The queries are being raised, whether the latest judgment of the Supreme Court of India in Great Eastern Shipping Company Limited has laid down correct law on the subject or it requires reconsideration by that Court. To answer these queries, I have discussed herein below the development of that law post 42nd Constitutional amendment.

LEGAL MEANING OF THE TRANSFER OF RIGHT TO USE

• RASTRIYA ISPAT NIGAM LIMITED (RINL) V. COMMERCIAL TAX OFFICER, COMPANY CIRCLE, A. P.1989 SCC OnLine 1990 ( A.P. H.C.).

FACTS : This is the pioneer judgment on this issue which was later on upheld by the Supreme Court. In this case the petitioner RINL was owning Vishakhapatnam Steel Project and for the purpose of the steel project allotted different works of the project to contactors. To facilitate the execution of work by the contractors with the use of sophisticated and valuable imported machinery like cranes, docers, dumfors etc; the petitioner had undertaken to supply such machinery to the contractors for the purpose of being used in the execution of the contacted works of the petitioner and received charges for the same. The respondent i.e. the Commercial Tax Officer, Company Circle, Andhra Pradesh made provisional assessment and levied tax under section 5 – E of the Andhra Pradesh General Sales Tax Act, 1957 on the hire charges so received by the petitioner holding that the petitioner had transferred the right to use the machinery.

The Court interpreted the phrase “transfer of right to use” in the following manner:

‘—-What does this phrase connote? This means that unless there is a transfer of the right to use the goods, no occasion for leving tax arises; providing a facility which involves the use of goods nor even a right to use the goods is not enough, there must be a transfer of right.’

‘The transfer of a right is an event which has a double aspect. It is the acquisition of right by the transferee, and loss of it by the transferor. The vestative fact, if considered with reference to the transferee is a derivative title, while from the point of view of the transferor it is an aleinative fact.’

(Salmond on jurisprudence-Twentieth Edition at pages 332 and 333).

In Corpus Juris Secondum ‘transfer’ is defined:

‘the common use of the word transfer is to denote the passing of title in property, or an interest therein, from one person to another, and in this sense the term means that the owner of property delivers it to another person with the intent of passing the rights which he had in it to the latter.’

(Corpus Juris Secundum, Vol.87, page 892.)

‘The essence of transfer is passage of control over the economic benefits of property which results in terminating rights and other relations into 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 the transferor is having custody. When a taxi cab is hired under rent a car scheme, and a cab is provided, usually driver accompanies the cab; there the driver will have the custody of the car though the hirer will have the possession and effective control of the car. This may be contrasted with the case when a taxi car is hired for going from one place to another. There the driver will have both the custody as well as the possession; what is provided is service on hire. In the former case, there was effective control of the hirer (transferee) on the cab whereas in the latter case it is lacking. We may have many examples to indicate this difference.’

The Court applied the jurisprudence discussed above and held:

Para 14 :

‘—the contractor is entitled to make use of the machinery for purposes of execution of the work of the petitioner and there is no transfer of right to use in favor of the contractor. We have reached this conclusion because the effective control of the machinery even while the machinery is in the use of the contractor is that of the petitioner company. The contractor is not free to make use of the same for other works or move it out during the period the machinery is in his use. The contention that he will be responsible for the custody of the machinery while the machinery is on the site does not militate against the petitioner’s possession and control of the machinery.’

COMMENTS: This judgment of the Andhra Pradesh High Court was thereafter upheld by the Supreme Court.

• STATE OF A. P. AND ANOTHER V. RASHTRIYA ISPAT NIGAM LTD. (2002) 3 SCC 314 (SC),

Para 4 :

‘—- 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 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 respondentor move it out during the period the machinery was in his use; the condition that the contractor will be responsible for the custody of the machinery while it was on the site did not militate against the respondent’s possession and control of the machinery.’

COMMENTS: The Supreme Court has upheld in totality the decision of the High Court in this case. Therefore. the ratio of the judgment can be properly understood only if the jurisprudence applied by the High Court, for coming to the decision, is also considered. In this case, the machinery (including crane) was owned by the RINL and they had given the possession of the machinery to the contractors for using the same in their own project. However, on the terms of the Contract, including the term that the contractor was not free to use the machinery for his other projects, the Court came to the conclusion that RINL had not delivered the possession of the machinery with the intent of passing the rights which RINL had in the machinery to the contractors (See Salmond and Corpus Juris Secundum discussed in High Court judgment). Such possession given to the contractor by RINL was interpreted by the apex court as custody.

This Divison Bench judgment of the Hon’ble Supreme Court relating to the machinery (Crane) delivered in the year 2002 was followed in every judgment thereafter. It was further approved by a Larger Bench of Three Judges in the year 2006 in BSNL (2006) 3 SCC 1. It has now been approved in the year 2019 again by the Three Judges Bench of the same Court in the case of Great Eastern Shipping Company.

• BHARAT SANCHAR NIGAM LTD. AND ANOTHER V. UNION OF INDIA AND OTHERS, (2006) 3 SCC 1.

Para Nos.76 & 77 :

76. ‘In State of A.P. v. Rashtriya Ispat Nigam Ltd. 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 : (SCC p. 315, para 4)

“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 …..”

77. ‘But in Aggarwal Bros v. State of Haryana when the assesse had hired shuttering in favor of contractors to use it in the course of construction of building it was found that possession of the shuttering materials was transferred by the assesse 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 Articles 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.’

COMMENTS : Thus the Court made distinction between the grant of possession of a thing without any intention to transfer the right to use and grant of possession with the intention to transfer of right to use. They approved their judgment in RINL even though the possession of the machinery was granted to the contractors in that case.

The law laid down by Dr. A.R. Lakshmanan in the concurring judgment in BSNL is also important and is being followed in all the cases till today.

Para 97 :

‘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 usethe goods- consequently all legal consequences of such use including any permissions or licences 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.’

Comments : Thus, Hon’ble Judge Dr. Lakshmanan further explained the concept of transfer of right to use.

• The Commissioner of Sales Tax, Maharashtra State V. Rolta computers and Industries Pvt. Ltd: Sales Tax Reference No. 8 of 2000, Judgment dated 19.06.2009.

COMMENTS : This is the first judgment of Bombay High Court after the apex court judgment in BSNL. This judgment is under the provisions of the Maharashtra Sales Tax on the Transfer of Right to use goods for any purpose Act, 1985. However, the provisions are pari materia with the MVAT Act,2002. The Court followed both the judgments of the Supreme Court in RINL and BSNL and after lucidly explaining the law as to the transfer of right to use, held as follows:

Para No. 7 :

‘ — In all these circumstances, delivery of the goods at any stage of time is missing. As pointed out by their Lordships of the Supreme Court goods must have been delivered at some stage of time and the transferee should have legal right to use the goods and for the period during which transferee has such legal right, it has to be to the exclusion of the transferor. In the present case, from the facts noted earlier, it is clear that the goods, i.e; computers and terminals where always in possession of the respondents. They were never delivered or handed over to the ONGC. It may be that as per the requirement of ONGC, fixed time was assigned to them and during that fixed time of the day staff members of ONGC would come to the office of the respondents to get their work done but during all that period, computers would be operated by the employees of the respondents and not by the employees of the ONGC. Merely because a person agrees to provide service to a particular customer during a particular period of time of day to the exclusion of all other customers for the purpose of convenience, it does not mean that goods have been actually delivered to that particular customer to the exclusion of not only other customers but also to the exclusion of owner himself. Nature of the contract and the transaction between the respondents and the ONGC was nothing more than service contract whereby certain services where provided by the respondents to the ONGC.’

• The Commissioner of Sales Tax, Maharashtra State V. General Cranes, Sales Tax Reference No. 5 of 2009, Judgment dated 21st April, 2015 (Bombay High Court).

COMMENTS: This is another judgment of the Bombay High Court. This judgment is also under the provisions of the erstwhile Maharashtra Sales Tax on the Transfer of Right to Use any goods for any Purposes Act, 1985 (popularly known as Lease Act). As aforesaid, the relevant provisions are pari matria with the MVAT Act,2002.

The Court applied the above discussed judgments of the Supreme Court in RINL and BSNL and came to the conclusion that there was no transfer of right to use. The important terms of the contract considered by the Hon’ble Bombay High Court for deciding the issue in General Cranes are almost similar to those involved in the case of the appellant. Those terms have been recorded by the Hon’ble Court in Para No. 16 of the judgment and are follows :

a. The driver, cleaner ,diesel and oil was to be provided by the General Cranes;

b. Transportation of accessories was to be done by the General Cranes;

c. There was no provision in the contract that the legal consequences such as permissions or licences were to be transferred to the transferee.

• G.S. Lamba & Sons V. State of Andhra Pradesh, 2011 SCC Online AP 1108, Judgment dated January 28, 2011

COMMENTS: In this judgment of Andhra Pradesh High Court, the Court considered all the precedents on the subject and came to the conclusion that there was a transfer of right to use the Transit Mixers given on hire by the revision petitioner to Grasim Industries Limited. See the observations of the Court in the following paras:

Para 42 :

‘under the agreement, the petitioners agreed to provide five dedicated fleet of Transit Mixers 24/7 i.e; 24 hours everyday of the week as per the instructions of Grasim for transporting RMC during the period of 42 months. These dedicated vehicles are to be painted in a particular style and colour which has to be repainted once in 6 months. For any third party, during these 42 months, the goods as visible in use would create an immediate impression that they belong to Grasim. No reasonable man would even think that, the Transit Mixers, being used for transporting RMC of Grasim, belonged to the petitioners and they are only being used to meet the transportation needs of Grasim.———-‘

Para 43 :

‘ —— the product carried is manufactured by Grasim, which is delivered to the customers and the customers pay the cost of the RMC to Grasim and the petitioners nowhere figure in the process of putting the property in Transit Mixers to economic use.The entire use in the property in goods is to be exclusively utilized for a period of 42 months by Grasim. The existence of goods is identified and the Transit Mixers operate and are used for the business of Grasim. Therefore, conclusively it leads to the only conclusion that the petitioners had transferred the right to use goods to Grasim.’

• Walter Buthello of Mumbai and Ors. V. The Commisioner of Sales Tax, Maharashtra State, Mah. VAT Appeal Nos.33 & 37 of 2017; Judgment dated 7.02.2017

COMMENTS: This is the latest judgment of Bombay High Court. In this case the Court has approved its earlier decision in General Cranes. However, the Court distinguished the same on facts and held that the right to use had got transferred to the transferee (PMT). The Court also distinguished the Judgment of the apex court in BSNL. The contrary facts found and reasons stated by the Court to come to the conclusion that there was transfer of right to use are stated below :

Para 37 :

‘It is in the light of these terms and conditions and with full knowledge thereof that the dealer before us forwarded his bid. He was aware that this is a bus which has to be supplied and which would be taken on higher by the PMT for being operated as stage carriages and the permit would be obtained by the PMT for itself. From such a permit the appellant would never derive any benefit.In fact he has no right there to. All the specifications, including the colour would be determined by the PMT—’

Para 38 :

‘The main recitals and covenants in this agreement are that it would come into force only after the buses are handed over by the contractor to PMT as per schedule B duly registered with the RTO, Pune and permitted by the RTO, Pune to ply on the strength of the stage carriage permits held by PMT.———- the hired buses would be registered with the RTO, Pune in the name of PMT as a lessee and would be operated as above in terms of and consistent with the tender conditions.—– The fare to be collected from the passengers is determined by PMT. The bus would have a conductor who shall collect it. He alone can carry out this function and duty and neither the private bus contractor, namely, the appellant or the driver can lay any claim on the fare and luggage charges or any amount so collected. ’

Para 50 :

‘— the buses will be operated as stage carriages within the operation area. The tenderer having ready vehicles shall submit details of the vehicles in Annexure B. The undertaking will provide conductors with tickets, waybill and other conductors equipment. The undertaking shall have the right to collect fair and charges. The tenderer shall not have any such right or claim over them for any reason whatsoever. ——- the buses shall be painted as per PMT colour code and shall have to comply with all the stipulations in Annexure A read with the terms and condition number 3.——- the hired buses would be registered with the regional transport office, Pune in the name of the PMT as lessee and will be operated as stage carriage within the operational area of the PMT.’

Para 57 :

‘— the exclusive possession is with the PMT. All the licenses, permissions and the benefit(Comment : economic benefit had got transferred-Please see Corpus Juris Secundum in RINL)thereof is transferred to the PMT.— The appellant stands totally excluded from the use, possession and control thereof.’

COMMENTS: On examining these judgments, it is clear that the Courts have applied different considerations for different things given on hire. It is the correct approach. The Corpus Juris Secundum has also emphatically stated that while construing the word transfer due regard must be had to the thing to be transferred. However, there is one common thread. The Courts have decided adversely wherever they found that the economic benefit had got transferred to the lessee.

The Great Eastern Shipping Co. Ltd V. The State of Karnataka, Civil appeal No.3383 of 2004; Judgment dated 4th December, 2019

COMMENTS: Paragraph Nos. 33 and 34 of this judgment have given the reasons why it was held that there was a transfer of right to use. Those are reproduced below:

Para 33 on Page No.26 of the Judgment:

‘ —- the vessel most significantly during the charter period has been placed at the ‘disposal’ of the charterers and under their control in every respect. The charterers have been given the right to use all outfits, equipment, and appliances on board the vessel and at the time of delivery, including the whole reach, burthen, and deck capacity.’

Para 34 on Page No.27 :

‘ —- To constitute a transaction for the transfer of right to use of goods, essential is, goods must be available for delivery. In the instant case, the vessel was available for delivery and in fact, had been delivered. There is no dispute as to the vessel and the Charterer has a legal right to use the goods, and the permission/ licence has been made available to the charterer to the exclusion of the contractor. Thus, there is complete transfer of the right to use.’

COMMENTS: For the reasons stated above, the Court held that there was a transfer of right to use in the Charter Party Agreement. However, while doing so the Court, with due respect, failed to properly apply the general law i.e. Maritime Law.

There are three kinds of charter-parties:

(1) Voyage Charter Party – Contract of service valid for a voyage

(2) Time Charter Party – Contract of service valid for a specified time

(3) Demise Charter Party or Bareboat Charter – Demise of the Vessel

The law recognizes the first two as a mere contract of carriage of goods or for performance of services and no “possessory interest” in the charterer is created in a voyage or time charter. The vessel is legally considered to be in the possession of the shipowner and not the charterer. In a demise or bareboat charter, the vessel is legally taken as being within full possession and control of the charterer.

The entire judgment in case of Great Eastern Shipping has turned on the Charter Party Agreement allowing the vessel to be at “disposal” of the charterer round the clock. The use of the license and permission was at the disposal of the charterer and to the exclusion of the shipowner. The shipowner could not permit any other person to use the vessel [Para 37 of Great Eastern]. The Court has noted that the vessel could be used for any purpose by the charterer, unlike the machinery in State of AP v. Rashtriya Ispat Nigam Ltd. (2002) 3 SCC 314 which could not be used except for the project work [Para 39 of Great Eastern]. British India Steam Navigation v Shanmughavilas Cashew Industries (1990) 3 SCC 481 was cited by the Court to hold that a “demise” or transfer of possession and control allows the charterer to use the vessel to even carry goods of third parties, whereas if the contract is only for services, the contract is a personal contract and the charterer cannot compel the shipowner to ferry goods of third parties, unless the contract so provides [Para 40 of Great Eastern].

With respect, the above cited paragraphs from Great Eastern judgment will show that what seems to have happened is that the Supreme Court has focused excessively on the “effective control” test which is required to be satisfied for “transfer of right to use goods”. The clauses relating to placing the vessel at the disposal of the charterer have therefore convinced the Court, whether rightly or wrongly, that the effective control test is satisfied and “transfer of right to use goods” has taken place.

However, what has been lost sight of is that “possession” of the goods must also pass to lead to a “transfer of right to use goods”. There is simply no discussion in the entire judgment on whether possession is with the charterer or the shipowner. The judgment is remarkably silent on this aspect, instead treating the effective control test as the only test worth going into. Questions of possession and control are to be determined as per the general law of the land and the tax authorities and tax lawyers cannot use their own distinct standards to arrive at their own concept and understanding of possession and control and how they pass. In case of charter parties, the general law is contained in the maritime law of the land. But the legal tests developed under maritime law to determine whether a vessel is in possession of the charterer or the ship-owner, have not been discussed at all by the Court.

Furthermore, the judgment is pregnant with contradictions. The closest the Supreme Court has come to touching the subject of “possession” are the scattered references to the vessel having been “delivered”, though it is difficult to even conclude whether the Court had the possession test in mind when speaking of “delivery”. Assuming but not admitting that the Court equated “delivery” with the possession test, it is not clear how the Court has arrived at the conclusion that the vessel was “delivered”. Paras 34 and 37 of Great Eastern speaks of “delivery” without explaining what constitutes the act of delivery in charter party context when the entire crew belongs to the shipowner and there is no evident fact discussed in the judgment of any actual act of delivery taking place. The only reference to “delivery” seems to be in the charter party agreement speaking of “delivery” and “re-delivery”. However, the Court has cited extensive judgments of Indian and foreign courts in Paras 42 to 44 and held that the use of the terms like “let”, “hire”, “delivery” and “re-delivery” in the agreement are not relevant since they are used as a matter of routine in charter parties even where control and possession is not intended to pass. Then we are left with the same question: what has convinced the Court that “delivery” has taken place when the taxpayer submitted that the possession continues to be with him?

In British India Steam Navigation v. Shanmughavilas Cashew Industries (1990) 3 SCC 481, the Supreme Court has held that the principal test to decide whether possession has passed is to see whether master of the vessel becomes the employee of the charterer or continues to be employee of the shipowner [Para 40 of Great Eastern]. The Court has extracted the said passage from British India Steam Navigation and other judgments and commentaries on this point and yet made a startling observation in Para 46 of Great Eastern that who is employing the crew is not decisive. I have no quarrel with this proposition in Para 46 of Great Eastern per se. It is indeed not considered the sole test, but it is a “primary test”. Nowhere has the Court explained what factors have led them to believe that this employment test ought to be discarded in this case. As aforesaid, the master and the crew being employees of the owner is what has led Courts to hold that the owner continues to be in possession of the vessel, unless the owner himself has become an agent of the charterer. In Great Eastern, the Supreme Court’s obsession with the “disposal” clause and the “exclusive” right to use the services of the vessel has led the Court to forget that the “possession test” must necessarily be answered one way or the other and therefore led the Court to brush away the fact that the crew is in employment of the owner as irrelevant.

This judgment does not rest on surer foundations. Sooner or later these gaping holes in the reasoning will have to be addressed to lay down coherent rules of jurisprudence in this overlapping area of maritime and taxation law.

LIABILITY UNDER THE FINANCE ACT OF PAYMENT OF SERVICE TAX

Hon’ble Supreme Court of India in their judgment in Great Eastern Shipping Ltd. has declined to go into the effect of the clarificatory Circular dated 10.05.2008 issued by the Union Government regarding the applicability of Service Tax on such transactions. However, in another case, namely, Imagic Creative (P) Ltd. the apex court has already dealt with the applicability of Sales Tax as well as Service Tax on the same transaction. Kindly see the following observations of the Supreme Court of India in Imagic.

• Imagic Creative (P) Ltd. V. Commissioner of Commercial Taxes (2008) 2 Supreme Court Cases 614, Judgment dated January 9,2008.

Para Nos.30, 31 &32 :

‘ 30. We have noticed herein before that a legal fiction is created by reason of the said provision. Such a legal fiction, as is well-known, should be applied only to the extent for which it was enacted. It, although must be given its full effect but the same could not mean that it should be applied beyond a point which was not contemplated by the legislature or which would lead to an anomaly or absurdity.

31. The court, while interpreting a statute, must bear in mind that the legislature was supposed to know law and the legislation enacted is a reasonable one. The court must also bear in mind that where the application of parliamentary and a legislative Act comes up for consideration; endeavours shall be made to see that the provisions of both the Acts are made applicable.

32. Payments of service tax as also VAT are mutually exclusive. Therefore, they should be held to be applicable having regard to the respective para meters of service tax and the sales tax as envisaged in a composite contract as contradistinguished from an indivisible contract. It may consist of different elements providing for attracting different nature of levy. It is, therefore, difficult to hold that in the case of this nature, sales tax would be payable on the value of the entire contract, irrespective of the element of service provided. The approach of the assessing authority, to us, thus appears to be correct.’ ( In this case the assessing authority had correctly assessed the assesse, however, the revising authority had revised the assessment order).

COMMENTS: Thus the Supreme Court has already held that the VAT and Service Tax are mutually exclusive and their applicability should be decided having regard to the respective parameters of Service Tax and Sales Tax as envisaged in the contract. The apex court has already held in BSNL that of all the different kinds of composite transactions the drafters of the 46th Amendment chose three specific situations, a works contract, a hire purchase contract and a catering contract to bring them within the fiction of a deemed sale. Of these three, the first and third involved a kind of service and sale at the same time. Apart from these two cases where splitting of the service and supply has been constitutionally permitted in sub- clauses (b) and (f) of clause (29 A) of Article 366, there is no other service which has been permitted to be so split. Thus, the contract for giving the Tug or a Vessel on hire can’t be split and it shall either attract Service Tax or Sales Tax. Following High Courts have already considered the payment of Service Tax on the same transaction and held the same as liable to Service Tax and not Sales Tax:

• Commissioner of VAT V. International Travel House Ltd. (Delhi H. C.), 25 VST 633.

• D.P. Agarwala V. ONGC (2010) 32 VST 8 ( Gouhati).

• Quippo Oil & Gas Infrastructure Ltd. V. State of Tripura (Tripura H.C.) 2014 SCC On Line TRI 960.

• Newsco International Energy Services Inc. V. State of Tripura; (2016) 91 VST 145 (Tripura).

Hon’ble Gujarat High Court has considered all the earlier judgments on this issue and accepted the contention of the petitioner that the transaction was only for providing the service and there was no Transfer of right to use.

• DEEP INDUSTRIES LTD. V. STATE OF GUJARAT, 2018(16) GSTL 392 (Guj).

COMMENTS: The facts as averred in the petition were that the petitioners were engaged in providing services such as gas compression and work over services to companies such as, ONGC who were engaged in exploration of oil and natural gas. The Petitioners were duly registered under the VAT Act as well as under the Finance Act, 1994. They were paying service tax on the consideration received by them from the ONGC. It was the case of the Petitioners that the contracts were, in substance, contracts for carrying out workover operations using workover rigs. According to them there was no deemed sale of goods and therefore, they were paying service tax @ 12.36%.

The Court considered the terms of the contract and came to the conclusion that there was no transfer of right to use. Kindly see the observations of the Court in Para 27 onwards. The Court has extensively discussed RINL AND BSNL. The Court considered all the past decisions including Hon’ble Bombay High Court’s decision in Rolta Computer and Industries Pvt Ltd. (2009) 25 VST 322 wherein the Hon’ble High Court had observed that the goods i.e. the computers and terminals were never delivered or handed over to ONGC. The observations of the Bombay High Court in that case, that merely because a person agrees to provide service to a particular customer during a particular period of time of day to the exclusion of all other customer for the purpose of convenience, it did not mean that goods had been actually delivered to that particular customer to the exclusion of not only other customers but also to the exclusion of owner himself, were applied with approval by the Gujarat High Court. The Court also applied the decision of the Gauhat High Court in HLS Asia Ltd. v. State of Tripura, 41 VST 341 wherein the Gauhati High Court had come to the conclusion that there was no transfer of right to use. It be noted that the decisions of the Gauhati High Court in Brahmaputra Valley Construction and Suppliers v. Oil and Natural Gas Corporation Ltd; 53 VST 401 and Dipak Nath v. ONGC, 31 VST 337 wherein the Gauhati High Court had held that there was transfer of right to use were cited before the Court, however, the Court preferred to follow the decision of the same High Court (Gauhati High Court) in HLS Asia Limited v. State of Tripura 41 VST 341. The Court also followed the judgment of Tripura High Court in Quippo Oil and Gas Infrastructure Ltd. v. State of Tripura 77 VST 547 (Quippo Oil) wherein the Court (Tripura High Court) in clear terms had held that there was no transfer of right to use. It be noted that in Quippo Oil the Tripura High Court discussed Gauhati High Court’s judgment in Dipak Nath, however preferred to follow the judgments of that Court in D. P. Agarwala and HLS Asia Ltd. The Gujarat High Court also referred to the further Judgment of the Tripura High Court in M/s Newsco International Energy Services INC. v. State of Tripura, (2016) 91 VST 145 (Tripura). Finally, the Court held as follows:

‘44. The upshot of the above discussion is that the contract entered into between the petitioner and the ONGC for workover operations of oil wells of ONGC is a pure contract of services of the ONGC. The impugned order passed by the Tribunal which holds that the contract dated 08.07.2008 entered into between the petitioner and the ONGC is a composite contract involving both the element of deemed sale by way of transfer of right to use goods and the element of providing services to the ONGC, being contrary to the intention of the parties as provided in the agreement to contract, cannot be sustained.

45. It may be noted that the Tribunal after holding the contract to be a composite one, involving an element of service as well as an element of transfer of the right to use the goods has remanded the matter to the first appellate authority to recalculate the tax liability with consequential effect on interest and penalty. As discussed earlier, considering the clauses of the contract, the rates for payment to the contractor, nowhere envisage any bifurcation towards the charges for transfer of right to use and for the services rendered by the petitioners. Thus the contract is not severable into two components, viz. service and transfer of right to use goods. In these circumstances, it would not be possible for the first appellate authority to calculate the tax liability in terms of the directions issued by the Tribunal.

APPLICABILITY OF THE JUDGMENT OF THE SUPREME COURT IN 20TH CENTURY FINANCE CORPORATION.

COMMENTS: The definition of Sale under Section 2 (g) of the Central Sales Tax Act, 1956 has been amended w.e.f. 11.05.2002. The Supreme Court in Great Eastern was dealing with the pre amendment period. Therefore, the observations of the Court as regards their lordships’ judgment in 20th Century Finance Corporation do not apply for post amendment periods.