TMI Blog2009 (2) TMI 748X X X X Extracts X X X X X X X X Extracts X X X X ..... nies Act, 1956 (hereinafter referred to as, the Corporation ). Respondent Nos. 2 and 3 are employees of respondent No. 1. The respondent-Corporation has been publishing, from time to time, tender notices inviting tender for hiring various types of vehicles, for instance, cranes, water tankers, trailers, etc. As per these tender notices, the respondent-Corporation offers fixed monthly charges for the vehicles for twenty-six days in a month as the working days with fixed running charges per kilometre, the normal running of the vehicles being twelve hour per day. Pursuant to the tender notices so floated, a contract was entered into between respondent No. 7, on the one hand, and the petitioner, on the other, for hiring of cranes. The petitioner claims that he was verbally informed by the officials of the respondent-Corporation that the petitioner's contract with the respondent-Corporation would be treated as sale within the meaning of the Assam Value Added Tax Act, 2003, and that deduction from the petitioner's bills would be made treating the said transactions as sale , though the said transactions, according to the petitioner, amounted to providing of service or, at b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, such as, works contract, hire-purchase contract, catering contracts, etc., were not assessable as contracts for sale of goods inasmuch as the contracts, which were indivisible, could not have become subject to sales tax. Before the Constitution (46th Amendment) Act, 1982, the word sale , which occurred in the expression sale , in the Seventh Schedule to the Constitution of India, had carried the same meaning as a sale defined in section 4 of the Sale of Goods Act, 1930. Hence, prior to the 46th Amendment, sales tax could be imposed only upon transfer of property in goods from one person to another. Consequently, sales tax could not be imposed upon transactions, which might have resembled sale, but did not involve transfer of property in goods. Because of this judicial interpretation, States were losing revenue on account of sales tax in respect of transactions like transfer of the right to use goods, transfer of property in goods involved in execution of works contract, supply of food by a hotelier, etc. With regard to the above, it may be pointed out that as far back as in the year 1967, Madras High Court, in A.V. Meiyappan v. Commissioner of Commercial Taxes reported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raditional concept of sale , which the courts adhered to, while interpreting as to whether a given transaction amounts, or does not amount, to sale , the 46th Amendment Act of the Constitution brought changes in the definition of the word sale as given in article 366 inasmuch as it widened, by inserting clause (29A) to article 366, the definition of sale by incorporating those transactions, which might have resembled sale , but did not fall within the traditional concept of sale , and were judicially held not to be exigible to sales tax. The idea behind this amendment was to create a concept of deemed sale by treating, with the help of a legal fiction, such a transaction as a sale even if the same did not fall within the ambit of the definition of sale as defined in the Sales of Goods Act. In other words, by bringing various transactions within the purview of the definition of sale , a transaction, which was, otherwise, not a sale , has been deemed to be a sale . This clause (29A) of article 366 states as under: (29A) 'tax on the sale or purchase of goods' includes (a) a tax on the transfer, otherwise than in pursuance of a contract, of property in an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the expression transfer of property in goods , because the transfer of the right to use any goods is not the same as the transfer of the goods itself; but when the definition of sale is amended in consonance with the change introduced in the definition of sale by the 46th Amendment, a transfer of the right to use any goods would amount to sale within the meaning of the sales tax laws empowering thereby the State Legislature impose tax, on such a transaction, as sale . In Assam too, under the Act, tax became exigible, by section 8(1)(f), on operating lease as mentioned in Schedule VII at the rate(s) specified in the Schedule. Section 2(33) of the Act provides that sale shall include any transfer of the use of any goods under an operating lease . Section 2(33) reads as under: 2(33): 'Sale', with all the grammatical variations and cognate expressions, means any transfer of property in goods by any person for cash, deferred payment or other valuable consideration, and includes: ... (iv) any transfer of the use of any goods under an 'operating lease'; ... The expression operating lease has been defined, by section 2(25), to m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ues only on account of the transfer of the right. In other words, explains the Supreme Court in 20th Century Finance Corpn. Ltd. [2000] 119 STC 182; [2000] 6 SCC 12, that in order to attract sales tax, the right to use arises only on the transfer of such a right and unless there is transfer of such a right, the question of the transfer of the right to use does not arise. Having held that it is the transfer of the right to use any goods, which is exigible to sales tax, and that without such transfer, no sales tax can be imposed, the Supreme Court goes on to observe, in 20th Century Finance Corpn. Ltd. [2000] 119 STC 182; [2000] 6 SCC 12, that if the goods are available, then the transfer of the right to use goods takes place, when the contract, in respect thereof, is executed, for, the right to use goods would stand transferred to the lessee, no sooner the contract is executed. The Supreme Court further observed, in 20th Century Finance Corpn. Ltd. [2000] 119 STC 182; [2000] 6 SCC 12, that if the goods are available, irrespective of the fact where the goods are located, and a written contract is entered into between the parties, the taxable event on such a deemed sale would be the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when a contract is executed between the lessor and the lessee and situs of sale of such a deemed sale would be the place where the contract in respect thereof is executed. Thus, where goods to be transferred are available and a written contract is executed between the parties, it is at that point situs of taxable event on the transfer of right to use goods would occur and situs of sale of such a transaction would be the place where the contract is executed. Relying upon the decision in 20th Century Finance Corpn. Ltd. [2000] 119 STC 182 (SC); [2000] 6 SCC 12, the apex court held, in State of Uttar Pradesh v. Union of India reported in [2003] 130 STC 1; [2003] 3 SCC 239, that handing over of possession of the goods is not sine qua non for completing the transfer of the right to use such goods. In Bharat Sanchar Nigam Ltd. v. Union of India reported in [2006] 3 VST 95 (SC); [2006] 145 STC 91 (SC); [2006] 282 ITR 273 (SC); [2006] 3 SCC 1 a three-judge Bench had the occasion to consider the question as to whether delivery of goods is at all necessary for the purpose of effecting the transfer of the right to use the goods. To the question so put, the Supreme court responded by ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titution Bench took the view that the transfer of the right to use took place, where the agreements were executed and not at the place, where the goods were used, nor at the place, where the goods (pursuant to the agreement) were delivered. Thus, in Bharat Sanchar Nigam Ltd. [2006] 3 VST 95 (SC); [2006] 145 STC 91 (SC); [2006] 282 ITR 273 (SC); [2006] 3 SCC 1, the court held that delivery of goods, at some stage, is necessary in order to complete the transfer of the right to use the goods. To put it a little differently, though situs of a deemed sale does not depend on the place of delivery of goods, the taxable event is not complete, in the light of decision in Bharat Sanchar Nigam Ltd. [2006] 3 VST 95 (SC); [2006] 145 STC 91 (SC); [2006] 282 ITR 273 (SC); [2006] 3 SCC 1, until the time the delivery of the goods takes place, for, it is upon delivery of the goods that the transfer of the right to use the goods is completed. This delivery may, however, be actual or constructive. In other words, a deemed sale cannot be treated as complete until the time the contract is executed by delivery of the goods inasmuch as the transfer of the right to use goods does not take place un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2006] 3 VST 95; [2006] 145 STC 91; [2006] 282 ITR 273; [2006] 3 SCC 1, that the goods must be available, when the transfer of the right to use the goods takes place, and that the Constitution Bench also recognized that for oral (1)See para 72 in [2006] 3 VST. contracts, the situs of the transfer may be the place, where the goods are delivered. The apex court further held, in Bharat Sanchar Nigam Ltd. [2006] 3 VST 95 (SC); [2006] 145 STC 91 (SC); [2006] 282 ITR 273 (SC); [2006] 3 SCC 1, that the delivery of the goods may not take place simultaneously with the transfer of the right to use the goods, but the goods must be in existence, deliverable, when the right is sought to be transferred, and must, at some stage, be delivered. It is, therefore, clear that in order to constitute a transfer of right to use goods, there must be parting with the possession of the goods for the limited period of its use in favour of the lessee by the lessor. The effective control of the goods must not remain with the owner, but must stand transferred to the lessee for the use by the latter at his will and it is this transfer of the effective control of the goods, which attracts sales tax (See Alph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f, the other case, namely, Aggarwal Brothers [1999] 113 STC 317 (SC); [1999] 9 SCC 182 is one, wherein not only that the delivery of the shuttering materials took place, but even the right to use the shuttering materials, in any manner as the contractor wanted, stood permitted and it was for this reason that this transaction was held to be a transaction, which amounted to deemed sale . The relevant observations made, in this regard, by the apex court in Bharat Sanchar Nigam Ltd. [2006] 3 VST 95; [2006] 145 STC 91; [2006] 282 ITR 273; [2006] 3 SCC 1 read as under: (page 128 of VST) ...when the assessee had hired shuttering in favour of the contractors to use it in the course of construction of the buildings it was found that possession of the shuttering materials was transferred by the assessee to the customers for their use and, therefore, there was deemed sale within the meaning of sub-clause (d) of clause (29A) of article 366. What is noteworthy is that in both the cases there were goods in existence which were delivered to the contractors for their use. In one case there was no intention to transfer the right to use while in the other there was. In Bhopal Sugar Industri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, in question, are, therefore, reproduced hereinbelow: From a reading of the agreement, dated August 1, 2006, which is the subject-matter of controversy in the present writ petition, what clearly transpires is that the cranes were hired by the respondent-Corporation for carrying out the Corporation's operations. Clause (2) of the agreement specifies the scope of work and contract. This clause reads: Clause (2). Scope of work/contract. (1) The services of the manned (driver/operator/slinger/khalasi, etc., as the case may be) crane (type of vehicle/equipment to be given) as per the technical specifications given herein or a vehicle/equipment of equivalent technical specifications and acceptable to ONGC, along with the necessary accessories, with valid permits/licenses/insurance, etc., sufficient fuel, in well-maintained condition and fulfilling other pre-requisites, should be available for performing the duties as advised by ONGC, at the appointed time and place, throughout the contract period, not by way of lease or transfer of rights for use of the vehicle/equipment, by the contactor to ONGC. (EmphasisHere italicised. supplied) (2) The work under this contract shall in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .e., during the course of loading, unloading and movement requiring positioning of the cranes. Thus, the cranes were to be utilised only during the operational time. Let me, now, turn to clause 7 of the agreement, which deals with the award of contract. This clause reads: Clause 7. Award of Contract: 7.1 ONGC reserves to the right to award whole or part of the work against this contract to any number of contactors at its sole discretion. 7.2 The Contractor will have no right to claim any particular share in total work and ONGC shall have sole discretion for distribution of work amongst other contractors. 7.3 ONGC also reserves the right to award the contract for any or all the jobs under this contract to any other contractor(s) at any time during the currency of contract without assigning any reason whatsoever. The contactor shall not be entitled to any compensation whatsoever in such cases. 7.4 ONGC also reserves the right to get the work covered under the contact done departmentally or through some arrangement in part or in full at its sole discretion. The contractor shall not be entitled to any compensation in such cases. 7.5 ONGC also have the right to with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion like blow out in wells. In such hazardous situation the crane shall have to work as per the direction of ONGC authorized representative and carry out the desired work within the hazardous zone. Refusal to work under these situations shall not be acceptable and may lead to de-hiring the crane. 8.4 The contactor shall render the services mentioned herein this contract and other auxiliary/and incidental services as may be ordinarily required for operation of such contract by way practices, customs or usage and/or as prescribed by the law of the land. 8.5. The contractor shall not employ ONGC's serving employees without its prior permission, ex-personnel of ONGC who have retired, resigned or have been terminated by ONGC shall also not be employed by the contractor during their I/II years from the date of quitting the services without permission of ONGC. ONGC may decide not to deal with such contractors/firms who fail to comply with the above advice. 8.6. The bidder must have as office with regular telephone connection at Nazira/Sibasagar or submit an undertaking that he/they shall establish an office with telephone connection at Nazira/Sivasagar within 30 days from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r is required to provide the crane for all days in a calendar month, excepting for 4 (four) days (maintenance off days). The four days shall be called maintenance off days and will be used by the contractor for maintenance of the crane. However, ONGC reserves the right to engage the crane during the maintenance off days depending upon the exigencies of work. The contractor is allowed to accumulate the off days (if not availed) up to a maximum of 15 days at any point of time during the enforcement of the contract, in case the cranes are engaged during the 4 off days of each month for exigencies of work. 8.13. The contractor shall ensure that the time taken by the crane in movement from one field/site to another field/site shall not exceed the normal travelling time. The normal travelling time shall be computed at an average speed of 20/15 km per hour for metal/kutcha and cross-country road. 8.14 The contractor shall make his own arrangement at his cost for shelter, food, night stay and other requirements of their staff/representatives, etc., at a convenient place near the site of operation so that the crane is available for duty from 7.00 hours to 17.00 hours (or as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st along with crane. The staff should be skilled/experienced in the line for the proper/safe operation of crane such as loading/unloading/slinging dunnage placement, etc. The experience of the crew should not be less than three years. However even if during the currency of the contact, if ONGC is not satisfied with performance of any crew member, the contractor shall be required to replace the same. From a cautious reading of clause 8, what transpires is that the contractor has to operate the cranes for performing the Corporation's operations with the contractor's own operating staff. In fact, clause 8.1 of the contract agreement makes it clear that the contractor's employees shall remain as the employees of the contractor. Clause 8.2 shows that the contractor has to do all acts and deeds as and when required and necessary for rendering services under the contract, irrespective of the fact as to whether a particular act or deed has been expressly provided in the contract or not, and that no extra charges shall be payable to the contractor for attending to such jobs and liaison work. The provisions, so contained in clause 8.2, more than abundantly demonstrate that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid at the rate shown hereunder: FOR EACH TYPE III CRANE (A) Operational time charges per day with 10 hours operational times. (This is finalised in the contract) Rs. 9,450.00 (rupees nine thousand four hundred fifty only) (B) Empty run charges per k.m. for moving the crane at the instance of ONGC from one field to another. (This is ONGC's prefixed charge) Rs. 20.00 (rupees twenty only) (C) Addition/deduction on account of excess/shortfall in operational hours. (This is as calculated in clause 1.11) Operational time charges per hour. (D) Payment for use of crane per day during maintenance off days for the crane. 50% of the operational time charges per day. From the rates, as reproduced above, it is clear that the rates are applicable on the basis of the work done by the contractor and on the basis of the use of the cranes. Thus, depending upon how much work has been done by the contractor the rates would be paid. Hence, the rates make it clear that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The contractor shall undertake to perform all services under this contract with all reasonable skill, diligence and care in accordance with sound industry practice to satisfaction of Corporation and accept full responsibility for the satisfactory quality of such services as performed by them. Any defect, deficiencies noticed in the contractor's service will be promptly remedied by the contractor within 10 days upon the receipt of written notice from the Corporation to improve their performance failing which the Corporation may terminate the contract by giving the contractor 30 (thirty) days written notice. From a minute reading of clause 36, it becomes abundantly clear that the contractor shall undertake to perform all services under the contract with reasonable skill, diligence and care and that the contractor shall accept full responsibility for the satisfactory quality of such services as may be performed by him. Clause 36, thus, makes it crystal clear that the agreement between the petitioner and the respondent-Corporation was only for rendering service and not for transfer of the right to use the cranes. In fact, in the agreement in question, no element of the trans ..... X X X X Extracts X X X X X X X X Extracts X X X X
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