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Issues: (i) Whether the tanker truck hiring arrangement amounted to transfer of the right to use goods so as to constitute a deemed sale and attract sales tax. (ii) Whether the petitioner could be compelled to deduct tax at source under the Act and the impugned directions and notices were sustainable.
Issue (i): Whether the tanker truck hiring arrangement amounted to transfer of the right to use goods so as to constitute a deemed sale and attract sales tax.
Analysis: Under article 366(29A)(d) of the Constitution of India and the corresponding provisions of the Assam General Sales Tax Act, 1993, tax is attracted only when there is a transfer of the right to use goods. The decisive inquiry is whether possession and effective control pass to the transferee, and the contract must be read as a whole to ascertain the true nature of the transaction. On the terms of the agreement, the contractor retained possession, custody, and effective control of the vehicles, bore the operating expenses, remained responsible for repairs, compliance, and delivery, could substitute vehicles or carry goods by other means in specified situations, and was liable for losses if the trucks were off the road. These features negatived any transfer of the right to use the vehicles.
Conclusion: The arrangement was not a transfer of the right to use goods and did not amount to a deemed sale. The finding was in favour of the assessee.
Issue (ii): Whether the petitioner could be compelled to deduct tax at source under the Act and the impugned directions and notices were sustainable.
Analysis: Section 27(a) of the Assam General Sales Tax Act, 1993, applies only where there is a liability arising from a transfer of the right to use goods. Since the underlying transactions were not taxable deemed sales, the petitioner was under no statutory obligation to deduct tax at source. Article 226 of the Constitution of India was available because the petitioner was being compelled to act as a collecting agent and was exposed to penal consequences without authority of law, contrary to article 265 of the Constitution of India. The impugned directions and notices therefore lacked legal foundation.
Conclusion: The petitioner was not liable to deduct tax at source, and the impugned directions and notices were unsustainable. The finding was in favour of the assessee.
Final Conclusion: The vehicle-hiring contract was held to be a carriage arrangement and not a taxable transfer of the right to use goods, and the coercive directions for deduction at source were invalid for want of statutory basis.
Ratio Decidendi: A contract amounts to a taxable transfer of the right to use goods only when possession and effective control are transferred to the transferee; where the owner retains custody and control and the transaction is merely for carriage or use under the owner's operational dominion, no deemed sale arises and tax deduction at source cannot be compelled.
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