2011 (1) TMI 1196 - HC - VAT / Sales Tax

Transfer of right to use transit mixers found from exclusive control, branding, and conduct; petitioners' challenge dismissed with costs

GS. Lamba and Sons Versus State of Andhra Pradesh

HC held that the contract and surrounding conduct evidenced a transfer of the right to use transit mixers to the manufacturer rather than a mere transport ... Tax revision - Jurisdiction under section 20(2) - essential requirement of a transaction for transfer of the right to use goods - right to use transit mixers - assessees treated the hiring of transit mixers as contract of transport service, and not the transfer of the right to use the goods - scope of revisional jurisdiction between the APGST Act and the Income-tax Act - expression 'tax on sale or purchase of goods' - HELD THAT:- It is a well-settled rule of interpretation that even in the absence of a formal agreement, a contract can be inferred from the pre and post contract correspondence between the parties. In this case, clause (L) gives sufficient indication when it says that, 'the agreement will come into force from October 1, 2002 and remain in effect till March 31, 2006, with liberty to parties to terminate the contract by giving three months notice in writing to the other party'. The reading of the agreement does not anywhere indicate that it was entered into between the parties elsewhere than at Secunderabad. The first page of the agreement in its footnote contains the address of the Marketing Department of Grasim sufficient enough to conclude that it was entered into between the parties at Secunderabad. Even otherwise it is fairly well-settled that the transfer of the right to use goods can be effected even under an oral agreement. Hence, submission of the special counsel is rejected. It is, however, submitted that the parties agreed for five dedicated vehicles as RMC needs to be transported immediately after it is manufactured in the batching plant, and the manufacturer cannot identify and negotiate with the transporter for carrying the products every time an order is placed. Therefore, such a clause was included in the agreement to ensure there is no delay in delivering the product to the customers. He also submits that making available the vehicles throughout the day or painting them with brand name of Grasim is required keeping in view the possible hurdles in logistics, and to ensure customer satisfaction of getting the required branded RMC. According to him, these clauses by themselves do not warrant an inference of transfer of the right to use transit mixers. Though the phrase 'offer services to take care of transporting solution needs' is used the real purpose, as can be seen from the second part, is to enable Grasim to have the right to use the transit mixers. The agreement requires the petitioners to provide drivers to be dressed in uniform, and all of them are to obey the lawful instructions issued by Grasim. Further RMC has to be delivered by these drivers in transit mixers only at the time and places as instructed by the officials of Grasim, and the petitioners have no right to carry RMC wherever and whenever they like. Thus the full control on the method, manner and time of using the transit mixers, owned by the petitioners vests absolutely in Grasim. Indeed there is a transfer of the right to use transit mixers. All the tests as indicated hereinabove exist in the contract between the petitioners and Grasim. The vehicles are maintained by the petitioners. They appoint the drivers and fix their roster. The licences, permits and insurances are taken in their names by the petitioners, which they themselves renew. The transit mixers go to Grasim's batching plants in Miyapur and Nacharam, where they are loaded with RMC and then proceed to the construction sites of customers. The product carried is manufactured by Grasim, which is delivered to the customers and the customers pay the cost of the RMC to Grasim and the petitioners nowhere figure in the process of putting the property in transit mixers to economic use. The entire use in the property in goods is to be exclusively utilised for a period of 42 months by Grasim. The existence of goods is identified and the transit mixers operate and are used for the business of Grasim. Therefore, conclusively it leads to the only conclusion that the petitioners had transferred the right to use goods to Grasim. For these reasons, we are not able to countenance any of the submissions made by the petitioners' counsel. In the result, for the above reasons, these revision cases fail and are, accordingly, dismissed with costs. Issues Involved:1. Whether the petitioners' contract is for transfer of the right to use transit mixers to M/s. Grasim Industries Limited for transporting the RMCRs.2. Whether the State Sales Tax Appellate Tribunal has committed any error warranting interference under section 22(1) of the Andhra Pradesh General Sales Tax Act, 1957Rs.Issue-wise Detailed Analysis:1. Whether the petitioners' contract is for transfer of the right to use transit mixers to M/s. Grasim Industries Limited for transporting the RMCRs.The petitioners argued that their contract with Grasim was for providing transportation services and not for transferring the right to use transit mixers. They maintained control over the transit mixers, including the drivers, permits, and maintenance, and the vehicles were painted with Grasim's branding to ensure product quality and customer satisfaction. The petitioners contended that since the effective control and possession of the vehicles remained with them, there was no transfer of the right to use the goods, and thus, section 5E of the Act was inapplicable.The court examined the contract, noting that the petitioners provided a dedicated fleet of vehicles to Grasim, available 24/7, painted with Grasim's branding, and operated under Grasim's instructions. The court found that the agreement effectively transferred the right to use the transit mixers to Grasim for a period of 42 months, during which Grasim had exclusive control over the vehicles' use for transporting RMC. The petitioners' responsibilities for maintenance, permits, and drivers did not negate the transfer of the right to use the vehicles. The court concluded that the transaction met all the essential requirements of a transfer of the right to use goods under section 5E of the Act.2. Whether the State Sales Tax Appellate Tribunal has committed any error warranting interference under section 22(1) of the Andhra Pradesh General Sales Tax Act, 1957Rs.The petitioners argued that the Tribunal erred by not recording findings on all issues raised and that the exercise of revisional jurisdiction under section 20(2) of the Act is barred when two views are equally possible. They relied on precedents under section 263(1) of the Income-tax Act, which the court found inapplicable due to differences in the scope of revisional jurisdiction between the APGST Act and the Income-tax Act.The court noted that the Tribunal had considered the core issue and found that the agreement was a contract for the transfer of the right to use transit mixers. The Tribunal dismissed the appeals, and the court saw no grounds for interference under section 22(1) of the APGST Act merely because a specific finding on one of the issues was not recorded. The court emphasized that the machinery provisions of a taxing statute must be interpreted to be workable and that the petitioners' plea would require reading section 20(1) of the APGST Act in a way not intended by the Legislature.Conclusion:The court dismissed the revision cases, concluding that the petitioners' contract with Grasim involved the transfer of the right to use transit mixers, making the transaction taxable under section 5E of the APGST Act. The Tribunal had not committed any error warranting interference under section 22(1) of the Act. The court upheld the Tribunal's decision and dismissed the petitions with costs.