2014 (5) TMI 570 - HC - VAT and Sales Tax

Analysis of Transfer of Right to Use Goods under TNGST Act: Control, Agreements, and Tax Liability

The Court held that the agreement did not amount to a transfer of the right to use the drilling unit as effective control stayed with the assessee. The ... Whether there is transfer of right to use the driling unit of assessee to the ONGC per agreement so as to attract the levy of Lease tax u/s 3A of the TNGST Act - Levy of Lease tax – Intention of Transfer of right to use drilling unit - Transfer of effective control for goods - Terms and conditions put forth in agreement – Held That:- Judgment in in [Bharat Sanchar Nigam Ltd. Vs. Union of India (S.C.) 2006 (3) TMI 1 - Supreme court] followed - In the case of deemed sale relating to transfer of right to use any goods for any purpose, what is required to be seen is the intention of transfer of right to use the goods, which in turn imply transfer of effective control for goods - Relying upon [STATE OF A.P. v. RASHTRIYA ISPAT NIGAM LTD 2002 (3) TMI 705 - SUPREME COURT OF INDIA] - So long as the owner retains effective control over the goods, mere possession given without a right accompanying thereto to result in the transfer of right to use the goods as he likes, the question of bringing the transaction within the corners of the charging provision does not arise. Evidencing the fact that the effective control of the rigs remained with the contractor, that the assessee merely gave a directions where the rigs were to operate, even in the context of the assessee giving directions to the contractor to take the rigs to the specified points, the said direction per se does not mean that the assessee had complete control over the machinery – Thus, a reading of the various terms show that what is given to the assessee by the contractor was his services through the rigs owned by the contractor and going by the decision referred to above, there is no hesitation in accepting the assessee's case. Considering the various clauses in the agreement, indicating that the effective control ever remained with the assessee, the mere fact that the area of operations were as stated by ONGC does not make rigs as come under the effective control of the ONGC to bring transactions as assessable under Section 3-A of the Act - Thus, applying the decision of the Apex Court reported in [2002] 126 STC 114 STATE OF A.P. v. RASHTRIYA ISPAT NIGAM LIMITED and the subsequent decision reported in BHARAT SANCHAR NIGAM LIMITED v. UNION OF INDIA [2006 (3) TMI 1 - Supreme court] - It is hold that the transactions did not amount to transfer of right to use the goods to fall under Section 3-A of the Tamil Nadu General Sales Tax Act - There is no hesitation in accepting the assessee's contention thereby the order of Tribunal is set aside - Revision stands allowed - Consequently, connected TCMP is closed – Decided in favour of assessee. Issues Involved:1. Transfer of right to use drilling unit.2. Effective control of drilling rings.3. Responsibility as per Annexure 'D'.4. Delivery and possession of drilling unit.5. Applicability of Supreme Court principles on transfer of right to use.Issue-wise Detailed Analysis:1. Transfer of Right to Use Drilling Unit:The primary issue was whether the agreement between the assessee and ONGC constituted a transfer of the right to use the drilling unit, thereby attracting lease tax under Section 3A of the Tamil Nadu General Sales Tax Act (TNGST Act). The assessee contended that the drilling equipment remained under their control and was operated by their personnel, thus no transfer of right to use occurred. The Tribunal, however, upheld the assessment, stating that the drilling units were under ONGC's control, indicating a transfer of the right to use the goods.2. Effective Control of Drilling Rings:The Tribunal's decision was challenged on the grounds that the drilling units were operated by the assessee's personnel, and effective control was never transferred to ONGC. The Appellate Assistant Commissioner had previously agreed with the assessee, pointing out that the mere fact that operations were conducted in areas specified by ONGC did not constitute a transfer of effective control.3. Responsibility as per Annexure 'D':The Tribunal emphasized Annexure 'D' of the agreement, which detailed the responsibilities of ONGC, including the supply of materials and services. The Tribunal interpreted this as evidence of ONGC's effective control over the drilling units. However, the Court found that these responsibilities did not imply a transfer of control over the machinery.4. Delivery and Possession of Drilling Unit:The Court examined whether the drilling unit was delivered and possessed by ONGC in a manner that constituted a transfer of the right to use. The Court referred to the Supreme Court's decision in *Rashtriya Ispat Nigam Ltd.*, which held that effective control must be transferred for the transaction to be considered a transfer of the right to use. The Court concluded that effective control remained with the assessee, and mere operational directions from ONGC did not constitute a transfer of possession and control.5. Applicability of Supreme Court Principles:The assessee relied on the Supreme Court's decision in *Rashtriya Ispat Nigam Ltd.*, arguing that no transfer of right to use occurred as effective control remained with the owner. The Court agreed, noting that the principles laid down by the Supreme Court were applicable. The Court emphasized that the transfer of the right to use goods requires effective control to be passed to the transferee, which did not occur in this case.Conclusion:The Court concluded that the agreement did not result in a transfer of the right to use the drilling unit, as effective control remained with the assessee. The Tribunal's order was set aside, and the appeal was allowed, confirming that the transactions did not attract tax under Section 3-A of the TNGST Act. The Court also highlighted the necessity to examine each case based on the specific terms of the agreement and the nature of the work involved.