Cab hire contracts held pure services; no deemed sale under Article 366(29A)(d), DVAT Act tax invalid

HC held that the cab-hiring arrangement between the service provider and the company was a composite, indivisible contract for goods and services, with no separate values assigned to each. As control and possession of the vehicles remained with the owner, there was no transfer of the right to use goods amounting to a "sale" under article 366(29A)(d). Applying the ratio of SC in Bharat Sanchar Nigam Ltd., HC ruled that the State lacked competence under the DVAT Act to tax the entire transaction as a sale of goods or to artificially split the contract. The contracts are to be treated purely as service contracts, and sales tax was held inapplicable.

---

---

Issues: (i) Whether the transaction of hiring Maruti Omni cabs amounted to a "sale" within the meaning of article 366(29A)(d) by virtue of transfer of the right to use the goods; (ii) Whether the contracts are contracts for services (composite contracts) and hence not assessable to tax under the Delhi Value Added Tax Act, 2004, including whether a composite non-severable contract can be taxed as sale of goods.

Issue (i): Whether the transaction transfers the right to use goods so as to constitute a "sale" under article 366(29A)(d).

Analysis: The statutory test requires attributes including availability of goods for delivery, consensus as to identity of goods, and that the transferee has the legal right to use the goods with accompanying permissions/licenses. The contract shows licences/permits and effective control of vehicles remained with the owner and the drivers; permissions and licences were not transferred to the hirer. Authority and tests in Bharat Sanchar Nigam Ltd. and related decisions were applied to assess whether effective control and possession passed to the transferee.

Conclusion: The transaction does not amount to a "sale" under article 366(29A)(d); the essential ingredient of transfer of the right to use (including transfer of relevant permissions/licenses and effective control) is absent.

Issue (ii): Whether the contract is a contract for services (composite contract) and whether a composite non-severable contract can be taxed as sale of goods under the DVAT Act.

Analysis: Constitutional and precedential principles establish that composite contracts of goods and services cannot be artificially severed except as specifically provided in article 366(29A). Where the parties have not intended severability and no separate values for goods and services are fixed, the State cannot treat the whole transaction as sale of goods without encroaching upon Union taxation of services. The contract was held to be a composite contract assessable as service under the Central enactment; treating the entire contract value as sale would create overlapping taxation contrary to constitutional allocation and precedent.

Conclusion: The contracts are contracts for services (composite and non-severable) and are not assessable to sales tax under the DVAT Act; the State cannot tax the entire contract value as sale of goods.

Final Conclusion: The appeal is dismissed; the DVAT Act cannot be applied to tax the transactions as sale of goods either because there is no transfer of the right to use the specific goods or because the composite, non-severable nature of the contracts precludes treating the whole transaction as a taxable sale of goods.

Ratio Decidendi: A composite contract containing goods and services is not to be artificially severed for sales tax unless it falls within clauses of article 366(29A); a transfer of the right to use requires effective transfer of control, possession and accompanying permissions/licenses, absence of which precludes characterisation as a "sale" under article 366(29A)(d).

---