TMI Blog2024 (1) TMI 443X X X X Extracts X X X X X X X X Extracts X X X X ..... ration as mentioned in sub-clause (d) of Clause 29A. The transfer of the right to use any goods can be for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration. Only because a person is allowed to use certain goods of the owner, per se, there is no transfer of the right to use any goods. The transaction can be either of transfer of right to use the goods or granting mere permission to use the goods without transfer of the right to use the goods. This Court has interpreted sub-clause (d) of Clause 29A in various decisions. The first important decision on this aspect is a decision of the Constitution Bench in the case of 20th Century Finance Corporation Ltd. [ 2000 (5) TMI 980 - SUPREME COURT] . This was a case where the appellant had entered into a master-lease agreement with the lessee. The lessee was a party that desired to take equipment for use on hire. Under the agreement, the appellant agreed to give diverse machinery/equipment listed in the schedule to the master-lease agreement. The master-lease agreement provided that the appellants would place the orders for individual equipment on the request made by the lessee, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay be granted at some stage (after execution of the contract), but also the control of the goods by the user. When the substantial control remains with the contractor and is not handed over to the user, there is no transfer of the right to use the vehicles, cranes, tankers, etc. Whenever there is no such control on the goods vested in the person to whom the supply is made, the transaction will be of rendering service within the meaning of Section 65(105) (zzzzj) of the Finance Act after the said provision came into force. Thus, to conclude, the contracts are not covered by the relevant provisions of the Sales Tax Act and of the VAT Act, as the contracts do not provide for the transfer of the right to use the goods made available to the person who is allowed to use the same. Appeals of the assessee allowed. Central government may initiate service tax recovery proceedings in accordance with law. - Civil Appeal No.4658 of 2013 Civil Appeal No.4657 of 2013 Civil Appeal No.383 of 2013 Civil Appeal No.3580 of 2017 Civil Appeal No.8714 of 2012 Civil Appeal No.8705 of 2012 Civil Appeal No.8710 of 2012 Civil Appeal No.9291 of 2012 Civil Appeal No.8715 of 2012 Civil Appeal No.3579 of 2017 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FACTUAL ASPECTS 1. This group of appeals concerns the liability to pay tax under the Assam General Sales Tax Act, 1993 (for short, the Sales Tax Act ) and the Assam Value Added Tax Act, 2003 (for short, the VAT Act ), respectively. In some cases, in this group of appeals, the assessees have, under a contract, agreed to provide different categories of motor vehicles, such as trucks, trailers, tankers, buses, scrapping winch chassis, and cranes, to the Oil and Natural Gas Corporation Limited (for short, ONGC ). There are other cases where Indian Oil Corporation Limited (for short, IOCL ) has entered into agreements with transporters to provide tank trucks to deliver its petroleum products. 2. These cases have been clubbed together as similar questions of law and fact arise. Broadly, the question is whether, by hiring these motor vehicles/cranes, there is a transfer of the right to use any goods. If there is a transfer of the right to use the goods, it will amount to a sale in terms of Clause 29A(d) of Article 366 of the Constitution of India. In short, if the transactions do not fall in the definition of Sale in Clause 29A(d), the same may not attract tax under the Sales Tax Act or t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no.3559 of 2017, Civil Appeal no.3564 of 2017, Civil Appeal no.3565 of 2017, Civil Appeal nos.35663569 of 2017, Civil Appeal no.3570 of 2017 and Civil Appeal no.3571 of 2017, the learned counsel appearing for the appellants pointed out that the taxes on sale of goods and advertisements were covered by Entry 48 in List II of the Seventh Schedule to the Government of India Act, 1935. Under the Seventh Schedule to the Constitution of India, Entry 92A of List I confers power on the Government of India to impose taxes on the sale of goods. Similar legislative powers were vested in the State under Entry 54 of List II of levy of taxes on the sale or purchase of goods other than newspapers, subject to the provisions of Entry 92A of List I. On the interpretation of the sale of goods covered by Entry 54 of List II, the learned counsel relied upon several decisions of this Court in the cases of Sales Tax Officer, Pilibhit v. Budh Prakash Jai Prakash AIR 1954 SC 459 , The State of Madras v. Gannon Dunkerley Co. AIR 1958 SC 560 , and M/s. K.L. Johar Co. v. The Deputy Commercial Tax Officer, Coimbatore III AIR 1965 SC 1082 . The learned counsel also pointed out the provisions of Clause 29A, adde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Bharat Sanchar Nigam Limited Anr. v. Union of India Ors. (2006) 3 SCC 1 He relied upon what is held in paragraph 97 of the said decision. He submitted that the five tests laid down therein can be called the Panchratna Test. His submission is that at no point was the complete and exclusive dominion of cranes, and other vehicles passed on to ONGC in view of the express terms of the contracts in question. He pointed out that in the present case, the employees on cranes worked for the contractor and not for ONGC. The contractor appoints those who work on cranes and not ONGC. The responsibility of repair and maintenance, including alternative arrangements, is of the contractor, not ONGC. The contractor is obliged to make arrangements at his own cost for shelter, food, night stay and other requirements of the employees working on the cranes. He pointed out that as per the terms of the agreement, the contractor and ONGC are not responsible for providing secured parking to the cranes in the sense that even if the cranes are parked at the site of ONGC, the same are at the risk of the contractor. More importantly, the contractor is liable for a claim for compensation that may arise d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeals preferred by the respondent, the Division Bench interfered. The learned senior counsel submitted that the expression transfer of right to use any goods has been the subject matter of several decisions of this Court. He urged that mere execution of a contract without passing the domain of the goods does not result in the transfer of the right to use any goods, and therefore, it will not be a deemed sale . He also relied on this Court's decisions in the cases of BSNL 5 and Rashtriya Ispat Nigam Limited 6 . He submitted that the test consistently applied by this Court is that there can be a transfer of the right to use goods provided that there is a parting with possession of goods for the limited period of its use. During the said period, the effective control of goods must be transferred. By relying upon several clauses of the agreements, he submitted that there is no transfer of the right to use the tank trucks under the contract. He pointed out that the effective control over the vehicles remains with the transporter and is never transferred to the appellants. Relying upon the decision of Allahabad High Court in the case of Ahuja Goods Agency Anr. v. State of Uttar Prad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fective control found in this Court's decision in the case of Rashtriya Ispat Nigam Limited 6 . He urged that it is not lawful to split the transfer of right to use goods into sale and service for the purposes of taxation. He relied upon a decision of this Court in the case of BSNL 5 . His submission is that the transaction covered by the contract of hiring cranes presupposes that there is a transfer of the right to use the cranes. Therefore, the provisions regarding making available staff, maintenance, etc., are irrelevant. He urged that the actual delivery of goods is not necessary for effecting the transfer which are deliverable and are actually delivered at some stage. He submitted that if the tests laid down in the case of BSNL 5 by the Hon ble Dr. Justice AR Laxmanan are applied, it will establish that what was transferred was the right to use the goods. He submitted that as regards all the contracts subject matter of this group of appeals, such as contracts for hiring cranes, water tankers and trailers, the suppliers have transferred exclusive control and dominion over the goods to the hirer during the subsistence of the contracts. 15. In the case of Gannon Dunkerley Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the transactions subject matter of this group of appeals are essentially in the nature of rendering service, thereby attracting service tax. He submitted that the VAT Act and the Sales Tax Act will have no application, and the transactions will attract service tax. Therefore, the submission is that no interference is called for. CONSIDERATION OF SUBMISSIONS 19. We have carefully considered the submissions canvassed across the Bar. Entry 48 of List II of the Seventh Schedule to the Government of India Act, 1935 provided for taxes on sale of goods and on advertisement . In the case of Gannon Dunkerley Co 2 , which is a landmark judgment, this Court dealt with the interpretation of Entry 48 of List II of the Seventh Schedule to the Government of India Act, 1935 and Entry 54 of List II of the Seventh Schedule to the Constitution of India which provided for taxes on sale of goods . This Court held that the expression sale of goods has a well recognised legal import. It was held that the expression sale of goods will have to be given the same meaning as defined in the Sale of Goods Act. The same view was reiterated in the case of K.L.Johar Co. v. Deputy Commercial Tax Officer, Coi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause (d) provides that tax on the sale or purchase of goods includes a tax on the transfer of the right to use any goods for any purpose. We will have to interpret the statutory provisions in the light of sub-clause (d) of Clause 29A of Article 366. The amendment came into force on 2nd February 1983. 21. Before we interpret sub-clause (d) of Clause 29A, it is necessary to refer to the provisions of the Sales Tax Act. In the said Act, the definition of sale required the transfer of property in goods by any person by cash, deferred payment, or other valuable consideration. The VAT Act came into force with effect from 28th April 2005. The VAT Act repealed the Sales Tax Act. The VAT Act is in conformity with the 46th Amendment to the Constitution of India, particularly Clause 29A of Article 366. The definition of sale in subsection (43) of Section 2 of the VAT Act is very exhaustive which is in terms of Clause 29A of Article 366 of the Constitution of India. Clause (iv) of subsection (43) of Section 2 of the VAT Act contains an inclusive definition of sale , which includes, a transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 2, incorporates the requirement of transfer of property in goods. 27. Now, we come to the interpretation of sub-clause (d) of Clause 29A of Article 366. As pointed out earlier, the States had legislative competence for enacting a law regarding imposing a tax on the sale of goods as per Entry 54 of List II. Followed by the decision of this Court in the case of Gannon Dunkerley Co 2 , there are several decisions wherein the view taken was that though there were transactions which resembled sale, the tax could not be levied on the same as there was no sale of goods within the meaning of the Sale of Goods Act. The sale of goods contemplated under Entry 54 of List II was consistently interpreted as a sale in terms of the Sale of Goods Act. 28. Clause 29A of Article 366 was inserted on 2nd February 1983, thereby introducing the concept of deemed sale . We are concerned with sub-clause (d) of Clause 29A, which we have reproduced earlier. As noted earlier, the condition for applicability of the sale of goods under the Sale of Goods Act is that apart from the transfer of possession of the goods, there must be a transfer of the property in goods to the buyer. However, sub-clause (d) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Bench was Where is the situs of the taxable event on the transfer of right to use goods under Article 366(29A)( d) of the Constitution. In paragraph 27 of the aforesaid decision, the Constitution Bench held that the levy of tax in accordance with Clause 29A(d) is not on the use of goods but on the transfer of the right to use goods. In other words, it was held that the right to use goods accrues only because of the transfer of the right to use goods. It was held that the transfer is sine qua non for the right to use any goods. It was held that if the goods are available, the transfer of the right to use goods occurs when the contract for the goods is executed. In other words, if the goods are available, irrespective of whether the goods are delivered and the written agreement is entered into between the parties, a taxable event on such a deemed sale would be executing a contract to transfer the right to use goods. However, when there is no written agreement but an oral or implied transfer of the right to use goods, it may be effected by the delivery of goods. Only in such cases the taxable event would be the delivery of goods. In this context, in paragraph 28, the Constitution B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he goods must be available when the transfer of the right to use the goods takes place. The Court also recognised that for oral contracts the situs of the transfer may be where the goods are delivered (see para 26 of the judgment). 75. In our opinion, the essence of the right under Article 366(29A)( d) is that it relates to user of goods. It may be that the actual delivery of the goods is not necessary for effecting the transfer of the right to use the goods but the goods must be available at the time of transfer, must be deliverable and delivered at some stage. It is assumed, at the time of execution of any agreement to transfer the right to use, that the goods are available and deliverable. If the goods, or what is claimed to be goods by the respondents, are not deliverable at all by the service providers to the subscribers, the question of the right to use those goods, would not arise. ( underline supplied ) Thus, this Court held that to attract sub-clause (d) of Clause 29A of Article 366, the goods must be available at the time of transfer, must be deliverable and delivered at some stage. If the goods are not deliverable at all by the service provider to the subscriber, the que ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly 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. 53.2. The transfer of the right to use goods, as distinct from the transfer of goods, is yet another economic activity intended to be exigible to State tax. 53.3. There are clear distinguishing features between ordinary sales and deemed sales. 53.4. Article 366(29A)( d) of the Constitution implies tax not on the delivery of the goods for use, but implies tax on the transfer of the right to use goods. The transfer of the right to use the goods contemplated in sub-clause (d) of clause (29A) cannot be equated with that category of bailment where goods are left with the bailee to be used by him for hire. 53.5. In the case of Article 366(29A)( d) the goods are not required to be left with the transferee. All that is required is that there is a transfer of the right to use goods. In such a case taxable event occurs regardless of when or whether the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifferent. Therefore, by way of illustration, firstly, we are referring to the terms and conditions of the contract dated 13th April 2006, which is the subject matter of challenge in Civil Appeal no.3548 of 2017. Some of the relevant clauses and features of the said agreement are as follows: a. Clause 2 regarding scope of work/contract, reads thus: 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 prerequisites, 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 or rights, for use of the vehicle/equipment, by the contractor to ONGC. 2. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. (underline supplied) Thus, the contract itself provides that there is no transfer of the rig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ractor will be responsible. The contractor shall safeguard his interest through comprehensive insurance at his own cost, and the ONGC shall not be liable to pay any amount towards the insurance; ix. It will be the contractor's responsibility to arrange parking of the cranes at selected places. However, the contractor shall be responsible for providing the cranes at the requisite site at the requisite time; x. The insurance taken by the contractor shall cover all the risks of whatsoever nature to any third party, any equipment/property/personnel of the contractor and damage to the property or personnel of ONGC; xi. It will be the responsibility of the contractor to register himself under the Contract Labour (Regulation and Abolition) Act, 1970; and xii. It is provided that after using cranes for a specific period, as mentioned in the contract, the contractor has to park the cranes on the sites provided by ONGC at the risk of the contractor. 35. On a conjoint reading of the aforesaid terms of the contract, it is apparent that the contractor has an option of replacing the cranes in case one of the cranes was not working properly. Only the contractor is liable to take care of the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contract is of 20th November 2008 by and between the ONGC and M/s.Ali Brothers. The contract is for hiring a 20-metre-ton trailer. The salient features of the said contract are as under: a. Even in this contract, the entire manpower was to be provided by the Contractor; b. The contractor was required to indemnify ONGC from all the actions, proceedings, claims, demands, and liabilities arising out of or in the course of or caused by the execution of work under the contract; c. The driver must be appointed by the employer having a valid professional driving license with three years of experience; d. The contractor must register himself under the Contract Labour (Regulation and Abolition) Act, 1970; e. The trailer shall be available for 26 days in a calendar month. The normal working hours will be 12 hours; f. The contractor shall make his own arrangements for parking all the trailers after duty hours; g. The contractor shall be responsible for the loss of the material provided by ONGC during transportation. In case of any accident or damage while the trailer is on ONGC duty, there shall be no liability of any nature incurred by the ONGC; h. The contractor must take insurance of trai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to engage tank trucks from outside. 40. On a conjoint reading of the clauses mentioned above, it is apparent that there is no intention to transfer the use of any particular tank truck in favour of ONGC. The contract is to provide tank trucks for the transportation of goods. Once the tank trucks provided by the contractor are loaded with goods, the entire responsibility of their safe transit, including avoiding contamination, delivery, and unloading at the destination, is of the contractor. The test (c) is not satisfied in this case. Therefore, it is impossible to conclude that there is a transfer of the right to use tank trucks in favour of IOCL. Essentially, it is a contract to provide the service of transporting the goods using tank trucks to IOCL. Therefore, even in this case, all the five tests laid down by Dr AR Laxmanan, J are not fulfilled. 41. Now, at this stage, we may refer to Section 65(105)(zzzzj) of the Finance Act, which was brought into force with effect from 16th May 2008. Section 65(105)(zzzzj) reads thus: Section 65. Definitions .. .. .. .. .. .. .. .. .. .. (1) .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. (105) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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