Right to use goods in machinery contracts turns on transfer of control and possession, not mere work supervision.

A contract is taxable as a transfer of the right to use goods only if control, custody or possession of the machinery passes to the other party. Here, the mining and crane-service arrangements required the contractor to deploy its own machinery, labour, fuel, maintenance and operational support, while payment depended on work done and the other side only regulated execution for safety and measurement. As no effective control or possession of the equipment was handed over, the contracts were treated as works or service contracts rather than a letting of machinery for hire. Tax deduction under section 27 was therefore not attracted.

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Issues: Whether the mining and crane-service contracts amounted to a transfer of the right to use goods so as to attract tax deduction under section 27 of the Assam General Sales Tax Act, 1993.

Analysis: Liability under the taxing provision depended on whether there was a transfer of the right to use the heavy machinery, which in turn required transfer of control, custody or possession to the other side. The contracts were examined as a whole. They showed that the contractors were required to deploy their own machinery, manpower, labour, fuel, maintenance and operational arrangements for execution of the work, and payment was linked to the quantity of work performed. The respondent merely regulated the work for safety and measurement purposes. There was no material showing that possession or effective control of the machinery had been handed over to the respondents. The arrangement was therefore a works contract or service contract, not a letting out of machinery for hire.

Conclusion: The contracts did not constitute a taxable transfer of the right to use goods, and tax deduction at source under section 27 was not attracted.

Ratio Decidendi: A transaction is taxable as a transfer of the right to use goods only when control and possession of the goods pass to the transferee; where the contractor retains control and merely uses its own machinery to execute a works contract, the levy does not apply.

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