Transfer of the right to use vehicles was found where the customer had effective control and dedicated deployment under the agreement.

An agreement to provide 12 goods vehicles was treated as a transfer of the right to use the vehicles, not a mere service contract, because the vehicles were dedicated to the customer on a continuous basis, the customer controlled their deployment, the driver acted under the customer's instructions, and payment was made per vehicle per day. The agreement had to be assessed on its actual terms, and on these facts possession and effective control lay with the customer. The arrangement therefore attracted tax under section 5C of the Karnataka Sales Tax Act, 1957.

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Issues: Whether the agreement for providing 12 vehicles to transport goods of the customer amounted to a transfer of the right to use the vehicles so as to attract tax under section 5C of the Karnataka Sales Tax Act, 1957.

Analysis: The agreement had to be construed on its actual terms and not by its description. The vehicles were dedicated for the customer's use on a 24 x 7 basis, with only limited withdrawal for maintenance, and the consideration was payable on a per vehicle per day basis. The customer controlled the deployment of the vehicles, received the benefit of their use, and the driver was required to act under the customer's instructions. On these facts, possession and effective control were with the customer, and the arrangement was not a mere service contract. The distinction between custody and possession, and the requirement that effective control remain with the owner in order to avoid tax, did not assist the assessee on these facts.

Conclusion: The transaction amounted to a transfer of the right to use the vehicles and was exigible to tax under section 5C of the Karnataka Sales Tax Act, 1957. The challenge failed.

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