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Issues: Whether the supply of machinery to contractors for use in execution of the petitioner's work amounted to a transfer of the right to use goods so as to attract tax under section 5-E of the Andhra Pradesh General Sales Tax Act, 1957.
Analysis: Section 5-E taxes the amount realised on a transfer of the right to use any goods, and its scope is informed by article 366(29A)(d) of the Constitution of India. The decisive test is not the existence of a facility to use machinery, but whether the contract effects a transfer of the right to use the goods, which requires transfer of effective control and possession for the relevant use. Reading the agreement as a whole, the machinery remained under the petitioner's effective control and the contractor was not free to use it for other work or move it away at will. The arrangement therefore amounted only to permission to use the machinery in the course of the petitioner's work and not to a transfer of the right to use it.
Conclusion: The transaction did not fall within section 5-E, and the hire charges received for the machinery were not exigible to sales tax; the levy was illegal and ultra vires.
Ratio Decidendi: Tax under a provision charging transfer of the right to use goods is attracted only where the contract transfers effective control and possession of the goods to the transferee; a mere permission to use goods under the owner's continued control is not such a transfer.
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