Transfer of right to use goods requires passing of possession and control; interest and enhanced penalty need strict statutory preconditions.

Renting audio-visual equipment was treated as a transfer of the right to use goods, because the decisive test is whether possession and effective control pass to the customer; on the stated facts, no material showed that the supplier retained such control, so the turnover was taxable as a deemed sale. Interest was unsustainable because the tax had already been paid before the interest order, leaving no default to attract liability. Enhanced penalty could not be imposed under the VAT penalty provision without a recorded allegation and proof of fraud or wilful neglect, and a mere reproduction of the statutory language was insufficient. The assessment was therefore sustained only on the rental turnover, while interest and penalty were set aside.

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Issues: (i) Whether renting of audio-visual equipment to customers amounted to a transfer of the right to use goods and was exigible to tax under section 4(8) of the Andhra Pradesh Value Added Tax Act, 2005. (ii) Whether interest could be levied when the tax had already been paid before the impugned assessment order. (iii) Whether penalty equal to the under-declared tax was leviable under section 53(3) of the Andhra Pradesh Value Added Tax Act, 2005 in the absence of allegations or establishment of fraud or wilful neglect.

Issue (i): Whether renting of audio-visual equipment to customers amounted to a transfer of the right to use goods and was exigible to tax under section 4(8) of the Andhra Pradesh Value Added Tax Act, 2005.

Analysis: A transfer of the right to use goods, under article 366(29A)(d) of the Constitution of India and section 4(8) of the Act, is a deemed sale, distinct from a mere service. The decisive question is whether possession and effective control of the goods pass to the customer. On the facts, the bills disclosed rental charges for equipment, no material was produced to show that technicians or operating staff of the supplier continued to control the equipment, and no agreement or other evidence was placed to establish that the petitioner retained effective control. The burden to prove that the transaction was not a deemed sale lay on the petitioner. The earlier appellate order had not finally negatived taxability but had remanded the matter for verification.

Conclusion: The transaction was rightly treated as a transfer of the right to use goods and taxed under section 4(8) of the Act. This issue is decided against the assessee.

Issue (ii): Whether interest could be levied when the tax had already been paid before the impugned assessment order.

Analysis: Interest under section 22(2) of the Act is attracted only when assessed tax is not paid within the prescribed period after service of the assessment order. Since the tax had already been paid before the impugned interest order was made, no default existed that could trigger liability to interest.

Conclusion: Levy of interest was unsustainable. This issue is decided in favour of the assessee.

Issue (iii): Whether penalty equal to the under-declared tax was leviable under section 53(3) of the Andhra Pradesh Value Added Tax Act, 2005 in the absence of allegations or establishment of fraud or wilful neglect.

Analysis: Section 53(3) applies only where under-declaration is accompanied by established fraud or wilful neglect. The show-cause notice and the order did not disclose the jurisdictional facts or any basis for reaching that conclusion; the notice merely reproduced the provision. In the absence of an allegation, much less proof, of fraud or wilful neglect, the enhanced penalty provision could not be invoked.

Conclusion: The penalty order under section 53(3) could not be sustained. This issue is decided in favour of the assessee.

Final Conclusion: The assessment on the audio-visual equipment rental turnover was upheld, but the orders levying interest and imposing enhanced penalty were quashed. The writ petitions were thus disposed of with mixed relief.

Ratio Decidendi: For a deemed sale by transfer of the right to use goods, the decisive test is whether effective control and possession pass to the transferee, while interest and enhanced penalty under the VAT law can be imposed only when the statutory preconditions are strictly shown on the record.

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