Transfer of right to use tax applies only to movable goods, and indivisible composite receipts cannot be taxed in full.

Tax under the transfer-of-right-to-use provision applies only to movable goods. Plant and machinery that are embedded in the earth and treated as immovable property fall outside the statutory definition of goods and are not liable to levy under that provision. Where a lease and licence arrangement covers both machinery and factory premises and the consideration is a single indivisible composite amount, tax cannot be imposed on the whole receipt merely because no separate bifurcation was made. The taxable component must be identifiable before levy can be sustained.

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Issues: (i) Whether the plant and machinery covered by the lease and licence agreement were goods capable of transfer of the right to use under section 5C of the Karnataka Sales Tax Act, 1957, or were immovable property beyond the levy; (ii) Whether tax could be levied on the entire composite amount when the consideration related both to machinery and factory premises and was not separately bifurcable.

Issue (i): Whether the plant and machinery covered by the lease and licence agreement were goods capable of transfer of the right to use under section 5C of the Karnataka Sales Tax Act, 1957, or were immovable property beyond the levy.

Analysis: Article 366 of the Constitution of India enables taxation on the transfer of the right to use goods. Goods under section 2(1)(m) of the Karnataka Sales Tax Act, 1957 are movable property. Section 5C applies only where there is a transfer of the right to use goods. If the machinery is movable and the right to use it is transferred, tax is attracted. But where the machinery is embedded in the earth and forms immovable property, it falls outside the statutory definition of goods and cannot be subjected to levy under section 5C.

Conclusion: The machinery in question was not properly taxable under section 5C because it was treated as immovable property and not goods.

Issue (ii): Whether tax could be levied on the entire composite amount when the consideration related both to machinery and factory premises and was not separately bifurcable.

Analysis: The agreement covered both machinery and factory premises, and the amount received was a single composite consideration. Where the contract is indivisible and the consideration cannot be split for separate taxation of the machinery component, the taxing authority cannot levy tax on the whole amount merely because no bifurcation was made. An indivisible composite amount is not liable to be taxed in its entirety on that basis.

Conclusion: The entire composite receipt could not be taxed as such.

Final Conclusion: The levy was unsustainable and the petition succeeded.

Ratio Decidendi: Tax under the transfer-of-right-to-use provision can be imposed only on movable goods, and an indivisible composite consideration cannot be subjected to tax in its entirety where the taxable component is not separately ascertainable.

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