K.P. Mozika Vs. Oil and Natural Gas Corporation Ltd. and Ors. (Neutral Citation: 2024 INSC 27) - (Supreme Court) (09 Jan 2024)

When the substantial control remains with the contractor and is not handed over to the user, it can’t be termed as sale and Sales Tax or VAT can’t be applied

MANU/SC/0027/2024

Sales Tax/VAT

Present group of appeals concerns the liability to pay tax under the Assam General Sales Tax Act, 1993 ('the Sales Tax Act') and the Assam Value Added Tax Act, 2003 ('the VAT Act'), respectively. In some cases, in this group of appeals, the Assessees have, under a contract, agreed to provide different categories of motor vehicles, such as trucks, trailers, tankers, buses, scrapping winch chassis, and cranes, to the Oil and Natural Gas Corporation Limited ('ONGC'). There are other cases where Indian Oil Corporation Limited ('IOCL') has entered into agreements with transporters to provide tank trucks to deliver its petroleum products. The question is whether, by hiring these motor vehicles/cranes, there is a transfer of the right to use any goods.

If there is a transfer of the right to use the goods, it will amount to a sale in terms of Clause 29A(d) of Article 366 of the Constitution of India. If the transactions do not fall in the definition of 'Sale' in Clause 29A(d), the same may not attract tax under the Sales Tax Act or the VAT Act. As a result, there will be other questions about whether the transactions will amount to service, thereby attracting liability to pay service tax.

On a conjoint reading of the clauses, it is apparent that, there is no intention to transfer the use of any particular tank truck in favour of ONGC. The contract is to provide tank trucks for the transportation of goods. Once the tank trucks provided by the contractor are loaded with goods, the entire responsibility of their safe transit, including avoiding contamination, delivery, and unloading at the destination, is of the contractor. Therefore, it is impossible to conclude that there is a transfer of the right to use tank trucks in favour of IOCL. Essentially, it is a contract to provide the service of transporting the goods using tank trucks to IOCL.

Essentially, the transfer of the right to use will involve not only possession, which may be granted at some stage (after execution of the contract), but also the control of the goods by the user. When the substantial control remains with the contractor and is not handed over to the user, there is no transfer of the right to use the vehicles, cranes, tankers, etc. Whenever there is no such control on the goods vested in the person to whom the supply is made, the transaction will be of rendering service within the meaning of Section 65(105) (zzzzj) of the Finance Act after the said provision came into force.

The contracts are not covered by the relevant provisions of the Sales Tax Act and of the VAT Act, as the contracts do not provide for the transfer of the right to use the goods made available to the person who is allowed to use the same. Appeal allowed.

Tags : PAYMENT PROVISION APPLICABILITY