TMI Blog2006 (11) TMI 563X X X X Extracts X X X X X X X X Extracts X X X X ..... ent, plants and machinery were available and identified by the parties. Under the contract, OIL derived the legal right to use the goods having hired the same on payment of charges. Customs duty had also been paid by it on the equipment imported by the contractor for executing the works. Under the stringent contractual terms, the contractor was bound to keep the equipment engaged exclusively for the works. The fact that the same had been operated by its technically qualified personnel does not militate against the element of exclusiveness in the use thereof for the services and benefit of OIL. During the subsistence of the contract, the appellant-company was neither authorised nor permitted to transfer the equipment or detail the same for others. The parties consciously limited the tax liability to the rental component only. The provisions of the contract understandably have to be construed in the context of the service accorded to be rendered. The transfer of right to use the equipments has to be perceived in the context of the nature, manner and extent of engagement thereof. The retention of physical possession thereof by the appellant-company cannot be decisive. The partie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh magnetic tapes. These equipment are owned and used by the company to be engaged for providing such services to OIL. In terms of the contract, the equipment remained in absolute possession of the company and used by it to provide the required data and other professional services. The equipment were operated by utilising the services of highly technically qualified and experienced personnel of the company. It has been categorically pleaded that the appellant-company used its own equipment, which were never handed over to OIL as stipulated in clause 7.13 of the contract agreement. The contract further contained clause 7.14 whereunder OIL was to deduct sales tax from the contractor while making payments. According to the appellant, this provision was unnecessary in view of the fact that no such tax was leviable considering the nature of the works to be rendered under the contract. However, in terms thereof, OIL deducted sales tax under the Act from its bills. Its representation that as in the face of the definition of sale , lease and operating lease engrafted in Sections 2(3), 2(19) and 2(25), respectively, and the nature of the transaction visualised in the contract agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereof. It was recorded that once the right to use any goods is transferred by one person to another for exclusive use it amounted to lease within the meaning of the Act. On facts it was noticed that the equipment supplied by the appellant-company were required to be used for OIL only and not for any other purpose denoting thereby that the same were exclusively meant for the use by OIL on payment of charges. The appellant-company having placed the equipment at the work site was not entitled to use the same for any other purpose or withdraw the same at its sweet will. Not only the equipment were required to be pressed into service under the supervision of the officers of OIL, the operation thereof was also subject to their inspection. The learned single Judge thus concluded that the terms and conditions of the contract indicated implied possession of OIL over the equipment. Clause 7.14 was thus held to be in conformity with the provisions of the Act, the transaction envisaged by the contract agreement being a sale within the meaning of Section 2(33)(iv) read with Section 2(19) thereof. 7. Dr. Todi has forcefully urged that no sale being involved in the activities comprehend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contract and the said amount having been paid by OIL to the Government, the turn around after the period of the contract lacks bona fide and, therefore, it is not entitled to any equitable consideration of this Court. The omission to pray for refund of the amount charged by it and paid by OIL to the Government clearly demonstrates that the purpose of the belated challenge is extraneous and collateral. Referring to the clauses of the contract agreement, the learned Senior Counsel urged that OIL having paid the customs duty on the import of the equipment by the appellant-company, it had an obvious right to the exclusive use of the same and the plea to the contrary is fallacious. In any view of the matter the appellant not having suffered by the deductions made, there is no cause of action for the purported grievance. The learned single Judge having negated the challenge on an exhaustive analysis of the contractual provisions and correct interpretation of law, no interference is called for. 9. Mr. Saikia while endorsing the above, contended that the contract agreement proclaimed exclusive and effective control of OIL over the appellant's equipment detailed for the works which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the date of commencement thereof as contemplated therein with an option to OIL to extend the same for a further period of one year at its discretion on the same rates, terms and conditions. Provision for further extension of the contract was also envisaged if called for, on rates, terms and conditions to be mutually agreed upon by the parties. Under clause 8.8 of Section I containing the general conditions of contract, levies and duties, sales tax, octroi, etc., on purchases and sales made by the contractor except customs duty and Assam general sales tax were to be borne by it. A provision for referring the dispute between the parties for settlement by arbitration was made in clause 13.1. Section IIof the contract enumerated in details the essential capabilities required for logging units, different heads of services to be rendered together with the particulars and condition of the equipment to be applied and the covenants to be fulfilled by the contractor. Clause F(vii) of the said section stipulated that if any tool or equipment malfunctioned except due to hole condition or negligence of OIL or its sub-contractors and could not be repaired at well-site or base resulting in failur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r under this contract is the contractor's property and shall always remain in the possession of the contractor with the exclusive right to use of such equipment/tools by the contractor for providing services under this contract. 7.14 ... Company shall deduct five per cent AGST or as applicable from rental invoice of the contractor and accordingly the contractor should include five per cent AGST or as applicable on rental component separately in their rental invoice which will be deducted by the company while releasing payment against rental invoice and will deposit the same to Government Treasury. The contractor shall duly comply with all the statutory requirement as envisaged in the said AGST Act. In the event of non-compliance with the statutory requirement as per the AGST Act, consequences arising out of the same will be at the sole responsibility of the contractor. Before claiming the payment against the final invoice, the contractor has to produce documentary evidence to the effect that they have duly complied with the statutory requirements as per the AGST Act. 12. Whereas under clause 7.13, the equipment/tools to be furnished by the contractor were to remain its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by it. Those were to be operated by its technically qualified personnel. The contractor was to realise rental charges therefor. OIL thus had hired the contractor's equipment for charges to be borne by it. This was in addition to the personnel services for operating the same and providing the data required. As against this, the contractor was required to provide 24 hours service as demanded by OIL. The contractor was permitted to use the equipment/tools exclusively therefore under clause 7.13 referred to hereinabove. OIL's representatives/engineers were empowered to effect overall coordination and management at the location and could also order changes in the scope of work as desired by it. Not only were they guaranteed a free access to the equipment either during the operation or idle time for the purpose of observing/inspecting the performance of the contractor and to determine as to whether the same was in adherence to the provisions of the contract, the contractor's personnel handling the equipment were liable to be removed, if considered undesirable in the opinion of OIL. The contractor was not entitled to the fixed charges for any tool or equipment for the period t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration, and includes- (i) to (iii) ... (iv) Any transfer of the use of any goods under an operating lease; (v) to (vi) ... 16. The provisions defining of lease and operating lease are also set out hereunder for ready reference: 2. (19) 'lease' means any agreement or arrangement whereby the right to use any goods for any purpose is transferred by one person to another whether or not for a specified purpose for cash, deferred payment or other valuable consideration without the transfer of ownership and includes a sub-lease but does not include any transfer on hire-purchase or any system of payment by instalments; 2. (25) 'operating lease' means a lease other than a financial lease. 17. On a conjoint reading of the above, it is thus manifest that for sale under Section 2(33)(iv) of the Act, there ought to be a transfer of the right to use in any goods by one person to another whether or not for a specified purpose for cash, deferred payment or other valuable consideration without the transfer of ownership and would include a sub-lease but not a transfer on hire purchase or in a system of payment by instalments. The gravamen of the transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no exact analogy of a deemed sale conceptualised in the Act with a sale in common parlance is permissible. The provisions of the Act, therefore, call for an interpretation to further the notion of deemed or expanded sale visualised thereby. A brief survey of the authorities cited at the Bar would be essential at this stage. 20. In Rashtriya Ispat Nigam Ltd. [1990] 77 STC 182 (AP), the petitioner for the purpose of its steel project allotted different works to contractors. To facilitate the execution of the works, the petitioner undertook to supply its machinery to the contractors for the purpose of being used therefore for which it (petitioner) realised charges. The provisional assessment levying tax on the hire charges under Section 5-E of the Andhra Pradesh General Sales Tax Act, 1957, was successfully challenged before the jurisdictional High Court. The statutory provision involved required that every dealer transferring the right to use goods for any purpose whatsoever for a period specified or otherwise to any lessee or licencee for cash, deferred payment or other valuable consideration in course of his business would be liable to pay tax at the prescribed rate on the amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale under the said statute, there ought to be a legal transfer of goods or that the transaction must be akin to a lease. It held, the transfer of the shuttering on hire charges to the builders and building contractors on hire charges in the facts of the case constitutes a sale of goods for consideration. Nothing much turns on this decision as the definition of sale in the legislation involved therein is not in pari materia with the one we are seized of. 23. A Constitution Bench of the apex court in 20th Century Finance Corporation Ltd. [2000] 119 STC 182; [2000] 6 SCC 12 while dwelling on the controversy as regards the competence of the State Legislature to levy sales tax under Clause (29-A)(d) of Article 366 of the Constitution of India on the transfer of right to use any goods held that on a plain construction of Sub-clause (d) of Clause (29A), the taxable event is the transfer of right to use the goods regardless of when or whether the same are delivered for use. It held that the existence of the goods was essential so that they may be used and that a contract in respect thereof is executed. The locus of deemed sale is the place where the right to use them is transferred wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordance with their directions and instructions, there was a transfer of the right of use of the vehicles by the owners/operators to the said authorities and hire charges having been realised therefor, the transaction was a sale under Section 2(g)(ii) of the Tripura Sales Tax Act, 1976. 26. The judicially evolved principles to identify a transaction involving the transfer of right to use goods to be a sale under the Act clearly exclude the indispensability of delivery of physical possession thereof as an essential pre-condition. The other ordained features of such a transaction are, in our considered opinion, present in the instant case. The equipment, plants and machinery were available and identified by the parties. Under the contract, OIL derived the legal right to use the goods having hired the same on payment of charges. Customs duty had also been paid by it on the equipment imported by the contractor for executing the works. Under the stringent contractual terms, the contractor was bound to keep the equipment engaged exclusively for the works. The fact that the same had been operated by its technically qualified personnel does not militate against the element of exclusi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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