Hiring motor vehicles and cranes constitutes service under Finance Act, not sale under VAT Act provisions

M/s. K.P. Mozika Versus Oil and Natural Gas Corporation Ltd. & Ors.

M/s. K.P. Mozika Versus Oil and Natural Gas Corporation Ltd. & Ors. - 2024 (388) E.L.T. 11 (SC) Issues Involved:
1. Liability to pay tax under the Assam General Sales Tax Act, 1993 and the Assam Value Added Tax Act, 2003.
2. Determination of whether hiring motor vehicles/cranes constitutes a transfer of the right to use goods.
3. Applicability of service tax under Section 65(105)(zzzzj) of the Finance Act, 1994.

Summary:

1. Liability to Pay Tax Under the Sales Tax Act and VAT Act:
The group of appeals concerns the liability to pay tax under the Assam General Sales Tax Act, 1993, and the Assam Value Added Tax Act, 2003. The primary question is whether hiring motor vehicles/cranes constitutes a transfer of the right to use goods, thereby amounting to a sale under Clause 29A(d) of Article 366 of the Constitution of India. If not, the transactions may attract service tax.

2. Determination of Transfer of Right to Use Goods:
The appeals involve various contracts where the assessees provided different categories of motor vehicles to ONGC and IOCL. The Supreme Court analyzed the contracts based on the five tests laid down by Dr. AR Laxmanan, J. in the case of Bharat Sanchar Nigam Limited v. Union of India:
- Goods must be available for delivery.
- Consensus ad idem as to the identity of the goods.
- The transferee should have a legal right to use the goods.
- The right to use the goods must be exclusive to the transferee.
- The owner cannot transfer the same rights to others during the period of transfer.

The Court found that the contracts did not fulfill all these conditions. For instance, in the contract with ONGC for hiring cranes, the contractor retained control over the cranes, provided operational staff, and bore all legal liabilities, indicating a service contract rather than a transfer of the right to use goods.

3. Applicability of Service Tax:
The Court also considered Section 65(105)(zzzzj) of the Finance Act, which defines "taxable service" as the supply of tangible goods for use without transferring the right of possession and effective control. Since the contracts did not transfer effective control and possession to the hirers, the transactions were deemed to be services, attracting service tax.

Conclusion:
The Supreme Court allowed the appeals of the assessees, holding that the contracts did not involve the transfer of the right to use goods and thus were not subject to the Sales Tax Act or VAT Act. The transactions were classified as services, making them liable for service tax under the Finance Act. The appeal by the Union of India was disposed of with the liberty to initiate proceedings for recovery of service tax in accordance with the law. No order as to costs was made.