Transfer of right to use goods: hiring machinery and vehicles can be treated as a deemed sale for tax purposes.

A contract for hiring machinery, cranes and vehicles may amount to transfer of the right to use goods when identifiable goods are placed at the transferee's disposal, the transferee has legal control and exclusivity during the contract period, and the transferor retains no effective concurrent use. Applying these settled tests, the arrangement was treated as more than a mere service contract because the principals controlled the use of the equipment for their operational purposes. It was therefore characterised as a deemed sale under Article 366(29A)(d), attracting liability under the Assam sales tax and value added tax provisions and supporting deduction of tax at source.

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Issues: Whether the contractual arrangement for hiring of machinery, cranes and vehicles amounted to transfer of the right to use goods within the meaning of Article 366(29A)(d) of the Constitution of India and the Assam sales tax and value added tax provisions, so as to attract liability to tax and deduction at source.

Analysis: The contractual terms were examined to ascertain the real nature of the transactions. The governing constitutional and statutory framework treats transfer of the right to use goods as a deemed sale. Applying the settled tests, the transaction must involve identifiable goods available for delivery, a consensus on the goods, a legal right in the transferee to use them, exclusivity during the period of transfer, and exclusion of the transferor from concurrent use. On the facts, the equipment and vehicles were placed at the disposal of the principals for their operational purposes, the principals had control over how the goods were to be used during the contractual period, and the owners did not retain effective control over such use. The arrangement therefore went beyond a mere service contract and answered the description of transfer of the right to use goods.

Conclusion: The contracts were held to be transactions of transfer of the right to use goods, attracting liability under the relevant sales tax and value added tax provisions and justifying deduction of tax at source.

Ratio Decidendi: A contract transfers the right to use goods, and is taxable as a deemed sale, when identifiable goods are put at the transferee's disposal with exclusive legal control for the contractual period, such that the transferor no longer retains effective use of the goods.

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