Transfer of right to use goods test: drilling contract remained a service arrangement, not a deemed sale under tax law.

A drilling contract was treated as a service arrangement rather than a transfer of the right to use goods because the assessee retained ownership and effective control of the drilling unit, deployed its own personnel, and carried out the operations itself. ONGC's designation of the drilling area and provision of certain supplies did not by itself show that control of the rigs had passed. For levy under a provision taxing transfer of the right to use goods, the decisive test is whether effective control passes to the transferee; mere physical custody, operational directions, or a restricted working arrangement is insufficient. On those terms, the transaction was not liable under Section 3-A of the Tamil Nadu General Sales Tax Act.

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Issues: Whether the drilling contract between the assessee and ONGC amounted to a transfer of the right to use goods so as to attract levy under Section 3-A of the Tamil Nadu General Sales Tax Act.

Analysis: The agreement showed that the assessee retained ownership and operational control of the drilling unit, deployed its own personnel, and undertook drilling operations as a service arrangement. The fact that ONGC designated the drilling area and certain supplies were to be furnished by ONGC did not by itself establish transfer of effective control over the rigs. The governing test was whether the right to use the goods, and not merely physical custody or a restricted operational arrangement, had passed to ONGC. On the terms of the contract and the nature of the work, the effective control remained with the assessee, and the transaction was closer to rendering of services than to a deemed sale.

Conclusion: The transaction did not amount to a transfer of the right to use goods and was not liable under Section 3-A of the Tamil Nadu General Sales Tax Act.

Ratio Decidendi: For levy under a provision taxing transfer of the right to use goods, the decisive test is whether effective control over the goods has passed to the transferee; mere designation of work area, operational directions, or custody without such transfer is insufficient.

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