Transfer of the right to use goods applied to cinematographic equipment hiring, but the penalty was set aside.

Hiring of cinematographic equipment was held to amount to a transfer of the right to use goods where effective control and possession passed to the hirer, making the transaction liable to sales tax as a deemed sale. The assessee failed to produce material showing continuing control or a mere licence or bailment, so taxability was upheld. Penalty, however, was set aside because the assessment was based on seized registers and not on a pure best judgment basis unsupported by materials, making the levy unsustainable on the facts found.

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Issues: (i) Whether hiring out cinematographic equipment amounted to transfer of the right to use goods so as to attract sales tax under section 3-A of the Tamil Nadu General Sales Tax Act, 1959; (ii) whether penalty imposed in the assessment was sustainable.

Issue (i): Whether hiring out cinematographic equipment amounted to transfer of the right to use goods so as to attract sales tax under section 3-A of the Tamil Nadu General Sales Tax Act, 1959.

Analysis: The decisive test was whether effective control and possession of the goods stood transferred to the hirer. The Court noted that a transaction is exigible as a deemed sale only when the transferee obtains a legal right to use the goods to the exclusion of the transferor. On the facts, the assessees produced no agreement or material showing that they retained effective control over the equipment. The concurrent findings showed that the equipment was handed over for use by film producers and their staff, and the assessee did not demonstrate any continuing control that would convert the arrangement into a mere licence or bailment.

Conclusion: The hiring transaction was a transfer of the right to use goods and was liable to sales tax. This issue was decided against the assessee.

Issue (ii): Whether penalty imposed in the assessment was sustainable.

Analysis: Penalty under section 12(3) was treated as consequential to the assessment, but the Court found that the assessment was made on the basis of registers seized from the assessee's premises and not on a pure best judgment basis unsupported by materials. In that situation, the levy of penalty was held to be unsustainable on the facts found by the Court.

Conclusion: The penalty was set aside and this issue was decided in favour of the assessee.

Final Conclusion: The revisions succeeded only in part: the taxability of the hiring transactions was upheld, while the penalty component was deleted.

Ratio Decidendi: A hiring arrangement is taxable as a transfer of the right to use goods only when effective control and possession are proved to have passed to the hirer, and penalty cannot be sustained where the facts do not justify its levy on the basis applied by the authority.

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