2006 (11) TMI 563 - HC - VAT and Sales Tax

Appeal Dismissed: Equipment Use Transfer Subject to Sales Tax Under Assam General Sales Tax Act, 1993.

The court dismissed the appeal, determining that the transaction constituted a transfer of the right to use equipment, thus subject to sales tax under ... Challenge the OIL deducted sales tax - bills for the services rendered under Contract - transfer of right to use or not - HELD THAT:- In our considered opinion, unequivocally proclaims an all-pervasive control of OIL over the appellant's equipment deployed for the execution of the contract during its subsistence. Evidently, the equipment, tools and machinery detailed by the contractor were owned by it, physical possession whereof was also permitted to be retained by it. Those were to be operated by its technically qualified personnel. The contractor was to realise rental charges therefor. The judicially evolved principles to identify a transaction involving the transfer of right to use goods to be a sale under the Act clearly exclude the indispensability of delivery of physical possession thereof as an essential pre-condition. The other ordained features of such a transaction are, in our considered opinion, present in the instant case. The equipment, plants and machinery were available and identified by the parties. Under the contract, OIL derived the legal right to use the goods having hired the same on payment of charges. Customs duty had also been paid by it on the equipment imported by the contractor for executing the works. Under the stringent contractual terms, the contractor was bound to keep the equipment engaged exclusively for the works. The fact that the same had been operated by its technically qualified personnel does not militate against the element of exclusiveness in the use thereof for the services and benefit of OIL. During the subsistence of the contract, the appellant-company was neither authorised nor permitted to transfer the equipment or detail the same for others. The parties consciously limited the tax liability to the rental component only. The provisions of the contract understandably have to be construed in the context of the service accorded to be rendered. The transfer of right to use the equipments has to be perceived in the context of the nature, manner and extent of engagement thereof. The retention of physical possession thereof by the appellant-company cannot be decisive. The parties entered into the contract understanding the implications of each and every provision thereof, which according to us, demonstrate an obvious dominion and control of OIL over the equipment used by the appellant for the execution of the works during the period of the contract. We, thus, have no hesitation to hold that the transaction in question involved transfer of right to use the equipment, plants and machinery under the lease within the meaning of section 2(33)(iv) of the Act. Thus, no error of fact or law is discernible. We find ourselves in agreement with the conclusions recorded therein, however, for the reasons alluded hereinabove. The appeal, being without any merit, is thus dismissed. Issues Involved:1. Challenge to the deduction of tax under the Assam General Sales Tax Act, 1993 by Oil India Limited from the appellant's bills.2. Whether the transaction constituted a transfer of the right to use goods as per the Act.3. The applicability of Section 2(33)(iv) of the Act defining 'sale'.4. The interpretation of the contract clauses pertaining to the use and control of equipment.5. The relevance of statutory compliance and tax deduction clauses in the contract.Issue-wise Detailed Analysis:1. Challenge to the Deduction of Tax:The appellant, a company providing technical services to Oil India Limited (OIL), contested the deduction of sales tax from its bills under the Assam General Sales Tax Act, 1993. The appellant argued that the nature of the services rendered did not constitute a 'sale' and thus should not be subject to sales tax. Despite representations, OIL continued to deduct sales tax, prompting the appellant to seek judicial intervention.2. Whether the Transaction Constituted a Transfer of the Right to Use Goods:The appellant contended that the contract did not involve the transfer of the right to use its equipment to OIL, as the equipment was operated by the appellant's personnel and remained under its control. The respondent argued that the equipment was exclusively used for OIL's services, indicating a transfer of the right to use.3. Applicability of Section 2(33)(iv) of the Act:Section 2(33)(iv) of the Act defines 'sale' to include any transfer of the right to use goods under an operating lease. The court analyzed whether the contractual arrangement between the appellant and OIL fell within this definition. The court concluded that the right to use the equipment had been transferred to OIL, as the equipment was exclusively used for OIL's services, and the appellant had no right to use it for any other purpose during the contract period.4. Interpretation of Contract Clauses:The court examined various clauses of the contract, particularly clauses 7.13 and 7.14. Clause 7.13 stated that the equipment remained the appellant's property and was to be used exclusively for providing services under the contract. Clause 7.14 required OIL to deduct sales tax from the rental invoices. The court found that despite the equipment remaining in the appellant's possession, the right to use it had been transferred to OIL, as OIL had exclusive control over its use for the contract's duration.5. Relevance of Statutory Compliance and Tax Deduction Clauses:The court noted that the contract explicitly provided for the deduction of sales tax, and the appellant was required to comply with statutory requirements under the Assam General Sales Tax Act. The appellant's argument that clause 7.14 was unnecessary was rejected, as the court found that the transaction constituted a 'sale' within the meaning of the Act, making the tax deduction clause valid and enforceable.Conclusion:The court dismissed the appeal, holding that the transaction involved the transfer of the right to use the equipment, making it subject to sales tax under Section 2(33)(iv) of the Act. The court affirmed the lower court's judgment, finding no error in its interpretation of the contract and the applicable law. The appeal was deemed without merit, and the deductions made by OIL were upheld as compliant with the statutory provisions.