Situs of transfer of right to use goods lies where the contract is made, not where goods are later used.

For transfer of the right to use goods, the taxable event and situs are determined by the place where the right is transferred, not by the later location or use of the goods. A State cannot use a deeming provision to treat an outside-State transfer as an in-State purchase merely because the goods were used within the State. Note 4 to section 2(j)(iv) of the Haryana General Sales Tax Act, 1973 was therefore inapplicable to transfers effected outside Haryana, and inclusion of such turnover was quashed in favour of the assessee.

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Issues: Whether Note 4 to section 2(j)(iv) of the Haryana General Sales Tax Act, 1973 could validly deem a purchase to have taken place within the State merely because the goods were within Haryana at the time of use, even when the transfer of the right to use had taken place outside the State.

Analysis: The taxable event in a transaction of transfer of the right to use goods is the transfer of the right itself, and not the location of the goods at the time of delivery or use. The situs of such a deemed sale is where the contract transferring the right to use is entered into. A State law cannot, by a deeming provision, extend its taxing power to transactions that are outside sales or inter-State sales, since such transactions fall outside the permissible field of levy. The impugned note, to the extent it treated outside-State transfers as in-State purchases merely because the goods were later used in Haryana, conflicted with the controlling statutory and constitutional framework.

Conclusion: Note 4 could not be applied to transfer of the right to use goods effected outside Haryana merely because the goods were in Haryana at the time of use. The challenge succeeded, and the turnover inclusion based on such outside-State transactions was quashed in favour of the assessee.

Final Conclusion: The State could not tax a transfer of the right to use goods outside Haryana by deeming the subsequent in-State use of the goods as the situs of purchase.

Ratio Decidendi: For a transaction involving transfer of the right to use goods, the taxable event and situs are determined by the place where the right is transferred, and a State cannot enlarge its taxing jurisdiction by deeming the location or use of the goods within the State as the basis of levy when the transfer occurred outside the State.

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