AI Drafter 
TaxTMI 
TaxTMI 
2009 (2) TMI 748
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....r claims that he was verbally informed by the officials of the respondent-Corporation that the petitioner's contract with the respondent-Corporation would be treated as "sale" within the meaning of the Assam Value Added Tax Act, 2003, and that deduction from the petitioner's bills would be made treating the said transactions as "sale", though the said transactions, according to the petitioner, amounted to providing of service or, at best, hiring of vehicles. These transactions, according to the petitioner, do not, at any rate, amount to transfer of right to use the petitioner's cranes and, hence, the decision of the respondent-Corporation to deduct, at source, tax at the behest of respondent No. 4, namely, State Sales Tax Authorities in Assam, is wholly without jurisdiction. By making, therefore, this application under article 226 of the Constitution of India, the petitioner has sought for directions to the respondents not to deduct, at source, any tax, from the bills of the petitioner under the provisions of the Assam Value Added Tax Act, 2003, in respect of the cranes, which form the subject-matter of contract between the petitioner and the respondent-Corporation. ....
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....erty in goods. Because of this judicial interpretation, States were losing revenue on account of sales tax in respect of transactions like transfer of the right to use goods, transfer of property in goods involved in execution of works contract, supply of food by a hotelier, etc. With regard to the above, it may be pointed out that as far back as in the year 1967, Madras High Court, in A.V. Meiyappan v. Commissioner of Commercial Taxes reported in [1967] 20 STC 115, was confronted with the question as to whether a given transaction of "lease" can ever amount to "sale". In A.V. Meiyappan [1967] 20 STC 115 (Mad), the court was examining an agreement entered into by an assessee, called lessor, with a limited company, called lessee, whereunder the assessee had made over to the lessee the outright lease of the world negative rights of the film, for a period of 49 years, for a consideration. The sales tax authorities were of the view that though the transaction was termed as "lease" for 49 years, the assessee had actually effected a "sale" of the negative print of the picture for a consideration and, therefore, the transaction was liable to sales tax under the Madras General Sales Tax....
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....it of the definition of "sale" as defined in the Sales of Goods Act. In other words, by bringing various transactions within the purview of the definition of "sale", a transaction, which was, otherwise, not a "sale", has been deemed to be a "sale". This clause (29A) of article 366 states as under: "(29A) 'tax on the sale or purchase of goods' includes- (a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; (b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; (c) a tax on the delivery of goods on hire-purchase or any system of payment by instalments; (d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (f) a tax on the supply, by way of or as part of any service or in any other mann....
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....e use of any goods" under an "operating lease". Section 2(33) reads as under: "2(33): 'Sale', with all the grammatical variations and cognate expressions, means any transfer of property in goods by any person for cash, deferred payment or other valuable consideration, and includes: ... (iv) any transfer of the use of any goods under an 'operating lease'; ..." The expression "operating lease" has been defined, by section 2(25), to mean a lease other than a financial lease. Thus, any lease, other than a financial lease, is an "operating lease" within the sales tax laws in Assam. The term "lease" has been defined under section 2(19) of the Act as follows: "2(19) 'Lease' means any agreement or arrangement, whereby the right to use any goods for any purpose is transferred by one person to another, whether or not for a specified purpose for cash or deferred payment or other valuable consideration without the transfer of ownership and includes a sub-lease but does not include any transfer on hire purchase or any system of payment by instalments." Section 2(20) of the Act defines "lessee" to mean a person to whom the right to use any goods for a....
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.... when the contract, in respect thereof, is executed, for, the right to use goods would stand transferred to the lessee, no sooner the contract is executed. The Supreme Court further observed, in 20th Century Finance Corpn. Ltd. [2000] 119 STC 182; [2000] 6 SCC 12, that if the goods are available, irrespective of the fact where the goods are located, and a written contract is entered into between the parties, the taxable event on such a "deemed sale" would be the execution of the contract; but in the case of an oral or implied transfer of the right to use goods, such transfer may be effected by the delivery of the goods. Having so observed, the Supreme Court, in 20th Century Finance Corpn. Ltd. [2000] 119 STC 182; [2000] 6 SCC 12, pointed out that no authority could be shown to support the view that there would be no completed transfer of right to use goods unless the goods are delivered. The Supreme Court, therefore, concluded, in 20th Century Finance Corpn. Ltd. [2000] 119 STC 182; [2000] 6 SCC 12, that delivery of goods cannot constitute a basis for levy of tax on the transfer of the right to use any goods. The relevant observations made, on the above aspects of the law, by th....
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....s not sine qua non for completing the transfer of the right to use such goods. In Bharat Sanchar Nigam Ltd. v. Union of India reported in [2006] 3 VST 95 (SC); [2006] 145 STC 91 (SC); [2006] 282 ITR 273 (SC); [2006] 3 SCC 1 a three-judge Bench had the occasion to consider the question as to whether delivery of goods is at all necessary for the purpose of effecting the transfer of the right to use the goods. To the question so put, the Supreme court responded by holding that the essence of the right, under article 366(29A)(d), is that it relates to user of goods and though, in a given case, actual delivery of the goods may not be necessary for effecting transfer of the right to use the goods, yet the goods must be available at the time of the transfer, must be deliverable and delivered at some stage. The apex court pointed out, in Bharat Sanchar Nigam Ltd. [2006] 3 VST 95; [2006] 145 STC 91; [2006] 282 ITR 273; [2006] 3 SCC 1, that the decision, in 20th Century Finance Corpn. Ltd. [2000] 119 STC 182 (SC); [2000] 6 SCC 12 cannot be cited as an authority for the proposition that delivery of possession of goods is not a necessary concomitant for completing a transaction of sale for ....
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....06] 145 STC 91 (SC); [2006] 282 ITR 273 (SC); [2006] 3 SCC 1, until the time the delivery of the goods takes place, for, it is upon delivery of the goods that the transfer of the right to use the goods is completed. This delivery may, however, be actual or constructive. In other words, a "deemed sale" cannot be treated as complete until the time the contract is executed by delivery of the goods inasmuch as the transfer of the right to use goods does not take place until the time the transferor delivers the goods, which is the subject of contract, though, for the purpose of determining the "situs" of such a "deemed sale", it is the place, where the agreement is executed, which will be treated as the place of the "deemed sale" provided that the agreement is in writing; but in case of oral agreement, it may be effected by the delivery of the goods. The relevant observations made, in this regard, in Bharat Sanchar Nigam Ltd. [2006] 3 VST 95 (SC); [2006] 145 STC 91 (SC); [2006] 282 ITR 273 (SC); [2006] 3 SCC 1 read as under: "73(1). With respect, the decision in 20th Century Finance Corpn. Ltd. v. State of Maharashtra [2000] 119 STC 182 (SC); [2000] 6 SCC 12, cannot be cited as au....
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....delivered. It is, therefore, clear that in order to constitute a transfer of right to use goods, there must be parting with the possession of the goods for the limited period of its use in favour of the lessee by the lessor. The effective control of the goods must not remain with the owner, but must stand transferred to the lessee for the use by the latter at his will and it is this transfer of the effective control of the goods, which attracts sales tax (See Alpha Clays v. State of Kerala reported in [2004] 135 STC 107 (Ker). In State of Andhra Pradesh v. Rashtriya Ispat Nigam Ltd. reported in [2002] 126 STC 114 (SC); [2002] 3 SCC 314, it was claimed by the sales tax authorities that the transaction, whereby the owner of certain machinery had made available, his machinery to the contractor, amounted to sale. Dealing with this contention of the sales tax authorities, a Division Bench of the Andhra Pradesh High Court held that the transfer of the right to use goods necessarily involves delivery of possession by the transferor to the transferee; but the delivery of possession must be distinct from its custody and that mere transfer of possession does not amount to delivery i....
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....ound that possession of the shuttering materials was transferred by the assessee to the customers for their use and, therefore, there was deemed sale within the meaning of sub-clause (d) of clause (29A) of article 366. What is noteworthy is that in both the cases there were goods in existence which were delivered to the contractors for their use. In one case there was no intention to transfer the right to use while in the other there was." In Bhopal Sugar Industries Ltd. v. Sales Tax Officer, Bhopal reported in [1977] 40 STC 42, the apex court has pointed out that mere use of the words such as "agent" or "agency" "buyer" or "seller" cannot be sufficient to lead to an irresistible inference that the parties concerned did, in fact, intend that the status, so described in an agreement, shall stand conferred on the party concerned. The apex court has further pointed out, in Bhopal Sugar Industries Ltd. [1977] 40 STC 42, that unless the context shows that the parties to an agreement clearly intended to treat a buyer as buyer and not as an agent, the mere formal description of a person as an agent or buyer is not conclusive. The observations made, in this regard, in Bhopal Sugar Indus....
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....along with the necessary accessories, with valid permits/licenses/insurance, etc., sufficient fuel, in well-maintained condition and fulfilling other pre-requisites, should be available for performing the duties as advised by ONGC, at the appointed time and place, throughout the contract period, not by way of lease or transfer of rights for use of the vehicle/equipment, by the contactor to ONGC. (EmphasisHere italicised. supplied) (2) The work under this contract shall include but not limited to dismantling/erection of deep-drilling rigs/work-over rigs besides loading/unloading, bunk houses, store houses of odd size and all connected rig material from or into trailers/trucks/railways wagons besides any other materials handling jobs as may be assigned from time to time by authorized representative of ONGC at various points/ sites (slushy)/installations, etc. The area of operation shall normally be in connection with the activities of Assam asset of ONGC or anywhere as per the requirement of ONGC, in and around Sivasagar, Jorhat, Dibrugarh, District Assam." From a reading of the "scope of work", what becomes clear is that the cranes were to be made available by the petitioner to t....
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....ntract to any other contractor(s) at any time during the currency of contract without assigning any reason whatsoever. The contactor shall not be entitled to any compensation whatsoever in such cases. 7.4 ONGC also reserves the right to get the work covered under the contact done departmentally or through some arrangement in part or in full at its sole discretion. The contractor shall not be entitled to any compensation in such cases. 7.5 ONGC also have the right to withdraw any job in part or full from the contractor without assigning any reason and at any stage of work. Payment to the contractor in such case shall be restricted to the actual job done by him and the amount payable shall be decided by the authorized officer of ONGC which shall be final and binding on the contractor. 7.6 The award of the contract to the contractor does not entitle him the exclusive right to deploy the crane for all requirement of ONGC." From clause 7, what becomes clear is that the petitioner was awarded a contract of a particular work. The very fact that the ONGC has retained, under the agreement, a right to award the whole or a part of the work, which was assigned to the contractor, to....
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....en terminated by ONGC shall also not be employed by the contractor during their I/II years from the date of quitting the services without permission of ONGC. ONGC may decide not to deal with such contractors/firms who fail to comply with the above advice. 8.6. The bidder must have as office with regular telephone connection at Nazira/Sibasagar or submit an undertaking that he/they shall establish an office with telephone connection at Nazira/Sivasagar within 30 days from the date of issue of LOA. The bidder shall submit the duly notarized from notary public/Magistrate of the recent telephone bill for proof of office and telephone connection. 8.7 For the purpose of day-to-day or time-to-time operation, instructions shall be given to the contractor's representative by an authorized representative of ONGC and the operations/loading/ unloading, etc. shall be carried out according to the priorities and instructions given by such representatives on ONGC. 8.8 The denial or failure of the execution of timely operations or delays due to poor planning or failure to take timely actions or delay attributed by bad, inefficient operations of crane/prime mover including boggin....
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....om one field/site to another field/site shall not exceed the normal travelling time. The "normal travelling time" shall be computed at an average speed of 20/15 km per hour for metal/kutcha and cross-country road. 8.14 The contractor shall make his own arrangement at his cost for shelter, food, night stay and other requirements of their staff/representatives, etc., at a convenient place near the site of operation so that the crane is available for duty from 7.00 hours to 17.00 hours (or as directed by the authorized representative of ONGC). Similarly to and fro transport arrangement shall be made by the contractor for all his staff/representative at his own cost and when required for the continuity of the operations or for staff replacement needed in any particular field/site or for any other purpose. The contractor shall maintain adequate transport for such adequate assistance. 8.15 The contactor shall have proper and adequate arrangement for the fuel, lubricants and other consumables, etc., all the time to complete the job within the scheduled time. Without prejudice to any other rights that ONGC may have under the contact, the contractor shall be liable to pay the liquidat....
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....hall remain as the employees of the contractor. Clause 8.2 shows that the contractor has to do all acts and deeds as and when required and necessary for rendering services under the contract, irrespective of the fact as to whether a particular act or deed has been expressly provided in the contract or not, and that no extra charges shall be payable to the contractor for attending to such jobs and liaison work. The provisions, so contained in clause 8.2, more than abundantly demonstrate that the contractor was responsible to carry out the assigned operational work; hence, in such circumstances, the transaction could not have been treated as "lease". Clause 8.4 clarifies that the agreement is for rendering services as mentioned in the contract. Under clause 8.15, the contractor has to make arrangement for fuel, lubricants and other consumables, etc., all the time to complete the job within the scheduled time and that the contractor shall be liable to pay liquidated damages to the respondent-Corporation, if the contractor fails to complete the work within the scheduled time and in the assigned manner. Such terms, incorporated in the contract agreement, clearly show that the agreeme....
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.... day. From the rates, as reproduced above, it is clear that the rates are applicable on the basis of the work done by the contractor and on the basis of the use of the cranes. Thus, depending upon how much work has been done by the contractor the rates would be paid. Hence, the rates make it clear that the agreement is performance oriented, i.e., depending upon the actual performance of work that the payments would be made. Had the transaction amounted to lease, it would have been immaterial as to whether the work has been done by the contractor or not so long as the cranes remain at the work-site of the respondent-Corporation. Leaving no one in doubt, clause 11.2 of the agreement specifically mentions that the payment of charges shall be made on the basis of the actual operation of the cranes. Clause 12 of the agreement is escalation and de-escalation clause. Clauses 12.1 and 12.2 of the agreement, which are relevant, read as under: "Clause 12. Escalation/de-escalation: 12.1 No increase or decrease in rates of hiring shall be permitted EXCEPT ON ACCOUNT OF VARIATION IN THE PRICE OF DIESEL ONLY. All other variation in prices shall be to the account of contractor. ....