Judgment · High Court · 2002

In this writ petition, the petitioners are seeking a declaration that th ey are not liable to pay sales tax for the transactions arising out of the contr act dated 3rd December 200 to 14th April 2002 executed by them with the Responde nt No.4 on ground that the contract in question did not involve any transfer of right of the equipment in question to be used for, or the contract does not amou nt to an operating lease within the meaning of (cid:28)sale (cid:29) defined in Section 2(33)(i v) of the Assam General Sales Tax Act, 1993 (the Act, in short). Mrs Sarma, learned counsel for the petitioner and Mr R. Dubey, learned c ounsel for the State respondents are extensively heard. The facts giving rise to this writ petition, briefly stated, are that th e petitioners are engaged in consultancy & automobile business under the name an d style - B. Fam Automobile having registered office at B.M. Road, Amolapatty, N agaon and that they entered into an agreement vide No.BVP/SC/D/147 with the Resp ondent No.4 for providing services of a 30-ton capacity Crane with necessary per sonnel and fuel for their exploratory drilling activities at North Lakhimpur and its adjoining areas as detailed in the agreement, or as the Company may require . The said agreement also stipulates that the Respondent No.4, in consideration of the execution, completion and maintenance of the works/services, would pay th e contract price at the time and in the manner prescribed in the contract.

The p eriod of the contract so stipulated was from 3.12.2001 to 14.4.2002. According t o the petitioners, the terms and conditions of the agreement make it amply clear that the contract was basically one of service and that the main intention of t he parties being that the petitioners would perform the services of lifting mate rials with the help of a Crane under their supervision by engaging their own exp ertise when required by the Respondent No.4. The contract is a composite one, wh erein the dominant intention of the parties is the performance of services by on e party and the payment thereof by the other. The equipment, namely the Crane, u sed by them is their own and they retained the ownership, possession and the rig ht to use throughout the performance of contract. The Crane was brought in and t hereafter maintained by them at their own expenses. They also provide the fuel a nd lubricants required for the operation of the Crane.

Necessary labour and othe r personnel are also provided by them for the conduct of the work. It is the spe cific case of the petitioners that under the contract agreement, ownership, poss ession and the right to use of the Crane always remained with them and that they never transferred such right to the Respondent No.4. It is thus contended by th em that the agreement does not contain ’agreement for lease’ within the meaning of the (cid:28)lease (cid:29) as defined in the Transfer of Property Act and in Section 2(19) o f the Act, or is an operating lease as defined in Section 2(25) of the Act. As t he nature of transaction entered into between the petitioners and the Respondent No.4 is not (cid:28)sale (cid:29) within the meaning of Section 2(33)(iv) of the Act, they are not liable to pay sales tax to the Government of Assam. It is also the contention of the petitioners that before executing the a greement in question, they had another contract with the Respondent No.4 which w as executed from 17.4.1997 to 1.9.1999 and that when the Respondent authorities deducted the sales tax at source amounting to Rs.3,04,999/- under Section 27 of the Act, they approached this Court in WP(C) No.1081/1999 by contending that the contract in question did not involve any transfer of right to use of the Crane and the contract between them was not an operational lease.

This Court, by the order dated 8th March 1999 while admitting the said w rit petition passed an interim order directing the Respondent authorities to not deduct any tax at source from the payment to be made to them in respect of the aforesaid contract. However, in the case at hand, for a similar contract entered into between the parties, the Respondent authorities deducted at source a sum o f Rs.1,04,353/- @ 8.8% as sales tax in accordance with the provisions of the Act . On enquiry being made by the petitioner No.2 from the Respondent Nos.2 & 3 abo ut the deduction at source, he was informed that they were liable to pay sales t ax for the transaction carried out by them pursuant to the contract, in as much as the transaction involved transfer of the right to use of the Crane. This is h ow this writ petition came to be filed by the petitioners for an appropriate rel ief. No affidavit-in-opposition has been filed by the State respondents.

It i s however, stated by the learned State counsel that he would rely on the affidav it filed by the Respondent No.4, to support the stance taken by the State. In the affidavit-in-opposition filed by the Respondent No.4, it is state d that the terms and conditions of the present agreement and the one executed pr ior to this are not one and same. According to the answering Respondents, under the present agreement, the petitioners were required to provide them the service s of the Crane in question for their drilling activities for a period of 6(six) months commencing from the date of providing such services, which they were requ ired to do on monthly rental-basis inclusive of the wages of the personnel of th e petitioners, their expenses for boarding and lodging, cost of fuel and the res t of these along with operation charges. The petitioners accordingly placed the Crane at their disposal for their exclusive in the service of the Company.

The c onferment of supervisory power under the contract upon their representatives ove r the work performed by the petitioners was indicative of the intention of the p arties to vest the control and/or domain over the Carne with them during he curr ency of the contract. The provision of payment of monthly rental as well as the operational charges to the petitioners as per the scheduled rates (Annexure-2 to the contract agreement) also indicated that the Crane provided by the petitione rs was exclusively meant for their use and that the petitioners had no right to use it in any manner other than the terms and conditions of the contract. It is thus contended that an element of constructive and/or implied possession over th e Crane by the answering Respondents is clearly discernible in the instant case and that the transaction under the contract being (cid:28)sale (cid:29) within the extended def inition of (cid:28)sale (cid:29) as defined under Section 2(33) of the Act, the sales tax was d educted at source by them from the running bills submitted by the petitioners as the hiring charges amounting to Rs.1,04,353/-, which was credited to the accoun t of the State Government.

It is contended by the answering Respondents that the condition for excisibility of the tax u/s 2(33)(iv) of the Act is the transfer of the right to use any goods that accrues only on account of transfer of right and that such right arises only on transfer and unless there is a transfer of ri ght, the right to use does not arise. These are the sum and substance of the con tract of the Respondent No.4, which are also relied upon by the State respondent s. After hearing the learned counsel for both the parties and on going thro ugh the materials on record, I am of the view that this writ petition has no mer it. The definition of (cid:28)deemed sale (cid:29) under Section 2(33)(iv) of the Act undispute dly covers the transfer of right to use any goods. To constitute such transfer, there should be a transfer of effective and general control of the goods over th e right to use the goods as distinct from merely custody of the goods from the t ransferor to the transferee.

The stance taken by the Respondent No.4 that they e xercise effective control and custody over the Crane during the currency of the agreement in question, has not been disputed by the petitioners; no affidavit-in -reply is filed by them. That apart, on the own showing of the petitioners, all the terms and conditions of the agreement in question which are extensively repr oduced by them in paragraph 5 of the writ petition, the inference is irresistibl e and the conclusion inescapable that during the currency of the agreement in qu estion the Crane was placed under the possession and control of the Respondent N o.4 for their drilling activities. In my opinion, the dominant intention of the parties as is evident from the agreement in question is that the petitioners wou ld not have any right to use the Crane during the currency of the agreement for their works or purpose. During the currency of the agreement, all that they were required was to provide the services and personnel, that too under the directio n and supervision of the Respondent No.4.

In view of these findings of mind, I h ave no alternative but to hold that the transaction entered into by the petition ers with the Respondent No.4 in the agreement in question was transfer of the ri ght to use the Crane, which comes under the purview of (cid:28)deemed sale (cid:29) u/s 2(33)(i v) of the Act and the same is exigible to sales tax deductable at source by the Respondent No.4. In the result, there is no infirmity in the action of the State respondents to deduct at source a sum of Rs.1,04,353/-, which is calculated @ 8 .8% sales tax from their running bills. For the reasons stated in the foregoing, the writ petition, which is wit hout merit, is dismissed. However, on the facts and circumstances of the case, t he parties are directed to bear their respective costs.