Full Judgment Text
2024 INSC 27
Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.3548 OF 2017
M/s. K.P. Mozika … Appellant
versus
Oil and Natural Gas
Corporation Ltd. & Ors. … Respondents
with
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
Civil Appeal No.3578 of 2017
Signature Not Verified
Civil Appeal No.4659 of 2013
Digitally signed by
Anita Malhotra
Date: 2024.01.27
13:19:25 IST
Reason:
Civil Appeal No.4661 of 2013
Civil Appeal No.3548 of 2017 etc. Page 1 of 41
Civil Appeal No.4660 of 2013
Civil Appeal No.3573 of 2017
Civil Appeal No.3575 of 2017
Civil Appeal No.3574 of 2017
Civil Appeal No.3577 of 2017
Civil Appeal No.3576 of 2017
Civil Appeal No.4662 of 2013
Civil Appeal No.3549 of 2017
Civil Appeal No.3557 of 2017
Civil Appeal No.7954 of 2012
Civil Appeal No.8693 of 2012
Civil Appeal No.3554 of 2017
Civil Appeal No.3556 of 2017
Civil Appeal No.3553 of 2017
Civil Appeal No.3555 of 2017
Civil Appeal No.3565 of 2017
Civil Appeal No.3551 of 2017
Civil Appeal No.3552 of 2017
Civil Appeal No.3558 of 2017
Civil Appeal No.3559 of 2017
Civil Appeal Nos.35663569 of 2017
Civil Appeal No.3572 of 2017
Civil Appeal No.3561 of 2017
Civil Appeal No.3562 of 2017
Civil Appeal No.3564 of 2017
Civil Appeal No.3548 of 2017 etc. Page 2 of 41
Civil Appeal No.3563 of 2017
Civil Appeal No.3570 of 2017
Civil Appeal No.3571 of 2017
Civil Appeal No.3560 of 2017
and
Civil Appeal No.3550 of 2017
J U D G M E N T
ABHAY S. OKA, J.
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
Civil Appeal No.3548 of 2017 etc. Page 3 of 41
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 the VAT Act. As a result, there will be other
questions about whether the transactions will amount to
service, thereby attracting liability to pay service tax.
We are referring to the facts in Civil Appeal No. 3548 of
3.
2017 and Civil Appeal No. 383 of 2013 for convenience. The
th
judgment dated 25 November 2009 subject matter of
challenge in Civil Appeal no.3548 of 2017 is the main
judgment. Most of the other impugned judgments directly or
indirectly rely upon the said judgments. There are different
th
impugned judgments and orders passed on 24 July 2012,
th th th
25 November 2009, 9 December 2009, 29 June 2010 and
th
25 August 2010. Civil Appeal no.3548 of 2017 arises from
th
the impugned judgment dated 25 November 2009 passed by
a Division Bench of the Gauhati High Court in a writ appeal.
th
In this case, the agreement is of 13 April 2006, by which the
appellant agreed to provide services of truckmounted
hydraulic cranes with crew, etc., to ONGC for carrying out its
various operations. The appellant had to approach the High
Court on the threat given by ONGC to deduct tax at source
under the VAT Act in respect of the services provided by the
appellant. Similar petitions were filed before the learned
Single Judge of the Gauhati High Court. The learned Single
Judge dismissed the petitions by holding that the contract
Civil Appeal No.3548 of 2017 etc. Page 4 of 41
was for the transfer of the right to use the goods and,
therefore, there is a liability under the VAT Act and the Sales
Tax Act. The learned Single Judge also passed orders in
similar writ petitions disposing of the same in terms of the
th
order dated 19 December 2006. Therefore, the appellants
filed writ appeals before the Division Bench. By the
impugned judgment dated 25th November 2009, the Division
Bench dismissed the writ appeals by holding that under the
agreements in question, there was a transfer of the right to
use the goods covered by the contract.
SUBMISSIONS OF THE LEARNED COUNSEL APPEARING
FOR THE APPELLANTS IN CIVIL APPEAL NO.3548 OF
2017 AND OTHER CONNECTED CASES
4. In Civil Appeal no.3548 of 2017 and other connected
matters, i.e. Civil Appeal no.7954 of 2012, Civil Appeal
no.8715 of 2012, Civil Appeal no.9291 of 2012, Civil Appeal
no.3549 of 2017, Civil Appeal no.3550 of 2017, Civil Appeal
no.3551 of 2017, Civil Appeal no.3552 of 2017, Civil Appeal
no.3553 of 2017, Civil Appeal no.3555 of 2017, Civil Appeal
no.3558 of 2017, Civil Appeal 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 ListII of the
Seventh Schedule to the Government of India Act, 1935.
Under the Seventh Schedule to the Constitution of India,
Entry 92A of ListI confers power on the Government of India
Civil Appeal No.3548 of 2017 etc. Page 5 of 41
to impose taxes on the sale of goods. Similar legislative
powers were vested in the State under Entry 54 of ListII of
levy of taxes on the sale or purchase of goods other than
newspapers, subject to the provisions of Entry 92A of ListI.
On the interpretation of the sale of goods covered by Entry 54
of ListII, the learned counsel relied upon several decisions of
this Court in the cases of
Sales Tax Officer, Pilibhit v.
1
Budh Prakash Jai Prakash , The State of Madras v.
2
Gannon Dunkerley & Co. , and M/s. K.L. Johar & Co. v.
3
The Deputy Commercial Tax Officer, Coimbatore III . The
learned counsel also pointed out the provisions of Clause
th
29A, added by way of the 46 Amendment Act 1982 to Article
366 of the Constitution of India. He pointed out that in the
present group of appeals, we are concerned with subclause
(d) of Clause 29A of Article 366 of the Constitution of India,
which provides that the tax on the sale and purchase of goods
includes a tax on the transfer of the right to use any goods for
any purpose (whether or not for a specified period) for cash,
deferred payment or other valuable consideration. He pointed
out that by this amendment to the Constitution of India, by
way of legal fiction, six cases of transactions were treated as
deemed sale of goods. Therefore, ‘deemed sale’ must be read
in every provision wherever the phrase ‘tax on sale and
purchase of goods’ appears. He pointed out the decisions that
cover the contingencies covered by subclauses (a) to (f) of
Clause 29A of Article 366 of the Constitution of India. As far
1 AIR 1954 SC 459
2 AIR 1958 SC 560
3 AIR 1965 SC 1082
Civil Appeal No.3548 of 2017 etc. Page 6 of 41
as subclause (d) is concerned, he relied upon the decision of
the High Court of Madras in the case of
A. V. Meiyappan v.
Commissioner of Commercial Taxes, Board of Revenue,
4
Madras & Anr. .
Coming to the Sales Tax Act, the learned counsel
5.
pointed out that the same was repealed by virtue of Section
107 of the VAT Act. He submitted that the VAT Act is in
th
conformity with the 46 Amendment to the Constitution of
India. He also pointed out the view taken by the High Court
rd
of Tripura in the judgments and orders dated 3 November
th
2014 and 29 February 2016, wherein the said High Court,
after analysing the similar contract, came to the conclusion
that the said transaction did not involve any transfer of right
to use.
6. He pointed out that the question will be whether the
transactions subject matter of these appeals constitute
deemed sales within the meaning of Section 2(43)(iv) of the
st
VAT Act with effect from 1 May 2005. He submitted that if
the said provisions of the VAT Act are not applicable, the
transactions will be subject to service tax under Section
65(105)(zzzzj) of the Finance Act, 1994 (for short, ‘the Finance
Act’). On facts, he pointed out that the agreement subject
matter of Civil Appeal nos.35663569 of 2017 specifically
provided that the transactions in question would not be by
way of lease or transfer of right to use the vehicle/equipment.
4 (1967) 20 STC 115 (Madras)
Civil Appeal No.3548 of 2017 etc. Page 7 of 41
He mainly relied upon the concurring view of the
7.
Hon’ble Dr.Justice AR Lakshmanan in the case of
Bharat
5
Sanchar Nigam Limited & Anr. v. Union of India & Ors.
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 due to injury to any third party by reason of the use of
the cranes. The contractor is mandated to fully indemnify
ONGC against any consequence under law arising from any
accident caused by the cranes to the
equipment/property/personnel of ONGC. He submitted that
5 (2006) 3 SCC 1
Civil Appeal No.3548 of 2017 etc. Page 8 of 41
in the facts of the case, subclauses (c), (d) and (e) of the
Panchratna test are not fulfilled.
8. He relied upon a decision of this Court in the case of
The State of A.P. & Anr. v. Rashtriya Ispat Nigam
6
Limited. By inviting the attention of this Court to the
decision in the case of Great Eastern Shipping Company
7
Limited v. State of Karnataka & Ors. , he submitted that
in the facts of the case before this Court, the ‘Tug’ which was
the subject matter of the contract was made available to the
port twentyfour hours a day throughout the contract period.
The contract provided that during the contract period, the tug
will be available with the port for all purposes and under
control in every respect. He also referred to this Court's
decision in Commissioner of Service Tax, Delhi v. Quick
8
Heal Technologies Limited . In the said case, this Court
observed that the transaction was of software sale, and once
it is accepted that the software put in a compact disk is
goods, there cannot be any service element in the transaction.
He submitted that by accepting the contentions raised by
him, consequential directions will have to be issued to settle
the account of the contractors.
Submissions in Civil Appeal No. 383 of 2013
The learned senior counsel appearing for the appellant
9.
in Civil Appeal No. 383 of 2013 has also made detailed
6 (2002) 3 SCC 314
7 (2020) 3 SCC 354
8 2022 SCC Online SC 976
Civil Appeal No.3548 of 2017 etc. Page 9 of 41
submissions. He relied upon the standard contract executed
between the appellants–Indian Oil Corporation Limited (IOCL),
and the transporters operating tank trucks to deliver
petroleum products at specified rates. He pointed out that
the Superintendent of Tax issued notice to the appellants
(IOCL) to deduct sales tax while paying hiring charges to the
contractors on the footing that by hiring the tank trucks,
there is a transfer of the right to use goods and, therefore, the
transaction is of sale covered by Clause 29A of Article 366 of
the Constitution of India. In the writ petition filed by the
appellants, the learned Single Judge took the view that the
transactions do not constitute transfer of right to use goods.
In the writ appeals 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
5 6
and . He submitted
BSNL Rashtriya Ispat Nigam Limited
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
Civil Appeal No.3548 of 2017 etc. Page 10 of 41
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 Pradesh
9
& Ors. . He submitted that there is a consistent judicial
opinion that hiring vehicles does not amount to a transfer of
effective control and possession.
10. He submitted that a transaction can be subject to either
service or sales tax, and the said transaction cannot be
subjected to both taxing statutes. He relied upon a decision
of this Court in the case of
Imagic Creative (P) Ltd. v.
10
Commissioner of Commercial Taxes & Ors.
11. Therefore, he relied upon the decision of this Court in
2
the case of Gannon Dunkerley & Co . He pointed out why
the Law Commission suggested an amendment to the
Constitution of India by incorporating clause 29A under
Article 366. He submitted that under clause 29A of Article
366, it is provided that the transfer, delivery, or supply of
goods shall be deemed to be a sale of those goods by the
person making the transfer, delivery, or supply. He relied
5
upon the decision in the case of . He submitted that
BSNL
whether the contract falls in one category or the other is to be
decided by finding out the substance of the contract. He also
pointed out the decision of this Court in the case of
6
for dealing with the issue of
Rashtriya Ispat Nigam Ltd.
9 (1997) 106 STC 540 = 1997 SCC online All 1381
10 (2008) 2 SCC 614
Civil Appeal No.3548 of 2017 etc. Page 11 of 41
effective control. He heavily relied upon the opinion of the
5
Hon’ble Dr. Justice A.R. Laxmanan in the case of .
BSNL
The learned senior counsel relied upon several clauses
12.
in the agreement executed by the appellant. He submitted
that after 2003, the transaction was liable to service tax.
The learned counsel appearing for the appellants in Civil
13.
Appeal nos.8714, 8710, 8705, 8693, and 35733579 of 2017
submitted that the contract of providing SCB trailers to ONGC
was a contract of service and not of transfer of right to use
goods in view of the terms of the contract in question. He
invited the attention of this Court to several clauses in the
contract. Therefore, the learned counsel urged that the
specific terms of the contract indicate that it was a service
contract and was not a sale.
Submissions by the State of Assam
14. The learned counsel appearing for the State of Assam
th
relied upon a decision of this Court in the case of 20
Century Finance Corporation Ltd. & Anr. v. State of
11
Maharashtra . He submitted that the contracts entered into
by ONGC will have to be read as a whole. He relied upon the
test of effective control found in this Court's decision in the
6
case of Rashtriya Ispat Nigam Limited . 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
5
upon a decision of this Court in the case of . His
BSNL
11 (2000) 6 SCC 12
Civil Appeal No.3548 of 2017 etc. Page 12 of 41
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
5
case of BSNL 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.
2
In the case of , this Court has
15. Gannon Dunkerley & Co
reiterated that in the case of composite contracts, the States
did not have the power to severe sale and service components
and impose tax only on sales. The learned counsel also
invited our attention to the statement of objects and reasons
th
of the Constitution (46 Amendment) Bill, 1981. He pointed
out the statement of objects and reasons mentioned therein.
He submitted that the contracts in the present cases clearly
show that during the contract period, complete control and
dominion over the cranes, trucks and trailers is given to the
hirer. It is irrelevant that the cranes, trucks, etc., come back
to the contractor after the contract period. He submitted that
Civil Appeal No.3548 of 2017 etc. Page 13 of 41
the concept of ‘deemed sale’ under subclause (d) of Clause
29A of Article 366 of the Constitution of India comes into
operation even if there is no legal transfer of ownership of the
vehicles followed by its delivery. He pointed out that deemed
sale is not a sale of the goods, but it is of the right to use the
goods. Even if there is actually no sale of cranes, tankers or
trailers in terms of the Sale of Goods Act, there is a deemed
sale as the terms of the contracts read as a whole show that
there was an intention on the part of the parties to transfer
the right to use the said goods. He pointed out that this
Court, in the case of Aggarwal Brothers v. State of
12
Haryana & Anr. , reiterated that the provisions are for
transferring the right to use the goods and not the transfer of
goods. He submitted that the test of effective control is
satisfied in this case.
16. Inviting our attention to Section 65(105)(zzzzj) of the
Finance Act, the learned counsel submitted that the said
provisions exclude those transactions in which there is a
transfer of possession and effective control.
The learned counsel invited our attention to the various
17.
clauses in the contract subject matter of Civil Appeal No.
3548 of 2017. The learned counsel, relying upon what is held
in paragraph 51(iv) of the decision of this Court in the case of
8
, submitted that when we
Quick Heal Technologies Ltd.
talk about effective control, it does not mean physical control.
12 (1999) 9 SCC 182
Civil Appeal No.3548 of 2017 etc. Page 14 of 41
He reiterated that the return of physical possession of the
trailers, trucks, and cranes has no relevance.
Submissions of the Union of India
The learned Additional Solicitor General appearing on
18.
behalf of the Union of India contended 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
2
Gannon Dunkerley & Co , 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 ListII 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 wellrecognised 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
Civil Appeal No.3548 of 2017 etc. Page 15 of 41
13
Thus, the State
Commercial Tax Officer, Coimbatore III .
legislature was empowered to levy tax on the sale of goods
provided there was a sale within the meaning of the Sale of
Goods Act. A necessary ingredient of the sale of goods is the
transfer of property in the goods subject matter of sale from
the seller to the buyer. The essential ingredient of such a sale
is handing over possession of the goods and transferring the
property in the goods to the buyer. Under Entry 92A of ListI
of the Seventh Schedule to the Constitution of India, even the
Central legislature is empowered to levy tax on the sale and
purchase of goods other than newspapers where such sale or
purchase occurs during the course of interstate trade or
commerce.
th
20. Thereafter, the 46 Amendment to the Constitution of
India was made. By the said amendment, Clause 29A was
nd
added to Article 366 with effect from 2 February 1983.
Clause 29A reads thus:
“ (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
any goods for cash, deferred payment or
other valuable consideration;
(b) a tax on the transfer of property in
goods (whether as goods or in some other
form) involved in the execution of a works
contract;
13 AIR 1965 SC 1082
Civil Appeal No.3548 of 2017 etc. Page 16 of 41
(c) a tax on the delivery of goods on hire
purchase or any system of payment by
instalments;
(d) a tax on the transfer of the right to use
any goods for any purpose (whether or
not for a specified period) for cash,
deferred payment or other valuable
consideration;
(e) a tax on the supply of goods by any
unincorporated association or body of
persons to a member thereof for cash,
deferred payment or other valuable
consideration;
(f) a tax on the supply, by way of or as
part of any service or in any other manner
whatsoever, of goods, being food or any
other article for human consumption or
any drink (whether or not intoxicating),
where such supply or service, is for cash,
deferred payment or other valuable
consideration, and such transfer, delivery
or supply of any goods shall be deemed to
be a sale of those goods by the person
making the transfer, delivery or supply
and a purchase of those goods by the
person to whom such transfer, delivery or
supply is made.”
(underline supplied)
In this case, we are concerned with subclause (d) of Clause
29A. Subclause (d) essentially defines “tax on the sale or
purchase of goods”. Subclause (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 subclause (d)
Civil Appeal No.3548 of 2017 etc. Page 17 of 41
of Clause 29A of Article 366. The amendment came into force
nd
on 2 February 1983.
21. Before we interpret subclause (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
th
with effect from 28 April 2005. The VAT Act repealed the
th
Sales Tax Act. The VAT Act is in conformity with the 46
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, deferred
payment or other valuable consideration”.
22. In the present group of appeals, broadly, we are dealing
with the following categories of cases:
Agreements for hiring cranes;
a.
b. Agreements for hiring trucks;
c. Agreements for hiring of buses;
Civil Appeal No.3548 of 2017 etc. Page 18 of 41
Agreements for transportation of petroleum
d.
products by vehicles;
e. Agreements for hiring trailers;
Agreements for hiring water tankers; and
f.
g. Agreements for hiring of scrapping winch chassis.
23. The impugned judgment and order subject matter of
challenge in Civil Appeal no.3548 of 2017 decides a group of
20 cases wherein the agreements were for providing/hiring
cranes to ONGC and agreements pertaining to water tankers
and trailers. The said judgment was against the assessee.
24. Civil Appeal no.383 of 2013 arises from the contract
between the transport agencies and the appellant–IOCL, for
transporting petroleum products by vehicles. The impugned
th
judgment and order is of 24 July 2012. Civil Appeal No.
3548 of 2017 has been preferred by the assessee. The same
is the case with Civil Appeal No. 383 of 2013. Civil Appeal
No. 3580 of 2017 has been preferred by the Union of India.
Civil Appeal no.4657 of 2013 is preferred by the assessee for
th
challenging the judgment and order dated 24 July 2012. By
the said judgment, again, a group of cases were decided by
the Gauhati High Court. Even the said cases were decided
against the assessee on the basis of the decision, which is the
subject matter of challenge in Civil Appeal No. 3548 of 2017.
Civil Appeal No.3548 of 2017 etc. Page 19 of 41
Civil Appeal no.3580 of 2017 is in the nature of a cross
25.
appeal preferred by the Union of India against the judgment,
which is the subject matter of challenge in Civil Appeal 4657
of 2013. This was a case of a contract for the supply of
trailers. In this case, the contention raised by the Union of
India is that the transaction does not amount to a sale within
the meaning of the VAT Act and that the agreement is of
rendering service.
26. The entire controversy revolves around the question of
whether the transactions reflected from the agreements
subject matter of these appeals amount to a sale within the
meaning of subclause (d) of Clause 29A of Article 366 of the
Constitution of India and, consequently, whether it is a “sale”
within the meaning of clause (iv) of subsection (43) of Section
2 of the VAT Act. The definition of “sale” under the Sales Tax
Act, in subsection (33) of Section 2, incorporates the
requirement of transfer of property in goods.
27. Now, we come to the interpretation of subclause (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 ListII.
Followed by the decision of this Court in the case of Gannon
2
Dunkerley & Co , 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
Civil Appeal No.3548 of 2017 etc. Page 20 of 41
Goods Act. The sale of goods contemplated under Entry 54 of
ListII was consistently interpreted as a sale in terms of the
Sale of Goods Act.
nd
28. Clause 29A of Article 366 was inserted on 2 February
1983, thereby introducing the concept of “deemed sale”. We
are concerned with subclause (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, subclause (d) of Clause 29A refers not to the
transfer of property in the goods to the buyer but to the
transfer of the right to use any goods for any purpose for
consideration as mentioned in subclause (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 subclause (d) of Clause 29A
29.
in various decisions. The first important decision on this
aspect is a decision of the Constitution Bench in the case of
th 11
20 Century Finance Corporation Ltd. . This was a case
where the appellant had entered into a masterlease
Civil Appeal No.3548 of 2017 etc. Page 21 of 41
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 masterlease agreement provided that
the appellants would place the orders for individual
equipment on the request made by the lessee, and the
equipment to be leased would be dispatched by the
manufacturer or supplier concerned to the location specified
in the lease agreement. At the instance of the lessee, the
appellant used to place purchase orders to the suppliers or
manufacturers for the supply of individual items or
equipment. After the equipment was delivered and put to
use, the lessee used to execute supplementary lease
schedules acknowledging the receipt of the leased equipment.
Such supplementary lease agreements used to form an
integral part of the masterlease agreements. The controversy
arose because some States started levying tax merely because
the goods were found to be located in their States at the time
of executing the master contract. The States where the goods
were delivered started levying taxes on the said goods. In
particular, the challenge was to the validity of legislations of
various States on the ground that one transaction of transfer
of the right to use goods was subjected to tax in different
States. In the facts of the case, the issue considered by the
Constitution 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
Civil Appeal No.3548 of 2017 etc. Page 22 of 41
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
Bench held that it cannot be said that there would be no
complete transfer of the right to use goods unless the goods
are delivered. When the goods are in existence, the taxable
event for the transfer of the right to use goods occurs when a
contract is executed between the lessor and the lessee, and
the situs of sale of such a deemed sale would be where the
agreement in respect thereof is executed.
30. There is another decision of this Court in the case of
5
BSNL . This case was decided by a bench of three Hon’ble
Judges of this Court. The question decided in this case was
Civil Appeal No.3548 of 2017 etc. Page 23 of 41
about the nature of the transaction by which mobile phone
connections were provided. The question was whether it was
a sale of goods that would attract sales tax or a service that
would attract service tax under Entry 97 of ListI of the
Seventh Schedule to the Constitution of India. There were
several issues, including an issue of whether there is any
transfer of the right to use any goods by providing access to
telephone connection by the telephone service provider to the
subscriber. Another issue was whether a transaction of
providing a telephone connection was a sale, which is an
interstate sale. There were separate but concurring
judgments delivered. Justice Ruma Pal authored the leading
judgment for herself and Justice Dalveer Bhandari. In this
decision, reference was made to the decision in the case of
2
Gannon Dunkerley & Co. . It was held that even after
Clause 29A of Article 366 was introduced, the meaning of the
word “goods” was not altered. It was held that even after
Clause 29A was introduced, the ingredients of the sale of
goods continue to have the same definition as discussed in
2
the case of Gannon Dunkerley & Co. . It was held that the
transactions which are mutant sales are limited to Clause
29A of Article 366. However, all the transactions must qualify
as sales within the meaning of the Sales Tax Act to levy sales
th
tax. In paragraph 74, the decision in the case of 20
11
Century Finance Corporation Ltd. was interpreted. In
5
paragraphs 74 and 75 of the judgment in the case of BSNL ,
Justice Ruma Pal observed thus:
Civil Appeal No.3548 of 2017 etc. Page 24 of 41
“ . In determining the situs of the
74
transfer of the right to use the goods, the
Court did not say that delivery of the
goods was inessential for the purposes of
completing the transfer of the right to
use. The emphasised portions in the
quoted passage evidences that the 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 subclause (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 question of the right to use those goods
would not arise.
Civil Appeal No.3548 of 2017 etc. Page 25 of 41
5
What is relevant in the case of is the concurring
31. BSNL
view taken by Dr. AR Laxmanan, J. In paragraph 97, Dr. AR
Laxmanan, J held thus:
“ To constitute a transaction for the
97.
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
goods during the period for which it is to
be transferred, the owner cannot again
transfer the same rights to others.”
(underline supplied)
32. The view taken by Dr AR Laxmanan, J has been
consistently followed thereafter by this Court in various
decisions. In the case of
Great Eastern Shipping Company
7
paragraph 97 of the view expressed by Dr. AR
Limited ,
Civil Appeal No.3548 of 2017 etc. Page 26 of 41
Laxmanan, J was quoted with approval. A Bench of three
Hon’ble Judges of this Court in the case of
Commissioner of
14
quoted
Service Tax, Ahmedabad v. Adani Gas Limited
paragraph 97 of the view expressed by Dr AR Laxmanan, J
with approval. In fact, in paragraph 17, the Bench observed
that the tests laid down in paragraph 97 of the decision in the
5
case of BSNL have been applied to determine whether the
transaction involved the transfer of the right to use any goods
under subclause (d) of Clause 29A of Article 366 of the
Constitution of India.
8
In the case of , in
33. Quick Heal Technologies Ltd.
paragraph 46, the tests laid down by Dr. AR Laxmanan, J
have been quoted with approval. In paragraph 53 of the said
decision, this Court held thus:
| “53. The following principles to the extent<br>relevant may be summed up: | |
|---|---|
| 53.1. The Constitution (Fortysixth<br>Amendment) Act intends to rope in<br>various economic activities by enlarging<br>the scope of “tax on sale or purchase of<br>goods” so that it may include within its<br>scope, the transfer, delivery or supply of<br>goods that may take place under any of<br>the transactions referred to in sub<br>clauses (a) to (f) of clause (29A) of Article<br>366. The works contracts, hire purchase<br>contracts, supply of food for human<br>consumption, supply of goods by<br>association and clubs, contract for<br>transfer of the right to use any goods are<br>some such economic activities. |
14 2020 SCCOnline SC 682
Civil Appeal No.3548 of 2017 etc. Page 27 of 41
The transfer of the right to use
53.2.
goods, as distinct from the transfer of
goods, is yet another economic activity
intended to be exigible to State tax.
There are clear distinguishing
53.3.
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 subclause ( 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
goods are delivered for use. What is
required is that the goods should be in
existence so that they may be used.
53.6. The levy of tax under Article
366(29A)( 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.
Civil Appeal No.3548 of 2017 etc. Page 28 of 41
The agreement or the contract
53.8.
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.
”
Thus, to decide the controversy involved in this group of
appeals, the contract between the parties will have to be
tested on the touchstone of the five tests laid down by Dr AR
5
Laxmanan, J in the case of BSNL . Thus, the contract will be
covered by subclause (d) of Clause 29A of Article 366,
provided all the five conditions laid down are fulfilled. This
Court has made a distinction between transferring the right to
use and merely a license to use goods. In every case where
the owner of the goods permits another person to use goods,
the transaction need not be of the transfer of the right to use
the goods. It can be simply a license to use the goods which
may not amount to the transfer of the right to use.
34. In Civil Appeal no.3548 of 2017, in the impugned
judgment, the Division Bench of the High Court proceeded on
the footing that the terms and conditions of the agreement, by
which cranes were supplied to ONGC, were more or less
similar. In paragraph 12 of the impugned judgment, the
Civil Appeal No.3548 of 2017 etc. Page 29 of 41
Division Bench has also dealt with the contracts of supply of
water tankers and trailers. Thus, the contracts, as far as the
supply of cranes is concerned, are almost identical. It is
stated that the contract subject matter of challenge in Civil
Appeal nos.35663569 of 2017 is slightly different. Therefore,
by way of illustration, firstly, we are referring to the terms and
th
conditions of the contract dated 13 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:
The services of the manned
1.
(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 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 right to use the crane/equipment;
The other salient features are :
b.
Civil Appeal No.3548 of 2017 etc. Page 30 of 41
The specifications of cranes and other equipment
i.
are provided in clause 3.1. Clause 3.3 provides
that apart from the cranes, the contract shall
provide a necessary number of slings, hooks,
dunnage material and other material for loading
and unloading. The specific material is mentioned
in the said clause;
ii. Though in clause 6.2, the registration number of
two cranes has been mentioned, what is important
here is clause 5.2. It provides that even if a
particular crane or its documents have been
approved by ONGC, when a crane is defective,
another crane of similar specifications must be
offered as a replacement by the contractor.
Therefore, the contract does not remain confined
only to the two cranes described in clause 6.2, but
the contractor has an obligation to replace the
cranes;
iii. The operational staff, such as driver, crane
operator, rigorslinger, khalasi, cleaner, etc. as
specifically mentioned in clause 8.17 and 8.18
shall be provided by the contractor. The crew
must operate the cranes with requisite safety
accessories, such as safety shoes, gloves, safety
helmets, etc. The contractor shall provide these
safety accessories at his own cost and shall be
replaced by him from time to time;
Civil Appeal No.3548 of 2017 etc. Page 31 of 41
The contractor shall make arrangements at his
iv.
own cost for shelter, food, nightstay and other
requirements of the staff near the site of operation;
The normal working hours on the cranes shall be
v.
from 7 to 10 hours with a break of half an hour.
These timings shall be subject to change. There
shall be four days’ maintenance off for the cranes;
vi. The contractor must make adequate and proper
arrangements for fuel, lubricants and other
consumables, etc., in relation to the cranes and
other items. The contractor shall look after the
repair and maintenance of the cranes;
vii. The contractor shall ensure that the cranes comply
with the requirements of the Motor Vehicles Act,
1988 and the rules and regulations framed
thereunder. Similarly, the crew members must be
legally competent and hold valid licences;
The contractor will be solely responsible and shall
viii.
keep ONGC indemnified against any consequence
under any law arising from any accident caused to
the equipment/property/personnel engaged in the
contract. Even for damage or injury to any third
party due to the operation of cranes, the
contractor will be responsible. The contractor
shall safeguard his interest through
comprehensive insurance at his own cost, and the
Civil Appeal No.3548 of 2017 etc. Page 32 of 41
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;
It will be the responsibility of the contractor to
xi.
register himself under the Contract Labour
(Regulation and Abolition) Act, 1970; and
It is provided that after using cranes for a specific
xii.
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 legal consequences of using the cranes. The contractor
must maintain the cranes, and it is for the contractor to pay
Civil Appeal No.3548 of 2017 etc. Page 33 of 41
for consumables like fuel, oil, etc. Even the cranes must be
moved and operated by the crew members appointed by the
contractor. Moreover, in case of any mishap or accident in
connection with the cranes or connection with the use of the
cranes or as a consequence thereof, the entire liability will be
of the contractor and not of the ONGC. Thus, in short, the
contract is for providing the service of cranes to ONGC. The
reason is that the transferee (ONGC) is not required to face
legal consequences for using the cranes supplied by the
contractor. Therefore, the tests laid down in clauses (c) and
(d) of paragraph 97 of the decision of Dr AR Laxmanan, J are
not fulfilled in this case. Moreover, on a conjoint reading of
the aforesaid clauses, it appears that the use of the cranes
provided by the contractor to ONGC will be by way of only a
permissive use. Though the cranes are used for carrying out
the work as suggested by ONGC, the entire control over the
cranes is retained by the contractor, inasmuch as it is the
contractor who provides crew members for operating the
cranes, it is the contractor who has to pay for fuel, oil, etc.
and for maintenance of any loss or damage to the equipment
of the contractor, staff of the contractor, any third party and
staff and property of ONGC. Therefore, we find that as
regards the contract to provide cranes, the finding of the High
Court that there was a transfer of the right to use cranes was
not correct as the transactions do not satisfy all the five tests
referred to above.
Civil Appeal No.3548 of 2017 etc. Page 34 of 41
We have also carefully perused the terms and conditions
36.
of the contract subject matter of challenge in Civil Appeal
nos.35663569 of 2017. The contract concerns hiring
services of ten truckmounted allterrain hydraulic cranes
with the crew. In this case, like the other contracts, Clause 2
provides that the supply of equipment will not be by way of
lease or transfer or right to use the equipment. All the other
clauses are practically the same. Even in this case, also, the
reasons which are recorded earlier will squarely apply. The
contracts do not reflect the intention on the part of the
contractor to transfer the right to use the goods.
37. Now, we come to Civil Appeal No. 4657 of 2013 and Civil
th
Appeal no.3580 of 2017. In this case, the contract is of 20
November 2008 by and between the ONGC and M/s.Ali
Brothers. The contract is for hiring a 20metreton trailer.
The salient features of the said contract are as under:
Even in this contract, the entire manpower was to be
a.
provided by the Contractor;
The contractor was required to indemnify ONGC
b.
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;
Civil Appeal No.3548 of 2017 etc. Page 35 of 41
The contractor must register himself under the
d.
Contract Labour (Regulation and Abolition) Act,
1970;
The trailer shall be available for 26 days in a
e.
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 trailers
covering all the risks and liabilities, which will cover
unlimited thirdparty claims and the claims under
the Workmen’s Compensation Act, 1923, made by
the workmen.
38. Looking at these clauses, it is obvious that the
contractor fully controls the trailers during the contract
period, and therefore, again, this is a case of a license granted
to ONGC to use the trailer, and the right to use the trailer is
not transferred to ONGC. Hence, test (c) out of the five tests is
not fulfilled in this case.
Civil Appeal No.3548 of 2017 etc. Page 36 of 41
Now, we come to Civil Appeal no.383 of 2013. In this
39.
case, the contract was for operating tank trucks to deliver
petroleum products at specified rates. The salient features of
the contract are as under:
a. The contractors shall operate the tank trucks;
b. IOCL will have the right to requisition a further
number of tank trucks in addition to what is
provided in the contract;
c. IOCL did not guarantee any minimum turnover,
whether daily, monthly or annually, during the
contract period and therefore, the contractor will
not be entitled to take ideal charges or minimum
charges from IOCL;
d. The entire operational cost, including salary and
other emoluments of drivers, cleaners, cost of fuel
and lubricating oil, maintenance and repairs of the
tank trucks, road tax and other taxes, and
insurance shall be borne by the Contractor;
e. The contractor will be liable to any loss or damage
caused to the IOCL, its employees or any third
party resulting from fire, leakage, negligence,
explosion, accident or any other cause in operating
the said tank trucks at the time of loading and
unloading and during transit;
Civil Appeal No.3548 of 2017 etc. Page 37 of 41
The personnel of IOCL will do the loading of the
f.
tank trucks at the depot with the help of the driver
and the cleaner, but the unloading will be the
responsibility of the contractor;
g. The complete responsibility for delivering the
correct quality and quantity of the products at the
destination will be of the contractor;
h. The contractor will keep the tank trucks in
serviceable condition. In the event that a tank
truck is not serviceable, the contractor shall be
bound to effect supplies to outstation in drums by
using stake trucks;
i. The contractor shall remain fully responsible to
IOCL for custody of the product, its quantity and
quality;
j. If the contractor fails to place its tank trucks at
the depots of IOCL, it will be the contractor's
responsibility 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 IOCL. 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
Civil Appeal No.3548 of 2017 etc. Page 38 of 41
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.
Now, at this stage, we may refer to Section 65(105)(zzzzj)
41.
of the Finance Act, which was brought into force with effect
th
from 16 May 2008. Section 65(105)(zzzzj) reads thus:
“Section 65. Definitions
– .. .. .. .. .. .. .. .. .. ..
(1) .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
(105) “Taxable service” means any service
provided or to be provided –
(a) .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
(zzzzj) to any person, by any other person in
relation to supply of tangible goods including
machinery, equipment and appliances for use,
without transferring right of possession and
effective control of such machinery, equipment
and appliances.
”
It provides that “taxable service” means any service provided
to any person by any other person in relation to the supply of
tangible goods, including machinery, equipment and
Civil Appeal No.3548 of 2017 etc. Page 39 of 41
appliances for use without transferring the right of possession
and effective control of such machinery, equipment and
appliances.
42. Essentially, the transfer of the right to use will involve
not only possession, which may 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.
CONCLUSION
43. To conclude, all the appeals preferred by the assessees
will have to be allowed.
44. Accordingly, we allow all the appeals of the assessees by
holding that 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. Civil Appeal no.3580 of 2017 preferred by the Union of
India is disposed of in view of the earlier findings with the
liberty to the Union of India to initiate proceedings, if any, for
recovery of service tax in accordance with law.
Civil Appeal No.3548 of 2017 etc. Page 40 of 41
There will be no order as to costs.
45.
….…………………….J.
(Abhay S. Oka)
…..…………………...J.
(Rajesh Bindal)
New Delhi;
January 9, 2024.
Civil Appeal No.3548 of 2017 etc. Page 41 of 41