Allahabad High Court
The Commissioner, Trade Tax vs Chabra Tourist Bus Service on 17 August, 2006
Author: Rajes Kumar
Bench: Rajes Kumar
JUDGMENT Rajes Kumar, J.
1. Present revision under Section 11 of U.P. Trade Tax Act (hereinafter referred to as the "Act") is directed against the order of Tribunal dated 16th, April, 1996 relating to assessment year 1990-1991 under the U. P. Trade Tax Act.
2. Dealer/opposite party under the agreement provided Buses to I. I. T., Kanpur and Hindustan Aeronautics Limited for transportation of their employees from one place to another place in the case of I. I. T. and employees and School children in case of Hindustan Aeronautics Ltd. on a stipulated amount. The Assessing Authority levied tax on the amount received by the opp. party under Section 3-F treating the transactions as transfer of rights to use the goods. First Appeal filed by the dealer was allowed and tax levied was deleted. The Commissioner of Trade Tax filed appeal before the Tribunal. The Tribunal by the impugned order, rejected the appeal. The Tribunal held that the opp. party had provided Vehicle for transportation of their employees and children from one place to another place and the possession of the Vehicle was always remain with the opp. party.
3. Heard learned Counsel for the parties.
4. Learned Standing Counsel filed Supplementary-affidavit annexing copy of terms and conditions in the case of I. I. T. Kanpur and also the agreement in the case of Hindustan Aeronautics Limited. He submitted that as per Clause-15 of the terms and conditions in the case of I. I. T., the plying of the Bus and the transportation was subject to the superintendence and control of the Institute and the contractors, their servants and agents had to carry out directions given by the Institute. He submitted that the aforesaid terms of the contract shows that for all practical purposes, the movement of Vehicle was under the control of Institute, thus, the case falls under Section 3-F of the Act. He submitted that in the case of Hindustan Aeronautics Limited also the movement of Vehicle was under the control of the Company. Learned Counsel for the opp. party relied upon the order of the Tribunal and further submitted that as per the terms and conditions of the agreement, all the expenses, namely, fuel, Lubricants, maintenance, road taxes, Insurance, passengers tax and Challans etc. and payments of wages to the drivers, Conductors, Cleaners etc. would be borne by the Contractor and as per the terms, the Institute had no responsibility on account of any accident to men, materials, Contractor's Staff, fire etc.
5. Having heard learned Counsel for the parties and have perused the terms and conditions of the agreement.
6. It is useful to refer the terms and conditions in the case of I. I. T., Kanpur and Hindustan Aeronautics Limited:
INDIAN INSTITUTE OF TECHNOLOGY, KANPUR TERMS AND CONDITIONS
1. Three or Four 52/54 seater buses in good condition will be provided. Buses will have permit and to be duly certified for its fitness by R.T. O., Kanpur.
2. Buses will ply on routes with halts time as specified by IIT, Kanpur within the Corporation limits of Kanpur.
3. Journey time per round trip per Bus will be around 1 1/2
4. All the fuel lubricants, maintenance, road taxes, Insurance, passenger taxes, challans etc. and payments of wages to the Drivers, Conductors, Cleaners etc. will be borne by the Contractor and no extra payments of any sort whatsoever Staff traveling by the bus.
5. The Contractors at his own cost and risk will ensure that the buses are properly maintained to avoid any breakdown and/or cause inconvenience to the Institute staff traveling by the bus.
6. Security amount of Rs. 5,000/- (Rs. Five Thousand only) including earnest money in the form of Call Deposit/Bank Draft on a scheduled Bank in the name of Director, IIT, Kanpur will be furnished by the Contractor whose tender is accepted.
7. The Institute shall have no responsibility on account of any accident to men, materials, contractor's staff, fire etc. and no damage/compensation shall be paid to the contractors on this account.
8. The Contractors will ensure that the Conductor of the Bus will carry only passengers to and from IIT, Kanpur.
9. The agreement shall be valid for a period of one year which can be extended by mutual consent. The Institute reserve the rights to terminate the contract earlier by giving one month's notice.
10. The Contractors alone shall be responsible for all acts, omission, commission, defaults or neglect on the part of the Drivers, Conductors, Cleaners and other personnel employed by the Contractors for maintenance, operation and plying of the Bus.
11. The Contractor shall and will from time to time and at all times keep indemnified the Institute against the actions, proceedings, claims and expenses of every nature whatsoever instituted preferred, made suffered or occasioned in consequence of and perusal to and arising on or as a result of plying and operation of the Bus by the Contractors, their servants and Agent, under terms and conditions of there present, or otherwise however.
12. The Contractors shall arrange at their own cost for adequate insurance cover against accident to the vehicle and the passengers.
13. The Contractor shall operate and ply the Bus entirely at their own risk and responsibility and shall observe all rules and regulations and comply with all previous of law in that behalf.
14. Notwithstanding anything to the contrary contained in the Agreement the Institute shall be entitled to terminate the Agreement with one week's notice but without payment of any kind in the event of any failure or neglect on the part of the Contractors to observe and perform any of the stipulations, condition and obligation contained in these presents and on the part of the Contractors to be observed and performed, security deposit will be furnished in case contract is terminated for any of the above reasons mentioned.
15. The plying of the Bus and the transport of the Institute's employees under the terms and conditions of those presents shall be subject to the superintendence and control of the Institute and the contractors, their servants and agents shall carry out directions given in that behalf by the Institute and/or duly authorized official of the Institute.
16. In case of any riot, communal disturbance or civil commotion in the area of operation of the transport service, the contractors shall immediately inform the Institute of it in order to enable the Institute to make suitable arrangements needed, if any.
17. A penalty of maximum of Rs. 100/- per trip will be recovered from the contractor for late running of the Bus. The late running will be deemed if the Bus is late by maximum ten minutes without any satisfactory explanation. Decision of IIT, Kanpur will be final in this matter.
18. It will be the responsibility of the contractors to provide substitute for the Bus in case of breakdown, accidents, challan etc. If no Bus is provided by the Contractor, a penalty @ Rs. 600/- (Rs. Six Hundred only) per day will be received or Rs. 300/- for each cancellation of round trip will be recovered from the Contractor for each Bus not running.
19. A penalty of Rs. 100/- to Rs. 200/- a day will be imposed on the Contractor for providing sub standard/under capacity Bus. Assessment made by the Officer Incharge M. T. Section will be treated as final.
20. In case of penalty either for late running, cancellation of scheduled trips or for not providing Bus on any particular day, contractor will be required to deposit the amount fixed on account of penalty within seven days of issue of such notice, failing which the penalty dues will be recovered from the security deposit made by the Contractor or from the monthly payable amount. Institute also reserve the right to cancel the contract in case such penalty is not paid within stipulated period.
21. Either party shall have option to renew the agreement for further period of one year in terms and conditions mutually agreed upon.
22. Any notice required to be given by either party to the other party to the other here-in-under shall be deemed to be duly given if sent by Registered Post to the other parties at their addresses unless either of them has to the other notified any change of address. Any notice given by post shall be deemed to have been served at the expiration of 40 hours from the date of posting.
23. IIT, Kanpur will have the right to get into contract with other contractor to run similar services as well as to run services by their own Buses.
AGREEMENT CONTRACT FOR PROVIDING BUSES TO COMPUTE H.A.L. EMPLOYEES TO AND FRO FACTORY FROM DIFFERENT PARTS OF THE CITY This agreement made on 17th day of July, one thousand nine hundred eighty seven BETWEEN M/S HINDUSTAN AERONAUTICS LIMITED, KANPUR DIVISION, KANPUR (hereinafter called the 'Company' of the First part, therein represented through its Senior Manager, Maintenance, which expression shall mean and include its successors and assigns) and M/S CHHABRA TOURIST BUS SERVICE, 111-A/20-B, G. T. Road, Ashok Nagar, Kanpur of the second part (hereinafter called the 'Transporter' and representative Sri Rajendra Kumar Chhabra, therein on behalf of the said Transport Company, which expression shall mean and include its successors and assigns of the second part.
WHEREAS, the Transporter vide his letter No. Nil dated 8.4.87 and 15.7.87 has offered to ply the Buses to commute the employees of the company in accordance with the terms and conditions hereinafter contained, for the period of TWO years commencing from 17.7.1997 to 16.7.1999 on a fix charges of Rs. 1,70,000/- (Rupees One Lakh Seventy Thousand) per month for 16 routes as per the terms and conditions of the contract with a provision of extending the contract for me ONE year more on same terms and conditions.
AND WHEREAS, the company has agreed upon the said offer of the Transporter and the party shall enter into this agreement to give effect to the said offer on the terms and conditions setforth hereinafter.
NOW THIS AGREEMENT WITNESSTH AS FOLLOWS:
TRANSPORTER'S COVENANT
1. The Transporter shall ply 13 buses to cover 16 routes. 2 Buses shall be provided for commuting the employees for 'A' shift & 13 Buses for commuting employees in 'G' shift. At present, the timings for Bus 'A' and 'G' shifts are as given below:
'A' Shifts- From 0600 hours to 1430 hours and 'G' Shift - from 0730 hours to 1636 hours (except on Saturday when the timings for 'G' shift will be 0730 hours to 1230 hours. The Transporter shall adhere to these timings. Any change in timings shall be informed accordingly.
2. The Transporter shall ply buses in new/good condition duly approved by the Company for commuting the employees of the Company.
3. The Transporter shall not ply any other bus that the buses duly registered in the name of the Transporter and oil part of the Firm as their family members.
4. The Transporter shall keep 2 buses in ready condition on standby to cover up any break-down and OR to meet any unforeseen circumstances and also to keep the employees of the company conveyed without fault.
5. The Transporter shall not sub let the contract to any other person/Transport Company.
6. The Transporter shall give Bank Guarantee for Rs. 2.00 Lakhs as Security Deposit within 7 days from the date of executing this agreement.
7. The Transporter shall be under obligation to meet any additional requirement of Buses on one week's notice from the Company.
8. The Transporter shall keep the Buses ready for inspection by the Company before starting the work and in the event of any of the Buses being found unsuitable and mechanically in bad condition, shall be replaced by the Transporter within a period of 7 days on notice from the Company, provided further that such replacement shall not disrupt the function of the employees of Company.
9. The Transporter shall provide the Buses on Sundays/Holidays and during odd hours on a notice of 7 days by the Company.
10. The Transporter shall engage adequate staff required for the urgent needs of the Buses and the company shall not be liable for whatsoever the loan, damage and OR body injury and cost to your staff.
11. The Transporter shall employ only the License holders drivers and approved cleaners.
12. The Buses to be supplied by the Transporter shall be duly registered and covered under Insurance.
13. The Transporter shall obtain permits from the Regional Transport Officer for plying his Buses for commuting the employees of the Company and shall provide all permits for inspection of the Company.
14. The Transporter shall not ply OR shall not use the Buses on the area of permits issued from the Company for any other purpose and the Buses shall be required for display name plates and in BLOCK LETTERS- "HAL KANPUR ROUTE" in Hindi script both in the front and rear side and shall be used to the service of the Company exclusively.
15. The Transporter shall observe and abide by our terms and condition of the contract, which forms part of this contract.
COMPANY'S COVENANT
1. The Company shall make full payments of two bills to the Transporter in a month. Payment will be made within 15 days from the date the correct bills are received from the Transporter.
2. The Company shall not be liable to make any payments for the days the Buses are not used due to strike, lock out, civil commotion, curfew and any other catastrophe of the like nature and the bills of the Transporter shall be subjected to proportionate deductions by the Company.
3. The Company shall not be liable for any loss, damage whatsoever caused to the Buses/staff of Transporter during the subsistence of the contract.
4. The Company will refund the security deposit only after the contract is completed to the satisfaction of the Company and the Transporter gives a certificate of no demand against the Company.
5. The Company shall be within its right to deduct any sum that may be due from the Transporter from the security deposit, provided further that the decision of the Company shall be final and binding on the Transporter for any deductions assessed to be due and from the Transporter to the Company.
6. Penalty will be levied in accordance with para 20 of the particular conditions for late arrival of Buses at the time of starting of shifts and also that of pack up time.
SERVICE OF NOTICE Any demand or notice to be given or served between the parties shall be deemed to be sufficient if such demand or notices are delivered in person or sent through registered post with acknowledgement due at the addressee aforesaid, provided further that in case of refusal by either party to receive the notice delivered in person or through post, the service shall be deemed to be complete on such refusal.
TERMINATION OF CONTRACT This agreement may be terminated by either party by serving notice of ONE MONTH on the either party.
SETTLEMENT OF DISPUTE BETWEEN THE PARTIES In the event of any disputes arising out of or in connection with the performance and or fulfillment of the terms and conditions of this agreement, the decision of the Company through its Senior Manager, Maintenance or his authorized agent shall be final and binding on the Transporter.
In witness whereof, the parties have signed this agreement on the day mentioned hereinbefore.
Signature of the parties.
Witnesses.
1.
2. For M/S Hindustan Aeronautics Ltd.
Kanpur Division, Kanpur.
Witnesses.
1.
2. HINDUSTAN AERONAUTICS LTD.
Kanpur Division P.O. Box No. 225 Kanpur Telex-325-243-HALK IN Telegram Supersonic Kanpur 7thAug., 1990 Ref. PL/5860/187/Cibt,(Pt. Case) M/S Chhabra Tourist Bus Service, 111-A/20-B, Ashok Nagar.
Near Coca Cola Co.), G.T. Road, Kanpur-208012.
SUB: AMENDMENT TO THE CONTRACT FOR COMPUTING HAL EMPLOYEE TO AND FRO FACTORY FROM DIFFERENTPARTS OF CITY FOR THE PERIOD 17.7.90 TO 16.7.91.
REF; 1-Acceptance letter No. PL/5860/187/Cont.)Pt. Case) dt. 2.5.90, 2- Your acceptance letter No. Nil dated 5.7.90.
Dear Sirs, The existing contract for commuting HAL employees has been extended for a period of one year from 17.7.1990 to 16.7.1991 vide our acceptance letter dated 2.5.90 for operating 14 routes in General Shift and 3 routes in 'A' Shift being run as per existing arrangements for which you are being paid Rs. 1,80,625/- per month.
2. Additional Routes are required to be run for commuting HAL employees in 'B' Shift and one way trip for dropping School Children to City Colleges from HAL Township as per routes defined as follows w.e.f. 16.8.1990:
B-1 route: For bringing 'B' Shift employees to start from first pick up point at 1320 hrs. to report at 1430 hrs. at HAL. The employees are required to be dropped at the same points after close of shift at 2230 hrs. Pick-up-Points: Ganda Nala, Dada Nagar, Natraj, Govind Nagar (BSC), Govind Nagar (PS), Govind Nagar 'C Block, Govind Nagar 'E' Block, Dharma Kata Govind Nagar, Juhi Depot, Kidwai Nagar (PS), (Safed Colony), Gaushala Chauraha, Bara Devi, Kidwai Nagar Site-I, Transport Nagar Chauraha, Kidwai Nagar Chauraha 'H' Block, 'K' Block Kidwai Nagar, St. Martine School, Yasoda Nagar, Raman Shishu Mandir & HAL.
School/College Routes: The Bus will start from HAL Township at 0900 hrs and run via Rama Devi, Lai Bangla, J.K. Colony, Cantt. Schools, Phool Bagh Colleges, Christ Church College, Bara Chauraha, P. P.N. College Parade, D. A. V. College, Civil Lines, The Bus may be required to pick up children from Ghandigram/Krishna Nagar on as required basis for which the conductor will be informed in advance. This route will be a one way route and considered as Half Route of the contract agreement.
3. As per the routes defined at para-2 above, added to the existing contract. You will be paid Rs. 10,625/- per month only for commuting employees in 'B' Shift and Rs. 5,313/- per month only for commuting children to city School/Colleges.
4. It may please be noted that Schools and Colleges are closed for vacations and other reasons etc. Any closer of School/Colleges for more than two weeks at a stretch due to any reason the proportionate amount for School trips run only will be paid.
5. We are herewith sending five copies of this letter. You are requested to sign and stamp four copies as a taken of your acceptance and return these to us.
7. The perusal of terms and conditions of the contract shows that the Vehicles were provided by the opp. party for transportation of the employees and childrens and control over the Vehicles were all along with the opp. party. Under the terms of the agreement, the opp. party was required to transport the employees of 1.1. T., Kanpur and in case of Hindustan Aeronautics Limited School employees and Childrens. All the expenses namely Fuel, Lubricants etc. were borne by the opp. party and they were responsible for any accident etc. Thus, the effective control of the Vehicles have never been passed on to I. I. T., Kanpur and Hindustan Aeronautics Limited and always remain with the opp. party, thus, the case is not covered under Section 3-F of the Act.
8. Section 3-F of the Act reads as follows.
Section 3-F. Rate of tax on the right to use any goods or goods involved in the execution of a works contract.
Notwithstanding anything contained in Section 3-A, or Section 3-AAA or Section 3-D, the turnover relating to the business of transfer of the right to use any goods for any purpose or of transfer of the property in goods involved in the execution of a works contract shall be determined in the manner prescribed and shall be liable to tax at such rate not exceeding fifteen percent, as the State Government may, by notification, declare, and different rates may be declared for different goods or different classes of dealers.
9. Similar question came up for consideration in Kando Transport and Ors. v. S.T.O. Assessment Unit, Barbil and Ors. (1992) 43 STL 67 Orissa. In this case also the petitioner entered into a contract with M/s Minerals & Metals Trading Corporation of India Ltd. For transportation work including loading, unloading and stacking. The contention of the transporter was that there was no transaction of sale and that the contract was for purely labour and service. The department, however, contended that "hire charges" received by the transporter come within the definition of "sale price". Considering the enlarged definition of 'sale' in view of the Constitutional amendment, the Orissa High Court held as follows:
In order to decide whether a transaction is of 'sale', the determinative factor is whether transfer of right of user is involved. By way of illustration we may indicate that if 'A' allows his vehicle to be used by 'B' for a consideration, and the vehicle is placed at the control, custody and possession of 'B' it may be a case of transfer of the right to use the vehicle for any purpose. Where, however, the control, custody, and possession over the vehicle remains with 'A', notwithstanding the fact that certain amounts were received as hire charges, no transfer of the right to use is involved.
10. In Rashtriya Ispat Nigam Ltd. v. Commercial Tax Officer, Company Circle, Visakhpatnam (1990) 77 STC 182 Andhra Pradesh, the petitioner which owned the Visakhapatnam Steel Project, for the purpose of the steel project, allotted difference parts of the project work to contractors. To facilitate the execution of work by the contractors with the use of sophisticated machinery , the petitioner had undertaken to supply the machinery to the contractors for the purpose of being used in the execution of the contracted works of the petitioner and received charges for the same. The respondents made a provisional assessment in view of the enlarged definition of 'sale'. Then the Andhra Pradesh High Court held that under the agreement, the effective control of the machinery, even while the machinery was in the use of the contractor, was that of petitioner company. The contractor was not free to make use of the same for other works or move it out during the period the machinery was in his use. Therefore, the contractor was entitled to make use of the machinery for purpose of execution of the works of the petitioner and there was no transfer of the right to use it as such in favour of the contractor. This is how the court held that the hire charges collected by the petitioner from the contractors were not exigible to sales tax. To come to this conclusion, the Andhra Pradesh High Court relied on Corpus Juris Secondum, Vol. 87 page 892 which emphasised that the essence of transfer is passage of control over the economic benefits of property which results in terminating rights and over relations in one entity and creating them in another. While construing the word "transfer" due regard must be had to the thing to be transferred. A transfer of the right to use the goods necessarily involves delivery of possession by the transferor to the transferee. Delivery of possession of a thing must be distinguished from its custody. It is not uncommon to find the transferee of goods in possession while transferor is having custody.
11. Against the aforesaid decision of the Andhra Pradesh High Court, the State of Andhra Pradesh filed Special Leave Petition before the Apex Court in the case of State of Andhra Pradesh and Anr. v. Rashtriya Ispat Nigam Limited . Apex Court had affirmed the order of the Andhra Pradesh High Court and held as follows:
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 contractor 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 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 respondent's possession and control of the machinery.
12. A similar question came up for consideration before the Division Bench of this Court in the case of M/s Ahuja Goods Agency and Anr. v. State of U.P. and Ors. reported in 1997 NTN (Vol.11), 484. Petitioner received transportation charges from a distillery in connection with the transportation of Indian made foreign liquor from the distillery to various Government bonded warehouses. Question for consideration was whether the transportation charges was liable to tax under Section 3-F of the Act. The contention of the petitioner was that the transportation charges were paid for service under the agreement and there was no transfer of right to use the vehicle. The Division Bench examined the agreement and held that the truck to be used for carrying the goods will continue to remain in the custody of the drivers employed by the owners of the trucks. The distillery could have used the vehicle only for the purpose specified goods and not for any other purposes. The transit risk was of the petitioner and not of the distillery. It was the duty of the transporter to abide by all the laws relating to the motor vehicle and the excise. From theses factors, it is manifest that there was no transfer of possession even of the vehicle, which were being used for carrying the goods. On these facts Division Bench held that in the absence of transfer of possession of vehicle there was no transfer of right to use the goods and the provisions of Section 3-F of the Act shall not applicable.
13. In Writ Petition (Civil) No. 183 of 2003, Bharat Sanchar Nigam Ltd. and Anr. v. Union of India and Ors. decided on 02.03.2006, the Larger Bench of Apex Court considered the scope of transfer of right to use the goods. Hon'ble Justice Ruma Pal, J. in her judgment has considered the decision of the Apex Court in the case of State of U.P. and Anr. v. Union of India and Anr. , the observations of the Constitution Bench of the Apex Court in the case of 20th Century Finance Corporation Ltd. and Anr. v. State of Maharashtra and other decisions of the Apex court and held as follows:
14. In the State of U.P. v. Union of India (supra) it was also held:
Handing over of possession is not sine qua non of completing the transfer of the right to use any goods, as was held by a Constitution Bench of this Court in 20th Century Finance Corporation Ltd. V. State of Maharashtra . Once DOT connects the telephone line of the assigned number of the subscriber to the area exchange, access to other telephones is established. There cannot be denial of the fact that giving such an access would complete the transfer of the right to use the goods".
With respect, the decision in 20th Century Finance Corporation Limited v. State of Maharashtra, cannot be cited as authority for the proposition that delivery of possession of the goods is not a necessary concomitant for completing a transaction of sale for the purposes of Article 366(29A)(d) of the Constitution. In that decision the Court had to determine where the taxable event for the purposes of sales tax took place in the context of Sub-clause (d) of Article 366(29A). Some States had levied tax on the transfer of the right to use goods on the location of goods at the time of their use irrespective of the place where the agreement for such transfer of right to use such goods was made. Other States levied tax upon delivery of the goods in the State pursuant to agreements of transfer while some other States levied tax on deemed sales on the premise that the agreement for transfer of the right to use had been executed within that State (vide paragraph 2 of the judgment as reported). This Court upheld the third view namely merely that the transfer of the right to use took place where the agreements were executed. In these circumstances the Court said that:
No authority of this Court has been shown on behalf of respondents that there would be no completed transfer of right to use goods unless the goods are delivered. Thus, the delivery of goods cannot constitute a basis for levy of tax on the transfer of right to use any goods. We are, therefore, of the view that where the goods are in existence, the taxable event on the transfer of the right to use goods occurs when a contract is executed between the lessor and the lessee and situs of sale of such a deemed sale would be the place where the contract in respect thereof is executed. Thus, where goods to be transferred are available and a written contract, is executed between the parties, it is at that point situs of taxable event on the transfer of right to use goods would occur and situs of sale of such a transaction would be the place where the contract is executed.
In determining the situs of the transfer of the right to use the goods, the Court did not say that delivery of the goods was in essential for the purposes of completing the transfer of the right to use. The emphasized portions in the quoted passage evidences that the goods must be available when the transfer of the right to use the goods take place. The Court also recognized that for oral contracts the situs of the transfer may be where the goods are delivered (see para 26 of the judgment).
In our opinion, the essence of the right under Article 366(29A)(d) is that it relates to user of goods. It may be that the actual delivery of the goods is not necessary for effecting the transfer of the right to use the goods but the goods must be available at the time of transfer must be deliverable and delivered at some stage. It is assumed, at the time of execution of any agreement to transfer the right to use, that the goods are available and deliverable. If the goods, or what is claimed to be goods by the respondents, are not deliverable at all by the service providers to the subscribers, the question of the right to use those goods, would not arise.
In State of Andhra Pradesh and Anr. v. Rastriya Ispat Nigam Ltd. (2003) 3 SCC 214, it was claimed by the Sales Tax Authorities that the transaction by which the owner of certain machinery had made them available to the contractors was a sale. The Court rejected the submission saying that:
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 or (para 4 page 315) But in the case of Agrawal Brothers v. State of Haryana and Anr. when the assessee had hired shuttering to favour of contractors to use it in the course of construction of buildings it was found that possession of the shuttering materials was transferred by the assessee to the customers for their use and therefore, there was a deemed sale within the meaning of Sub-clause (d) of Clause 29-A of Article 366. What is noteworthy is that in both the cases there were goods in existence which were delivered to the contractors for their use. In one case there was no intention to transfer the right to use while in the other there was.
But if there are no deliverable goods in existence as in this case, there is no transfer of user at all. Providing access or telephone connection does not put the subscriber in possession of the electromagnetic waves any more than a toll collector puts a road or bridge into the possession of the toll payer by lifting a toll gate. Of course the toll payer will use the road or bridge in one sense. But the distinction with a sale of goods is that the user would be of the thing or goods delivered. The delivery may not be simultaneous with the transfer of the right to use. But the goods must be in existence and deliverable when the right is sought to be transferred.
Therefore whether goods are incorporeal or corporeal, tangible or intangible, they must be deliverable. To the extent that the decision in State of U.P. v. Union of India held otherwise, it was, in our humble opinion erroneous.
15. In the same case Hon'ble Dr. A. R. Lakshamanan, J. held as follows:
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 licenses required therefore 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 license 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.
16. Thus, in the light of the ratio laid down by the Apex Court, on the terms of the agreement-referred hereinabove, it has to be examined whether there was transfer of right to use the vehicles. No doubt, vehicles were available at a deliverable stage, but the question is whether they have been delivered at any State. Whether transferee had got a legal right to use the vehicles - consequently all legal consequences of such use including any permission or license required therefore was available to the transferee and for the period during which the transferee has such legal right there was a complete exclusion of legal rights to use by the transferor, or mere license to use the vehicles was given and not the full control or physical possession of the vehicles.
17. On the terms of the agreements, in my opinion, the present case does not come within the purview of transfer of right to use the goods for following reasons:
18. The agreements for providing buses for the transportation of the employees of the companies from one place to another place; Drivers, spare tyres, tools and all other necessary items were of the opp. party Diesel and other running expenses, insurance, taxes, permit etc., were borne by the opp. party Payment was to be made on the basis of the actual use of the vehicles. The opp. party had to take the insurance cover for their workmen and vehicles had to cover the risk of accident/death and the payment of compensation as per Rules. In case of any accident etc., opp. party has been held responsible and on account of negligence or any act of driver or Conductor, if Company suffers any loss, same had to be indemnified. In case of failure to provide the vehicle, the opp. party was liable for penal action. The aforesaid terms of the contract clearly shows that the effective control over the vehicles were always remain with the opp. party and had never been passed on to the Companies. All the legal consequences arising from the use of the vehicle were the responsibility of the Opp. Party. At no point of time, there was a complete exclusion of legal rights to use such vehicles by the transferor. Thus, the present case on the aforesaid facts does not fall under the transfer of right to use the goods, in view of the law laid down by the Apex Court in the aforesaid cases.
19. In the result, revision fails, and is, accordingly, dismissed.