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Gauhati High Court · body

2009 DIGILAW 157 (GAU)

R. P. Kakoti v. Oil and Natural Gas Commission

2009-02-27

I.A.ANSARI

body2009
JUDGMENT I.A. Ansari, J. 1. Respondent No. 1, namely, Oil and Natural Gas Commission Ltd., a Government of India Enterprise, is incorporated under the Companies Act, 1956 (hereinafter referred to as, "the Corporation"). Respondent Nos. 2 and 3 are employees of respondent No. 1. The respondent-Corporation has been publishing, from time to time, tender notices inviting tender for hiring various types of vehicles, for instance, cranes, water tankers, trailers, etc. As per these tender notices, the respondent-Corporation offers fixed monthly charges for the vehicles for twenty-six days in a month as the working days with fixed running charges per kilometre, the normal running of the vehicles being twelve hour per day. Pursuant to the tender notices so floated, a contract was entered into between respondent No. 7, on the one hand, and the petitioner, on the other, for hiring of cranes. The petitioner claims that he was verbally informed by the officials of the respondent-Corporation that the petitioner's contract with the respondent-Corporation would be treated as "sale" within the meaning of the Assam Value Added Tax Act, 2003, and that deduction from the petitioner's bills would be made treating the said transactions as "sale", though the said transactions, according to the petitioner, amounted to providing of service or, at best, hiring of vehicles. These transactions, according to the petitioner, do not, at any rate, amount to transfer of right to use the petitioner's cranes and, hence, the decision of the respondent-Corporation to deduct, at source, tax at the behest of respondent No. 4, namely, State Sales Tax Authorities in Assam, is wholly without jurisdiction. By making, therefore, this application under Article 226 of the Constitution of India, the petitioner has sought for directions to the respondents not to deduct, at source, any tax, from the bills of the petitioner under the provisions of the Assam Value Added Tax Act, 2003, in respect of the cranes, which form the subject-matter of contract between the petitioner and the respondent-Corporation. 2. I have heard Mr. G. N. Sahewalla, learned Senior Counsel, appearing on behalf of the petitioner, and Mr. S. N. Sarma, learned Senior Counsel, appearing on behalf of the respondent-Corporation. I have also heard Mr. D. Saikia, learned Counsel, for respondent No. 4, namely, the State of Assam. 3. 2. I have heard Mr. G. N. Sahewalla, learned Senior Counsel, appearing on behalf of the petitioner, and Mr. S. N. Sarma, learned Senior Counsel, appearing on behalf of the respondent-Corporation. I have also heard Mr. D. Saikia, learned Counsel, for respondent No. 4, namely, the State of Assam. 3. There is no dispute that the power of the State Legislature to impose tax on sale and purchase of goods emanates from entry 54 of List II of the Seventh Schedule to the Constitution of India nor is there any dispute that the 46th Amendment of the Constitution, which inserted Clause (29A) in Article 366 of the Constitution of India, has expanded the definition of "tax on sale or purchase of goods" inasmuch as it has included, within the definition of "sale", the transfer of the right to use any goods for any purpose, whether or not for a specified period, for cash, deferred payment or other valuable consideration. There is also no dispute that pursuant to the changes so introduced, amendments have been made by the Legislature, in the State of Assam, in the provisions of the Act, particularly, Section 2(33) and 2(19) thereof, which embody the definition of "sale" and "lease", respectively. 4. In order to correctly appreciate the development of law relating to the expansion of the State's power to impose sales tax, by bringing the 46th Amendment, it is imperative that the material facts, which led to the bringing of the changes in the definition of "sale" for the purpose of enabling the States to impose sales tax, are taken note of. 5. Before introduction of the 46th Amendment of the Constitution of India, composite contracts, such as, works contract, hire-purchase contract, catering contracts, etc., were not assessable as contracts for sale of goods inasmuch as the contracts, which were indivisible, could not have become subject to sales tax. 6. Before the Constitution (46th Amendment) Act, 1982, the word "sale", which occurred in the expression "sale", in the Seventh Schedule to the Constitution of India, had carried the same meaning as a "sale" defined in Section 4 of the Sale of Goods Act, 1930. Hence, prior to the 46th Amendment, sales tax could be imposed only upon transfer of property in goods from one person to another. Hence, prior to the 46th Amendment, sales tax could be imposed only upon transfer of property in goods from one person to another. Consequently, sales tax could not be imposed upon transactions, which might have resembled sale, but did not involve transfer of property in goods. Because of this judicial interpretation, States were losing revenue on account of sales tax in respect of transactions like transfer of the right to use goods, transfer of property in goods involved in execution of works contract, supply of food by a hotelier, etc. 7. With regard to the above, it may be pointed out that as far back as in the year 1967, Madras High Court, in A.V. Meiyappan v. Commissioner of Commercial Taxes reported in [1967] 20 STC 115, was confronted with the question as to whether a given transaction of "lease" can ever amount to "sale". In A.V. Meiyappan [1967] 20 STC 115 (Mad), the court was examining an agreement entered into by an assessee, called lessor, with a limited company, called lessee, whereunder the assessee had made over to the lessee the outright lease of the world negative rights of the film, for a period of 49 years, for a consideration. The sales tax authorities were of the view that though the transaction was termed as "lease" for 49 years, the assessee had actually effected a "sale" of the negative print of the picture for a consideration and, therefore, the transaction was liable to sales tax under the Madras General Sales Tax Act, 1959. The Madras High Court, however, turned down the imposition of the sales tax by holding that even if a copyright is regarded as species of movable property, the transaction did not connote a "sale" at all inasmuch as there was no transfer of property in the goods in such a case and the transaction was, therefore, not liable to payment of sales tax. 8. The decision of the Madras High Court, in A.V. Meiyappan [1967] 20 STC 115, created immense difficulty for the States for quite a long time, because novel device of leasing of films resulted into avoidance of huge amounts of sales tax. This apart, in State of Madras v. Gannon Dunkerley & Co. 8. The decision of the Madras High Court, in A.V. Meiyappan [1967] 20 STC 115, created immense difficulty for the States for quite a long time, because novel device of leasing of films resulted into avoidance of huge amounts of sales tax. This apart, in State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. reported in [1958] 9 STC 353, the Supreme Court gave a new approach to the definition of "sale" by prohibiting States from taxing transfer of property in goods involved in the execution of indivisible works contract. This decision also affected the revenue of the States. The State's revenue was further reduced to a great extent in view of the decision in KL Johar & Co. v. Deputy Commercial Tax Officer reported in [1965] 16 STC 213, wherein the apex court decided that the State can tax only the depreciated value of the goods. Yet another decision of the apex court, in State of Himachal Pradesh v. Associated Hotels of India Ltd. reported in[1972] 29 STC 474, closed the door of a big revenue-earning area by the States, when the apex court held that supply of food by a hotelier was essentially one of services by the hotelier and that it is, as a part of the amenities, incidental to the service, that a hotelier serves meals at specified hours. 9. Because of the traditional concept of "sale", which the courts adhered to, while interpreting as to whether a given transaction amounts, or does not amount, to "sale", the 46th Amendment Act of the Constitution brought changes in the definition of the word "sale" as given in Article 366 inasmuch as it widened, by inserting Clause (29A) to Article 366, the definition of "sale" by incorporating those transactions, which might have resembled "sale", but did not fall within the traditional concept of "sale", and were judicially held not to be exigible to sales tax. The idea behind this amendment was to create a concept of deemed sale by treating, with the help of a legal fiction, such a transaction as a "sale" even if the same did not fall within the ambit of the definition of "sale" as defined in the Sales of Goods Act. In other words, by bringing various transactions within the purview of the definition of "sale", a transaction, which was, otherwise, not a "sale", has been deemed to be a "sale". In other words, by bringing various transactions within the purview of the definition of "sale", a transaction, which was, otherwise, not a "sale", has been deemed to be a "sale". This Clause (29A) of Article 366 states as under: (29A) 'tax on the sale or purchase of goods' includes: (a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; (b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract ; (c) a tax on the delivery of goods on hire-purchase or any system of payment by instalments ; (d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration ; (e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration ; (f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made; 10. The effect of the amendment, which has been introduced to Article 366, by inserting Clause (29A), is that a State Legislature has become competent to impose sales tax, amongst others, on the transfer of the right to use any goods, which, before the amendment, so made, the State Legislature was not competent to do. What the insertion of Clause (29A) has done is that various transactions, enumerated therein, which were, otherwise, not sales, have to be deemed, by a legal fiction, as sales. Such sales are commonly called deemed sales. What the insertion of Clause (29A) has done is that various transactions, enumerated therein, which were, otherwise, not sales, have to be deemed, by a legal fiction, as sales. Such sales are commonly called deemed sales. Under Clause (29A)(d), a "transfer of the right to use any goods" for any purpose and for any period, for cash, deferred payment or other valuable consideration, shall be deemed to be a sale of goods by the person making the transfer, delivery or supply, and a purchase of those goods by the person to whom transfer, delivery or supply is made. 11. Consequent upon the above amendments of the Constitution, almost all the States have amended their respective definitions of the word "sale", in the sales tax statutes, by incorporating identical language used by the Constitution. Indisputably, the expression "transfer of the right to use any goods" cannot be equated with the expression "transfer of property in goods", because the transfer of the "right to use any goods" is not the same as the "transfer of the goods" itself; but when the definition of "sale" is amended in consonance with the change introduced in the definition of "sale" by the 46th Amendment, a transfer of the right to use any goods would amount to "sale" within the meaning of the sales tax laws empowering thereby the State Legislature impose tax, on such a transaction, as "sale". 12. In Assam too, under the Act, tax became exigible, by Section 8(1)(f), on "operating lease" as mentioned in Schedule VII at the rate(s) specified in the Schedule. Section 2(33) of the Act provides that "sale" shall include "any transfer of the use of any goods" under an "operating lease". Section 2(33) reads as under: 2(33) : 'Sale', with all the grammatical variations and cognate expressions, means any transfer of property in goods by any person for cash, deferred payment or other valuable consideration, and includes: (iv) any transfer of the use of any goods under an 'operating lease'; 13. The expression "operating lease" has been defined, by Section 2(25), to mean a lease other than a financial lease. Thus, any lease, other than a financial lease, is an "operating lease" within the sales tax laws in Assam. The expression "operating lease" has been defined, by Section 2(25), to mean a lease other than a financial lease. Thus, any lease, other than a financial lease, is an "operating lease" within the sales tax laws in Assam. The term "lease" has been defined under Section 2(19) of the Act as follows: 2(19) 'Lease' means any agreement or arrangement, whereby the right to use any goods for any purpose is transferred by one person to another, whether or not for a specified purpose for cash or deferred payment or other valuable consideration without the transfer of ownership and includes a sub-lease but does not include any transfer on hire purchase or any system of payment by instalments. 14. Section 2(20) of the Act defines "lessee" to mean a person to whom the right to use any goods for any purpose is transferred under a lease. 15. Section 2(21) of the Act defines "lessor" to mean a person by whom any right to use any goods for any purpose is transferred under a lease. 16. From a combined reading of the various provisions of law, which have been pointed out above, what clearly transpires is that there must be "a transfer of the right to use any goods" in order to attract levy of "sales tax". In other words, transfer of the right to use any goods, for any purpose, is a condition precedent for imposition of sales tax. This tax is not a tax on the right to use any goods or on the use of any goods; it is, rather, a tax on the "transfer" of the "right" to "use" any "goods". Thus, unless and until the incidence of "transfer" of the right to use goods, in a given case, is present, a transaction would not become a "sale" even under the expanded definition of "sale". Similarly, a transaction would not attract "sales tax" merely because of the fact that the goods have been hired and the hiring charges have been paid to the person, who gives, on hire, the goods unless one can show that the transaction is not confined to "use" of the goods, but it is, in substance, a "transfer" of the "right" to "use" the "goods". 17. 17. I may pause here to point out that in 20th Century Finance Corporation Ltd. v. State of Maharshtra reported in AIR 2000 SC 2436 , a Constitution Bench of the Supreme Court, speaking through Bharucha, J. (as his Lordship, then, was), pointed out, while interpreting Article 366(29A)(d), that levy of tax is not on use of goods, but on the transfer of the right to use goods and that the right to use goods accrues only on account of the transfer of the right. In other words, explains the Supreme Court in 20th Century Finance Corporation Ltd. AIR 2000 SC 2436 , that in order to attract sales tax, the right to use arises only on the transfer of such a right and unless there is transfer of such a right, the question of the transfer of the right to use does not arise. Having held that it is the transfer of the right to use any goods, which is exigible to sales tax, and that without such transfer, no sales tax can be imposed, the Supreme Court goes on to observe, in 20th Century Finance Corporation Ltd. AIR 2000 SC 2436 , that if the goods are available, then the transfer of the right to use goods takes place, when the contract, in respect thereof, is executed, for, the right to use goods would stand transferred to the lessee, no sooner the contract is executed. The Supreme Court further observed, in 20th Century Finance Corporation Ltd. AIR 2000 SC 2436 , that if the goods are available, irrespective of the fact where the goods are located, and a written contract is entered into between the parties, the taxable event on such a "deemed sale" would be the execution of the contract; but in the case of an oral or implied transfer of the right to use goods, such transfer may be effected by the delivery of the goods. Having so observed, the Supreme Court, in 20th Century Finance Corporation Ltd. AIR 2000 SC 2436 , pointed out that no authority could be shown to support the view that there would be no completed transfer of right to use goods unless the goods are delivered. Having so observed, the Supreme Court, in 20th Century Finance Corporation Ltd. AIR 2000 SC 2436 , pointed out that no authority could be shown to support the view that there would be no completed transfer of right to use goods unless the goods are delivered. The Supreme Court, therefore, concluded, in 20th Century Finance Corporation Ltd. AIR 2000 SC 2436 , that delivery of goods cannot constitute a basis for levy of tax on the transfer of the right to use any goods. 18. The relevant observations made, on the above aspects of the law, by the apex court, in 20th Century Finance Corporation Ltd. AIR 2000 SC 2436 , read as under: 27. Article 366(29A)(d) further shows that levy of tax is not on use of goods but on the transfer of the right to use goods. The right to use goods accrues only on account of the transfer of right. In other words, right to use arises only on the transfer of such a right and unless there is transfer of right, the right to use does not arise. Therefore, it is the transfer which is sine qua non for the right to use any goods. If the goods are available, the transfer of the right to use takes place when the contract in respect thereof is executed. As soon as the contract is executed, the right is vested in the lessee. Thus, the situs of taxable event of such a tax would be the transfer which legally transfers the right to use goods. In other words, if the goods are available irrespective of the fact where the goods are located and a written contract is entered into between the parties, the taxable event on such a deemed sale would be the execution of the contract for the transfer of right to use goods. But in case of an oral or implied transfer of the right to use goods it may be effected by the delivery of the goods. 28. 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. 28. 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. 19. Relying upon the decision in 20th Century Finance Corporation Ltd. AIR 2000 SC 2436 , the apex court held, in State of Uttar Pradesh v. Union of India reported in 2004 (170) ELT 385 (SC), that handing over of possession of the goods is not sine qua non for completing the transfer of the right to use such goods. 20. In Bharat Sanchar Nigam Ltd. v. Union of India reported in [2006] 282 ITR 273 (SC) a three-judge Bench had the occasion to consider the question as to whether delivery of goods is at all necessary for the purpose of effecting the transfer of the right to use the goods. To the question so put, the Supreme court responded by holding that the essence of the right, under Article 366(29A)(d), is that it relates to user of goods and though, in a given case, actual delivery of the goods may not be necessary for effecting transfer of the right to use the goods, yet the goods must be available at the time of the transfer, must be deliverable and delivered at some stage. The apex court pointed out, in Bharat Sanchar Nigam Ltd. [2006] 282 ITR 273(SC), that the decision, in 20th Century Finance Corporation Ltd. AIR 2000 SC 2436 cannot be cited as an authority for the proposition that delivery of possession of goods is not a necessary concomitant for completing a transaction of sale for the purpose of bringing such a transaction within the ambit of Article 366(29A)(d). The apex court also pointed out, in Bharat Sanchar Nigam Ltd. [2006] 282 ITR 273(SC), that in 20th Century Finance Corporation Ltd. AIR 2000 SC 2436 , what the Constitution Bench was required to determine was the situs of the taxable event. In other words, what the Constitution Bench, in 20th Century Finance Corporation Ltd. AIR 2000 SC 2436 , was required to determine was as to where the taxable event, for the purpose of sales tax, takes place in the context of Sub-clause (d) of Article 366(29A), because the States had selected three distinct places for imposing sales tax. In other words, in 20th Century Finance Corporation Ltd. AIR 2000 SC 2436 , three distinctly separate criteria were found to have been used by the States for the purpose of levying sales tax under Article 366(29A)(d). Some States had levied tax, on the transfer of the right to use goods, on the basis of the location of the goods at the time of their use irrespective of the place, where the agreement for such transfer of the right to use such goods was made; while some States had levied tax upon delivery of the goods, in the State, pursuant to the agreements of transfer. Yet another set of States had levied tax on deemed sale on the premise that the agreement of transfer of the right to use had been executed within the State concerned. It is the third view, which found approval by the Constitution Bench in 20th Century Finance Corporation Ltd. AIR 2000 SC 2436 , for, the Constitution Bench took the view that the transfer of the right to use took place, where the agreements were executed and not at the place, where the goods were used, nor at the place, where the goods (pursuant to the agreement) were delivered. 21. 21. Thus, in Bharat Sanchar Nigam Ltd. [2006] 282 ITR 273(SC), the court held that delivery of goods, at some stage, is necessary in order to complete the transfer of the right to use the goods. To put it a little differently, though "situs" of a "deemed sale" does not depend on the place of delivery of goods, the taxable event is not complete, in the light of decision in Bharat Sanchar Nigam Ltd. [2006] 282 ITR 273(SC), until the time the delivery of the goods takes place, for, it is upon delivery of the goods that the transfer of the right to use the goods is completed. This delivery may, however, be actual or constructive. In other words, a "deemed sale" cannot be treated as complete until the time the contract is executed by delivery of the goods inasmuch as the transfer of the right to use goods does not take place until the time the transferor delivers the goods, which is the subject of contract, though, for the purpose of determining the "situs" of such a "deemed sale", it is the place, where the agreement is executed, which will be treated as the place of the "deemed sale" provided that the agreement is in writing; but in case of oral agreement, it may be effected by the delivery of the goods. 22. The relevant observations made, in this regard, in Bharat Sanchar Nigam Ltd. [2006] 282 ITR 273(SC) read as under: 73 [See para 72 in 2006] 3 VST. With respect, the decision in 20th Century Finance Corporation Ltd. v. State of Maharashtra AIR 2000 SC 2436 , 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. 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 para 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.... 23. Explaining, in Bharat Sanchar Nigam Ltd. [2006] 282 ITR 273(SC), its earlier decision, in 20th Century Finance Corporation Ltd. AIR 2000 SC 2436 , the apex court pointed out that while determining the situs of the transfer of the right to use the goods, the court had not observed, in 20th Century Finance Corporation Ltd. AIR 2000 SC 2436 , that the delivery of goods was inessential for the purpose of completing the process of transfer of the right to use; rather, the Constitution Bench held, points out the Supreme Court, in Bharat Sanchar Nigam Ltd. [2006] 282 ITR 273(SC), that the goods must be available, when the transfer of the right to use the goods takes place, and that the Constitution Bench also recognized that for oral contracts, the situs of the transfer may be the place, where the goods are delivered. 24. The apex court further held, in Bharat Sanchar Nigam Ltd. [2006] 282 ITR 273 (SC), that the delivery of the goods may not take place simultaneously with the transfer of the right to use the goods, but the goods must be in existence, deliverable, when the right is sought to be transferred, and must, at some stage, be delivered. 25. It is, therefore, clear that in order to constitute a transfer of right to use goods, there must be parting with the possession of the goods for the limited period of its use in favour of the lessee by the lessor. 25. It is, therefore, clear that in order to constitute a transfer of right to use goods, there must be parting with the possession of the goods for the limited period of its use in favour of the lessee by the lessor. The effective control of the goods must not remain with the owner, but must stand transferred to the lessee for the use by the latter at his will and it is this transfer of the effective control of the goods, which attracts sales tax (See Alpha Clays v. State of Kerala reported in 2004 (2) KLT 235 . 26. In State of Andhra Pradesh v. Rashtriya Ispat Nigam Ltd. reported in AIR 2002 SC 1305 , it was claimed by the sales tax authorities that the transaction, whereby the owner of certain machinery had made available, his machinery to the contractor, amounted to sale. Dealing with this contention of the sales tax authorities, a Division Bench of the Andhra Pradesh High Court held that the transfer of the right to use goods necessarily involves delivery of possession by the transferor to the transferee; but the delivery of possession must be distinct from its custody and that mere transfer of possession does not amount to delivery in the context of the transfer of the right to use goods. In the facts of the case in Rashtriya Ispat Nigam Ltd., it was held by the Division Bench See [ AIR 2002 SC 1305 ] that although the possession of the machinery was given to the transferee, yet the effective custody and control of the machinery having remained with the transferor, such transaction would not amount to transfer of the right to use goods. This decision of the Division Bench was upheld by the apex court in State of Andhra Pradesh v. Rashtriya Ispat Nigam Ltd. AIR 2002 SC 1305 . 27. In contrast, Aggarwal Brothers v. State of Haryana reported in AIR 1999 SC 2868 , was a case, wherein assessee had hired shuttering in favour of the contractor for use of the latter in the course of construction of the building. The apex court opined that the possession of the shuttering materials had been transferred by the assessee to the contractor for their use and, therefore, the transaction was a deemed sale. 28. The apex court opined that the possession of the shuttering materials had been transferred by the assessee to the contractor for their use and, therefore, the transaction was a deemed sale. 28. What is immensely important to note is that in both the cases, namely, in Rashtriya Ispat Nigam Ltd. AIR 2002 SC 1305 as well as in Aggarwal Brothers AIR 1999 SC 2868 , the goods were in existence and the same were delivered to the contractors for their use. However, while in one case, namely, in Rashtriya Ispat Nigam Ltd. AIR 2002 SC 1305 , the transaction was not treated as sale, because there was no intention to transfer the right to use the goods and the effective custody and control of the machinery remained with the transferor, notwithstanding the delivery thereof, the other case, namely, Aggarwal Brothers AIR 1999 SC 2868 is one, wherein not only that the delivery of the shuttering materials took place, but even the right to use the shuttering materials, in any manner as the contractor wanted, stood permitted and it was for this reason that this transaction was held to be a transaction, which amounted to "deemed sale". The relevant observations made, in this regard, by the apex court in Bharat Sanchar Nigam Ltd. [2006] 282 ITR 273(SC) read as under : (page 128 of VST) ...when the assessee had hired shuttering in favour of the contractors to use it in the course of construction of the 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 deemed sale within the meaning of Sub-clause (d) of Clause (29A) of Article 366. What is noteworthy is that in both the cases there were goods in existence which were delivered to the contractors for their use. In one case there was no intention to transfer the right to use while in the other there was. 29. In Bhopal Sugar Industries Ltd. v. Sales Tax Officer, Bhopal reported in [1977] 3 SCR 578, the apex court has pointed out that mere use of the words such as "agent" or "agency" "buyer" or "seller" cannot be sufficient to lead to an irresistible inference that the parties concerned did, in fact, intend that the status, so described in an agreement, shall stand conferred on the party concerned. The apex court has further pointed out, in Bhopal Sugar Industries Ltd. [1977] 3 SCR 578, that unless the context shows that the parties to an agreement clearly intended to treat a buyer as buyer and not as an agent, the mere formal description of a person as an agent or buyer is not conclusive. The observations made, in this regard, in Bhopal Sugar Industries Ltd. [1977] 3 SCR 578 read as under : (page 48) ...while interpreting the terms of the agreement, the court has to look to the substance rather than the form of it. The mere fact that the word 'agent' or 'agency' is used or the words 'buyer' and 'seller' are used to describe the status of the parties concerned is not sufficient to lead to the irresistible inferences that the parties did in fact intend that the said status would be conferred. Thus, the mere formal description of a person as an agent or a buyer is not conclusive, unless the context shows that the parties clearly intended to treat a buyer as a buyer and not as an agent.... 30. From the above discussion, what also clearly emerges is that the question as to whether, in a given case, there is or there is no transfer of the right to use goods becomes a question of fact and this fact can be determined on the basis of the terms of the contract, which may govern a given transaction. In fact, in North East Gases Pvt. Ltd. v. State of Assam reported in [2004] 134 STC 249, this Court has held that the question relating to transfer of the right to use any goods is essentially a question of fact, which has to be determined, in each case, having regard to the terms of the contract, wherein the transfer is made. 31. In view of the fact that the terms of the contract really determine whether, in a given case, there is or there is no transfer of the right to use goods, it is necessary to take note of the relevant clauses of the agreement, which govern the transaction, which is sought to be made exigible to sales tax. The relevant portions of the agreement, in question, are, therefore, reproduced hereinbelow: 32. The relevant portions of the agreement, in question, are, therefore, reproduced hereinbelow: 32. From a reading of the agreement, dated August 1, 2006, which is the subject-matter of controversy in the present writ petition, what clearly transpires is that the cranes were hired by the respondent-Corporation for carrying out the Corporation's operations. Clause (2) of the agreement specifies the scope of work and contract. This clause reads: Clause (2). Scope of work/contract.-(1) The services of the manned (driver/operator/slinger/khalasi, etc., as the case may be) crane (type of vehicle/equipment to be given) as per the technical specifications given herein or a vehicle/equipment of equivalent technical specifications and acceptable to ONGC, along with the necessary accessories, with valid permits/licenses/insurance, etc., sufficient fuel, in well-maintained condition and fulfilling other pre-requisites, should be available for performing the duties as advised by ONGC, at the appointed time and place, throughout the contract period, not by way of lease or transfer of rights for use of the vehicle/equipment, by the contractor to ONGC. (Emphasis supplied) (2) The work under this contract shall include but not limited to dismantling/erection of deep-drilling rigs/work-over rigs besides loading/unloading, bunk houses, store houses of odd size and all connected rig material from or into trailers/trucks/railways wagons besides any other materials handling jobs as may be assigned from time to time by authorized representative of ONGC at various points/sites (slushy)/installations, etc. The area of operation shall normally be in connection with the activities of Assam asset of ONGC or anywhere as per the requirement of ONGC, in and around Sivasagar, Jorhat, Dibrugarh, District Assam. 33. From a reading of the "scope of work", what becomes clear is that the cranes were to be made available by the petitioner to the respondent-Corporation, at the appointed time and place, for the purpose of performing such duties as may be assigned by the respondent-Corporation. The agreement itself clearly states that the contract is not a contract for lease or in the form of transfer of rights for use of the cranes. The agreement itself clearly states that the contract is not a contract for lease or in the form of transfer of rights for use of the cranes. In the face of the terms of the contract, in question, it becomes clear that the cranes were to be made available for carrying out the Corporation's operation only; hence, the contract, in question, could not have been treated to have constituted a lease nor was the contract, in question, a transfer by the contractor of his right to use the cranes in favour of the respondent-Corporation. Thus, the agreement, in itself, refuses to recognize the transactions, in question, as a lease or as a case of transfer of the right to use the cranes in favour of the respondent-Corporation by the petitioner. Apart from the fact that the petitioner was required, under the said agreement, to provide not only the cranes, but their drivers and operators too, it is the contractor, who has to bear the expenses for fuel and repairing charges of the vehicles. The petitioner was required to place the vehicles at the place of duty on day-to-day basis at the appointed time. Thus, the vehicle was never handed over into the custody of the respondent-Corporation; and the respondent-Corporation never exercised, in respect of the vehicles, any right as if the vehicles were in the custody and control of the respondent-Corporation. 34. It may be pointed out that Clause 1.1 defines "operational time" to mean the time during which the crane remains at the site of the work in actual operation, i.e., during the course of loading, unloading and movement requiring positioning of the cranes. Thus, the cranes were to be utilised only during the operational time. 35. Let me, now, turn to Clause 7 of the agreement, which deals with the award of contract. This clause reads: Clause 7. Award of Contract: 7.1 ONGC reserves to the right to award whole or part of the work against this contract to any number of contactors at its sole discretion. 7.2 The Contractor will have no right to claim any particular share in total work and ONGC shall have sole discretion for distribution of work amongst other contractors. Award of Contract: 7.1 ONGC reserves to the right to award whole or part of the work against this contract to any number of contactors at its sole discretion. 7.2 The Contractor will have no right to claim any particular share in total work and ONGC shall have sole discretion for distribution of work amongst other contractors. 7.3 ONGC also reserves the right to award the contract for any or all the jobs under this contract to any other contractor(s) at any time during the currency of contract without assigning any reason whatsoever. The contractor shall not be entitled to any compensation whatsoever in such cases. 7.4 ONGC also reserves the right to get the work covered under the contact done departmentally or through some arrangement in part or in full at its sole discretion. The contractor shall not be entitled to any compensation in such cases. 7.5 ONGC also have the right to withdraw any job in part or full from the contractor without assigning any reason and at any stage of work. Payment to the contractor in such case shall be restricted to the actual job done by him and the amount payable shall be decided by the authorized officer of ONGC which shall be final and binding on the contractor. 7.6 The award of the contract to the contractor does not entitle him the exclusive right to deploy the crane for all requirement of ONGC. 36. From Clause 7, what becomes clear is that the petitioner was awarded a contract of a particular work. The very fact that the ONGC has retained, under the agreement, a right to award the whole or a part of the work, which was assigned to the contractor, to a number of contractors, makes it obvious that the contract was not for taking the cranes on lease, but for carrying out the respondent-Corporation's operations. 37. In fact, the respondent-Corporation also reserved the right, under Clause 7, to get the work (covered under the contract) done departmentally or through some other arrangement in different parts or in full. This, in turn, shows that the agreement was only for carrying out the corporation's operations and not for handing over the cranes on lease. 38. Clause 8 of the agreement deals with the operational norms and conditions. The relevant portions of Clause 8 are reproduced hereinbelow: Clause 8. This, in turn, shows that the agreement was only for carrying out the corporation's operations and not for handing over the cranes on lease. 38. Clause 8 of the agreement deals with the operational norms and conditions. The relevant portions of Clause 8 are reproduced hereinbelow: Clause 8. Operational norms/conditions: 8.1 The employees of the contractor and/or its sub-contractor if any, although working for at the discretion of ONGC, shall be and remain the employees of the contractor and such working arrangement shall in no way create or to be construed to create an employer-employee relationship between such employee and ONGC. The contractor shall also undertake to replace any of their employee(s) who misbehave(s) with the employee(s) of ONGC or whose continuation may hamper the smooth operation under the contract. 8.2 The contractor shall do all acts and deeds as and when required and necessary for rendering services against this contract whether expressly provided in the contract or not and whether directly related or incidental thereto. No extra charges shall be payable to the contractor for attending to all jobs and liaison work. 8.3 The crane is being hired for work in oil field conditions, which in addition to normal operations of oil field include hazardous situation like blow out in wells. In such hazardous situation the crane shall have to work as per the direction of ONGC authorized representative and carry out the desired work within the hazardous zone. Refusal to work under these situations shall not be acceptable and may lead to de-hiring the crane. 8.4 The contractor shall render the services mentioned herein this contract and other auxiliary/and incidental services as may be ordinarily required for operation of such contract by way practices, customs or usage and/or as prescribed by the law of the land. 8.5. The contractor shall not employ ONGC's serving employees without its prior permission, ex-personnel of ONGC who have retired, resigned or have been terminated by ONGC shall also not be employed by the contractor during their I/II years from the date of quitting the services without permission of ONGC. ONGC may decide not to deal with such contractors/firms who fail to comply with the above advice. 8.6. ONGC may decide not to deal with such contractors/firms who fail to comply with the above advice. 8.6. The bidder must have as office with regular telephone connection at Nazira/Sibasagar or submit an undertaking that he/they shall establish an office with telephone connection at Nazira/Sivasa-gar within 30 days from the date of issue of LOA. The bidder shall submit the duly notarized from notary public/Magistrate of the recent telephone bill for proof of office and telephone connection. 8.7 for the purpose of day-to-day or time-to-time operation, instructions shall be given to the contractor's representative by an authorized representative of ONGC and the operations/loading/unloading, etc. shall be carried out according to the priorities and instructions given by such representatives on ONGC. 8.8 The denial or failure of the execution of timely operations or delays due to poor planning or failure to take timely actions or delay attributed by bad, inefficient operations of crane/prime mover including bogging down of the cranes, etc. shall be to the account of the contractor and shall not count towards the operational time and make the contractor liable for imposition of liquidated damages as per Clause 2.2 of the contract. Such loss of operational time shall be governed by the relevant clause. 8.9. The denial or failure of the execution of the timely operations or delays due to poor planning or failure to take timely actions or delays attributed by bad, inefficient operations of crane/prime mover including bogging down of the crane(s), etc., shall be to the account of the contractor and shall not count towards the operational time and make the contractor liable for imposition of liquidated damages as per Clause 2.2 of the contract. Such loss of operational time shall be governed by the relevant clause. 8.10. In case of bogging down of the crane(s) not due to the fault of the operator or the machine, then the liquidated damages shall not be imposed. Any expedients available with ONGC at the site of work may be extended to help the retrieval of the crane at the sole risk of the contractor towards safety of his crane and crew. However, the time so lost shall not qualify for any payment whatsoever unless compensated within the calendar month by the way of extra working hours on demands by ONGC. 8.11. The crane are required to be placed at the disposal of ONGC on daily rate basis. However, the time so lost shall not qualify for any payment whatsoever unless compensated within the calendar month by the way of extra working hours on demands by ONGC. 8.11. The crane are required to be placed at the disposal of ONGC on daily rate basis. Normal working hours will start from 7 hour for 10 hours duty every day with 1/2 (half) hour as lunch break. However, these timings are subject to change and the cranes could be asked for services beyond these working hours at the sole discretion of the ONGC. 8.12. The contractor is required to provide the crane for all days in a calendar month, excepting for 4 (four) days (maintenance off days). The four days shall be called maintenance off days and will be used by the contractor for maintenance of the crane. However, ONGC reserves the right to engage the crane during the maintenance off days depending upon the exigencies of work. The contractor is allowed to accumulate the off days (if not availed) up to a maximum of 15 days at any point of time during the enforcement of the contract, in case the cranes are engaged during the 4 off days of each month for exigencies of work. 8.13. The contractor shall ensure that the time taken by the crane in movement from one field/site to another field/site shall not exceed the normal travelling time. The "normal travelling time" shall be computed at an average speed of 20/15 km per hour for metal/kutcha and cross-country road. 8.14 The contractor shall make his own arrangement at his cost for shelter, food, night stay and other requirements of their staff/representatives, etc., at a convenient place near the site of operation so that the crane is available for duty from 7.00 hours to 17.00 hours (or as directed by the authorized representative of ONGC). Similarly to and fro transport arrangement shall be made by the contractor for all his staff/representative at his own cost and when required for the continuity of the operations or for staff replacement needed in any particular field/site or for any other purpose. The contractor shall maintain adequate transport for such adequate assistance. 8.15 The contractor shall have proper and adequate arrangement for the fuel, lubricants and other consumables, etc., all the time to complete the job within the scheduled time. The contractor shall maintain adequate transport for such adequate assistance. 8.15 The contractor shall have proper and adequate arrangement for the fuel, lubricants and other consumables, etc., all the time to complete the job within the scheduled time. Without prejudice to any other rights that ONGC may have under the contact, the contractor shall be liable to pay the liquidated damages to ONGC in case contractor fails to complete the work in scheduled time and the assigned manner. The scheduled time shall be computed based on standard norm of operations settled mutually. In case of any dispute the decision of the competent authority of ONGC shall be final and binding on contractor. 8.16. All the works related to operation of cranes, repairs/maintenance, POL shall be arranged by the contractor at his cost. In the event of failure of contractor to place the cranes at the disposal of ONGC for its work at the appointed time and place, ONGC shall be at liberty to make alternative arrangement at the risk and cost of contractor and such arrangement shall continue till such time a proper substitute of the defective hired cranes is arranged or defect of the hired cranes is rectified, whichever is earlier, or limited to contract period. The time for which the crane is not available for use at the disposal of ONGC due to any defect will be treated as non-operational time. No reference, however, will be made to the contractor by ONGC while arranging the crane at his risk and cost. The additional cost incurred in making alternative arrangement, shall be debited to the contractor and recovered from its bills, against his contract from payment due to the contractor or against other contact, if any, with ONGC. The contractor shall have no claim to limit the cost of making alternative arrangement to the agreed rate, as per the provisions of the contract arrangement. 8.17. All the operational staff (competent and mentally fit), viz., driver/crane operator/rigger-slingers/khalasi/hanyman/cleaners, etc., shall be provided by the contractor at his own cost along with crane. The staff should be skilled/experienced in the line for the proper/safe operation of crane such as loading/unloading/slinging dunnage placement, etc. The experience of the crew should not be less than three years. 8.17. All the operational staff (competent and mentally fit), viz., driver/crane operator/rigger-slingers/khalasi/hanyman/cleaners, etc., shall be provided by the contractor at his own cost along with crane. The staff should be skilled/experienced in the line for the proper/safe operation of crane such as loading/unloading/slinging dunnage placement, etc. The experience of the crew should not be less than three years. However even if during the currency of the contact, if ONGC is not satisfied with performance of any crew member, the contractor shall be required to replace the same. 39. From a cautious reading of Clause 8, what transpires is that the contractor has to operate the cranes for performing the Corporation's operations with the contractor's own operating staff. In fact, Clause 8.1 of the contract agreement makes it clear that the contractor's employees shall remain as the employees of the contractor. Clause 8.2 shows that the contractor has to do all acts and deeds as and when required and necessary for rendering services under the contract, irrespective of the fact as to whether a particular act or deed has been expressly provided in the contract or not, and that no extra charges shall be payable to the contractor for attending to such jobs and liaison work. The provisions, so contained in Clause 8.2, more than abundantly demonstrate that the contractor was responsible to carry out the assigned operational work; hence, in such circumstances, the transaction could not have been treated as "lease". 40. Clause 8.4 clarifies that the agreement is for rendering services as mentioned in the contract. Under Clause 8.15, the contractor has to make arrangement for fuel, lubricants and other consumables, etc., all the time to complete the job within the scheduled time and that the contractor shall be liable to pay liquidated damages to the respondent-Corporation, if the contractor fails to complete the work within the scheduled time and in the assigned manner. Such terms, incorporated in the contract agreement, clearly show that the agreement, in question, was for rendering services and not for giving the cranes, on lease, to the respondent-Corporation. Though Mr. Saikia has submitted that the contents of Clause 8.7 make out a case of lease, I find considerable force in the submissions of Mr. Such terms, incorporated in the contract agreement, clearly show that the agreement, in question, was for rendering services and not for giving the cranes, on lease, to the respondent-Corporation. Though Mr. Saikia has submitted that the contents of Clause 8.7 make out a case of lease, I find considerable force in the submissions of Mr. Sahewalla, that Clause 8.7 read with Clause 8.8 clearly shows that the field operational planning required not only the presence of the authorized representative of the respondent-Corporation, but also instructions from him so as to ensure that the operations/loading/unloading, etc., are carried out according to the priorities and instructions of the respondent-Corporation. Thus, it is the contractor, who was to execute the operations and was to be held responsible for the delay, if any, in the execution of the operation. This, in turn, shows that the right to use remains with the contractor. 41. The contents of Clause 8.16 make it clear that in the event of failure of the contractor to place the cranes in time, the respondent-Corporation reserved the right to make alternative arrangement at the risk and cost of the contractor. Had the respondent-Corporation possessed the right to use the cranes, the question of the cranes not being placed by the contractor in the control of the ONGC would not have arisen. The clause aforementioned clearly shows that the agreement, in question, was for rendering of service and not for giving the cranes, on lease, to the respondent-Corporation. 42. Let me, now, turn to Clause 11 of the agreement, which deals with the rates and the mode of payment. Clause 11.2, which is relevant for our purpose, reads as under: Clause 11.2 For work done under the contract, the contractor shall be paid at the rate shown hereunder: For each type III crane (A) Operational time charges per day with 10 hours operational times, (This is finalized in the contract) Rs. 9,450.00 (rupees ine thousand for hundred fifty only) (B) Empty run charges per k.m. for moving the crane at the instance of ONGC from one field to another. (This is ONGC’s prefixed charge) Rs. 20.00 (rupees twenty only (C) Additional/deduction on account of excess/shortfall in operational hours. (this is as calculated in Clause 1.11) Operational time charges per hour. (D) Payment for use of crane per day during maintenance off days for the crane. (This is ONGC’s prefixed charge) Rs. 20.00 (rupees twenty only (C) Additional/deduction on account of excess/shortfall in operational hours. (this is as calculated in Clause 1.11) Operational time charges per hour. (D) Payment for use of crane per day during maintenance off days for the crane. 50% of the operational time charges per day. 43. From the rates, as reproduced above, it is clear that the rates are applicable on the basis of the work done by the contractor and on the basis of the use of the cranes. Thus, depending upon how much work has been done by the contractor the rates would be paid. Hence, the rates make it clear that the agreement is performance oriented, i.e., depending upon the actual performance of work that the payments would be made. Had the transaction amounted to lease, it would have been immaterial as to whether the work has been done by the contractor or not so long as the cranes remain at the work-site of the respondent-Corporation. Leaving no one in doubt, Clause 11.2 of the agreement specifically mentions that the payment of charges shall be made on the basis of the actual operation of the cranes. 44. Clause 12 of the agreement is escalation and de-escalation clause. Clauses 12.1 and 12.2 of the agreement, which are relevant, read as under: Clause 12. Escalation/de-escalation: 12.1 No increase or decrease in rates of hiring shall be permitted EXCEPT ON ACCOUNT OF VARIATION IN THE PRICE OF DIESEL ONLY. All other variation in prices shall be to the account of contractor. 12.2 Escalation/de-escalation shall be applied when the charges in the diesel retail rate is a minimum of Re. 1 per litre at a time. In case the change in the diesel price is less than Re. 1 (one) per litre, at a time, escalation/de-escalation shall be applied when the cumulative of each changes becomes Re. 1. The new price of diesel is effective only from the date when the cumulative total hike is Re. 1. Only the price of diesel fixed by IOC/HPCL/BPCL/AOC/their authorized agents as per Government notification issued from time to time, shall be considered. 45. From the reading of the Clauses 12.1 and 12.2, what becomes clear is that the rate or hiring charges may increase or even decrease on the basis of the variation in the price of diesel. 1. Only the price of diesel fixed by IOC/HPCL/BPCL/AOC/their authorized agents as per Government notification issued from time to time, shall be considered. 45. From the reading of the Clauses 12.1 and 12.2, what becomes clear is that the rate or hiring charges may increase or even decrease on the basis of the variation in the price of diesel. This clearly shows that the cranes were hired by the respondent-Corporation for the purpose of respondent-Corporation's works, but the works were to be performed by the contractor himself. Had the right to use the cranes been transferred to the respondent-Corporation from the petitioner, there was no need to make the rates dependable on the price index of fuel, for, in the case of lease, the respondent-Corporation would have paid for the fuel and, in such circumstances, the rate, at which the respondent-Corporation were to buy fuel, would have been immaterial for the contractor. 46. Clause 36 of the contract agreement deals with performance of the contractor and is, therefore, of great relevance. Clause 36 is quoted below: Clause 36. Performance: The contractor shall undertake to perform all services under this contract with all reasonable skill, diligence and care in accordance with sound industry practice to satisfaction of Corporation and accept full responsibility for the satisfactory quality of such services as performed by them. Any defect, deficiencies noticed in the contractor's service will be promptly remedied by the contractor within 10 days upon the receipt of written notice from the Corporation to improve their performance failing which the Corporation may terminate the contract by giving the contractor 30 (thirty) days written notice. 47. From a minute reading of Clause 36, it becomes abundantly clear that the contractor shall undertake to perform all services under the contract with reasonable skill, diligence and care and that the contractor shall accept full responsibility for the satisfactory quality of such services as may be performed by him. Clause 36, thus, makes it crystal clear that the agreement between the petitioner and the respondent-Corporation was only for rendering service and not for transfer of the right to use the cranes. In fact, in the agreement in question, no element of the transfer of the right of the contractor, to use the cranes, to the respondent-Corporation, is present. 48. Clause 36, thus, makes it crystal clear that the agreement between the petitioner and the respondent-Corporation was only for rendering service and not for transfer of the right to use the cranes. In fact, in the agreement in question, no element of the transfer of the right of the contractor, to use the cranes, to the respondent-Corporation, is present. 48. The various clauses of the agreement, which have been discussed above, make it clear that the cranes were hired for the execution of the respondent-Corporation's operation by the contractor and that the transactions never amounted to transfer of the right to use the cranes in favour of the respondent-Corporation. The cranes were only provided by the petitioner, as contractor, for the purpose of carrying out the Corporation's operation by the petitioner himself. There was no delivery of possession of the cranes, from the end of the petitioner to the respondent-Corporation, and the effective custody and control of the cranes remained, at all relevant point of time, with the petitioner. The fact that the agreement requires that the cranes shall be identified shows that the identification of the cranes was only for the safety reasons inasmuch as the cranes were to be used in oil sector. A patient reading of the agreement, as a whole leaves no room for doubt that the agreement was not an agreement for taking the cranes on lease. 49. Because of the fact that the agreement between the parties concerned did not constitute a lease within the meaning of the relevant provisions of law, the respondent-Corporation cannot realize and/or deduct tax, at source, from the bills of the petitioner, the amount payable to the petitioner, for the work, which the petitioner might have carried out on the strength of the agreement, in question. 50. Because of what have been discussed and pointed out above, this writ petition is disposed of making it clear to the respondents that the respondents shall not make any deduction, at source, from the bills of the petitioner, of any amount(s), which form the subject-matter of controversy in this writ petition. 51. With the above observations and directions this writ petition shall stand disposed of. No order as to cost.