2001 (7) TMI 1253 - HC - VAT / Sales Tax

Audio-visual equipment hire where provider installs and operates it-no transfer of right to use, so not deemed sale under s. 5-C

Whether hiring of audio-visual/multimedia equipment constituted a deemed sale under s. 5-C turned on whether there was a transfer of the right to use ... Liability to pay tax u/s 5-C - hiring transactions relating to audio-visual and multimedia equipments - deemed sale - meaning of 'sale' - Validity of notices issued u/s 12(3) - HELD THAT:- It is alleged in the said notices that as the petitioner's customers had the benefit of the use of equipment for a specified period, the transaction between the petitioner and its customer would amount to 'sale' and exigible to tax under section 5-C, even if the petitioners are responsible for transportation and technical arrangements. If the transaction is one of leasing/hiring/letting simpliciter under which the possession of the goods, i.e., effective and general control of the goods is to be given to the customer and the customer has the freedom and choice of selecting the manner, time and nature of use and enjoyment, though within the frame work of the agreement, then it would be a transfer of the right to use the goods and fall under the extended definition of 'sale'. If the customer engages the petitioner for providing audio visual services for any programme or event and the petitioner does not deliver any equipment to the customer, but takes the equipment to the site of the programme, installs them, operates them and then dismantles them and brings them back after the period of hiring, in such an event the possession and effective control never leaves the petitioner and the customer never gets the right to the use of equipment. In such an event there is no deemed sale attracting tax under section 5C. The undisputed facts in this case disclose that the transaction of the petitioners falls under the second category and therefore, the transactions are not transfer of use of goods amounting to deemed sales exigible to tax under section 5-C of the Act. The petitions are, therefore, allowed and the impugned notices in both the writ petitions are quashed. It is made clear that if the petitioner carries on any transaction of the nature falling under para 10(i) above, the assessing authority will be at liberty to take action to bring such transactions to tax under section 5-C, in accordance with law. Petitions allowed. Issues Involved:1. Whether the petitioners are 'dealers' under the Karnataka Sales Tax Act, 1957.2. Whether the charges collected for hiring audio/visual equipment are subject to tax u/s 5-C of the Act.3. Whether the transactions amount to 'sale' and are exigible to tax under section 5-C.Summary:Issue 1: Definition of 'Dealers'The petitioners contend they are not 'dealers' within the meaning of the Karnataka Sales Tax Act, 1957 ('the Act') as they do not transfer possession or control of the equipment to their customers. The respondents did not specifically deny the petitioners' description of their business operations but argued that the transactions are transfers of the right to use the equipment and thus taxable u/s 5-C.Issue 2: Taxability of Charges CollectedThe first respondent issued notices proposing to tax the charges collected for hiring audio/visual equipment u/s 5-C of the Act, alleging that the transactions amounted to 'sale' since the customers had the benefit of using the equipment for a specified period. The petitioners sought to quash these notices, arguing that the possession and control of the equipment always remained with them, and what was offered was a package service including transportation, installation, and operation of the equipment by their technicians.Issue 3: Nature of TransactionsThe court examined whether the business of hiring audio/visual and multimedia equipment by the petitioners attracted liability to sales tax u/s 5-C. The court clarified that for a transaction to be taxable u/s 5-C, there must be a transfer of the right to use goods, involving delivery of possession and effective control to the customer. The court cited several precedents to distinguish between mere custody and effective control, concluding that if the customer has effective control over the goods, it constitutes a transfer of the right to use and is taxable.Judgment:The court concluded that the petitioners' transactions did not involve a transfer of the right to use the equipment since the equipment was always under the control of the petitioners' technicians. Therefore, the transactions did not amount to deemed sales exigible to tax u/s 5-C. The court quashed the impugned notices dated November 25, 1999, and June 5, 2000, and allowed the petitions. However, it was clarified that if the petitioners engage in transactions where the equipment is delivered to the customer without any additional services, such transactions would be taxable u/s 5-C. Petitions allowed.