Hire of goods when taxable :
Sometimes, goods [e.g. furniture, utensils, machinery, mattresses etc.] are given on hire. These are returned after prescribed period and hire charges are paid. This is ‘transfer of right to use for consideration’.
Full possession and control should be transferred – In Rashtriya Ispat Nigam v. CTO (1990) 77 STC 182 (AP HC DB), it was held that hire charges are taxable only when full possession and control is given to the hirer. If the owner (person giving equipment) retains effective control over the equipment, it is not ‘transfer of right to use’. In this case, assessee had given sophisticated machinery to contractors for execution of work entrusted to them. However, machinery continued to be in possession of assessee. Contractor was not free to use the machinery for other work, and hence there is no ‘transfer of right to use’. – view confirmed in State of AP v. Rashtriya Ispat Nigam (2002) 3 SCC 314 = 126 STC 114 = AIR 2002 SC 1305 =44 GST 591 = 43 310 (SC) – followed in Anand Cine Service v. State of Andhra Pradesh (2010) 3 GST211 (STAT-AP) * West Bengal Crane and EquipmentOwner’ Welfare Association v. ASTO (2013) 64 VST 435 (WBTT).
In Great Eastern Shipping v. State of Karnataka (2004) 136 STC 519 (Karn HC DB) also, it was held that handing over possession and control of goods to hirer is ‘transfer of right to use goods’and hence taxable –
same view in CST v. Rolta Computer (2009) 25 VST 322 (Bom HC DB) * CTT v. Ashok Kumar Gupta (2010) 2 GST 227 (All HC) * Dipak .Nath v. ONGC (2010) 31 VST 337 (Gau HC DB) * G S Lamba v State of Andhra Pradesh (2012) 35 STT 248 = 19 5 = 43 VST 323 = 324 ELT 316 (AP HC DB).
Giving transit mixers on hire is transfer of right to use goods – Birla Ready Mix v. CCE (2013) 39 STT 257 = 28 201 (CESTAT).
In Onaway Engineering P Ltd. v. State of AP (2006) 146 STC 634 (AP HC DB), hire of crane was held as taxable when effectively the cranes were transferred for use to customer.
In CST v. General Cranes (2015) 82 VST 560 (Bom HC DB), the dealer had given crane on hire. Driver, Cleaner and oil was provided by dealer. It was held that it is not transfer of right to use goods [However, service tax will be payable].
In G S Lamba v. State of Andhra Pradesh (2012) 35 STT 248 = 19 5 = 43 VST 323 = 324 ELT 316 (AP HC DB), it was held that delivery is not an essential part of transfer of right to use goods. The moment right to use goods is transferred, taxable event happens. In this case, RMC mixers were given on hire to customer (Grasim Industries Ltd.) for their exclusive use. The logo of customer was put on the RMC mixers. The drivers and maintenance of vehicles was of assessee. Assessee claimed that it was contract for transport of goods [really a very borderline case].
In Viceroy Hotels v. CTO (2011) 43 VST 424 (AP HC DB), audio-visual equipment was given on hire for conferences held in hotel. During the period of hire, the equipment was under effective control of person hiring the equipment. It was held that this is transfer of right to use good and Vat is payable (even if assessee had paid service tax on that amount).
In Indian Oil Corporation Ltd. v. Commissioner of Taxes (2009) 22 VST 70 (Gau HC), the petitionercompany entered into agreement with contractors for hiring trucks and tankers for delivery of its goods to dealers. Possession and effective control of vehicles was with contractors and not with company. It was held that this is not transfer of right to use goods and sales tax is not applicable – same view in case of hiring of cranes in R P Kakoti v. ONGC (2009) 22 VST 136 (Gau HC).
If control, custody and possession is with contractor, it is not ‘transfer of right to use goods’ – HLS Asia v. State of Tripura (2011) 41 VST 341 (Gau HC DB).
In AbanLoyd Chiles Offshore Ltd. v. State of Tamil Nadu (2012) 53 VST 89 (Mad HC DB), the dealer was carrying out drilling operations at the directions of ONGC. The drilling rigs were operated by the own personnel of the dealer. ONGC was giving directions where the rigs should be operated. It was held that effective control and possession of drilling equipment was not handed over to ONGC. It is not ‘transfer of right to use goods’.
In Rungtha Projects v. State of Bihar (1998) 108 STC 234 (Pat HC DB), it was observed that in case of hiring, there must be delivery of goods from one person to another on payment of hire charges. Hire is bailment of goods. – followed in Saumya Mining P Ltd v. Commissioner of Taxes (2006) 146 STC 343 (Gau HC), where it was held that when contract is for providing of crane services and control, custody and possession of crane remains with contractor, it is not a case of transfer of right to use goods and tax is not leviable.
In Ahuja Goods Agency v. State of Uttar Pradesh (1997) 106 STC 540 (All HC DB), it was held that transportation of goods in vehicle does not mean transfer of right to use the vehicle.
In Sunil Chandra Dey v. Food Corporation of India (2008) 13 VST 467 (Gau HC DB), it was held that carrying of goods from one place to another (i.e. transportation of goods by transporter) is not transfer of right to use property involved. It cannot be taxed as deemed sale.
Mere operator of the dealer does not mean effective control is with the dealer, and the transaction can still be ‘transfer of right to use goods’ – In HLS Asia Ltd. v. State of Assam (2007) 8 VST 314 (Gau HC DB), appellant had agreement with OIL India Ltd. for supply of equipment, tools and machinery on hire. The equipment was to be operated by qualified personnel of appellant. The possession was to be with appellant. However, the equipment was to be solely used by Oil India Ltd. Oil India Ltd. had absolute authority in use of equipment. Hence, it was held that it is ‘transfer of right to use goods’. It was held that delivery of physical possession of goods is not an essential pre-condition – same view in Peerless Shipping v. State of Assam (2007) 8 VST 330 (Gau HC).
In Dipak Nath v. Oil and Natural Gas Corporation Ltd. (2010) 4 GST 116 (Gau HC DB), the cranes, water tankers and trailors were given on hire to ONGC. The cranes were operated by crew provided by the dealer (assessee), but the crew, while operating the cranes, was under effective control of ONGC. There was clear dominion and control of ONGC over the crane during entire period of operation of contract. The mere fact that after operation of the crane for the day, the crane may come back to assessee would hardly be material to decide as to who has dominion over the cranes, as the crane was to be operated for 26 days and even during the four maintenance days, ONGC was paying 50% of the operational charges. Considering these aspects, it was held that it is ‘transfer of right to use goods’ and hence Vat will be payable (and TDS provisions will apply).
In Brahmaputra Valley Construction v. Oil and Natural Gas Corpn Ltd. (ONGC) (2012) 53 VST 401 (Gau HC DB), ONGC had hired manned cranes. The cranes were exclusively at disposal of ONGC and per day hire charges were paid. It was held that service of staff and maintenance was incidental to hiring. It was held as ‘transfer of right to use goods’ and State Vat is payable.
In Jasper Aqua Exports v. State of Andhra Pradesh (2011) 6 GST 95 (AP HC DB), the dealer received truck hire charges for transporting other’s goods of others to destination of their choice. The driver was of dealer. Even then, it was held that it is transfer of right to use goods and Vat is payable.
In Ali Singhania Bulk Carriers v. State of Karnataka (2012) 53 VST 226 (Karn HC DB), a fleet of vehicles was given on hire to customer (G) for transporting concrete mixture. The vehicles were at the disposal of customer (G) 24 hours on all seven days. Cost of diesel and lubricants were reimbursed by the customer. The driver was of the dealer but he was required to obey instructions of customer (G). It was held that this is transfer of right to use goods and State Vat is payable.
In GMMCO Ltd. v. CCE (2014) 44 GST 85 = 42 370 (CESTAT), earthmoving equipment was given on hire. Operator was provided by assessee. However, the hirer was responsible for its proper use. He was required to ensure safe custody of equipment, handling dispute relating to use and operation of equipment and compensate assessee for any damages. It was held that effective control has been handed over to customer. It is transfer of right to use goods and Vat is payable. Service tax is not applicable.
Giving bus on hire without control – In CTT v. Prince Tourists Bus Service (2008) 13 VST 412 (All HC), buses were provided to company with driver and conductor for transportation of employees of company from residence to factory and back. Possession and control of buses was of bus owner. It was held that there is no transfer of right to use goods – same view in CTT v. JamunaProsad Jaiswal (2008) 13 VST 403 (All HC) * CTT v. Regional Manager, UPSRTC (2008) 16 VST 226 (All HC) * CTT v. Nand Transport Co. (2008) 16 VST 381 (All HC) * Mohd. Wasim Khan v. CTT (2009) 20 VST 196 (All HC) * Mohd. Sultan Khan v. CTT (2009) 20 VST 235 (All HC).
In Hari Durga Travels v. CTT (2015) 51 GST 582 = 58 149 (Del HC DB), assessee had provided two Volvo buses to Delhi Transport Corporation. Assessee was responsible for maintenance and repairs of motor vehicles. It was together with driver. It was held that possession and control is with assessee and hence it is not transfer of right to use goods.
Bus used for carrying school children is not transfer of right to use goods – Assam State Transport Corporation v. ONGC (2013) 57 VST 549 (Gau HC).
However, if full possession and control is transferred to UP Transport Corporation, Vat will be payable – CTT v. Sri Ram (2009) 20 VST 747 (All HC).
Time charter-party agreement of vessel is not transfer of right to use goods – In State of Tamil Nadu v. Essar Shipping Ltd. (2012) 47 VST 209 (Mad HC DB), dealer (Essar Shipping) was owner of fleet of ships. It had entered time charter-party agreement to hire out vessels to charterers. The master and crew of ship was that of owner (Essar Shipping). The goods put on Board the ship by charterer were carried by the ship. The owners were responsible for navigation of vessel, insurance, crew and all other matters. It was held that effective control has not been handed over to the charterer. It is not transfer of right to use goods but only service.
In exactly contrary view, in Petronet LNG v. CST (2015) 76 VST 371 (CESTAT), it was held that time charter agreement of vessel is transfer of right to use goods as possession and control is transferred.
Offshore equipment hired to ONGC is not transfer of right to use goods – In State of Tamil Nadu v. Elcome Surveys P Ltd. (2012) 47 VST 258 (Mad HC DB), the dealer (ElcomeSrveys) had imported equipment for off-shore oil exploration and supplied to ONGC. These were operated by the assesseecompany with their specialised personnel. ONGC had no right to use equipment on its own, even though physical possession and effective control was with ONGC. It was held that this is not transfer of right to use goods and State Vat does not apply (Thus, service tax can apply).
Leasing of generating set – In Venkateshwara Engineering Works v. ACCT (2006) 146 STC 681 (Karn HC DB), leasing generating set on hire was held as taxable.
Supply of electricity meter to consumer on hire charges – In supply of electricity meter by electricity board to consumer on payment of hire charges, there is no transfer of right to use goods involved as consumer has no right to change meter or remove or replace meter. He cannot even break the seal – SE Hydel Circle v. Addl Excise and TaxationCommissioner (2008) 18 VST 246 (HP HC DB) – exactly contrary view in A P State Electricity Board (Now A P Transco) v. State of Andhra Pradesh (2011) 7 GST 421 = 43 VS (AP HC DB).
Hire of buses, tents, furniture – In Harbans Lal v. State of Haryana (1993) 88 STC 357 (P&H HC DB), it was held that transaction is taxable when effective possession and control of goods is transferred to transferee. In this case, following were held as taxable – (a) Giving tents, kanat, furniture on hire (b) Supply of shuttering to builders for purpose of construction (c) Use of returnable gas cylinders (d) Transfer of buses when effective control was to transferee, even when driver was provided by transferor.
It was also held that if pandal is given to customer only after it is erected, it is not transfer of right to use goods.
Hiring of vehicle or taxi – In Krushna Chandra Behera v. State of Orissa (1991) 83 STC 325 (Ori HC), it was held that hiring of bus to State Transport Corporation on kilometer basis or otherwise is taxable [This decision was not accepted and distinguished in Hari Durga Travels v. CTT (2015) 51 GST 582 = 58 149 (Del HC DB)].
In Mahabir Transport Agency v. Food Corporation of India (1998) 109 STC 99 (Gau HC), it was held that tax can be levied on hire charges of vehicles. Provision of TDS on hire charges was also upheld.
In Commissioner, Vat v. International Travel House Ltd. (2009) 25 VST 653 (Del HC DB), Maruti cab were hired to a company. Control and possession of vehicles was with the service provider and not with company. Assessee had paid service tax on the transaction. It was held that there is no transfer of right to use goods. Sales tax/Vat is not payable.
Transfer of right to use tug to port trust – In Great Eastern Shipping v. State of Karnataka (2004) 136 STC 519 (Karn HC DB), the dealer supplied tug (towing vessel) on hire to Port trust under Charter Party Agreement. Agreement provided for handing over possession and control in all respects of tug to port trust. It was held that this is agreement to transfer right to use tug. It was also held that since the tugs were within territorial waters, it is a sale within the State, as powers of State Government extend to the territorial waters adjacent to State.
Hiring of video cassette – In Rohini Panicker v. ASTO (1997) 104 STC 498 (Ker HC), it was held that hire charges for video cassettes from video library are taxable.
In Industrial Oxygen Co. v. State of AP (1992) 86 STC 539 (AP HC DB), it was held that giving empty gas cylinders on rent is taxable.
In Lakshmi Audio Visual Inc. v. ACCT (2001) 124 STC 426 (Kar HC), the petitioner was providing audio visual and multimedia equipment to customers for specified period and collecting hire charges. He was taking equipment to site, installing, operating, dismantling and bringing it back. Possession and effective control always remained with petitioner. It was held that it is not ‘deemed sale’ as customer never got ‘right to use the equipment’.
Pandal, shamiana, furniture hire – In Sri Jay Kumar Bardia v. State of Assam (2007) 5 VST 210 (Gau HC), it was held that setting up pandal/shamiana including furniture, fixtures etc. is ‘operating lease’ i.e. of right to use goods.
In Banda Tent House Association v. State of UP (2006) 146 STC 355 (All HC DB), it was held that giving on hire articles such as chairs, tents, pillows, bed-sheet, crockery etc. for use in marriages, birth day parties etc. is taxable [The decision is based on a Supreme court judgment, which has since been overruled. Even then, the final conclusion seems to be correct].
Advertisement hoardings – Hire charges for advertisement hoardings is not a case of transfer of right to use goods but it is lease of immovable property – State of Andhra Pradesh v. Prakash Arts (2008) 18 VST 39 (AP HC DB) – same view in State of Tamilnadu v. Tvl. Jayalakshmi Enterprises (2011) 7 GST 6 (Mad HC DB).
Hire of space segment capacity on transponders attached to Insat satellite is deemed sale – Hire of space segment capacity on transponders attached to Insat satellite is transfer of right to use goods and it is deemed sale within State of Karnataka – Antrix Corporation v. ACCE (2010) 29 VST 308 (Karn HC DB) (It seems the Satellite was in space. Then how it can be transfer of right within Karnataka? Further, it is not clear whether entire control was transferred to customer) (SLP has been admitted by SC against the decision).
Giving telephony tower on lease is not transfer of right to use goods – In State of Andhra Pradesh v. Bharat Sanchar Nigam Ltd. (2011) 33 STT 553 = 16 48 = 49 VST 98 (AP HC DB), it has been held that sharing of infrastructure of telecommunication towers is not right to use goods as the towers are immovable property – decision accepted in Advance Ruling No. A.R. Com/73/2010 dated 31-1-2012 of Andhra Pradesh [55 VST 134 (st)] – same view in Indus Towers v. DCCT (2013) 38 STT 367 = 29 301 =285 ELT 3 = 56 VST 369 (Karn HC DB) and Indus Towers v. UOI (2013) 42 GST 93 = 39 37= 62 VST 422 (Del HC DB) * Bharti Infratel v. State of Madhya Pradesh (2015) 86 VST 258 (MP HC DB).
In a contrary view, in Essar Telecom Infrastructure v. UOI (2011) 6 GST 666 = 35 STT 453 = 12 180 = 275 ELT 167 = 52 VST 306 (Karn HC), assessee-company was erecting telephony towers on land or on roof of buildings. The passive networking equipment also covered shelters, DG set, air
conditioners, rectifiers, stabilizers, DC converter, fire extinguisher etc. These were leased to various telecom operators/cellular operators. The passive telecom network was also operated and maintained by assessee and control was with assessee. Assessee was paying service tax on the charges. Assessee also contended that this is immovable property and not ‘goods’. However, it was held that this is ‘goods’ as it can be easily dismantled.
It was held that this is transfer of right to use goods and Vat is payable and not service tax (even if the control was with assessee himself) [Issue is highly arguable. Firstly, whether it is ‘goods’ itself is highly doubtful. Secondly, when control is with assessee, whether the transaction can be termed as ‘transfer of right’ is also doubtful].
It can be argued that in view of decision of division bench of the same High Court, this decision stands impliedly overruled.
Giving set top box of DTH service to customers – In Bharti Telemedia v. Tata Sky (2015) 79 VST 561 (Tripura HC DB), the dealer had given set top box to customers of DTH (Direct to Home) service. It was not sold to customer and was shown as property of the dealer. However, the cost was indirectly recovered as activation charges. The customer was liable for repairs of set top box after ix months. It was held that this is transfer of right to use goods. It is deemed sale and taxable to Vat. Tax is payable on entire value of set top box.