The State of Maharashtra v. Sanghavi Movers Ltd.

9. If any break down occurs while mobilisation of crane, SISL shall consider the same as hiring period upto the grace period agreed between SISL & SML. i.e. if time consumed towards repairing of the crane is extended beyond the grace period, the crane shall be considered as de-hired for that period.

10. Grace period will be applicable to account for problems like breakdown, border crossing etc, and would be: a. 1 Grace Day upto distance of 500 kms. b. 2 Grace Days upto distance of 500-1000 kms. c. 3 Grace Days upto distance more than 1000 kms.

11. SISL shall pay over and above the hiring charges, entry taxes for Karnataka/Andhra Pradesh/Tamil Nadu & RTO tax for Gujarat State. However, SML shall advise SISL the approx. cost towards this per month.

12. Regarding ownership of crane, same shall remain with SML. However SML cannot use the subject set of cranes for any other parties job during the contract period unless a written approval is given by SISL.

13. All required oil, maintenance and arrangements like accommodation, lunch, local conveyance (four wheeler), site advance for SML personnel like crane operators, helpers, maintenance men, etc. shall be arranged and borne by SML.

14. All tools, spanners, slings, slippers and maintenance items required for smooth functioning of the crane shall be arranged by SML.

15. SML shall provide suitable manpower so as to enable SISL to make use of cranes for completing 8-10 towers per month if 100% material is available.

16. As per our standard terms, since contract duration is for more than one year, de-mobilisation charges are not applicable.

17. Insurance of the crane operators/helpers and crane team members of SML shall be arranged & borne by SML. SML shall provide all necessary safety gear like safety shoes, safety helmet etc. for their personnel. Any safety, health & environment requirements implemented by SISL from time to time shall be binding on SML.

18. SML shall make Its own arrangement like watch and ward, etc. towards security of their equipment and SISL shall not accept any responsibility in this regard.

19. A log book is to be maintained on daily basis by crane operator for working hours of the cranes and it should be signed by site incharge/authorised person of SISL. In no case SISL shall sign log book for more than one day together. This is a prime requirement and is to be followed strictly to avoid any misunderstanding/dispute at a later date.

20. SML shall submit their invoice on calender month basis with detailed certified log book to SISL-Pune for the attention of DGM-Purchase and SISL shall make the payment within 15 days after necessary verification. However commitment is for 30 days.

21. The total holidays per month to be observed shall be no. of Sundays of particular month and not necessarily Sundays/National holidays/Festivals in view of uncertainty prevailing in the site work/schedule of materials. In short, crane shall be used for minimum 26 days a month (10 hours a day) from the date of readiness of crane.

22. The crane shall be required to move from one tower to another as per requirement of SISL.

23. The complete set of the cranes would be operated within the load chart limits and in case of any different jobs SISL and SML shall study the feasibilities and decided accordingly.

24. If the subject crane hired under this contract breaks down during the hiring period, then SML will put the crane back into operation within 24 hours after doing all necessary repairing work. However, if cranes are not repaired within above period, SML shall arrange for alternative crane. The period consumed for repairing shall be considered as de-hiring period.

25. Because of break down of any equipment if total set of cranes remains idle then, the break down period shall be considered as de-hiring period for whole set i.e. SISL shall make payment to SML for only those equipment which are used by SISL during this period.

26. SML has assured to extend full co-operation of their crane crew members keeping in mind September & March end deadline of SISL. In short SML crane crew members shall put additional efforts to meet SISL requirements during that period.

27. TDS and other taxes shall be deducted from SML bills, as per government rules.” (emphasis supplied)

7. Mr. Sonpal, Special Counsel appearing for Appellant contended that the Tribunal erred in holding that the transaction of Respondent in hiring its cranes to its clients is not a transaction transferring the right to use and thereby not exigible to VAT and CST. He submitted that the question, whether a particular transaction is deemed to be a ‘sale’, depends on the facts of each case and there is no general proposition in that regard. Drawing our attention to the ‘Notes to Vendor’ appearing at the foot of the work order, Mr. Sonpal contends that the cranes were given to SISL upon ‘delivery’ and with a right to reject the cranes if not found to be as per specifications mentioned in the work order. He also refers to the contract riders specifying the period during which the cranes are to be deployed, the exclusive use to be made by SISL and the operators to work as per the instructions of SISL, etc. According to him this clearly indicates that the use of cranes is as per the control of SISL during fixed hours and as per the discretion of SISL. Remuneration for hire of crane is also fixed on an hourly basis. Mr. Sonpal further relies upon decisions of various High Courts including this Court and the Supreme Court to canvas his submission that possession is not a sine qua non for a transaction to be treated as a ‘sale’. Mr. Sonpal submitted that: (a) the goods provided to lessee must be in control of use by the lessee; (b) delivery is not a condition precedent to treat a transaction as transfer of right to use goods;

(c) it is immaterial if the employees of the lessor are paid salaries by the lessor or the lessor pays for fuel for operating equipment or the lessor pays for getting the maintenance work done and it is immaterial if the lessor assumes physical possession of goods during the period of contract;

(d) there can be no issue on the legal proposition as laid down by the three judgments mentioned above but the key to the matter is effective control as held in Rashtriya Ispat Nigam Limited (Supra). The effective control of the tankers was with HPCL and the owner was not free to make use of the tankers for the works other than the project work of respondent or for his own use. That would mean there was a deemed sale; (e) Bramhaputra Vally Construction and Suppliers V/s. ONGC,[1] is clear on the proposition that where a party has effective control and dominion over the goods during the subsistence of the contract, though the physical possession may be with the owner, there will be a deemed transfer of right; (f) In Waltor Buthello of Mumbai V/s. The Commissioner of Sales Tax,[2] where the facts were similar, the Bombay High Court had held that there was an effective transfer. Even in the case of Waltor Buthello of Mumbai (Supra), the driver with uniform was to be provided by the lessor at his cost, the wages had to be paid by the lessor, the fuel and maintenance was to be provided by the lessor and the damages were to be borne by the lessor. The driver was obliged to follow instructions of the authorities of PMT (lessee). The agreement also provided that in no circumstances a hired bus will be diverted by contractor for personal use or gain of any other business and the lessor has to ply on the routes exclusively determined by the PMT. Still the Court held that the buses were deemed to be in effective control of PMT and hence, there was a deemed sale; (g) Twentieth Century Finance Corporation Limited and Anr. V/s. State of Maharashtra[3] says handing over of physical possession is not required to decide transfer of right to use; 1 (2012) 53 VST 401. 2 (2017) 101 VST 128 Bombay.

(h) In the case of Deepak Nath V/s. ONGC,[4] the Court concluded that the mere fact that after the operation of the crane is over on any given day the crane may come back to the owner/contractor will hardly be material to decide as to who has dominion over the crane. Temporary physical possession of the contractor, the Court held, would be hardly relevant;

(i) G.S. Lamba and Sons V/s. State of Andhra Pradesh[5] says to determine the nature of the transaction one has to consider the agreement and having considered the agreement between appellant and HPCL, there can be no doubt that there was a transfer of right to use; (j) The following facts emerge from the agreement between appellant and HPCL:

(i) The tankers are identified by registration number and are attached to particular loading location.

(ii) Tankers are in exclusive use of Company for transportation of petroleum products to customers and other loading stations.

(iii) AHS is not entitled to use the tank truck contracted by oil company for any other product and would operate only for the oil company with whom the agreement is entered into. 4 (2010) 31 VST 337 (Gauhati). 5 (2011) 43 VST (AP).

(iv) AHS cannot assign the rights under the contract, title and interest in tankers during the period of agreement.

(v) The tankers are available to oil company at its call at all the times during the period of agreement.

(vi) The oil company has full authority to change the base loading location, resitement, as per oil company's own operational convenience/requirement for delivery of petroleum products.

(vii) Crew is under control of oil company as they have to follow the route approved by oil company and obey the instructions of delivery and collect cheques and return the documents to Company. (k) The clauses in the agreement reveal that oil company is in exclusive possession and use of the tankers to transport its petroleum products and have full control over the tankers and crew for transportation and delivery of petroleum products to customers/other locations. The agreement in clear terms provides for transfer of right to use the trucks for transportation of petroleum products of oil company.”

8. Referring to the decision in Waltor Buthello of Mumbai (supra),[6] Mr. Sonpal contends that the transaction herein shall be liable to be treated as ‘deemed sale’ despite the crew members operating goods or maintenance work or possession are of Respondent. He thus submits that in view of the settled legal position, Respondent’s case fulfills the criteria of a transaction transferring ‘the right to use’ and hence the Appeal is liable to be allowed.

9. Per contra, Mr. Darius Shroff, Senior Advocate appearing for Respondent defends the Tribunal’s order by saying that Respondent merely hired its cranes to SISL and there is no transfer of ‘the right to use’ and hence no VAT is payable. He finds fault with the assessment order dated 31st March 2005, by which the Department sought to levy VAT on the transactions on the ground that the dominant intention of the contract was a transfer of the right to use by laying emphasis on various contract riders and submits that the order of the Tribunal needs no interference. Mr. Shroff submitted:

(i) There is neither a delivery of the cranes nor possession is given to SISL. Cranes are simply deployed. The specifications mentioned in the contract are to be met failing which SISL is not liable to make payment.

(ii) The payment of hire charges starts only after the cranes are put into operation which clearly does not suggest handing over of possession. Merely giving a delivery address does not transfer effective control over the cranes to SISL. The delivery in law should have the intention of passing a right of the owner in the property to another person.

(iii) The specified timing of work do not indicate transfer of right to use, but merely indicates the duration for which the cranes are to operate.

(iv) Submission of fitness certificate and load chart of the cranes by

Respondent certified by Government approved Agencies and the requirement of compliance by the operating crew of all statutory mandates like PUC, RTO, other licenses, etc. is to ensure the same to be instantly available for inspection by any authorities and does not indicate any transfer of the rights to use to SISL to the exclusion of Respondent.

(v) Mobilization of cranes from one site to another as per requirements of SISL is itself the object of deployment, the same being setting up windmills at various sites which are at times more than 100 kms. apart. This does not remotely suggest that Respondent parted with the effective control over the cranes.

(vi) The rider that in case of breakdown of any crane during mobilization, SISL shall consider the same as ‘hiring period upto the grace period’ agreed between the parties does not reflect upon the possession and control of SISL. Similarly, the fact that Respondent was liable to pay entry tax to those States where the cranes were deployed clearly indicate the possession and control of Respondent over the cranes.

(vii) The condition that although the ownership of cranes remained with Respondent, Respondent was not permitted to use any crane for any other party’s job during the contract period without the written approval of SISL does not in any manner indicate ‘deemed sale’.

(viii) The rider regarding Respondent being responsible for its own arrangements towards watch and ward towards the security of the cranes also indicate that possession was always with Respondent.

10. Mr. Shroff also relied upon the following decisions to buttress his contention that the hiring of cranes to SISL cannot be construed as a transaction of transfer of the right to use inviting liability to pay VAT:

(i) Aurobindo Highway Services v. The State of Maharashtra.[7]

(ii) Nayana Premji Savala v. Union of India & Ors.[8]

(iii) M/s. Rashtriya Ispat Nigam Ltd. v. The Commercial Tax Officer, & Anr.[9]

(iv) State of A.P. & Ors. v. Rashtriya Ispat Nigam Ltd.10

(v) Bharat Sanchar Nigam Ltd. & Anr. v. Union of India & Ors.11

(vi) The Commissioner of Sales Tax Maharasthra State v. M/s.

(vii) Commissioner of Sales Tax, Maharashtra State, Bombay v. Rolta

Computer & Industries Pvt. Ltd.13 (viii)Commissioner of Customs (Import) v. Stonemann Marble Industries & Ors.14 Overview:

11. The Tribunal has dealt with each and every submissions made by the parties in detail and has also discussed in depth the applicability of the decisions cited by the parties. Considering the terms and conditions of the agreement, i.e., the work order, between Respondent and SISL, the ratio in the decision of General Cranes (supra), the Tribunal has noted some of the salient features of the contract conditions in General Cranes (supra). In General Cranes (supra), the terms of the contract were: (1) though the shift timing were predetermined, there was provision for working overtime and payment for the same on a pro rata basis; (2) breakdown of equipment was to entail pro rata deduction from payment; (3) hire charges were to commence only on the equipment being ready in all respects for operation on the site; (4) all papers statutorily required to operate cranes were to be kept with the cranes and copies thereof were to be submitted to the client; and (5) General Cranes was to supply requisite set of accessories, spares so as to meet the contingencies of breakdown and maintenance.

12. The Tribunal has compared the attributes of transfer of the right to use goods as discussed in General Cranes (supra) with those in the present matter, i.e., the clauses of the contracts in both matters. The Tribunal has observed that the clauses in both the cases are substantially similar. No clause in the contract in this case can be construed so as to conclude that there was intention to transfer the right to use the cranes in favour of SISL. Every clause in contract and in particular the emphasized portion as quoted above, unmistakably lead to the conclusion that the cranes were under effective control and possession of Respondent herein and during the contract period, the same were in the custody of SISL. It indicates there was no transfer at all, let alone transfer of the right to use. It was a clear case of giving on hire of cranes. The Tribunal has also considered the definition of ‘sale’ in the MVAT Act, which is as follows: “ “Sale” means the transfer of the rights to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or any valuable consideration and the word “sell” with all its grammatical variations and cognate expressions shall be construed accordingly.”

13. The corresponding provision under the Act is the definition of ‘sale’ in Section 2(24) of the Act. Comparing the two corresponding provisions, the Tribunal has found full support in the contention of Respondent that the same are in ‘pari materia’. Hence the Tribunal has held that the decision in General Cranes (supra) is totally applicable to the present case and thus, the ultimate control over the cranes being retained by Respondent, there is no question of transfer of right to use. Thus, the Tribunal allowed the Appeal of Respondent.

14. We do not find any infirmity in the discussion and finding of the Tribunal. When would there be a transfer of right to use any goods has been extensively discussed by this Court in Aurobindo (supra). In Aurobindo (supra), this Court has discussed various decisions of other High Court and the Apex Court. The ratio in all the decisions settles the law that answers to the substantial questions framed depends essentially on the facts and circumstances of each case. The riders in the work order in the present case clearly indicate inter alia that:

(i) SISL was interested in hiring the cranes for transportation of accessories to various sites where the windmills of SISL were to be erected.

(ii) The risk of the cranes and transportation was on Respondent.

(iii) The duration of contract and the timing during which the cranes were to be deployed were specified.

(iv) Recording the data of diesel consumption and filling up diesel into the cranes was the responsibility of Respondent.

(v) Fitness certificate and load chart of all cranes certified by

(vi) Hiring charges were to be paid by SISL.

(vii) Ownership was strictly to remain with Respondent and all tools, spanners, slings and other maintenance items required for smooth functioning of the cranes were to be arranged by (viii)Watch and ward arrangement was the responsibility of

15. All the clauses indicate that the effective control and possession have always remained with Respondent and what was being provided to SISL was only the deployment of the cranes on hire. The work order/contract clearly indicates the intention of parties that the custody and effective control of the cranes was to remain with Respondent. In these circumstances, it would be incorrect to contend that there was a transfer of right to use the cranes.

16. The judgments relied upon by Mr. Sonpal are of no assistance to him in as much as, as held in Rashtriya Ispat Nigam Limited (Supra) the effective control was with AHS. In Bramhaputra Vally Construction and Suppliers (Supra) also the Gauhati High Court has held that it is the features of the contract which are material and to be looked into. As regards Waltor Buthello of Mumbai (Supra), the facts were entirely different in as much as in that case the buses were handed over by the contractor to PMT and the buses, which were handed over to PMT, were registered with the RTO, Pune in the name of PMT as a lessee. In that case, even the conductor of the bus was provided by PMT and not the owner of the bus. It was the conductor of PMT who was to collect the fare from the passengers. The contractor was also permitted to employ other surplus drivers employed with PMT where the post of drivers has become surplus on PMT's establishment. Those were the factors which weighed in the mind of the Court which is not the case in the appeal at hand. As regards Twentieth Century Finance Corporation Limited and Anr. (Supra), it only states that handing over the possession was not required, but certainly it also states that the entire agreement has to be seen. G.S. Lamba and Sons (Supra) relied upon by Mr. Sonpal also was a case where there was a lease which is not the case here.

17. In view of the foregoing, by no stretch of imagination, can we hold that there was any transfer of right to use the cranes. Accordingly, we answer the question of law in the affirmative.

18. The Appeal stands dismissed. There will be no order as to costs. (DR.

NEELA GOKHALE, J.) (K. R. SHRIRAM, J.)

DATTATRAYA GAIKWAD