2012 (7) TMI 924 - HC - VAT and Sales Tax

Court rules hiring of cranes as transfer of right to use goods subject to VAT

The court concluded that the transaction involving the hiring of cranes constituted a transfer of the right to use goods, subjecting it to VAT under the ... Nature of transaction - deduction of tax at source - transfer of right to use or not? - contract of providing cranes for hire to the ONGC - Held that: - It is clear from the recital that the scope of work is mentioned as the work for which the cranes were hired; (e) Clause 2.1 shows that the cranes are at the disposal of the ONGC and per day hire charges are paid for all days, except maintenance days; (f) services of staff and maintenance are incidental to the hiring of the cranes. Liability to the third party is on account of the fact that in spite of hiring of the cranes by the ONGC, the employees operating the cranes are provided by the assessee - the transaction clearly involved transaction of right to use. Appeal allowed - decided in favor of appellant. Issues Involved:1. Leviability of VAT under the Assam Value Added Tax Act, 2003 on the transaction in question.2. Determination of whether the transaction involved a transfer of the right to use goods.Detailed Analysis:Leviability of VAT:The central issue in this judgment revolves around the leviability of VAT under the Assam Value Added Tax Act, 2003 on transactions involving the hiring of cranes by the assessee to the Oil and Natural Gas Corporation Ltd. (ONGC). The core question is whether these transactions constitute a 'transfer of right to use the goods for consideration,' thereby attracting VAT.Determination of Transfer of Right to Use:In Writ Appeal No. 286 of 2010, the respondent-assessee argued that the transaction was a service rather than a transfer of right to use the cranes, as the possession and control of the cranes remained with the assessee. The assessee bore all operating costs, including maintenance, repair, insurance, and salaries of employees. The assessee contended that the transaction was subject to service tax under the Finance Act, 1994, specifically after the amendment effective from 16.05.2008, which included services related to the supply of tangible goods without transferring the right to use.The State of Assam countered that the contract predominantly involved the transfer of the right to use the cranes to ONGC. The State argued that the right to use the cranes during the contract period was with ONGC, making the transaction subject to VAT. The payment of service tax was deemed irrelevant for determining VAT liability.Analysis of Contract Terms:The judgment examines the terms of the contract between the assessee and ONGC. The contract specified that the cranes were hired for ONGC's operations, with the assessee providing the cranes along with necessary accessories and personnel for operation and maintenance. The cranes were to be available at ONGC's disposal throughout the contract period, with hire charges paid per day, excluding maintenance days.The judgment highlights that despite the cranes being operated by the assessee's employees, ONGC had effective control over the cranes during the contract period. The cranes were required to be available for ONGC's use at all times, and the employees operated the cranes as directed by ONGC. The contract also specified that the cranes could be used in hazardous situations at ONGC's discretion.Judicial Precedents:The judgment references the Division Bench judgment in Dipak Nath, where a similar contract with ONGC was held to involve a transfer of the right to use the cranes. The judgment in Dipak Nath concluded that ONGC had clear dominion and control over the cranes during the contract period, making the transaction subject to VAT.The judgment also considers the Supreme Court's ruling in Bharat Sanchar Nigam Ltd. & another vs. Union of India and others, which outlined the attributes necessary to constitute a transfer of the right to use goods. These attributes include the availability of goods for delivery, consensus on the identity of goods, and the transferee's legal right to use the goods to the exclusion of the transferor.Conclusion:The court concludes that the transaction in question involves a transfer of the right to use the cranes, making it subject to VAT under the Assam Value Added Tax Act, 2003. The judgment allows the appeals filed by the Revenue and dismisses the appeals and writ petitions filed by the assessee. The court emphasizes that the substance of the transaction, rather than its form, determines the nature of the transaction.The judgment underscores that the terms of the contract, including the hire charges, maintenance responsibilities, and control over the cranes, indicate a transfer of the right to use the cranes to ONGC. The payment of service tax does not affect the transaction's nature concerning VAT liability. The court's decision aligns with the principles established in previous judicial precedents, including the Division Bench judgment in Dipak Nath and the Supreme Court's ruling in Bharat Sanchar Nigam Ltd.