Transfer of right to use goods requires exclusive control; hiring equipment with retained owner control is a service arrangement.
A contract for hiring cranes, trailers, tank trucks and similar equipment amounts to a transfer of the right to use goods only if the transferee obtains legal, exclusive use of identifiable goods and effective control passes from the owner. Where the contractor retains crew, maintenance, operating costs, accident risk and other substantial control, and the agreement negatives any lease or transfer of the right to use, the arrangement is a permissive use or service contract, not a taxable sale. Where possession and effective control remain with the contractor, the same transaction falls within the service tax category of supply of tangible goods once that levy applies.
Issues: (i) Whether the contracts for hiring cranes, trailers, tank trucks and similar equipment amounted to a transfer of the right to use goods within Article 366(29A)(d) of the Constitution of India and the relevant sales tax and value added tax provisions; (ii) whether the same transactions, to the extent they did not involve transfer of possession and effective control, fell within the service tax entry relating to supply of tangible goods.
Issue (i): Whether the contracts for hiring cranes, trailers, tank trucks and similar equipment amounted to a transfer of the right to use goods within Article 366(29A)(d) of the Constitution of India and the relevant sales tax and value added tax provisions.
Analysis: A transfer of the right to use goods is distinct from a mere permission to use goods. The governing test requires that goods be available for delivery, the goods be identifiable, the transferee have a legal right to use them, the transferee have exclusionary rights during the period of use, and the transferor cannot re-transfer the same right during that period. The contracts here showed that the contractor retained substantial control: the contractor supplied and replaced crews, maintained and repaired the equipment, bore fuel and operating costs, retained responsibility for accidents and third-party liability, and in several agreements the contract expressly negatived any lease or transfer of right to use. Reading the agreements as a whole, the arrangements were permissive use and service contracts, not transfers of the right to use the goods.
Conclusion: The contracts did not amount to a transfer of the right to use goods and were not exigible to tax under the relevant sales tax or value added tax provisions.
Issue (ii): Whether the same transactions, to the extent they did not involve transfer of possession and effective control, fell within the service tax entry relating to supply of tangible goods.
Analysis: Where possession and effective control remain with the contractor, the transaction is one for supply of tangible goods for use without transfer of possession and effective control. The service tax provision specifically covered such transactions once it came into force. The Court therefore distinguished the portion of the controversy concerning post-commencement service tax liability from the sales tax and value added tax issue.
Conclusion: Such transactions, where possession and effective control were not transferred, fell within the service tax category of supply of tangible goods.
Final Conclusion: The assessees succeeded on the sales tax and value added tax issue because the contracts did not transfer the right to use the goods, while the Union's appeal was disposed of with liberty to pursue service tax recovery in accordance with law where applicable.
Ratio Decidendi: For Article 366(29A)(d), a taxable transfer of the right to use goods arises only when the transferee obtains legal, exclusive use of identifiable goods and effective control passes from the transferor; a contract that retains substantial control with the owner is merely a service arrangement.