to use the goods to them. Consequently, as regards the agreements executed, there is no merit in the appeals regards levy of tax and interest u/s 32 of DVAT Act, which are held to have been rightly upheld by the learned OHA vide impugned order. 27. Insofar as other aspects including those pertaining to service tax are concerned, since none of those issues were urged before us, we do not propose to notice the various conclusions which have come to be rendered by the Tribunal on those aspects. This more so since, in our considered opinion, those issues are clearly unrelated to the principal issue of a transfer of a right to use . 28. However, and before we proceed to notice the rival submissions which were addressed, we do at the outset deem it apposite to observe that the clauses pertaining to confidentiality and security can hardly be construed or acknowledged to be issues of moment insofar as the question of a transfer of a right to use is concerned. We find ourselves unable to appreciate how a confidentiality or security clause could have any bearing on the issue of taxab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... auses of the agreement could possibly be construed as embodying a transfer of a right to use. 31. In order to buttress the aforenoted submission, Mr. Gulati firstly took us through the decision of the Supreme Court in BSNL and more particularly to the following passages of that decision: 41. Sub-clause (a) covers a situation where the consensual element is lacking. This normally takes place in an involuntary sale. Sub-clause (b) covers cases relating to works contracts. This was the particular fact situation which the Court was faced with in Gannon Dunkerley [State of Madras v. Gannon Dunkerley Co. (Madras) Ltd., (1958) 9 STC 353 : AIR 1958 SC 560 : 1959 SCR 379] and which the Court had held was not a sale. The effect in law of a transfer of property in goods involved in the execution of the works contract was by this amendment deemed to be a sale. To that extent the decision in Gannon Dunkerley [State of Madras v. Gannon Dunkerley Co. (Madras) Ltd., (1958) 9 STC 353 : AIR 1958 SC 560 : 1959 SCR 379] was directly overcome. Sub-clause (c) deals with hire-purchase where the title to the goods is not transferred. Yet by fiction of law, it is treated as a sale. Similarly the title to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of which can it be said that there is a sale of goods when a doctor writes out and hands over a prescription or a lawyer drafts a document and delivers it to his/her client? Strictly speaking, with the payment of fees, consideration does pass from the patient or client to the doctor or lawyer for the documents in both cases. xxxx xxxx xxxx 49. We agree. After the Forty-sixth Amendment, the sale element of those contracts which are covered by the six sub-clauses of clause (29-A) of Article 366 are separable and may be subjected to sales tax by the States under Entry 54 of List II and there is no question of the dominant nature test applying. Therefore when in 2005 C.K. Jidheesh v. Union of India [(2005) 13 SCC 37 : (2005) 8 Scale 784 (2-Judge Bench)] held that the aforesaid observations in Associated Cement [(2001) 4 SCC 593] were merely obiter and that Rainbow Colour Lab [(2000) 2 SCC 385 (2-Judge Bench)] was still good law, it was not correct. It is necessary to note that Associated Cement [(2001) 4 SCC 593] did not say that in all cases of composite transactions the Forty-sixth Amendment would apply. 32. Of equal significance are some of the observations and the enunciation of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principal in one State to a branch or agent in another State or vice versa or transfer of goods on consignment account, to avoid the payment of sales tax on inter-State sales under the Central Sales Tax Act. While in the case of a works contract, if the contract treats the sale of materials separately from the cost of the labour, the sale of materials would be taxable but in the case of an indivisible works contract, it is not possible to levy sales tax on the transfer of property in the goods involved in the execution of such contract as it has been held that there is no sale of the materials as such and the property in them does not pass as movables. 104. Parliament had to intervene as the power to levy tax on goods involved in works contract should appropriately be vested in the State Legislatures as was pointed out in Gannon Dunkerley Co. [State of Madras v. Gannon Dunkerley Co. (Madras) Ltd., (1958) 9 STC 353 : AIR 1958 SC 560 : 1959 SCR 379], the passages quoted hereinabove. There were five transactions in which, following the principles laid down in Gannon Dunkerley Co. [State of Madras v. Gannon Dunkerley Co. (Madras) Ltd., (1958) 9 STC 353 : AIR 1958 SC 560 : 1959 SCR 379 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfer of a right to use again arose for consideration of the Supreme Court in Rashtriya Ispat Nigam , which was yet another decision cited by Mr. Gulati for our consideration. The position in law with respect to deemed sales was succinctly explained by the Supreme Court in paragraph 4 of the report and which is reproduced hereinbelow: 4. 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 clauses 1, 5, 7, 13 and 14, it becomes clear that the transaction did not involve transfer of right to use the machinery in favour of contractors. The High Court was right in arri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs, employees (whole time) of the assessee (owner), must hold HTV licence with PSB badge having minimum five years experience and terms and conditions of his engagement must conform to the prevalent laws. 26. While the bus-related responsibilities under the contract are to be borne by the owner (the assessee), it is the duty of DTC to provide a conductor. The contract stipulated discipline for the driver including with regard to the uniform prescribed by DTC, display of identity card, regularity in attendance, conduct, etc., holding accountable the owner, also making it liable to provide substitute driver in case of necessity. The owner is required by the contract to keep the buses roadworthy, in accordance with the provisions of Motor Vehicles Act and Rules framed thereunder and, for such purposes, carry out the requisite maintenance and repairs at its own costs, such that the vehicle always carries a proper fitness certificate and pollution under control certificate. The owner ensures that the bus is duly insured, under comprehensive insurance policy; keeps DTC indemnified against all claims arising out of accidental damage or loss caused during the operations to third party or t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ees, i.e., its conductor; maintenance or repairs not at the choice of the owner but after approval of the DTC; restriction upon right to terminate the contract under pain of penalty. The discussion in Bharat Sanchar Nigam Ltd. [2006] 3 VST 95 (S.C.); [2006] 145 STC 91 (S.C.); [2006] 282 ITR 273 (S.C.); (2006) 6 RC 276; (2006) 3 SCC 1 both in the majority judgment (which no doubt stated that actual delivery of the goods is not necessary for effecting the transfer of the right to use the goods but the goods should be available at the time of transfer, must be deliverable and delivered at some stage) and the concurring opinion which specifically pin-pointed that the transferee should have a legal right to use the goods consequently all legal consequences of such use including any permission or licenses required therefor should be available to the transferee unmistakably are a pointer as to what in law constitutes a right to transfer the use of goods. The decision in State of Andhra Pradesh v. Rashtriya Ispat Nigam Ltd. [2002] 126 STC 114 (S.C.); (2002) 3 SCC 214 which was in the context of machinery given on hire to the transferee, for a particular purpose, affords a close parallel to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2009) 8 AD 13 (Delhi) and by concluding that the contract in question has resulted in transfer of the effective control and possession of the two vehicles (goods for purposes at hand) unto DTC. On the contrary, the various terms of the contract, summarized above, make it vividly clear that the possession has always remained with the owner. Undoubtedly, it is the obligation of the registered owner to make the vehicles available, with their respective drivers, for being deployed on routes, and as per schedule, specified by DTC. The owner cannot withdraw the buses unilaterally nor send them for repairs and nor can alienate their ownership in favour of a third party, except by incurring penalties. The goods are specified, the right to deploy them is conferred on the third party, but the custody of the goods is retained by the owner who remains responsible for keeping them fit for use in terms of the contractual obligations. The registration certificate and the permits continue to be in the control and possession of the owner. It remains responsible for maintenance, repairs, etc., and also keeps the other party indemnified against any claim for loss or damage on account of operations. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clear that the agreement between the parties does not fall under the category of a charter similar to a demise or bare boat charter. The terms of the agreement makes it clear that the entire control with regard to manning, operating and navigating was retained by the petitioner herein. Once this is clear, it follows as a corollary that there was no transfer of the right to use. 47. As pointed out by the Supreme Court in State of Andhra Pradesh v. Rashtriya Ispat Nigam Ltd. [2002] 126 STC 114 (SC) ; (2002) 3 SCC 314 , hire charges are taxable only when full possession and control is given to the hirer. If the owner retains effective control over the equipment, it is not transfer of the right to use. xxxx xxxx xxxx 49. But the above tests are not exhaustive. As we have mentioned earlier, the equipment and technical personnel provided by the petitioner to the main contractor are on charter hire, where the complete control was retained by the petitioner. All responsibilities were placed only upon the petitioner by the main contractor himself. Therefore, even the tests adopted by the Delhi High Court in two successive decisions, one in Commissioner, VAT, Trade and Taxes Department v. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... copter. The Appellant is free to provide services of the helicopter to other customers when not in use by the A N administration. (h) The clauses of the Agreement in the present case clearly provide that the charterer/customer only pays monthly fixed charges and flying charges for availing services of hiring of helicopters. All other charges for maintenance, repair, compliances etc., including the fuel are borne by the Appellant. It has also been mentioned that in case, for whatever reason, the customer has to pay for fuel, the same will be reimbursed by the Appellant or reduced from the fixed charges. Therefore, the scope of the agreement is limited to provision of hiring services for consideration, only granting permissive use than delivery of helicopter. 39. Controverting the aforenoted submissions Mr. Rajeev Aggarwal, learned counsel advanced the following arguments. Taking us through the salient provisions of the agreement, Mr. Aggarwal submitted that the same would clearly evidence the hiring of a particular helicopter for the exclusive use of the lessee for a period of five years. Mr. Aggarwal contended that the requirement of the helicopter being permanently positioned at P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in Article 5.3.1 is not hampered or jeopardized. The Lessor shall give notice to the Lessee of any scheduled maintenance to be carried out on the helicopter atleast 7 days or 10 flying hours in advance. The helicopter shall be considered operational if it is available within two hours of the scheduled time of the programme for a sortie. Programme for the day for subsequent sorties for the helicopter shall be adjusted accordingly consequent to a delayed sortie. 5.3.3 If the helicopter is not available cumulatively for more than two hours and upto six hours except waiting for weather clearance in an operational day, it shall be deemed to be grounded for half a day and if it is not available for more than six hours in an operational day, it shall be deemed to be grounded for the full day. 5.3.4 Notwithstanding anything stated herein at least one hour would be allowed between two sorties from the main base for maintenance and atleast three hours would be allowed on return after an overnight halt away from the main base. However for computation of total delay during a day as per Clause 5.3.3 the time mentioned herein and any delay due to weather constraints shall be excluded. 5.3.5 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransferred and placed in the hands of the Charterer to be used as thought fit. In order to satisfy the requirements of clause (d) of Article 366 (29A), one would have to be convinced that there was an actual transfer of the helicopter to the Charterer and effective control over that equipment being ceded to the A N Administration. From the discussion which ensues, we are unconvinced that the agreement did result in such a transfer or conferral of complete control. 45. On a consideration of the contractual stipulations, it becomes apparent that while the appellant was obliged to place a helicopter or an equivalent model at the service of the A N Administration, the right to operate and maintain remained with the appellant. The helicopter was to be maintained, flown and operated by the appellant. The appellant was required to ensure that the requirements of the A N Administration were duly met. However, at no point of time was the helicopter placed in the hands of the latter to be operated as it thought fit. The pilot and crew who actually worked the helicopter were to be provided by the appellant. It was the appellant who was required to maintain the aircraft and keep it serviced an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... way of a constitutional fiction came to be included within the concept of a sale of goods. We deem it apposite to extract the following passages from that decision: 17. The right to use and which is spoken of an Article 366 (29-A) has been lucidly explained by the Supreme Court in BSNL vs. Union of India, and where Dr. A.R. Lakshmanan J. in a concurring opinion identified the ingredients of a right to use as being the following: 97. 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 therefor 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; (e) having transferred the right to use the go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the context of applicable law, particularly in view of the constitutional provisions of article 366 (29A) (d), we find that there is transfer of right to use tangible goods, which is determinative of deemed sale as per the Constitution of India and provisions of section 5C reflecting the said intendment. We are of the considered opinion that there is transfer of right to use exclusively given to charterer for six months, and the vessel has been kept under the exclusive control. The charterer qualifies the test laid down by this court in Bharat Sanchar Nigam Ltd. (emphasis supplied) 17. Therefore, sales tax is levied in pursuance of article 366 (29A) (d) on transactions which resemble a sale in substance as they result in a transfer of the right to use in goods, instead of the transfer of title in goods. The Finance Act, 1994, deriving authority from the residuary entry 97 of the Union List, enabled the Central Government to levy tax on services. Service tax was introduced as a response to the advancement of the contemporary world where an indirect tax was necessary to capture consumption of services, which are economically similar to consumption of goods, in as much as they both sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving legal right of possession and effective control, not being treated 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. (emphasis supplied) 19. The above circular clarified that section 65 (105) (zzzzj) is applicable only to those transactions where there is a supply of tangible goods for use, without the transfer of possession or effective control to the recipient. This aspect has been interpreted by various courts and tribunals. In the Bombay High Court decision in Indian National Shipowners Association v. Union of India ( Shipowners ), the petitioners were engaged in providing service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the supply of tangible goods is for the use of another, without transferring the right of possession and effective control of such machinery, equipment and appliances . Hence, in order to attract the definition of a taxable service under sub-clause (zzzzj), the ingredients that have to be fulfilled are: (i) The provision of a service ; (ii) The service is provided by a person to another person ; (iii) The service is provided in relation to the supply of tangible goods, including machinery, equipment and appliances ; (iv) There is no transfer of the right of possession ; (v) Effective control over the goods continues to be with the service provider ; and (vi) The goods are supplied for use by the recipient of the service. There is an element of service which is the foundation for the levy of the tax. xxxx xxxx xxxx 24. The crux of the dispute is whether the supply of tangible goods the SKID equipment is for the use of the purchaser. In determining as to whether the provisions of section 65 (105) (zzzzj) are attracted, it is necessary to distinguish between the rights and obligations of the respondent (as the seller of gas) and of their purchasers, from the issue of whether the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e put. As an illustration, section 65 (105) (zzzze) of the Finance Act, 1994, seeks to tax services related to information technology and interprets the right to use to include the right to reproduce, distribute, sell, etc . This understanding of use differs from the supply of tangible goods under section 65 (105) (zzzzj) at hand, where effective control or possession is not ceded. Thus, physical operation is not the only or invariable feature of use. As a corollary to the same, technical expertise over the goods in question is not a sine qua non for determining the ability of the consumer to use the good. Therefore, the expression use also signifies the application of the goods for the purpose for which they have been supplied under the terms of a contract. 28. The terms of the GSA indicate that the supply, installation, maintenance and repair of the measurement equipment is exclusively entrusted to the respondent as the seller. These provisions have been incorporated in the GSA to ensure that a buyer does not calibrate or tinker with the equipment. It is an incident of ownership and control being vested with the respondent. The purpose of the SKID equipment and its utility, lie i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondent, acting pursuant to the GSA, as a supplier of natural gas to its buyers. xxxx xxxx xxxx 30. Thus, we are of the view that the supply of the pipelines and the measurement equipment (SKID equipment) by the respondent, was of use to the customers and is taxable under section 65 (105) (zzzzj) of the Finance Act 1994. xxxx xxxx xxxx 38. Thus construed, we are of the view that the adjudicating authority was correct in concluding that the buyer of gas is as interested as the seller in ensuring and verifying the correct quantity of the gas supplied through the instrumentality of the measurement equipment and the pipelines. Additionally, the role of regulating pressure and ensuring the safety of supply of gas performed by the measurement equipment is an essential aspect for the use of the consumer. The SKID equipment fulfils the description in section 65 (105) (zzzzj) of a taxable service : service in relation tangible goods where the recipient of the service has use (without possession or effective control) of the goods. 23. It is thus apparent that it is only deemed sales as contemplated under Article 366 (29-A) of the Constitution, which stands exorcised from Section 65 (105) (zzz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s contemplated under the agreement. Those permits and licenses undisputedly remained in the hands of the appellant. 54. Of equal significance is the indemnity clause and which clearly militates against the A N Administration being recognised as having acquired dominion over the goods or the goods being transferred to the exclusion of the appellants. It is these factors which convince us to hold that the facts that informed the contract between the appellant and the A N Administration were akin to those which had fallen for examination in Hari Durga Travels. 55. The reliance which Mr. Aggarwal has placed on the decisions in Great Eastern, Aggarwal Bros. and Quick Heal is clearly misplaced when we bear in mind the following facts. Regard must be had to the fact that in Great Eastern, the Supreme Court had on facts held: 32. The charter agreement also provides round the clock services throughout the contract period in Clause 3 at the disposal of the port. The contractor has to pay the expenses for the master and crew. As per Clause 5, the charterer has to provide whilst the vessel is on hire, fuel, lubricants, water, electricity, port charges, and anti-pollutants. As per Clause 7(a), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f goods, essential is, goods must be available for delivery. In the instant case, the vessel was available for delivery and in fact, had been delivered. There is no dispute as to the vessel and the charterer has a legal right to use the goods, and the permission/licence has been made available to the charterer to the exclusion of the contractor. Thus, there is complete transfer of the right to use. It cannot be said that the agreement and the conditions subject to which it has been made, is not a transfer of right to use the goods, during the period of six months, the contractor has no right to give the vessel for use to anyone else. Thus in view of the provisions inserted in Article 366 (29-A)(d), Section 5-C, and definition of sale in Section 2 of the KST Act, there is no room for doubt that there is a transfer of right to use the vessel. xxxx xxxx xxxx 37. The charter party agreement qualifies the test laid down by this Court. Applying the substance of the contract and the nominal nature test, the vessel was available when the agreement for the right to use the goods has taken place. The vessel was available at the time of transfer, deliverable, and delivered and was at the excl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssees to their customers for use during the construction of buildings. The customers were in effective control of the shuttering during the periods it remained in their possession. The transactions, therefore, fell within the amended definition of the word sale as there was a transfer of the right to use the shuttering. xxxx xxxx xxxx 4. The language used in Section 2 (j) (iv) and 2 (l) (iv) of the said Act is the language used in Article 366 (29-A) (d), Section 2 (j) dealing with purchase and Section 2 (l) with sale. The argument before us is, therefore, not an argument on the constitutionality of these provisions of the said Act but of their interpretation and the application thereof to the facts of the present case. xxxx xxxx xxxx 6. Where there is a transfer of a right to use goods for consideration, the requirement of the above-mentioned provision of the said Act is satisfied and there is deemed to be a sale. In the instant case, the assessees owned shuttering. They transferred the shuttering for consideration to builders and building contractors for use in the construction of buildings. There can, therefore, be no doubt that the requirements of a deemed sale within the meanin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... existence so that they may be used. 53.6. The levy of tax under Article 366 (29-A)(d) is not on the use of goods. It is on the transfer of the right to use goods which accrues only on account of the transfer of the right. In other words, the right to use goods arises only on the transfer of such right to use goods. 53.7. The transfer of right is the sine qua non for the right to use any goods, and such transfer takes place when the contract is executed under which the right is vested in the lessee. 53.8. The agreement or the contract between the parties would determine the nature of the contract. Such agreement has to be read as a whole to determine the nature of the transaction. If the consensus ad idem as to the identity of the good is shown the transaction is exigible to tax. 53.9. The locus of the deemed sale, by transfer of the right to use goods, is the place where the relevant right to use the goods is transferred. The place where the goods are situated or where the goods are delivered or used is not relevant. 61. As was succinctly explained, Article 366 (29A) (d) is not concerned with delivery of goods for use but envisages the levy of a tax on the transfer of a right to us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial segregation of the transaction, as in the case on hand, into two parts is not tenable in law. It is, in substance, one transaction of sale of software and once it is accepted that the software put in the CD is goods , then there cannot be any separate service element in the transaction. We are saying so because even otherwise the user is put in possession and full control of the software. It amounts to deemed sale which would not attract service tax. 63. We thus find ourselves unable to read any observation made or principle enunciated in Quick Heal which could be read or countenanced as buttressing the arguments of the respondents. 64. On an overall consideration of the above, we find ourselves unable to sustain the conclusions rendered by the Tribunal in the judgment impugned before us. 65. We, consequently, allow the instant appeals and answer question (a) in the negative and question (b) in the affirmative. We are of the firm opinion that the Tribunal had clearly erred in coming to the conclusion that the appellant had transferred effective control and possession and thus qualifying the precepts of a transfer of right to use goods as contemplated under Section 2 (g) (vi) of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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