Transfer of right to use goods requires effective control; bus hiring here was treated as a service arrangement, not a deemed sale.

Transfer of right to use goods under the Uttarakhand VAT Act depends on whether the transferee obtains possession together with effective control over the vehicles; mere delivery or custody is insufficient where the owner retains substantial control and provides transport services. On the contract examined, hiring buses to the transport corporation was treated as a service arrangement rather than a deemed sale, and the taxability finding was set aside. Because the transaction itself was held not taxable, the alternative claim for deduction of driver and cleaner salaries and diesel and lubricants from gross receipts did not survive independently and the adverse non-deductibility finding was also set aside.

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Issues: (i) Whether the hiring of buses to the transport corporation amounted to a deemed sale by way of transfer of right to use goods under the Uttarakhand Value Added Tax Act, 2005. (ii) Whether, if the transaction was taxable, the amounts towards salary of driver and cleaner and cost of diesel and lubricants were deductible from the gross amount received.

Issue (i): Whether the hiring of buses to the transport corporation amounted to a deemed sale by way of transfer of right to use goods under the Uttarakhand Value Added Tax Act, 2005.

Analysis: The determining test was whether the transport corporation obtained possession together with effective control over the buses. On the contract examined, the owner retained the substantial control and the arrangement was for providing transport services, not for transferring the right to use particular vehicles. The reasoning drew support from the settled principle that transfer of right to use requires not merely delivery or custody, but also effective control in favour of the transferee.

Conclusion: The transaction was not a deemed sale and did not fall within transfer of right to use goods; the finding of taxability was set aside in favour of the assessee.

Issue (ii): Whether, if the transaction was taxable, the amounts towards salary of driver and cleaner and cost of diesel and lubricants were deductible from the gross amount received.

Analysis: The claimed deductions were examined only in the backdrop of the alleged taxable transfer. Once the underlying transaction itself was held not to be taxable, the question of computing deductible elements from the gross receipts ceased to survive as an independent basis for levy.

Conclusion: The adverse finding on non-deductibility could not stand and was set aside in favour of the assessee.

Final Conclusion: The revisions succeeded, the tax demand based on transfer of right to use was quashed, and the assessee's challenge was accepted.

Ratio Decidendi: Transfer of right to use goods requires transfer of effective control along with possession, and a contract that merely provides vehicles with the owner retaining substantial control amounts to a service arrangement, not a taxable deemed sale.

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