Transfer of right to use goods fails where owner retains control and supplies crew in vessel hire contracts.

Contracts for hiring launch vessels for a bridge project did not amount to a transfer of the right to use goods under the constitutional deemed-sale test in Article 366(29A)(d). The vessels were not placed under the hirer's exclusive control as identified goods; the petitioners retained possession, supplied crew, bore fuel and maintenance costs, remained responsible for repairs and loss, and could substitute vessels. Those features showed only permissive use with continuing dominion in the owner, so the arrangement was a service contract and not taxable as a sale under the Assam Value Added Tax Act, 2003.

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Issues: Whether the contracts for hiring launch vessels for the bridge project amounted to transfer of the right to use goods and were therefore taxable as sale under the Assam Value Added Tax Act, 2003, or were merely service contracts taxable, if at all, under the Finance Act, 1994.

Analysis: The dispute was examined against the constitutional concept of deemed sale under Article 366(29A)(d) of the Constitution of India and the settled five-fold test for transfer of the right to use goods. A transaction of this nature requires goods to be available for delivery, identity of the goods to be agreed, a legal right to use in favour of the transferee, exclusion of the transferor during the period of use, and a bar on re-transfer of the same right. On the contract terms, the launch vessels were not identified as specific goods placed under the Railways' exclusive control. The petitioners retained the vessels, supplied crew, bore fuel and maintenance costs, remained responsible for repairs and loss or damage, and could substitute vessels. These features showed only permissive use with continuing control resting with the petitioners, not a transfer of the right to use the vessels.

Conclusion: The contracts did not constitute a transfer of the right to use goods and were not taxable as sale under the Assam Value Added Tax Act, 2003. They were service contracts.

Final Conclusion: The review order was quashed, the earlier clarifications that VAT was not applicable were restored, and the authorities were directed to proceed on that basis for refund processing.

Ratio Decidendi: Where the owner retains substantial control, supplies crew and consumables, and the user obtains only permissive use without exclusive dominion over identified goods, the transaction is a service contract and not a transfer of the right to use goods.

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