Delhi High Court
M/S Pawan Hans Limited (Formerly Known … vs Commissioner Of Trade And Taxes on 19 December, 2024
Author: Yashwant Varma
Bench: Yashwant Varma
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment reserved on: 30 September 2024
Judgment pronounced on: 19 December, 2024
+ ST.APPL. 1/2023 & CM APPL. 1317/2023 (Interim Relief)
M/S PAWAN HANS LIMITED (FORMERLY KNOWN AS
PAWAN HANS HELICOPTERS LIMITED) .....Appellant
Through: Mr. Tarun Gulati, Sr. Adv. with
Mr. Rajat Bose, Mr. Ankit
Sachdeva and Ms. Shohini
Bhattacharya, Advs.
versus
COMMISSIONER OF TRADE AND TAXES .....Respondent
Through: Mr. Rajeev Aggarwal, ASC
alongwith Mr. Shubham Goel
and Mr. Mayank Kamra,
Advocates.
CORAM:
HON'BLE MR. JUSTICE YASHWANT VARMA
HON'BLE MR. JUSTICE RAVINDER DUDEJA
JUDGMENT
YASHWANT VARMA, J.
1. The present appeal instituted under Section 81 of the Delhi
Value Added Tax Act, 20041 impugns a judgment passed by the
Value Added Tax Appellate Tribunal2 dated 06 October 2022 in
terms of which appeals preferred in relation to Financial Years3 2006-
07 to 2009-10 have come to be dismissed.
2. The principal question which stood raised before the Tribunal
was whether the supply of helicopters by the appellants to the
1
DVAT Act
2
Tribunal
3
FYs
ST.APPL. 1/2023 Page 1 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
Andaman and Nicobar Islands Administration4 constituted a
“transfer of a right to use” and thus exigible to tax under Section
2(g)(vi) of the Central Sales Tax Act, 19565 and Section 2(zc)(vi) of
the DVAT Act.
3. The appellants had contended that the agreement dated 11
February 2003, and which constituted the repository of the bargain
between the parties did not involve a “transfer of a right to use”. The
appellants would urge us to hold that tested on the principles underlying
Article 366(29A)(d) of the Constitution, the tax authorities as well as
the Tribunal have clearly erred in holding to the contrary.
4. For the purposes of examining the challenge which stands raised,
we at the outset, take note of the following two questions of law on
which the appeal came to be admitted on 12 January 2023:
“a) Whether as per terms of agreements executed by the Appellant
with its customers, hiring of helicopters is covered under the
meaning of “Sale” under Section 2(g)(iv) CST Act?
b) Whether in the facts and circumstances of the case, the hon’ble
Tribunal has erred in coming to the conclusion that the Appellant
has transferred the effective control and possession and right to use
the helicopters to its customer so as to consider the activity as
“Deemed Sale”?”
5. The agreement dated 11 February 2003 takes note of the
appellant, described as the Lessor therein, as being the owner of a fleet
of helicopters and engaged in the business of providing helicopter
support services to customers by leasing those helicopters. The A & N
Administration was described in that agreement to be the “Charterer” or
Lessee. For the purposes of evaluating the challenge which stands
4
A & N Administration
5
CST Act
ST.APPL. 1/2023 Page 2 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
raised, we propose to take note of the following salient covenants
which formed part of that agreement.
6. Clause 1.1(a) defined the word „Base‟ in the following terms:
“”Base” mean “PORT BLAIR”. The helicopter will be based at
PORT BLAIR and its crew including maintenance facilities will be
stationed there.”
7. Clause 1.1(d) defined the „Area of Operation‟ to mean the
Andaman and Nicobar Islands and related areas, as follows:
“”Area of Operation” means Andaman & Nicobar Islands and related
areas.”
8. The expressions „Fixed Monthly Charges‟ and „Flying Charges‟
were defined by sub-clauses (f) and (g) as under:
“f) “Fixed Monthly Charges” would mean the amounts set out in
Clause-10.1.
g) “Flying Charges” would mean the amounts set out in Clause-
10.2.”
9. Clause 1.1(i) defined the word „Helicopter‟ as it appeared in
different sections of the agreement in the following terms:
“Helicopter” means the Dauphin SA 365N or equivalent helicopter
certified by the DGCA.”
10. Clause 1.1(m) provided a definition for the word „Service’
occurring in different parts of the agreement to mean the service carried
out by the Lessor/appellant and its personnel under the agreement. The
subject of „Service’ was regulated by Clause 3 and which read as
follows:
“3. SERVICE
3.1 The Lessor shall during the term of Lease provide the helicopter
for exclusive use of the Charterer and its authorized persons in
accordance with this Agreement. Pawan Hans would position one
Dauphin helicopter at Port Blair and carry out its operations. The
helicopter would be made exclusively available to the Lessee and if
ST.APPL. 1/2023 Page 3 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
so required by the Lessee, could be utilized for other appropriate/
suitable tasks within the A&N Islands and related adjoining areas.
3.2 The Lessee may requisition flights as required from time to time
and Lessor shall provide flights in accordance with such schedules.
Lessor’s obligations and responsibilities to provide flights shall be
limited to the flights as per the programme for the day.
Notwithstanding the foregoing, the Lessor shall in an emergency
endeavor to provide a flight or flights not later than two hour after
the receipt of information thereof, from the Lessor’s Representative
unless there are any operational or regulatory limitations prohibiting
or preventing such a flight which shall be intimated by the Lessor to
the Lessee.
3.3 The Lessor shall provide experienced IFR, licensed pilots for
operations and qualified & experienced maintenance crew for
servicing of the helicopter in order to maintain the helicopter for
operational use during the currency of this agreement
3.4 The Charterer shall (before departure of a flight) provide to the
Lessor a Manifest containing the number, names & weights of the
passengers, cargo weight on board and the estimated time of
departure/ arrival of the flight.
NOTWITHSTANDING the foregoing it shall be the Lessor’s
sole to determine the acceptable load/passengers before each flight
and upon such determination the Lessor may vary the proposed load/
passengers to be carried by the helicopter.
3.5 The Lessor shall carry out the services and perform all the
obligations under this Agreement with due diligence and care and in
a competent, skillful and professional manner.
3.6 Before any proposed flight it shall be the Lessor’s responsibility
to determine the route and the suitability of the flying and landing
conditions and upon any such determination and after consultation
and agreement with the Lessee’s Representative, which shall not be
unreasonably withheld, the Lessor may vary the proposed route or
postpone or cancel the proposed flight.
3.7 If a helicopter becomes total loss or a constructive total loss, the
Lessor shall use its best endeavour to replace at its expense the
helicopter with an identical helicopter or a helicopter acceptable to
the Charterer within 14 days of the loss failing which the Lessee may
terminate this Agreement. All charges payable under this Agreement
in respect of the lost Helicopter shall cease after the date of loss until
the Lessor replaces it by a fully operational helicopter at the said
Base.
3.8 The Lessor shall obtain the necessary Non Scheduled Operator’s
Permit to operate the Helicopter and shall ensure that the helicopter
is properly licensed and complies with all laws, rules, regulations,
ST.APPL. 1/2023 Page 4 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
orders, standards and schedules governing aircraft in Non-Scheduled
category of the Director General of Civil Aviation, India and is
flown and operated in compliance with the laws in force, and shall
bear and pay all amounts or charges levied by the Airport Authority
such as air navigational charges, landing charges and parking and
housing charges etc. Passenger Service Fee and Inland Air Travel
Tax, however, if applicable, will be paid by the Lessee.”
11. Apart from the significant prefatory parts of the agreement
noticed above, it explained the scope of the contract to essentially be
the providing of helicopter support services and the equipment itself
being described to be a Dauphin SA 365N or an “equivalent
helicopter”, Clause 3.1 placed the appellant under the obligation of
providing the helicopter for the exclusive use of the Charterer. This
obligation was explained to require the appellant to position one
Dauphin helicopter at Port Blair and the said aircraft being made
available exclusively for the use of the Lessee.
12. Clause 3.2 of the agreement broadly set out the obligations of the
Lessor and recognised its principal responsibility being to provision for
flights as per the programme that may be curated for the day. The
aircraft was to be operated by licensed pilots and maintenance crew to
be provided by the appellant and which is duly recorded in Clause 3.3.
In terms of Clause 3.4, it was the appellant‟s responsibility to determine
the acceptable pay load as well as the number of passengers that may be
permitted on each flight.
13. By virtue of Clause 3.7, the agreement provisioned for a
contingency where a helicopter may become a “total loss” or a
“constructive total loss” and in which situation, the lessor was to
replace the equipment at its expense with an identical helicopter or a
helicopter acceptable to the Charterer within 14 days of such loss.
ST.APPL. 1/2023 Page 5 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
Clause 3.8 then clarified that the liability with respect to expenses and
responsibilities with regard to licensing requirements permits and
compliances would be of the appellant.
14. We also deem it apposite to extract 4.2, 5.1, 5.2 and 5.3.2 of the
agreement hereinbelow:
“4.2 The Lessor may make additions or deletions to the equipment or
make modifications to the helicopter as deemed fit and proper from
time to time for its operational use.
xxxx xxxx xxxx
5.1 The Lessor shall make available the helicopter to the Lessee for
operations maximum upto 90 hours per month or 1000 hours per
year during the term of lease Agreement.
5.2 The Lessor shall in order to carry out the helicopter operations
safely and efficiently and to make the helicopter available to Lessee
in terms of Clause 5.1 properly maintain, repair, overhaul and
service the helicopter in accordance with published airworthiness
standards and shall provide at the Base adequate spare parts and
tools for the purpose.
xxxx xxxx xxxx
5.3.2 The Lessor will carry out all its maintenance, repair, overhaul
or service activities during such times other than the timings of an
operational day so that the flying activities during the days other than
ground time as specified in Article 5.3.1 is not hampered or
jeopardized.
The Lessor shall give notice to the Lessee of any scheduled
maintenance to be carried out on the helicopter atleast 7 days or 10
flying hours in advance.
The helicopter shall be considered operational if it is available within
two hours of the scheduled time of the programme for a sortie.
Programme for the day for subsequent sorties for the helicopter shall
be adjusted accordingly consequent to a delayed sortie.”
15. The appellant was also, in terms of that agreement, entitled to
make additions or deletions to the equipment as also make
modifications to the helicopter itself as deemed fit and proper for its
operational use as per Clause 4.2. Clause 5.1 required the appellant to
ST.APPL. 1/2023 Page 6 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
make available the helicopter to the lessee for operations up to a
maximum of 90 hours per month or 1,000 hours per year during the
term of the agreement. The contract, as per Clause 5.3.2, also placed
upon the appellant the duty to undertake requisite maintenance, repair,
overhaul and service activities while ensuring, however, that the flying
activities planned for the days, were not hampered or jeopardized.
16. The subject of charges was regulated by Clauses 10.1 and 10.2
and which read thus:
“10. CHARGES
In consideration of the Lessor carrying out the services, the Lessee
shall, in respect of the helicopter pay to the Lessor during the term of
the Lease Agreement the following charges:
10.1 FIXED MONTHLY CHARGES
Fixed Monthly Charges per month and prorata thereof to the nearest
half day for part of a month and the period during which the
helicopter is in active service in accordance with this Agreement as
follows: –
(i) Fixed Monthly Charges : Rs. 28.25 lacs per helicopter
Plus
(ii) Additional overhead charges : Rs. 2.00 lacs per month
No charges shall be payable for grounding in excess of allowable
days subject to adjustment of accumulated days, if any, allowed to
the Lessor as per Clause 5.3.1.
10. 2 Hourly Flying Charges
The Lessee shall pay to Lessor the corresponding flying charges per
hour and prorata thereof to the nearest 5 (Five) minutes to the flying
hours of the helicopter as per the following rates:
(i) Hourly Flying Charges Rs.29,250/- per hour upto 90 hrs
flying per month
(ii) Hourly Flying Charges beyond 90 hrs. flying per month
will be increased by 30% over Rs.29,250/- per hour
mentioned above.
In case fuel is provided by the Lessee at its cost, then in that case a
deduction of Rs.6388/- per hour (ATF consumption: 338 Ltrs/hr@Rs
18 90 per litre) would be given on the Hourly Flying Charges
mentioned above.”
ST.APPL. 1/2023 Page 7 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
17. Clause 13 of the agreement embodied the indemnity clause and is
extracted hereunder: –
“13. INDEMINITY
13.1 The Lessor shall indemnify and hold harmless the Lessee from
and against all claims, costs, demands, actions, including legal fees
and costs, howsoever, arising out of the use of the Helicopter
(including damage or loss of helicopter and air carrier’s third party
liability) during the period herein mentioned.”
18. The appellant was also in terms of the agreement required to
ensure that the helicopter was duly insured at its expense during the
tenure of the contract. It was in the backdrop of the aforesaid
contractual stipulations that the appellant appears to have urged that the
leasing of the helicopters did not contemplate or evidence the “transfer
of a right to use”.
19. In the course of assessment, the appellant had submitted
objections in respect of the default assessment notices which came to be
issued. From the details which have been taken note of by the Tribunal,
the notices of default assessment of tax and interest under Section 9(2)
of the CST Act for FYs 2006-07 to 2009-10 came to be framed on 09
March 2011. The principal reason underlying those assessments is
noticed by the Tribunal in paragraph 4 of its order which is reproduced
hereinbelow:
“4. Default assessment of tax and interest u/s 9(2) of CST Act,
pertaining to tax period Annual 2006-07 was framed on 09-03-2011
due to the following reasons:-
“This has been noticed that M/s Pawan Hans Helicopters
Ltd. has been providing its helicopters to various agencies
including State Governments and these transactions are
found covered u/s 2(g)(iv) of the CST Act, 1956, being
transfer of the right to use the goods. As per profit & Loss
Account for the year ended 31-03-2007 given in the
Balance Sheet as at 31-03-2007 the company has earned
ST.APPL. 1/2023 Page 8 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
income of Rs. 1,83,24,68,313/- in the year 2006-07 on
account of helicopter hire charges. This amount is being
taxed @12.5%. Detailed reasons for taxation are attached
with this order.
The dealer is hereby directed to pay tax of an amount of Rs.
360845644/- (Thirty six crore eight lacs forty five thousand
six hundred forty four only).”
Similar were the notices which were framed for the subsequent periods.
20. The authority under the DVAT Act also proceeded to reject the
objections taken holding that the terms of the agreement were liable to
be acknowledged as constituting a “transfer of a right to use”. This
becomes evident from a reading of paragraph 10 of the order of the
Tribunal which is extracted hereinbelow:
10. Learned OHA upheld all the assessments pertaining to tax,
interest and penalties by observing in the manner as:-
“Further, in terms of clause 13.3 of an Agreement of the
objector made by him with one of his Charterers also reads
as “however, the charterer shall indemnify and keep
harmless the Lessor and shall assume the risk of and be
solely responsible for any and all damages to the helicopter,
associated and: allied equipments, tools, supplies, spare
parts, materials and all other properly furnished by the
Lessor or caused by the gross negligence of the Charterer,
its employees, agents of sub-contractors”. This too clearly
and unequivocally goes to suggest and prove beyond any
doubt that the helicopters, crew and others related goods
etc. were placed by the objector at the disposal of the
Lessees/Charterers making the transaction to clearly fall
within the ambit of deemed sale by way of transfer of right
to use the goods ie. the helicopters in this case.
Simultaneously, from the case record and the documents
placed on file, it also transpires and come up that many
rights and obligations of the parties are linked with the
possession of the goods. One of the most important effects
is that “Risks” prima facie passes with the property; is to
say, that the goods are at the risk of party in whose
possession the property is. The objector has claimed that
effective control and possession of the helicopters during
the entire term of agreement remains with the objector and
the grounds taken by him for this contention are that (i)
ST.APPL. 1/2023 Page 9 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
clients are required to provide written requisitions on daily
basis, (ii) objector was providing experienced IFR and
licensed pilots for the helicopters, (iii) possession of
helicopters remain with the licensed staff and crew of the
objector, (iv) determining the routes and suitability of flying
and landing was the prerogative of the objector and (v) the
objector alone was bearing the cost of fuel but in this
connection, mentioning of the following terms/clauses of
such an Agreement of the objector entered into by him with
his Charterer is found to be much important:
3.4 The charterer shall provide to the lessor a manifest
containing the number, names and weights of the
passengers, Cargo weight on the Board and the estimated
time of departure/arrival of the flight from which it is clear
that by providing the manifest, the lessee was not giving
any requisition for hiring of helicopters for that day but was
only intimating thereby the Schedule decided by the lessee
for that particular day/sortie. The said manifest was only a
sort of direction about the scheduled arrival/departure of
helicopter for a particular sortie. The information about the
details of the passengers was provided as per the safety
manual of the helicopters based on its load-lift capacity.
Here, it is important to mention and point out that the
objector company was not in any position to decline the
directions of the lessee.
3.1 The lessor shall during the term of lease provide the
helicopter for exclusive use of the Charterer and its
authorized person in accordance with the agreement. Pawan
Hans Helicopters would position one helicopter at Port
Blair. The helicopter would be made available exclusively
to the lessee and if so required by the lessee; the helicopter
could be utilized for other appropriate/suitable tasks within
the Andaman & Nicobar Islands and other adjoining areas.
3.2 The lessor shall be allowed to ground the helicopter for
maintenance for four days per month. The lessor shall give
notice to the lessee of any scheduled payment to be carried
out for the helicopter at-least for 7 days or 10 flying hours
in advance.
9a. wherever required the lessee shall provide suitable
helipads with necessary equipments and facilities like fire
fighting, fuel, adequate communication etc. The lessee shall
pay for and provide accommodation, transport and meals
for the lessor personnel whenever they are required to stay
out overnight of the base.
ST.APPL. 1/2023 Page 10 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
9.2 Security of helicopters and helipads, security checking
of passenger’s baggage and cargo is to be arranged by lessee
on all locations.
9.4 The lessee shall provide necessary security for
helicopters, crew and fuel at the main base and the other
locations.
Therefore, as seen, the above clauses in themselves make it
clear that the possession and effective control of the
helicopters remain with the lessees and the pilots and crews
provided by the objector were for the purpose of facilitating
the flying of the helicopters including determining of the
route and suitability of flying and landing conditions and
that once the helicopter has been made available at the base,
the lessees as per their absolute will and option were
entitled to use the helicopter in the way the manner intended
to by them the pilot and the crew were answerable to the
lessees liable to follow their direction rather than those of
the objector and that the objector was to be paid on
monthly/hourly basis irrespective of the fact whether the
Agencies used the helicopters during that month or kept
them unutilized or grounded.
Further, it is also seen that the Andaman & Nicobar Islands
Administration used the helicopter for commercial purpose
and had notified the Schedules of flights and fares in respect
of helicopters to various islands which itself proves that the
administration was using the helicopters as per their will
and the objector had no interference except for technical
suggestions on safety grounds.”
While disposing of objections, learned OHA relied on decisions in
Rashtriya Ispat Nigam Ltd. v. Commercial Tax Officer,
Company 1990 77 STC 182 AP, by Hon’ble High Court of Andhra
Pradesh; BSNL v. Union of India (2006) 145 STC 191 (SC) and
Laxmi Auto Visual Inc. v. Asstt. Commissioner of Commercial
Tax (Karnataka), (complete citation not mentioned).
Ultimately, learned OHA concluded as under:-
“Therefore, on going through this entire all the above, the
undersigned also finds himself of the considered opinion
that because had rented out the helicopters to his
clients/customers for continuously long periods, control
over and the security etc. of the helicopters and their crew
rested with these clients/customers, base/helipads etc. for
the operation and landing etc. of these helicopters were to
be arranged and provided for by the clients/customers, other
personnel and fuel etc. as discerned from the terms of the
Agreements above, for the helicopters were to be supplied
ST.APPL. 1/2023 Page 11 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
by the lessees clearly, go to show and establish beyond
doubt that though, the ownership of the helicopters rusted
with the objector, yet, possession and effective control over
the helicopters and their operation was entirely with the
clients/customers of the objector. It is a different thing that
crew of the helicopters were to be of the objector and it
could be because of the reason that for operating and flying
of the helicopters, some specialized, experienced and
licensed hands were essentially required and this mere fact
of supplying the crew by the objector did not establish
beyond doubt that the effective control over the helicopters
was that of the objector and not that of his
clients/customers. Moreover, the judgments of higher
Courts cited and relied upon by the objector in support of
his case support the case of the Revenue rather than the case
of the objector.
Therefore, in the entirety of the facts and circumstances of
the case and the detailed discussion made above, the
irresistible conclusion arrived at by the undersigned is that
there is no force and substance in the arguments of the
objector and orders of default assessments framed by the
VATO of Special Zone are found to be absolutely in
accordance with the provisions of law. Hence, the
objections of the objector are rejected and the orders of
default assessments of tax, interest and penalties issued by
the VATO of the Special Zone are upheld. Ordered
Accordingly.””
21. Proceeding then to deal with the questions touching upon the
merits of the dispute, the Tribunal framed the first issue to be of
effective control and possession. After noticing the rival submissions
which were addressed, the Tribunal held as follows:
“17. As noticed above, admittedly the dealer-appellant did not
submit before learned OHA all the agreements arrived at between
the dealer-appellant and the other party, and only two agreements
appear to have been submitted before learned OHA which were
between the dealer-appellant and Andaman & Nicobar Island
Administration & between the dealer-appellant and Government of
Punjab.
In the impugned order, there is no reference to any other agreement
arrived at between the dealer-appellant, and any government or non-
government entity/individual.
ST.APPL. 1/2023 Page 12 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
Remaining agreements were also required to be produced by the
dealer-assessee before learned OHA for the purpose of complete
adjudication of the matter in dispute, so far as the remaining
agreements are concerned.
It may be mentioned here that before this Appellate Tribunal,
initially a paper book containing copies of following agreements
only was submitted on behalf of the appellant:
1. between dealer-appellant and Ministry of Home Affairs;
2. between dealer-appellant and UT of Lakshadweep and
3. between dealer-appellant and Government of Arunachal
Pradesh.
Subsequently, copies of following agreements were also made
available behalf of the appellant
1. Contract between appellant and Sikkim Government;
2. Contract between appellant and Gujarat Government:
3. Contract between appellant and Bihar Government,
4. Contract between appellant and Amarnath ji Shrine
Board:
Contract between appellant and Mata Vaishno Devi Shrine
Board:
6. Contract between appellant and ONGC;
7. Contract between appellant and NIIPC,
8. Contract between appellant and Oil India; and
9. Contract between appellant and R.K. Marble Pvt. Ltd.
18. In the course of arguments, learned CA for appellant submitted
that terms and conditions of all the agreements referred to above,
including those with Government of Punjab and Andaman &
Nicobar Island Administration are almost same and that the matter in
dispute be disposed of keeping in view the terms and conditions of
the agreements produced here, mainly, between dealer-appellant and
Government of Punjab, Andaman & Nicobar Island Administration
and Ministry of Home Affairs.
By way of example, Learned CA for the appellant has referred to the
terms and conditions of the agreements available in the agreement
between appellant and Andaman & Nicobar Island Administration
and submitted that the same be treated as a sample agreement.
Learned counsel for the Revenue referred to the agreement between
appellant and M.H.A as well and in reply learned CA for the
appellant also referred to its terms also.
ST.APPL. 1/2023 Page 13 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
In the given situation, the issue regarding transfer of right to use
Helicopter is being decided keeping in view the terms and conditions
of the agreements made available to this Appellate Tribunal.”
22. The Tribunal thereafter proceeded to notice the various decisions
which appear to have been cited for its consideration and took note of
what it chose to describe as the special features of the agreement in
question. It, in this regard, firstly took into consideration Clauses 17
and 18 which principally dealt with confidentiality and security. Upon
construing those clauses, it proceeded to hold that the judgment of our
Court in Hari Durga Travels vs. CTT6 was clearly distinguishable.
This becomes evident from a reading of paragraph 21 of the order
impugned before us:
“21. Same clause 17 regarding confidentiality also finds mention in
the agreement between Appellant and Punjab Government, other
governments and certain non-govt. entities.
In Hari Durga Travel’s cast neither any security concerns of the
passengers were involved nor there was any such term in the
agreement.
This special feature of the agreements is a significant factor which
distinguishes the case from the facts of Hari Durga Travel’s case.”
23. The Tribunal also appears to have taken into consideration what
it construed to be the exclusive use of the helicopter during the period
of the lease agreement as being yet another significant factor for
distinguishing the judgment in Hari Durga Travels as well as the
decision of Supreme Court in State of A.P. vs. Rashtriya Ispat Nigam
Ltd.7 which had been cited for its consideration. This becomes apparent
from a reading of paragraph 23 and where it held that the essence of
transfer is “passage of control over the economic benefits of property”
6
2015 SCC OnLine Del 9442
7
(2002) 3 SCC 314
ST.APPL. 1/2023 Page 14 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
and which may result in the termination of rights in one entity and a
corresponding creation of rights in another. It thus came to the
conclusion that effective control of the helicopter was handed over to
the lessees and ceased to be with the appellants. This becomes evident
from a reading of paragraph 23 of the order impugned:
“23. As regards decision in Rashtriya Ispat Nigam Limited (supra),
as referred to in Hari Durga Travel’s case, Hon’ble High Court
observed that in the former case Hon’ble Court was of the view that
where even access or physical control of machinery or such like
goods is made over, such a transaction by itself would not be transfer
of the right to use, if effective control is maintained by the owner.
The essence of transfer is passage of control over the economic
benefits of property which results in terminating rights and other
relations in one entity and creating them in another.
Herein, from the above said terms and conditions contained in the
agreements, it can safely be said that effective control of the
helicopter(s) as a result of the agreements was with the lessee(s) and
not with dealer-appellant.”
24. The Tribunal also appears to have been swayed by the period of
the lease and the fact that it had continued to bind and regulate the
obligations of parties for a sufficient length of time. It also took note of
the fact that during the currency of the lease, the helicopter was to
remain stationed at a specified base. It further bore in consideration that
all approvals were to be obtained from the Director General of Civil
Aviation8 by the appellant for the Charterer‟s use of the helicopter.
25. As we peruse the impugned order further, it becomes apparent
that the Tribunal has thereafter proceeded to evaluate a host of
judgments which were cited by respective sides and essentially sought
to ascribe and assign reasons as to why those were either
distinguishable or did not apply to the facts which obtained in the
8
DGCA
ST.APPL. 1/2023 Page 15 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
present matter.
26. Its conclusions ultimately appear in paragraph 37 and which is
extracted hereinbelow:
“37. As a result, it is held that this is a case of transfer of legal right
to use the goods by the appellant to the lessees to the exclusion of
itself and all others, and the transaction have rightly been considered
and declared to be a transactions of sale in view of the provision of
section 2(zc)(vi) of DVAT Act.
In view of the above discussion, the settled law and applying the
same to the facts of the present case, it is held that in the agreements,
the intention of the parties was to transfer right of use of the goods-
helicopter(s)-by the appellant to the other party (lessee) and that De
dealer-appellant actually and legally transferred right to use the
goods to them.
Consequently, as regards the agreements executed, there is no merit
in the appeals regards levy of tax and interest u/s 32 of DVAT Act,
which are held to have been rightly upheld by the learned OHA vide
impugned order.”
27. Insofar as other aspects including those pertaining to service tax
are concerned, since none of those issues were urged before us, we do
not propose to notice the various conclusions which have come to be
rendered by the Tribunal on those aspects. This more so since, in our
considered opinion, those issues are clearly unrelated to the principal
issue of a “transfer of a right to use”.
28. However, and before we proceed to notice the rival submissions
which were addressed, we do at the outset deem it apposite to observe
that the clauses pertaining to confidentiality and security can hardly be
construed or acknowledged to be issues of moment insofar as the
question of a “transfer of a right to use” is concerned. We find
ourselves unable to appreciate how a confidentiality or security clause
could have any bearing on the issue of taxability and whether the
agreement constituted a transfer of a right to use as contemplated under
ST.APPL. 1/2023 Page 16 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
Article 366(29A)(d) of the Constitution.
29. Leading submissions on behalf of the appellant, Mr. Gulati,
learned senior counsel took us back to the legislative history preceding
the introduction of the Forty-Sixth Amendment to the Constitution and
to the celebrated case of the Supreme Court in State of Madras vs.
Gannon Dunkerley & Co. (Madras) Ltd.9, and which had held that
composite contracts were not liable to be viewed or held assessable to
tax since they did not comprise a sale of goods. Gannon Dunkerley had
essentially come to be rendered in the backdrop of Entry 48 in List II of
the Seventh Schedule, as existing under the Government of India Act,
1935 and which had employed the expression „sale of goods‟. In
Gannon Dunkerley, the Supreme Court had essentially held that it
would be the concept of sale as generally understood and which would
necessarily have to be comprised of the three essential components of
an agreement to transfer, supported by consideration and an actual
transfer of title and goods which would govern. The Supreme Court
thus had held that absent one of the aforenoted three essential elements
being found to form part of the contract, the law would not envisage a
sale having occurred. The States thus stood deprived of the right to levy
a tax on a transfer of goods in the course of a works contract, taxation
of hire purchase transactions as well as transfer of controlled
commodities. It was these complexities faced by various Provincial
Governments, Mr. Gulati explained, which led to a reference being
made to the Law Commission of India.
30. It was the recommendations ultimately formulated by the Law
9
1958 SCC OnLine SC 100
ST.APPL. 1/2023 Page 17 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
Commission which led to the insertion of clause (29A) in Article 366 of
the Constitution. According to Mr. Gulati the scope and the meaning to
be ascribed to the phrase “transfer of right to use” is no longer res
integra and stands authoritatively settled by the Supreme Court in
BSNL vs. Union of India10. Mr. Gulati submitted that the decision in
BSNL had identified the five principal attributes which must be found to
imbue a transaction in order for it to be held that there had been a
transfer of a „right to use‟. Mr. Gulati submitted that tested on the
aforesaid principles, it would be apparent that none of the clauses of the
agreement could possibly be construed as embodying a transfer of a
right to use.
31. In order to buttress the aforenoted submission, Mr. Gulati firstly
took us through the decision of the Supreme Court in BSNL and more
particularly to the following passages of that decision:
“41. Sub-clause (a) covers a situation where the consensual element
is lacking. This normally takes place in an involuntary sale. Sub-
clause (b) covers cases relating to works contracts. This was the
particular fact situation which the Court was faced with in Gannon
Dunkerley [State of Madras v. Gannon Dunkerley & Co. (Madras)
Ltd., (1958) 9 STC 353 : AIR 1958 SC 560 : 1959 SCR 379] and
which the Court had held was not a sale. The effect in law of a
transfer of property in goods involved in the execution of the works
contract was by this amendment deemed to be a sale. To that extent
the decision in Gannon Dunkerley [State of Madras v. Gannon
Dunkerley & Co. (Madras) Ltd., (1958) 9 STC 353 : AIR 1958 SC
560 : 1959 SCR 379] was directly overcome. Sub-clause (c) deals
with hire-purchase where the title to the goods is not transferred. Yet
by fiction of law, it is treated as a sale. Similarly the title to the
goods under sub-clause (d) remains with the transferor who only
transfers the right to use the goods to the purchaser. In other words,
contrary to A.V. Meiyappan decision [(1967) 20 STC 115 (Mad)] a
lease of a negative print of a picture would be a sale. Sub-clause (e)
covers cases which in law may not have amounted to sale because10
(2006) 3 SCC 1
ST.APPL. 1/2023 Page 18 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
the member of an incorporated association would have in a sense
begun as both the supplier and the recipient of the supply of goods.
Now such transactions are deemed sales. Sub-clause (f) pertains to
contracts which had been held not to amount to sale in State of
Punjab v. Associated Hotels of India Ltd. [(1972) 1 SCC 472 :
(1972) 29 STC 474] That decision has by this clause been effectively
legislatively invalidated.
42. All the sub-clauses of Article 366(29-A) serve to bring
transactions where one or more of the essential ingredients of a sale
as defined in the Sale of Goods Act, 1930 are absent, within the
ambit of purchase and sales for the purposes of levy of sales tax. To
this extent only is the principle enunciated in Gannon Dunkerley
Ltd. [State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd.,
(1958) 9 STC 353 : AIR 1958 SC 560 : 1959 SCR 379]
(sic modified). The amendment especially allows specific composite
contracts viz. works contracts [sub-clause (b)]; hire-purchase
contracts [sub-clause (c)], catering contracts [sub-clause (e)] by legal
fiction to be divisible contracts where the sale element could be
isolated and be subjected to sales tax.
xxxx xxxx xxxx
44. Of all the different kinds of composite transactions the drafters of
the Forty-sixth Amendment chose three specific situations, a works
contract, a hire-purchase contract and a catering contract to bring
them within the fiction of a deemed sale. Of these three, the first and
third involve a kind of service and sale at the same time. Apart from
these two cases where splitting of the service and supply has been
constitutionally permitted in sub-clauses (b) and (f) of clause (29-A)
of Article 366, there is no other service which has been permitted to
be so split. For example, the sub-clauses of Article 366(29-A) do not
cover hospital services. Therefore, if during the treatment of a
patient in a hospital, he or she is given a pill, can the Sales Tax
Authorities tax the transaction as a sale? Doctors, lawyers and other
professionals render service in the course of which can it be said that
there is a sale of goods when a doctor writes out and hands over a
prescription or a lawyer drafts a document and delivers it to his/her
client? Strictly speaking, with the payment of fees, consideration
does pass from the patient or client to the doctor or lawyer for the
documents in both cases.
xxxx xxxx xxxx
49. We agree. After the Forty-sixth Amendment, the sale element of
those contracts which are covered by the six sub-clauses of clause
(29-A) of Article 366 are separable and may be subjected to sales tax
by the States under Entry 54 of List II and there is no question of the
dominant nature test applying. Therefore when in 2005 C.K.
Jidheesh v. Union of India [(2005) 13 SCC 37 : (2005) 8 Scale 784
ST.APPL. 1/2023 Page 19 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
(2-Judge Bench)] held that the aforesaid observations in Associated
Cement [(2001) 4 SCC 593] were merely obiter and that Rainbow
Colour Lab [(2000) 2 SCC 385 (2-Judge Bench)] was still good law,
it was not correct. It is necessary to note that Associated
Cement [(2001) 4 SCC 593] did not say that in all cases of composite
transactions the Forty-sixth Amendment would apply.”
32. Of equal significance are some of the observations and the
enunciation of the legal position which came to be penned by Dr. A.R.
Lakshmanan, J., in a concurring opinion and which is cited as often, if
not more, as the one penned by the majority. Dr. A. R. Lakshmanan, J.
succinctly explained in paragraph 97 as to when a transaction would
amount to a “transfer of a right to use” in the following words.
“97. To constitute a transaction for the transfer of the right to use the
goods, the transaction must have the following attributes:
(a) there must be goods available for delivery;
(b) there must be a consensus ad idem as to the identity of the
goods;
(c) the transferee should have a legal right to use the goods–
consequently all legal consequences of such use including any
permissions or licences required therefor should be available to
the transferee;
(d) for the period during which the transferee has such legal
right, it has to be the exclusion to the transferor–this is the
necessary concomitant of the plain language of the statute viz.
a “transfer of the right to use” and not merely a licence to use
the goods;
(e) having transferred the right to use the goods during the
period for which it is to be transferred, the owner cannot again
transfer the same rights to others.”
33. The pre-enacting history and the legislative amendments were
thereafter noticed in the concurring opinion and from which the
following passages lucidly explain the legal position:
“103. The Statement of Objects and Reasons for the Forty-sixth
Amendment is, inter alia, as follows:
“2. By a series of subsequent decisions, the Supreme Court
has, on the basis of the decision in Gannon Dunkerley
ST.APPL. 1/2023 Page 20 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
case [State of Madras v. Gannon Dunkerley & Co.
(Madras) Ltd., (1958) 9 STC 353 : AIR 1958 SC 560 : 1959
SCR 379] held various other transactions which resemble,
in substance, transactions by way of sales, to be not liable to
sales tax. As a result of these decisions, a transaction, in
order to be subject to the levy of sales tax under Entry 92-A
of the Union List or Entry 54 of the State List, should have
the following ingredients, namely, parties competent to
contract, mutual assent and transfer of property in goods
from one of the parties to the contract to the other party
thereto for a price.
3. This position has resulted in scope for avoidance of tax in
various ways. An example of this is the practice of inter-
State consignment transfers i.e. transfer of goods from head
office or a principal in one State to a branch or agent in
another State or vice versa or transfer of goods on
consignment account, to avoid the payment of sales tax on
inter-State sales under the Central Sales Tax Act. While in
the case of a works contract, if the contract treats the sale of
materials separately from the cost of the labour, the sale of
materials would be taxable but in the case of an indivisible
works contract, it is not possible to levy sales tax on the
transfer of property in the goods involved in the execution
of such contract as it has been held that there is no sale of
the materials as such and the property in them does not pass
as movables.”
104. Parliament had to intervene as the power to levy tax on goods
involved in works contract should appropriately be vested in the
State Legislatures as was pointed out in Gannon Dunkerley &
Co. [State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd.,
(1958) 9 STC 353 : AIR 1958 SC 560 : 1959 SCR 379] , the
passages quoted hereinabove. There were five transactions in which,
following the principles laid down in Gannon Dunkerley &
Co. [State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd.,
(1958) 9 STC 353 : AIR 1958 SC 560 : 1959 SCR 379] relating to
works contract, this Court ruled that those transactions are not
exigible to sales tax under various State enactments. Parliament,
therefore, in exercise of its constituent power, by the Forty-sixth
Amendment, introduced Article 366(29-A). The Statement of
Objects and Reasons has fully set out the circumstances under which
the Forty-sixth Amendment was necessitated.
105. The amendment introduced fiction by which six instances of
transactions were treated as deemed sale of goods and that the said
definition as to deemed sales will have to be read in every provision
of the Constitution wherever the phrase “tax on sale or purchase of
goods” occurs. This definition changed the law declared in the ruling
ST.APPL. 1/2023 Page 21 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
in Gannon Dunkerley & Co. [State of Madras v. Gannon Dunkerley
& Co. (Madras) Ltd., (1958) 9 STC 353 : AIR 1958 SC 560 : 1959
SCR 379] only with regard to those transactions of deemed sales. In
other respects, law declared by this Court is not neutralised. Each
one of the sub-clauses of Article 366(29-A) introduced by the Forty-
sixth Amendment was a result of ruling of this Court which was
sought to be neutralised or modified. Sub-clause (a) is the outcome
of New India Sugar Mills Ltd. v. CST [(1963) 14 STC 316 : 1963
Supp (2) SCR 459] and Vishnu Agencies (P) Ltd. v. CTO [(1978) 1
SCC 520 : 1978 SCC (Tax) 31 : AIR 1978 SC 449] . Sub-clause (b)
is the result of Gannon Dunkerley & Co. [State of Madras v. Gannon
Dunkerley & Co. (Madras) Ltd., (1958) 9 STC 353 : AIR 1958 SC
560 : 1959 SCR 379] Sub-clause (c) is the result of K.L. Johar and
Co. v. CTO [(1965) 2 SCR 112 : AIR 1965 SC 1082] . Sub-clause
(d) is consequent to A.V. Meiyappan v. CCT [(1967) 20 STC 115
(Mad)] . Sub-clause (e) is the result of CTO v. Young Men’s Indian
Assn. (Regd.) [(1970) 1 SCC 462] . Sub-clause (f) is the result
of Northern India Caterers (India) Ltd. v. Lt. Governor of
Delhi [(1978) 4 SCC 36 : 1978 SCC (Tax) 198] and State of
Punjab v. Associated Hotels of India Ltd. [(1972) 1 SCC 472 :
(1972) 29 STC 474]
106. In the background of the above, the history prevailing at the
time of the Forty-sixth Amendment and pre-enacting history as seen
in the Statement of Objects and Reasons, Article 366(29-A) has to be
interpreted. Each fiction by which those six transactions which are
not otherwise sales are deemed to be sales independently operates
only in that sub-clause.”
34. The issue of a “transfer of a right to use” again arose for
consideration of the Supreme Court in Rashtriya Ispat Nigam, which
was yet another decision cited by Mr. Gulati for our consideration. The
position in law with respect to deemed sales was succinctly explained
by the Supreme Court in paragraph 4 of the report and which is
reproduced hereinbelow:
“4. The High Court after scrutiny and close examination of the
clauses contained in the agreement and looking to the agreement as a
whole, in order to determine the nature of the transaction, concluded
that the transactions between the respondent and contractors did not
involve transfer of right to use the machinery in favour of the
contractors and in the absence of satisfying the essential requirement
of Section 5-E of the Act i.e. transfer of right to use machinery, the
hire charges collected by the respondent from the contractors were
ST.APPL. 1/2023 Page 22 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
not exigible to sales tax. On a careful reading and analysis of the
various clauses contained in the agreement and, in particular, looking
to clauses 1, 5, 7, 13 and 14, it becomes clear that the transaction did
not involve transfer of right to use the machinery in favour of
contractors. The High Court was right in arriving at such a
conclusion. In the impugned order, it is stated, and rightly so in our
opinion, that the effective control of the machinery even while the
machinery was in use of the contractor was that of the respondent
Company; the contractor was not free to make use of the machinery
for the works other than the project work of the respondent or move
it out during the period the machinery was in his use; the condition
that the contractor would be responsible for the custody of the
machinery while it was on the site did not militate against the
respondent’s possession and control of the machinery. It may also be
noticed that even the Appellate Deputy Commissioner, Kakinada in
the order dated 15-11-1999 in regard to Assessment Years 1986-87
and 1987-88 held that under the terms and conditions of the
agreement, there was no transfer of right to use the machinery in
favour of the contractor. Although it cannot be said that the appellant
was estopped from contending otherwise in regard to Assessment
Year 1988-89, it is an additional factor and circumstance, which
supports the stand of the respondent.”
35. The sheet anchor of the challenge which the appellants raised
was based on the decision of this Court in Hari Durga Travels. Hari
Durga Travels was concerned with an agreement between the appellant
and the Delhi Transport Corporation and in terms of which it had
provided two deluxe busses on hire for being plied as per the
requirements of the latter. The taxing authorities appear to have taken
the position that the same would be exigible to tax in light of Section
2(zc)(vi) of the DVAT Act. Negating that contention, our Court in
Hari Durga Travels after noticing the judgment of the Supreme Court
in BSNL held as follows:
“25. A copy of the agreement dated January 19, 2005, initially for a
period of five years (from January 20, 2005 to January 19, 2010)
entered upon by the appellant (assessee) with DTC has been filed on
record. It created an obligation on the assessee to provide on hire to
DTC its “new AC deluxe buses (volvo) (specified buses bearing
registration No. DL1PB 7420 and DL1PB 7421) together with the
ST.APPL. 1/2023 Page 23 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
driver” for being run on “long inter-State routes” of DTC. The
seating capacity and other specifications including the model of the
vehicles (2004), body, colour of the exterior, etc., were spelt out in
the contract in detail. It was stipulated that the drivers, employees
(whole time) of the assessee (owner), must hold HTV licence with
PSB badge having minimum five years‟ experience and terms and
conditions of his engagement must conform to the prevalent laws.
26. While the bus-related responsibilities under the contract are to be
borne by the owner (the assessee), it is the duty of DTC to provide a
conductor. The contract stipulated discipline for the driver including
with regard to the uniform prescribed by DTC, display of identity
card, regularity in attendance, conduct, etc., holding accountable the
owner, also making it liable to provide substitute driver in case of
necessity. The owner is required by the contract to keep the buses
roadworthy, in accordance with the provisions of Motor Vehicles
Act and Rules framed thereunder and, for such purposes, carry out
the requisite maintenance and repairs at its own costs, such that the
vehicle always carries a proper fitness certificate and pollution under
control certificate. The owner ensures that the bus is duly insured,
under comprehensive insurance policy; keeps DTC indemnified
against all claims arising out of accidental damage or loss caused
during the operations to third party or to the vehicles; and, also
remains responsible for payment of fines/penalties for violation of
traffic rules and for the driver to be produced in the court of law or
before police authorities. The money collectible from the users in the
form of passenger fare or luggage charges, besides charges levied for
advertising, use of telephone, etc., is the revenue of DTC which also
bears tax liability in the nature of passenger tax, permit fee, toll tax,
Adda tax, city entry fee, etc.
27. The contract also stipulated that the owner shall be obliged to
keep the bus in neat, clean and presentable condition and for
purposes of upkeep, make the necessary arrangements with service
centres/dealers/repair shops, etc., on the routes where they were
deployed as per schedule decided upon by the DTC. In terms of the
contract, it is the owner who would arrange fuel (on reimbursable
basis), lubricant, tubes, spare parts, etc.
28. The consideration for the registered owner of the vehicle under
the contract is hire charges as per ASRTU contract (subject to
deduction of tax liability at source), payable against fortnightly
billing cycles besides reimbursement of the cost of fuel, for
calculating which detailed provisions are made including
maintenance of a proper log book. Penalties and their rates are
specified for defaults on the part of the registered owner or the driver
and extent of their respective obligation.
29. The owner is obliged by the contractual terms to take prior
ST.APPL. 1/2023 Page 24 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
permission before the vehicles are sent for repairs with obligation to
indicate in advance the period of non-availability of the vehicles on
such account. The owner is not entitled to “withdraw the bus from
operation without prior written consent” of DTC nor can it use these
vehicles “for any other purpose at any time”, nor “transfer or
otherwise alienate (except with prior written permission of DTC)
vehicles” during the period of agreement. It is under a general
obligation to “abide by the orders” of DTC or an officer authorized
by it.”
36. After noticing the relevant provisions of the agreement, the Court
held:
“32. The Revenue’s contention is that effective control was made
over to the DTC. In support, it relies upon the various stipulations in
the agreement such as–exclusive use of the bus on DTC routes;
exclusive right to collect advertisement revenue by the DTC; the
entire revenue being collected by DTC employees, i.e., its conductor;
maintenance or repairs not at the choice of the owner but after
approval of the DTC; restriction upon right to terminate the contract
under pain of penalty. The discussion in Bharat Sanchar Nigam Ltd.
[2006] 3 VST 95 (S.C.); [2006] 145 STC 91 (S.C.); [2006] 282 ITR
273 (S.C.); (2006) 6 RC 276; (2006) 3 SCC 1 both in the majority
judgment (which no doubt stated that actual delivery of the goods is
not necessary for effecting the transfer of the right to use the goods
but the goods should be available at the time of transfer, must be
deliverable and delivered at some stage) and the concurring opinion
which specifically pin-pointed that “the transferee should have a
legal right to use the goods–consequently all legal consequences of
such use including any permission or licenses required therefor
should be available to the transferee”–unmistakably are a pointer as
to what in law constitutes a right to transfer the use of goods. The
decision in State of Andhra Pradesh v. Rashtriya Ispat Nigam Ltd.
[2002] 126 STC 114 (S.C.); (2002) 3 SCC 214 which was in the
context of machinery given on hire to the transferee, for a particular
purpose, affords a close parallel to the facts of the present case. The
court underlined–after noticing that the machinery was given for
producing particular goods and concluded,”… the transaction did not
involve transfer of right to use the machinery in favour of
contractors… the effective control of the machinery even while the
machinery was in use of the contractor was that of the respondent-
company, the contractor was not free to make use of the machinery
for the works other than the project work of the respondent.. .”
33. This court is unconvinced by the Revenue’s submissions that the
facts of the present case are distinguishable from those in
International Travel House [2009] 25 VST 653 (Delhi); (2009) 8 AD
ST.APPL. 1/2023 Page 25 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
(Delhi) 13. That DTC has control over ticket collections or
absolutely collects all the revenues or that bus maintenance and
repair is subject to its prior approval, are ipso facto not decisive
either by themselves or cumulatively in concluding that there was a
transfer of the right to use the vehicles. Both the majority and
concurring opinion in Bharat Sanchar Nigam Ltd. [2006] 3 VST 95
(S.C.); [2006] 145 STC 91 (S.C.); [2006] 282 ITR 273 (S.C.); (2006)
6 RC 276; (2006) 3 SCC 1 emphasize that the goods should be
“ultimately delivered”, for the transaction to constitute a “sale”
within the extended meaning, defined by article 366(29A) of the
Constitution of India. Rashtriya Ispat Nigam Ltd. [2002] 126 STC
114 (S.C.); (2002) 3 SCC 214 spells out that where even access or
physical control of machinery or such like goods are made over,
such a transaction by itself would not be transfer of the right to use if
effective control is maintained by the owner. In the present case, the
owner bears responsibility for any mishappening or accident. It
commits to be the bus owner at all times; the registration and
licenses are in its favour and most importantly, the DTC has limited
use for these buses, i.e., to ply them (of course through driver
provided by the owner) at the scheduled routes in terms of the
contract. In these circumstances, this court is of the opinion that the
Tribunal could not have distinguished the decision of the Division
Bench of this court in International Travel House [2009] 25 VST 653
(Delhi); (2009) 8 AD (Delhi) 13.
34. In our considered opinion, the Tribunal has fallen into error by
declining to apply the ratio of International Travel House Ltd. [2009]
25 VST 653 (Delhi); (2009) 8 AD 13 (Delhi) and by concluding that
the contract in question has resulted in transfer of the effective
control and possession of the two vehicles (goods for purposes at
hand) unto DTC. On the contrary, the various terms of the contract,
summarized above, make it vividly clear that the possession has
always remained with the owner. Undoubtedly, it is the obligation of
the registered owner to make the vehicles available, with their
respective drivers, for being deployed on routes, and as per schedule,
specified by DTC. The owner cannot withdraw the buses unilaterally
nor send them for repairs and nor can alienate their ownership in
favour of a third party, except by incurring penalties. The goods are
specified, the right to deploy them is conferred on the third party, but
the custody of the goods is retained by the owner who remains
responsible for keeping them fit for use in terms of the contractual
obligations. The registration certificate and the permits continue to
be in the control and possession of the owner. It remains responsible
for maintenance, repairs, etc., and also keeps the other party
indemnified against any claim for loss or damage on account of
operations. The rights conferred on DTC by such contract, therefore,
do not result in the goods (vehicles) being “delivered” to DTC at any
ST.APPL. 1/2023 Page 26 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
stage.”
37. Yet another decision which Mr. Gulati commended for our
consideration was that rendered by the Andhra Pradesh High Court in
Transocean Offshore, Intl. Ventures Ltd. vs. UOI11 and which too
was a case dealing with the provision of off shore drilling equipment.
We deem it apposite to take note of the following exposition of the
legal position which stands reflected in paragraphs 42 to 47 and 49 of
that judgment:
“42. From the above, it is clear that the petitioner was obliged to
provide on charter hire basis (i) drilling rig, and (ii) operating
personnel and also take up the responsibility of carrying out the
operations. Therefore, there was never any transfer of the right to
use, either in favour of the contractor (Transocean Drilling Services
(India) Private Limited) or in favour of the operator (ONGC).
43. It must be pointed out at this juncture that the expression “charter
hire” has significance in maritime or admiralty law. A charter is
defined as a specific contract by which the owner of a ship lets the
whole or part of the ship to another person for the conveyance of
goods or passengers on a particular voyage or until the expiration of
a specified time. In simple terms, “charter party” is the mere hiring
of a ship.
44. Under the maritime law, charter parties are standardised and
grouped into 3 main classifications, namely, (i) voyage charters, (ii)
time charters, and (iii) demise or bare boat charters.
45. In a voyage charter, the ship is hired to carry a full cargo on a
single voyage. In a time charter, the ship is hired for a fixed period
of time. In a demise or bare boat charter, the charterer takes over
complete control of the ship for a specific purpose or period of time.
The difference between a voyage charter and time charter on the one
hand and a demise/bare boat charter on the other is that under the
first two categories, the ship remains under the control of the owner,
as to manning and navigation. In the case of demise or bare boat
charter, the control shifts to the charterer.
46. In the case on hand, the parties to the contract have used the
expression “charter hire”, only because of the fact that they were
dealing with offshore drilling rigs. Articles 3.0, 4.0 and 9.2 of the
agreement make it clear that the agreement between the parties does
11
2017 SCC OnLine Hyd 64
ST.APPL. 1/2023 Page 27 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
not fall under the category of a charter similar to a demise or bare
boat charter. The terms of the agreement makes it clear that the
entire control with regard to manning, operating and navigating was
retained by the petitioner herein. Once this is clear, it follows as a
corollary that there was no transfer of the right to use.
47. As pointed out by the Supreme Court in State of Andhra Pradesh
v. Rashtriya Ispat Nigam Ltd. [2002] 126 STC 114 (SC) ; (2002) 3
SCC 314, hire charges are taxable only when full possession and
control is given to the hirer. If the owner retains effective control
over the equipment, it is not transfer of the right to use.
xxxx xxxx xxxx
49. But the above tests are not exhaustive. As we have mentioned
earlier, the equipment and technical personnel provided by the
petitioner to the main contractor are on charter hire, where the
complete control was retained by the petitioner. All responsibilities
were placed only upon the petitioner by the main contractor himself.
Therefore, even the tests adopted by the Delhi High Court in two
successive decisions, one in Commissioner, VAT, Trade and Taxes
Department v. International Travel House Ltd. [2009] 25 VST 653
(Delhi) and Hari Durga Travels v. Commissioner of Trade and Taxes
[2015] 4 VST-OL 668 (Delhi) ; (2015) 51 GST 582, are satisfied in
this case.”
38. It was thus submitted by Mr. Gulati that the terms and conditions
as well as the various stipulations appearing and forming part of the
agreement cannot possibly be interpreted as incorporating or
evidencing a transfer of a right to use goods. This Mr. Gulati submitted
becomes manifest from the following aspects which emerge upon a
consideration of those contractual stipulations:
“(a) Neither the goods are identified nor there is any delivery of
goods to a third party in the present case. Instead it is the Appellant
who uses the goods to provide services to its customers.
(b) There is no consensus ad idem on the identity of the goods.
(c) There is no consensus ad idem for any particular helicopter that
may be identified, and the Appellant is free to provide any
helicopter, as per the agreed terms which meets the specification
provided in the Agreement.
(d) It is not a disputed fact that all the licenses and regulatory
compliances are in the name of the Appellant and such right is never
transferred to the customer.
ST.APPL. 1/2023 Page 28 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
(e) There is no transfer of any right to use any goods at all as the
Appellant has merely agreed to provide services for a limited
number of hours by the use of the helicopters. The helicopter
remains in the possession and control of the Appellant who operates
it for providing services to its client. Therefore, there is no exclusion
of the transferor‟s rights as the Appellant uses it for the flights
operated for the client and can use the helicopter for any other
purpose beyond the hours for which the Helicopter is used for
providing services to its client.
(f) The customer during the term of the agreement cannot direct the
use of the helicopter at its free will, without the consent of the
Appellant. The customer is obligated to take prior permissions from
the Appellant and also act as per the directions given by the
Appellant. It is only the Appellant who uses the Helicopter and the
clients only instructs the Appellant on the flights it wants to
undertake.
(g) The Appellant is under an obligation to provide the helicopters as
per the hire schedule and program of the day provided by the
customer. The customer is only concerned about the availability of
helicopter. The Appellant is free to provide services of the helicopter
to other customers when not in use by the A&N administration.
(h) The clauses of the Agreement in the present case clearly provide
that the charterer/customer only pays monthly fixed charges and
flying charges for availing services of hiring of helicopters. All other
charges for maintenance, repair, compliances etc., including the fuel
are borne by the Appellant. It has also been mentioned that in case,
for whatever reason, the customer has to pay for fuel, the same will
be reimbursed by the Appellant or reduced from the fixed charges.
Therefore, the scope of the agreement is limited to provision of
hiring services for consideration, only granting permissive use than
delivery of helicopter.”
39. Controverting the aforenoted submissions Mr. Rajeev Aggarwal,
learned counsel advanced the following arguments. Taking us through
the salient provisions of the agreement, Mr. Aggarwal submitted that
the same would clearly evidence the hiring of a particular helicopter for
the exclusive use of the lessee for a period of five years. Mr. Aggarwal
contended that the requirement of the helicopter being permanently
positioned at Port Blair was yet another indication of the provisions
relating to a “transfer of a right to use” under the CST Act as well as
ST.APPL. 1/2023 Page 29 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
the DVAT Act being fulfilled. It was his submission that the agreement
clearly specified that the helicopters would be placed in position
exclusively for the use of the Charterer during the lease term and thus
there being a complete transfer of the equipment and right of exclusive
use in the hands of the lessee.
40. It was further submitted by Mr. Aggarwal that Clause 8.1 is yet
another contractual stipulation which would have a bearing on the
question of a “transfer of right to use” since it clearly placed the
appellant under the obligation to ensure that the helicopter and its crew
is available and fully operational for the Charterer‟s use during an
operational day. Clause 8.1 is extracted hereinbelow:
“8. OPERATIONAL DAY
8.1 The helicopter and its crew shall be available and fully
operational for use by the Lessee during an operational day. The
Lessee’s Representative may vary from time to time the commencing
and ending times of the operational day of the helicopter by giving
Lessor written notice of atleast 24 hours before the Operational Day
commence.”
41. Similar is the position, according to Mr. Aggarwal, which would
emerge from a reading of Clauses 5.3.1 to 5.3.6 and which read as
under:
“5.3.1 The Lessor shall be allowed to ground the helicopter for
maintenance@ 4 days per month during the term of this Agreement.
The said ground time for the entire period of the Agreement shall be
credited to the Lessor’s account at the commencement of this
agreement and the Lessor shall be free to utilize such credited days
at any time of the year. However, the helicopter shall not be
physically grounded by the Lessor for more than 7 days at a stretch
at one time & such long groundings shall not exceed two times
during the term. Further, if the helicopter is grounded for
maintenance for days more than the limits specified under this
clause, the Lessee shall have discretion to deduct Fixed Monthly
Charges on prorata basis for the entire number of days of grounding
excluding allowable days of grounding under this clause.
ST.APPL. 1/2023 Page 30 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
5.3.2 The Lessor will carry out all its maintenance, repair, overhaul
or service activities during such times other than the timings of an
operational day so that the flying activities during the days other than
ground time as specified in Article 5.3.1 is not hampered or
jeopardized.
The Lessor shall give notice to the Lessee of any scheduled
maintenance to be carried out on the helicopter atleast 7 days or 10
flying hours in advance.
The helicopter shall be considered operational if it is available within
two hours of the scheduled time of the programme for a sortie.
Programme for the day for subsequent sorties for the helicopter shall
be adjusted accordingly consequent to a delayed sortie.
5.3.3 If the helicopter is not available cumulatively for more than
two hours and upto six hours except waiting for weather clearance in
an operational day, it shall be deemed to be grounded for half a day
and if it is not available for more than six hours in an operational
day, it shall be deemed to be grounded for the full day.
5.3.4 Notwithstanding anything stated herein at least one hour would
be allowed between two sorties from the main base for maintenance
and atleast three hours would be allowed on return after an overnight
halt away from the main base. However for computation of total
delay during a day as per Clause 5.3.3 the time mentioned herein and
any delay due to weather constraints shall be excluded.
5.3.5 If a helicopter is grounded for more than 7 consecutive
operational days in any calender month, the Lessor shall on demand
from Lessee endeavour to replace, subject to availability at its
expense the helicopter with an identical helicopter acceptable to
Lessee.
5.3.6 The Lessor shall notify to the Charterer immediately when a
helicopter is grounded or when it is again fully operational and shall
keep complete and accurate records of all groundings which the
Lessee at its discretion may inspect at any reasonable time.”
42. The submission in essence was that effective control over the
helicopter stood transferred to the Charterer and thus both Section
2(g)(vi) of the CST Act as well as Section 2(zc)(vi) of the DVAT Act
having rightly been found to be applicable in the facts of the present
case. In order to buttress his submissions, Mr. Aggarwal also placed
reliance upon the decisions in Great Eastern Shipping Co. Ltd. vs.
ST.APPL. 1/2023 Page 31 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
State of Karnataka12, Aggarwal Bros. vs. State of Haryana13 and
CST vs. Quick Heal Technologies Ltd.14 However, we propose to
deal with the applicability and significance of those judgments in the
latter parts of this decision.
43. Before proceeding to evaluate the correctness of the rival
submissions which were addressed, it would be appropriate to indicate
the position which appears to emerge upon an evaluation of the various
clauses of the agreement which were cited for our consideration. It
must be noted at the outset that the mere stationing of the helicopter at a
particular base, and in this case at Port Blair, would perhaps neither be
decisive nor conclusive of the question which stands posited. We are
not concerned with where the equipment may be based or stationed and
which, in any case, would distract one from focusing on the primary
question of a transfer of a right to use. While the appellant was
undoubtedly required to fulfil the obligations attached to the charter, the
principal question which arises for our consideration is whether the
agreement entailed and embodied a transfer of a right to use.
44. The placement of the equipment for the exclusive use of the A &
N Administration or the dedicated hours which were required to be
adhered to would also not be determinative. The primordial question
which would remain would be whether the possession and control of
the helicopter stood transferred and placed in the hands of the Charterer
to be used as thought fit. In order to satisfy the requirements of clause
(d) of Article 366 (29A), one would have to be convinced that there
12
(2020) 3 SCC 354
13
(1999) 9 SCC 182
14
(2023) 5 SCC 469
ST.APPL. 1/2023 Page 32 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
was an actual transfer of the helicopter to the Charterer and effective
control over that equipment being ceded to the A & N Administration.
From the discussion which ensues, we are unconvinced that the
agreement did result in such a transfer or conferral of complete control.
45. On a consideration of the contractual stipulations, it becomes
apparent that while the appellant was obliged to place a helicopter or an
equivalent model at the service of the A & N Administration, the right
to operate and maintain remained with the appellant. The helicopter
was to be maintained, flown and operated by the appellant. The
appellant was required to ensure that the requirements of the A & N
Administration were duly met. However, at no point of time was the
helicopter placed in the hands of the latter to be operated as it thought
fit. The pilot and crew who actually worked the helicopter were to be
provided by the appellant. It was the appellant who was required to
maintain the aircraft and keep it serviced and ready for operations at all
times. The license and permissions mandated to be held continued to be
in the name of the appellant and were never transferred or made over to
the A & N Administration. The latter was not entitled to substitute crew
or maintenance staff and who were to be those provided by the
appellant. All costs towards maintenance and upkeep of the aircraft, as
well as the salaries of the pilots and supportive crew, were to be met by
the appellant.
46. Tested cumulatively it becomes evident that there was no transfer
of dominion or control of the helicopter to the A & N Administration.
This was essentially an agreement in terms of which the A & N
Administration acquired an exclusive medium of transportation as
ST.APPL. 1/2023 Page 33 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
opposed to an absolute right over an aircraft, helicopter or means of
conveyance which could be said to be under its dedicated and
undivided control.
47. The Tribunal, we find, had formulated the following test for the
purpose of defining “transfer of right to use”:
“The essence of transfer is passage of control over the economic
benefits of property which results in terminating rights and other
relations in one entity and creating them in another.”
48. The Tribunal has thus understood the concept of “transfer of
right to use” as involving a passage of control over economic benefits
of property coupled with a termination of rights inhering in one of the
parties and a corresponding creation in the hands of another. While we
do not propose to render any comment on the aforenoted formulation,
we for the time being proceed on the basis that the aforesaid quotation
represents the correct test to be applied for the purposes of discerning a
transfer of a right to use.
49. As per the Tribunal itself, there has to be a transfer of control
over property and the said transfer must result in the rights in the
property moving from one entity and being conferred on another.
However, and as the Supreme Court succinctly explained in BSNL, the
transfer of a right to use would be satisfied provided it entails the
conferment of a legal right to use the goods and the same being to the
exclusion of the transferor‟s right to use.
50. We recently, in Indian Compressors Ltd. vs. Union of India &
Ors.15, had an occasion to review the precedents rendered in the context
of Article 366(29A)(d) and the transfer of a right to use which by way
15
W.P.(C) 2960/2017 dated 04 November 2024
ST.APPL. 1/2023 Page 34 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
of a constitutional fiction came to be included within the concept of a
sale of goods. We deem it apposite to extract the following passages
from that decision:
“17. The „right to use‟ and which is spoken of an Article 366(29-
A) has been lucidly explained by the Supreme Court in BSNL vs.
Union of India, and where Dr. A.R. Lakshmanan J. in a concurring
opinion identified the ingredients of a „right to use‟ as being the
following:
“97. To constitute a transaction for the transfer of the right
to use the goods, the transaction must have the following
attributes:
(a) there must be goods available for delivery;
(b) there must be a consensus ad idem as to the identity of
the goods;
(c) the transferee should have a legal right to use the
goods–consequently all legal consequences of such use
including any permissions or licences required therefor
should be available to the transferee;
(d) for the period during which the transferee has such legal
right, it has to be the exclusion to the transferor–this is the
necessary concomitant of the plain language of the statute
viz. a “transfer of the right to use” and not merely a licence
to use the goods;
(e) having transferred the right to use the goods during the
period for which it is to be transferred, the owner cannot
again transfer the same rights to others.”
xxxx xxxx xxxx
22. The interplay between Article 366(29-A) and the provisions
of the Act was succinctly explained by the Supreme Court in a recent
decision rendered in Commissioner of Service Tax vs. Adani Gas
Ltd. Adani Gas was a decision which was directly concerned with
Section 65(105)(zzzzj). While ruling upon the scope and ambit of
that provision as contained in the Act, the Supreme Court rendered
the following pertinent observations:
“16. The test laid down in Bharat Sanchar Nigam Ltd.* has
been applied by courts to determine whether a transaction
involves the “transfer of the right to use any goods” under
article 366(29A)(d). In doing so, the courts have analysed
the terms of the agreement underlying the transaction to
ascertain whether effective control and possession has been
transferred by the supplier to the recipient of the goods.
ST.APPL. 1/2023 Page 35 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
Recently, this court in Great Eastern Shipping Co. Ltd. v.
State of Karnataka considered whether the transfer of a
vessel under a charter party agreement was a “deemed sale”,
subject to sales tax. The court, after analysing the terms of
the charter party agreement, held:
“43. We are not turning our decision upon the terms
used like ‘let’, ‘hire’, ‘delivery’ and ‘redelivery’ but on
the other essential terms of the Charter Party
Agreement entered in the instant case which clearly
makes out that there is a transfer of exclusive right to
use the vessel which is a deemed sale and is liable to
tax under the KST Act. In the instant case, full control
of the vessel had been given to the charterer to use
exclusively for six months, and delivery had also been
made. The use by charterer exclusively for six months
makes it out that it is definitely a contract of transfer
of right to use the vessel with which we are concerned
in the instant matter, and that is a deemed sale as
specified in article 366(29A)(d). On the basis of the
abovementioned decision, it was urged that all Charter
Party Agreements are service agreements. The
submission cannot be accepted, as there is no
general/invariable rule/law in this regard. It depends
upon the terms and conditions of the charter-party
when it is to be treated as only for service and when it
is the transfer of right to use.
…
54. When we consider the charter-party in question in
the context of applicable law, particularly in view of
the constitutional provisions of article 366(29A)(d),
we find that there is transfer of right to use tangible
goods, which is determinative of deemed sale as per
the Constitution of India and provisions of section 5C
reflecting the said intendment. We are of the
considered opinion that there is transfer of right to use
exclusively given to charterer for six months, and the
vessel has been kept under the exclusive control. The
charterer qualifies the test laid down by this court in
Bharat Sanchar Nigam Ltd.” (emphasis supplied)
17. Therefore, sales tax is levied in pursuance of article
366(29A)(d) on transactions which resemble a sale in
substance as they result in a transfer of the right to use in
goods, instead of the transfer of title in goods. The Finance
Act, 1994, deriving authority from the residuary entry 97 of
the Union List, enabled the Central Government to levy tax
ST.APPL. 1/2023 Page 36 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
on services. “Service tax” was introduced as a response to
the advancement of the contemporary world where an
indirect tax was necessary to capture consumption of
services, which are economically similar to consumption of
goods, in as much as they both satisfy human needs.** This
court, in Association of Leasing and Financial Services
Companies v. Union of India had noted :
“38.. .. Today with technological advancement there is
a very thin line which divides a ‘sale’ from ‘service’.
That, applying the principle of equivalence, there is
no difference between production or manufacture of
saleable goods and production of marketable/saleable
services in the form of an activity undertaken by the
service provider for consideration, which
correspondingly stands consumed by the service
receiver. It is this principle of equivalence which is
inbuilt into the concept of service tax under the
Finance Act, 1994. That service tax is, therefore, a tax
on an activity. That, service tax is a value added tax.
The value addition is on account of the activity which
provides value addition.. . Thus, service tax is
imposed every time service is rendered to the
customer/client,. .. Thus, the taxable event is each
exercise/activity undertaken by the service provider
and each time service tax gets attracted.” (emphasis
supplied)
18. The introduction of section 65(105)(zzzzj) in the
Finance Act, 1994, was with the intention of taxing such
activities that enable the customer’s use of the service
provider’s goods without transfer of the right of possession
and effective control. This provision creates an element of
taxation over a service, as opposed to a “deemed sale” under
article 366(29A)(d). For the purpose of clarification, the
Department of Revenue issued a Circular, D.O. F. No.
334/1/2008-TRU, dated February 29, 2008. The said
circular clarified the applicability of section 65(105)(zzzzj)
vis-a-vis article 366(29A)(d). The relevant portions of the
circular are as follows :
“4.4 Supply of tangible goods for use :
4.4.1 Transfer of the right to use any goods is leviable
to sales tax/ VAT as deemed sale of goods (article
366(29A)(d) of the Constitution of India). Transfer of
right to use involves transfer of both possession and
control of the goods to the user of the goods.
ST.APPL. 1/2023 Page 37 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
4.4.2 Excavators, wheel loaders, dump trucks, crawler
carriers, compaction equipment, cranes, etc., offshore
construction vessels and barges, geo-technical vessels,
tug and barge flotillas, rigs and high value
machineries are supplied for use, with no legal right
of possession and effective control. Transaction of
allowing another person to use the goods, without
giving legal right of possession and effective control,
not being treated as sale of goods, is treated as
service.
4.4.3 Proposal is to levy service tax on such services
provided in relation to supply of tangible goods,
including machinery, equipment and appliances, for
use, with no legal right of possession or effective
control. Supply of tangible goods for use and leviable
to VAT/sales tax as deemed sale of goods, is not
covered under the scope of the proposed service.
Whether a transaction involves transfer of possession
and control is a question of facts and is to be decided
based on the terms of the contract and other material
facts. This could be ascertainable from the fact
whether or not VAT is payable or paid.” (emphasis
supplied)
19. The above circular clarified that section 65(105)(zzzzj)
is applicable only to those transactions where there is a
supply of tangible goods for use, without the transfer of
possession or effective control to the recipient. This aspect
has been interpreted by various courts and tribunals. In the
Bombay High Court decision in Indian National
Shipowners’ Association v. Union of India (“Shipowners”),
the petitioners were engaged in providing services to major
exploration and production operators by supplying their
various vessels including offshore drilling rigs, offshore
support vessels, harbour tugs, and construction barges. The
question before the Bombay High Court was whether, prior
to the introduction of section 65(105)(zzzzj) in 2008, the
petitioner could be taxed on its services in relation to
mining of mineral, oil, or gas under section 65(105)(zzzy).
In the present matter, we are not concerned with the merits
of Shipowners’*, which was affirmed on appeal by this
court in Union of India v. Indian National Shipowners’
Association**. This court explicitly restricted itself to the
interpretation of section 65(105)(zzz) while leaving the
other observations on interpretation of the law, “open to be
considered at length at an appropriate stage”. We noteST.APPL. 1/2023 Page 38 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
however, the analysis of section 65(105)(zzzzj) of the
Bombay High Court, where the High Court observed# :
“38. Entry (zzzzj) is entirely a new entry. Whereas
entry (zzzy) covers services provided to any person in
relation to mining of mineral, oil or gas, services
covered by entry (zzzzj) can be identified by the
presence of two characteristics, namely, (a) supply of
tangible goods including machinery, equipment and
appliances for use, (b) there is no transfer of right of
possession and effective control of such machinery,
equipment and appliances. According to the members
of the first petitioner, they supply offshore support
vessels to carry out jobs like anchor handling, towing
of vessels, supply to rig or platform, diving support,
fire fighting, etc. Their marine construction barges
support offshore construction, provide
accommodation, crane support and stoppage area on
main deck or equipment. Their harbour tugs are
deployed for piloting big vessels in and out of the
harbour and for husbanding main fleet. They give
vessels on time-charter basis to oil and gas producers
to carry out offshore exploration and production
activities. The right of possession and effective
control of such machinery, equipment and appliances
is not parted with.. . .” (emphasis supplied)
20. The taxable service is defined as a service which is
provided or which is to be provided by any person to
another “in relation to supply of tangible goods”. The
provision indicates that the goods may include machinery,
equipment or appliances. The crucial ingredient of the
definition is that the supply of tangible goods is for the use
of another, without transferring the right of possession and
effective control “of such machinery, equipment and
appliances”. Hence, in order to attract the definition of a
taxable service under sub-clause (zzzzj), the ingredients that
have to be fulfilled are:
(i) The provision of a service ;
(ii) The service is provided by a person to another person ;
(iii) The service is provided in relation to the supply of
tangible goods, including machinery, equipment and
appliances ;
(iv) There is no transfer of the right of possession ;
(v) Effective control over the goods continues to be with the
service provider ; andST.APPL. 1/2023 Page 39 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
(vi) The goods are supplied for use by the recipient of the
service.
There is an element of service which is the foundation for
the levy of the tax.
xxxx xxxx xxxx
24. The crux of the dispute is whether the supply of tangible
goods–the SKID equipment–is for the use of the
purchaser. In determining as to whether the provisions of
section 65(105)(zzzzj) are attracted, it is necessary to
distinguish between the rights and obligations of the
respondent (as the seller of gas) and of their purchasers,
from the issue of whether the measurement equipment
(SKID equipment) is supplied for the use of the purchaser
of gas, without transferring the right of possession and
effective control.
xxxx xxxx xxxx
26. Under section 65(105)(zzzzj), the taxable service is
provided or to be provided in relation to the supply of
tangible goods for the use of another, without transferring
the right of possession and effective control. The expression
“use” has been defined in Black’s Law Dictionary :
“Use, n. Act of employing everything, or state of being
employed ; application, as the use of a pen, or his machines
are in use. Also the fact of being used or employed
habitually ; usage, as, the wear and tear resulting from
ordinary use. Berry-Kofron Dental Laboratory Co. v. Smith,
345 Mo. 922, 137 S.W. 2d 452, 454, 455, 456. The purpose
served ; a purpose, object or end for useful or advantageous
nature. Brown v. Kennedy, Ohio Appellant. 49 N.E.2d 417,
418. To put or bring into action or service ; to employ for or
apply to a given purpose. Beggs v. Texas Dept. of Mental
Health and Mental Retardation, Tex. Civ. App., 496 S.W.2d
252, 254. To avail oneself of ; to employ ; to utilize ; to
carry out a purpose or action by means of ; to put into action
or service, especially to attain an end. State v. Howard, 221
Kan. 51, 557 P.2d 1280, 1281.
Non-technical sense. The ‘use’ of a thing means that one is
to enjoy, hold, occupy or have some manner of benefit
thereof. Use also means usefulness, utility, advantage,
productive of benefit.”
27. The expression “use” does not have a fixed meaning.
The content of the expression must be based on the context
in which the expression is adopted. The use of an article
may or may not result in a visible change in its form or
ST.APPL. 1/2023 Page 40 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
substance. Moreover, the nature of use is conditioned by the
kind of article which is put to use. Section 65(105) of the
Finance Act, 1994 envisages myriad interpretations of the
expression “use”, in a variety of services such as
telecommunication, renting of immovable property, and
services related to art, entertainment, and marriage. In the
case of some articles, use may be signified by a physical
operation of the article by the person who uses it. In such a
case, actual physical use is what is meant by the supply of
the goods for the use of another. In the case of others, the
nature of the goods supplied impacts the character of the use
to which the goods can be put. As an illustration, section
65(105)(zzzze) of the Finance Act, 1994, seeks to tax
services related to information technology and interprets the
“right to use” to include the “right to reproduce, distribute,
sell, etc”. This understanding of “use” differs from the
supply of tangible goods under section 65(105)(zzzzj) at
hand, where effective control or possession is not ceded.
Thus, physical operation is not the only or invariable feature
of use. As a corollary to the same, technical expertise over
the goods in question is not a sine qua non for determining
the ability of the consumer to use the good. Therefore, the
expression “use” also signifies the application of the goods
for the purpose for which they have been supplied under the
terms of a contract.
28. The terms of the GSA indicate that the supply,
installation, maintenance and repair of the measurement
equipment is exclusively entrusted to the respondent as the
seller. These provisions have been incorporated in the GSA
to ensure that a buyer does not calibrate or tinker with the
equipment. It is an incident of ownership and control being
vested with the respondent. The purpose of the SKID
equipment and its utility, lie in its ability to regulate the
supply and achieve an accurate verification of that which is
supplied ; in the present case the supply of goods by the
respondent to its buyers. This enures to the benefit of the
seller and the buyer. The seller is concerned with the precise
quantification of the gas which is supplied to the buyer. The
buyer has an interest in ensuring the safety of its facilities
and that the billing is based on the correct quantity of gas
supplied and delivered under the GSA. To postulate, as did
the Tribunal, that the measurement equipment is only for
the benefit of the seller in measuring the quantity of the gas
supplied would not be correct. The GSA is an agreement
reflecting mutual rights and obligations between the seller
and the purchaser. Both have a vital interest in ensuring the
ST.APPL. 1/2023 Page 41 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
correct recording of the quantity of gas supplied.
Additionally, delivery of gas in a safe and regulated
manner, enabled by the SKID equipment, is an essential
component of the GSA. The SKID equipment subserves the
contractual rights of both the seller and the purchaser of gas.
Indeed, without the SKID equipment there would be no gas
supply agreement. In fact, in the GSA, the buyer has also
provided a warranty to ensure that the “buyer’s facilities”
remain technically and operationally compatible with the
“seller’s facilities”, both of which include the “measurement
equipment”. This warranty would not have been provided if
the measurement equipment was not of “use” to the buyer.
The equipment is thus a vital ingredient of the agreement
towards protecting the mutual rights of the parties and in
ensuring the fulfilment of their reciprocal obligations as
seller and buyer in regulating the supply of gas. As an
incident of regulating supply, it determines the correct
quantity of gas that is supplied. The obligation to supply,
install and maintain the equipment is cast upon the seller as
an incident of control and possession being with the seller.
Section 65(105)(zzzzj) applies precisely in a situation where
the use of the goods by a person is not accompanied by
control and possession. “Use” in the context of SKID
equipment postulates the utilization of the equipment for the
purpose of fulfilling the purpose of the contract. Section
65(105)(zzzzj) does not require exclusivity of use. The
SKID equipment is an intrinsic element of the service which
is provided by the respondent, acting pursuant to the GSA,
as a supplier of natural gas to its buyers.
xxxx xxxx xxxx
30. Thus, we are of the view that the supply of the pipelines
and the measurement equipment (SKID equipment) by the
respondent, was of use to the customers and is taxable under
section 65(105)(zzzzj) of the Finance Act 1994.
xxxx xxxx xxxx
38. Thus construed, we are of the view that the adjudicating
authority was correct in concluding that the buyer of gas is
as interested as the seller in ensuring and verifying the
correct quantity of the gas supplied through the
instrumentality of the measurement equipment and the
pipelines. Additionally, the role of regulating pressure and
ensuring the safety of supply of gas performed by the
measurement equipment is an essential aspect for the “use”
of the consumer. The SKID equipment fulfils the
description in section 65(105)(zzzzj) of a taxable service :
ST.APPL. 1/2023 Page 42 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
service in relation “tangible goods” where the recipient of
the service has use (without possession or effective control)
of the goods.”
23. It is thus apparent that it is only „deemed sales‟ as
contemplated under Article 366(29-A) of the Constitution, which
stands exorcised from Section 65(105)(zzzzj). Tested on the factors
which had been identified by the Supreme Court in BSNL, and
relevant for the purposes of evaluating whether a „right to use‟ had
been transferred, it becomes apparent that no dominion or control
over the equipment stood transferred by the writ petitioner. The
equipment remained under the regulation and control of the
petitioner and was also to be worked upon by personnel deployed by
it. It is these factors which appear to have weighed upon the
respondent while holding that the transactions would be exigible to
tax under Section 65(105)(zzzzj).”
51. While doing so, we had an occasion to notice a decision of recent
vintage rendered by the Supreme Court in Commissioner of Service
Tax vs. Adani Gas Ltd.16 As the Supreme Court succinctly explained
in Adani Gas, the key elements which are liable to be found to exist in
order to qualify what is spoken of in Article 366(29A)(d), are a transfer
of a right of possession as well as effective control being conferred
upon the transferee. It is these precepts on the basis of which the
contractual stipulations may now be examined.
52. The agreement in unequivocal terms defined the equipment to be
the Dauphin SA 365N or equivalent helicopter. While it was admittedly
stationed at Port Blair, no part of the agreement can possibly be
construed as placement of that equipment exclusively in the hands of
the A & N Administration. The identification of the equipment was in
furtherance of the charter facility which was proposed to be extended
by the appellant to that Administration.
53. While defining the scope of service, all that the agreement
16
2020 SCC OnLine SC 682
ST.APPL. 1/2023 Page 43 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
provided was that the helicopter would be exclusively available to the
Charterer. Similarly, the Charterer was conferred the right to requisition
such flights as may be required from time to time. However, the flight
as well as the equipment was to be exclusively managed and regulated
by the appellant and the flights were to be operated by personnel who
were in their employment. There was no contractual relationship that
existed between those operators and staff on the one hand and the A &
N Administration on the other. Additionally, the obligation to keep the
equipment insured was also one which stood placed upon the appellant.
There was also no transfer of permits and licenses which were
necessarily required in order to undertake the operations contemplated
under the agreement. Those permits and licenses undisputedly remained
in the hands of the appellant.
54. Of equal significance is the indemnity clause and which clearly
militates against the A & N Administration being recognised as having
acquired dominion over the goods or the goods being transferred to the
exclusion of the appellants. It is these factors which convince us to hold
that the facts that informed the contract between the appellant and the A
& N Administration were akin to those which had fallen for
examination in Hari Durga Travels.
55. The reliance which Mr. Aggarwal has placed on the decisions in
Great Eastern, Aggarwal Bros. and Quick Heal is clearly misplaced
when we bear in mind the following facts. Regard must be had to the
fact that in Great Eastern, the Supreme Court had on facts held:
“32. The charter agreement also provides round the clock services
throughout the contract period in Clause 3 at the disposal of the port.
The contractor has to pay the expenses for the master and crew. As
ST.APPL. 1/2023 Page 44 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
per Clause 5, the charterer has to provide whilst the vessel is on hire,
fuel, lubricants, water, electricity, port charges, and anti-pollutants.
As per Clause 7(a), the vessel shall be for all purposes at the
disposal of the charterer and under the control of the contractor, and
as provided in Clause 7(b) of the charter agreement, the charterer
shall have the use of all outfits, equipment, and appliances. No doubt
about it that insurance is the liability of the contractor. The
indemnification also is the liability of the contractor under the
agreement. The whole reach and burthen of a vessel, including
lawful deck capacity, is at the disposal of the charterer, reserving
proper and sufficient space for the vessel’s masters, officers, etc. A
performance guarantee has also to be submitted.
33. When we peruse the various terms and conditions of the charter
party agreement (Annexure I), Clause 1 provides that the contractors
“let” and the charterer “hire” the goods vessel for six months. The
expression “let” has been used, and the vessel most significantly
during the charter period has been placed at the “disposal” of the
charterers and under their control in every respect. The charterers
have been given the right to use all outfits, equipment, and
appliances on board the vessel at the time of the delivery, including
the whole reach, burthen, and deck capacity. Thus, in our considered
opinion, merely by providing the staff, insurance, indemnity, and
other responsibilities of bearing officials costs. Effective control for
the entire period of six months has been given to the charterers. It is
a case of transfer of right to use the vessel for which certain
expenses and staff are to be provided by the contractor, which is not
sufficient to make out that the control and possession of the vehicle
are with the contractor. The possession and control are clearly with
the charterer. As in essence, it has to be seen from a conjoint reading
of various conditions whether there is a transfer of right to use the
vessel. In our considered opinion there is not even an iota of doubt
that under the charter agreement coupled with the instructions to
tenderers, general conditions and special conditions for the contract
as specified in the tender documents and charter party clauses, there
is a transfer of right to use the vessel for the purposes specified in
the agreement.”
56. The Supreme Court then proceeded to enunciate the contours of a
transfer of right to use in the following terms:
“34. To constitute a transaction for the transfer of right to use of
goods, essential is, goods must be available for delivery. In the
instant case, the vessel was available for delivery and in fact, had
been delivered. There is no dispute as to the vessel and the charterer
has a legal right to use the goods, and the permission/licence has
been made available to the charterer to the exclusion of the
ST.APPL. 1/2023 Page 45 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
contractor. Thus, there is complete transfer of the right to use. It
cannot be said that the agreement and the conditions subject to
which it has been made, is not a transfer of right to use the goods,
during the period of six months, the contractor has no right to give
the vessel for use to anyone else. Thus in view of the provisions
inserted in Article 366(29-A)(d), Section 5-C, and definition of
“sale” in Section 2 of the KST Act, there is no room for doubt that
there is a transfer of right to use the vessel.
xxxx xxxx xxxx
37. The charter party agreement qualifies the test laid down by this
Court. Applying the substance of the contract and the nominal nature
test, the vessel was available when the agreement for the right to use
the goods has taken place. The vessel was available at the time of
transfer, deliverable, and delivered and was at the exclusive disposal
for six months round the clock with the charterer port trust. The use
of licence and permission was at the disposal of the charterer and to
the exclusion of the contractor/transferor. It was not open to the
contractor to permit the use of the vessel by any other person for any
other purpose.”
57. As was found by the Supreme Court in Great Eastern, effective
control over the vessel had been duly transferred in terms of the charter
party agreement and it was the charterer which had exclusive control
and use of the vessel. In Great Eastern, it was the charterer which was
operating the vessel. That is a facet of that charter agreement which is
significantly distinct and distinguishable from the agreement with
which we are concerned. The Supreme Court had also significantly
found that in terms of the charter party agreement, the use of all
licences and permissions had also been made over and placed at the
disposal of the charterer to the exclusion of the contractor.
58. Proceeding then to examine the decision in Aggarwal Bros., we
find that the assessee therein was dealing in shuttering material used in
the course of construction of buildings. It was receiving hire charges in
respect of the shuttering material. The Supreme Court on facts had
found that the customers who had hired the shuttering material had
ST.APPL. 1/2023 Page 46 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
complete and effective control over the same during the construction
process. It was in the aforesaid backdrop that it held as follows:
“2. The assessees (appellants) hire shuttering to builders and
contractors who use it in the course of construction of buildings. The
assessees were served with notices under the Haryana General Sales
Tax Act, 1973 (“the said Act”) requiring them to pay sales tax on
such hire charges and assessment orders were then so made. The
assessment order in the case of M/s DD Shuttering recorded that the
assessee dealt in shuttering materials used in the construction of
buildings and received hire charges from its various customers. The
hire charges received by it were sales within the meaning of Section
2(l)(iv) of the said Act. The writ petitions were filed to quash these
assessment orders and it was contended that the aforementioned
provision of the said Act was unconstitutional. The High Court
repelled the challenge to constitutionality. It found that the
possession of the shuttering material was transferred by the assessees
to their customers for use during the construction of buildings. The
customers were in effective control of the shuttering during the
periods it remained in their possession. The transactions, therefore,
fell within the amended definition of the word “sale” as there was a
transfer of the right to use the shuttering.
xxxx xxxx xxxx
4. The language used in Section 2(j)(iv) and 2(l)(iv) of the said Act is
the language used in Article 366(29-A)(d), Section 2(j) dealing with
purchase and Section 2(l) with sale. The argument before us is,
therefore, not an argument on the constitutionality of these
provisions of the said Act but of their interpretation and the
application thereof to the facts of the present case.
xxxx xxxx xxxx
6. Where there is a transfer of a right to use goods for consideration,
the requirement of the above-mentioned provision of the said Act is
satisfied and there is deemed to be a sale. In the instant case, the
assessees owned shuttering. They transferred the shuttering for
consideration to builders and building contractors for use in the
construction of buildings. There can, therefore, be no doubt that the
requirements of a deemed sale within the meaning of the above-
mentioned provision of the said Act are satisfied.”
59. As is manifest from the above, the Supreme Court in Aggarwal
Bros. had on facts found that there was a complete transfer of shuttering
for consideration and the same being exclusively placed in the hands of
ST.APPL. 1/2023 Page 47 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
the hirer to be used and utilized as it thought fit.
60. Quick Heal was a decision where the assessee was engaged in
the development of an antivirus software and which was being supplied
along with a licence code to be accessed either online or replicated
CDs/DVDs to customers in India. While dealing with the question of
whether the said transaction would constitute and embody the transfer
of a right to use, the Supreme Court firstly culled out the following
principles that would govern and delineate the scope of Article
366(29A)(d):
“53. The following principles to the extent relevant may be summed
up:
53.1. The Constitution (Forty-sixth Amendment) Act intends to rope
in various economic activities by enlarging the scope of “tax on sale
or purchase of goods” so that it may include within its scope, the
transfer, delivery or supply of goods that may take place under any
of the transactions referred to in sub-clauses (a) to (f) of clause (29-
A) of Article 366. The works contracts, hire purchase contracts,
supply of food for human consumption, supply of goods by
association and clubs, contract for transfer of the right to use any
goods are some such economic activities.
53.2. The transfer of the right to use goods, as distinct from the
transfer of goods, is yet another economic activity intended to be
exigible to State tax.
53.3. There are clear distinguishing features between ordinary sales
and deemed sales.
53.4. Article 366(29-A)(d) of the Constitution implies tax not on the
delivery of the goods for use, but implies tax on the transfer of the
right to use goods. The transfer of the right to use the goods
contemplated in sub-clause (d) of clause (29-A) cannot be equated
with that category of bailment where goods are left with the bailee to
be used by him for hire.
53.5. In the case of Article 366(29-A)(d) the goods are not required
to be left with the transferee. All that is required is that there is a
transfer of the right to use goods. In such a case taxable event occurs
regardless of when or whether the goods are delivered for use. What
is required is that the goods should be in existence so that they may
be used.
ST.APPL. 1/2023 Page 48 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
53.6. The levy of tax under Article 366(29-A)(d) is not on the use of
goods. It is on the transfer of the right to use goods which accrues
only on account of the transfer of the right. In other words, the right
to use goods arises only on the transfer of such right to use goods.
53.7. The transfer of right is the sine qua non for the right to use any
goods, and such transfer takes place when the contract is executed
under which the right is vested in the lessee.
53.8. The agreement or the contract between the parties would
determine the nature of the contract. Such agreement has to be read
as a whole to determine the nature of the transaction. If the
consensus ad idem as to the identity of the good is shown the
transaction is exigible to tax.
53.9. The locus of the deemed sale, by transfer of the right to use
goods, is the place where the relevant right to use the goods is
transferred. The place where the goods are situated or where the
goods are delivered or used is not relevant.”
61. As was succinctly explained, Article 366(29A)(d) is not
concerned with delivery of goods for use but envisages the levy of a tax
on the transfer of a right to use goods. It proceeded further to explain
that clause (d) of Article 366(29A) cannot be placed in the same
category as that of bailment where goods are left in the possession of
the bailee solely for the purposes of use on a hire basis. Proceeding
ahead, the Supreme Court also underlined the importance of a transfer
and vesting of effective and general control. This becomes evident from
a reading of paragraph 54 of the report and which is reproduced
hereinbelow:
“54. From the judicial decisions, the settled essential requirement of
a transaction for the transfer of the right to use the goods are:
54.1. It is not the transfer of the property in goods, but it is the right
to use the property in goods.
54.2. Article 366(29-A)(d) read with the latter part of clause (29-A)
which uses the words, “and such transfer, delivery or supply”…
would indicate that the tax is not on the delivery of the goods used,
but on the transfer of the right to use goods regardless of when or
whether the goods are delivered for use subject to the condition that
the goods should be in existence for use.
ST.APPL. 1/2023 Page 49 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
54.3. In the transaction for the transfer of the right to use goods,
delivery of the goods is not a condition precedent, but the delivery of
goods may be one of the elements of the transaction.
54.4. The effective or general control does not mean always physical
control and, even if the manner, method, modalities and the time of
the use of goods is decided by the lessee or the customer, it would be
under the effective or general control over the goods.
54.5. The approvals, concessions, licences and permits in relation to
goods would also be available to the user of goods, even if such
licences or permits are in the name of owner (transferor) of the
goods.
54.6. During the period of contract exclusive right to use goods
along with permits, licences, etc. vests in the lessee.”
62. Ultimately, on facts the Supreme Court in Quick Heal held as
under:
“57. The sum and substance of the ratio of BSNL [BSNL v. Union of
India, (2006) 3 SCC 1] as discernible is that the contract cannot be
vivisected or split into two. Once a lump sum has been charged for
the sale of CD (as in the case on hand) and sales tax has been paid
thereon, the Revenue thereafter cannot levy service tax on the entire
sale consideration once again on the ground that the updates are
being provided. We are of the view that the artificial segregation of
the transaction, as in the case on hand, into two parts is not tenable
in law. It is, in substance, one transaction of sale of software and
once it is accepted that the software put in the CD is “goods”, then
there cannot be any separate service element in the transaction. We
are saying so because even otherwise the user is put in possession
and full control of the software. It amounts to “deemed sale” which
would not attract service tax.”
63. We thus find ourselves unable to read any observation made or
principle enunciated in Quick Heal which could be read or
countenanced as buttressing the arguments of the respondents.
64. On an overall consideration of the above, we find ourselves
unable to sustain the conclusions rendered by the Tribunal in the
judgment impugned before us.
65. We, consequently, allow the instant appeals and answer question
ST.APPL. 1/2023 Page 50 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07
(a) in the negative and question (b) in the affirmative. We are of the
firm opinion that the Tribunal had clearly erred in coming to the
conclusion that the appellant had transferred effective control and
possession and thus qualifying the precepts of a transfer of right to use
goods as contemplated under Section 2(g)(vi) of the CST Act and
Section 2(zc)(vi) of the DVAT Act.
66. The appeal is accordingly allowed. The impugned order of the
Tribunal dated 06 October 2022 is, consequently, set aside.
YASHWANT VARMA, J.
RAVINDER DUDEJA, J.
DECEMBER 19, 2024/DR/RW
ST.APPL. 1/2023 Page 51 of 51
Signature Not Verified
Digitally Signed
By:KAMLESH KUMAR
Signing Date:19.12.2024
15:59:07