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of <h1>Hourly bulldozer hire: whether charges are transfer of right to use goods - held composite works contract/service, not s.5(E) turnover</h1> Whether hire charges for hourly use of bulldozers constitute a taxable transfer of right to use goods: applying Supreme Court tests (K.P. Mozika; BSNL) ... Exemption on hire charges received by the respondent for the bulldozers working on an hourly basis considering these transactions as service charges rather than transfer of right to use goods - transfer of right to use goods in the form of bulldozers hired to farmers on hourly basis - HELD THAT:- It would be trite at this juncture to refer to a recent judgment of the Hon’ble Supreme Court in the case of K.P. Mozika vs. Oil and Natural Gas Corporation Ltd. and Another [2024 (1) TMI 443 - SUPREME COURT], wherein the Hon’ble Supreme Court held that 'Essentially, the transfer of the right to use will involve not only possession, which may be granted at some stage (after execution of the contract), but also the control of the goods by the user. When the substantial control remains with the contractor and is not handed over to the user, there is no transfer of the right to use the vehicles, cranes, tankers, etc. Whenever there is no such control on the goods vested in the person to whom the supply is made, the transaction will be of rendering service within the meaning of Section 65(105) (zzzzj) of the Finance Act after the said provision came into force.' The Hon’ble Supreme Court in the case of BSNL [2006 (3) TMI 1 - SUPREME COURT] laid down five essential attributes that must be cumulatively present for a transaction to qualify as transfer of right to use goods. In the instant case, none of these essential attributes are satisfied. The bulldozers remained under the complete control and possession of the respondent corporation at all times with the corporation's own personnel operating the machinery. The applicant (farmers’) neither acquire physical possession of the equipment nor obtain any legal right to independently use, control or operate the bulldozers. What is contracted for is not the use of machinery, but rather the execution of specific land development work by the respondent using its machinery and manpower. Therefore, this transaction is essentially a works contract for land development rather than a lease or transfer of equipment. The fact that security responsibility is placed on the applicant (farmers’) or that amounts remain payable even if work is halted for reasons attributable to the applicant does not alter the basic character of the transaction as a works contract. These contractual stipulations merely protect the respondent's commercial interests and ensure payment for the work undertaken, but do not evidence any transfer of right to use the bulldozers. The previous assessment orders for earlier years treating similar transactions as service charges rather than transfer of right to use goods further support the respondent's contention and establish a consistent administrative interpretation of such transactions. The Bench is of the considered opinion that there is no merit in the Tax Revision Case filed by the State. The STAT has correctly appreciated the facts and law in concluding that the bulldozer hire charges collected by the respondent corporation do not constitute taxable turnover under Section 5(E) of the APGST Act. The transaction in question is a composite works contract for land development services and does not involve any transfer of right to use goods as contemplated under the statutory provisions. The instant Tax Revision Case being devoid of merit deserves to be and is accordingly dismissed. Issues: Whether bulldozer hire charges collected by the respondent constitute a transfer of right to use goods under Section 5(E) of the APGST Act.Analysis: The Bench examined the contractual terms and contemporaneous conditions governing the transactions and applied the attributes required for a transfer of right to use goods. The contracts show that the respondent retained physical possession and operational control of the machinery; respondent's personnel operated the bulldozers; licenses, insurance, road taxes, fuel and maintenance obligations remained with the respondent; there was no delivery of the machinery to the users and no legal right vested in the users to independently use or control the equipment. The contractual stipulations that require payment despite stoppages and place security obligations on the applicant serve commercial protection and do not effectuate transfer of control. The Bench also applied the principles in relevant higher court authorities that where substantial control and possession remain with the supplier and the transaction is for execution of work by the supplier's men and machinery, the transaction is a service/works contract and not a transfer of right to use goods under the statutory provision.Conclusion: The issue is answered in favour of the assessee. The bulldozer hire charges do not constitute a transfer of right to use goods under Section 5(E) of the APGST Act and the transactions are held to be works contracts for land development rather than taxable transfers of right to use goods.
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