# M/s. K.P. Mozika v. Oil and Natural Gas Corporation Ltd. and Ors

- **Citation:** 2024 INSC 27
- **Court:** Supreme Court of India
- **Decided:** 2024-01-09
- **Case number:** Civil Appeal No.3548 of 2017
- **Bench:** Abhay S. Oka, Rajesh Bindal
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-s-k-p-mozika-v-oil-and-natural-gas-corporation-ltd-and-ors-37429
- **Pages:** 29

## Headnote

In a group of appeals, the assessee 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). In the other
cases where Indian Oil Corporation Limited (IOCL) has entered
into agreements with transporters to provide tank trucks to deliver
its petroleum products. Whether, by hiring the 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 Art. 366 of the Constitution of India.
Whether the transactions will amount to service, thereby attracting
liability to pay service tax.
Headnotes
Constitution of India - sub-clause (d) of Clause 29A of Art. 366
- Assam General Sales Tax Act, 1993 - Assam Value Added
Tax Act, 2003 - Finance Act (brought into force with effect from
16.05.2008) - s. 65(105)(zzzzj) - The entire controversy revolves
around the question whether the transactions reflected from
the agreements subject matter of these appeals amount to a
sale within the meaning of sub-clause (d) of Clause 29A of
Article 366 of the Constitution of India and, consequently,
whether it is a "sale" within the meaning of clause (iv) of
sub-section (43) of Section 2 of the VAT Act:
Held: On a conjoint reading of the terms of the contract, it is
apparent that the contract is for providing the service of cranes to
ONGC - The reason is that the transferee (ONGC) is not required
to face legal consequences for using the cranes supplied by the
contractor - Therefore, the tests laid down by Dr AR Laxmanan, J.
in clauses (c) and (d) of paragraph 97 in the case of Bharat Sanchar
[2024] 1 S.C.R.
489
M/s. K.P. Mozika v. Oil and Natural Gas Corporation Ltd. and Ors.
Nigam Limited & Anr. v. Union of India & Ors. [2006] 2 SCR 823
are not fulfilled - Moreover, on a conjoint reading of the clauses,
it appears that the use of the cranes provided by the contractor
to ONGC will be by way of only a permissive use - Though the
cranes are used for carrying out the work as suggested by ONGC,
the entire control over the cranes is retained by the contractor,
inasmuch as it is the contractor who provides crew members for
operating the cranes, it is the contractor who has to pay for fuel, oil,
etc. and for maintenance of any loss or damage to the equipment
of the contractor, staff of the contractor, any third party and staff
and property of ONGC - Therefore, as regards the contract to
provide cranes, the finding of the High Court that there was a
transfer of the right to use cranes was not correct - Similarly in
other cases, it is apparent that there is no intention to transfer the
use of any particular tank truck in favour of IOCL - 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 - The test (c) is not satisfied - Therefore, it is impossible
to conclude that there is a transfer of the right to use tank trucks in
favour of IOCL - In the given appeals, all the five tests laid down
by Dr AR Laxmanan, J. are not fulfilled - 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
- All the appeals preferred by assessee are allowed. [Paras 35,
40 and 42]
Constitution of India - sub-clause (d) of Clause 29A of Art.
366 - What are the tests applied to determine whether the
transaction involved the tran

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* Author
[2024] 1 S.C.R. 488 : 2024 INSC 27
M/s. K.P. Mozika
v.
Oil and Natural Gas Corporation Ltd. and Ors.
(Civil Appeal No.3548 of 2017)
09 January 2024
[Abhay S. Oka* and Rajesh Bindal, JJ.]
Issue for Consideration
In a group of appeals, the assessee 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). In the other
cases where Indian Oil Corporation Limited (IOCL) has entered
into agreements with transporters to provide tank trucks to deliver
its petroleum products. Whether, by hiring the 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 Art. 366 of the Constitution of India.
Whether the transactions will amount to service, thereby attracting
liability to pay service tax.
Headnotes
Constitution of India - sub-clause (d) of Clause 29A of Art. 366
- Assam General Sales Tax Act, 1993 - Assam Value Added
Tax Act, 2003 - Finance Act (brought into force with effect from
16.05.2008) - s. 65(105)(zzzzj) - The entire controversy revolves
around the question whether the transactions reflected from
the agreements subject matter of these appeals amount to a
sale within the meaning of sub-clause (d) of Clause 29A of
Article 366 of the Constitution of India and, consequently,
whether it is a "sale" within the meaning of clause (iv) of
sub-section (43) of Section 2 of the VAT Act:
Held: On a conjoint reading of the terms of the contract, it is
apparent that the contract is for providing the service of cranes to
ONGC - The reason is that the transferee (ONGC) is not required
to face legal consequences for using the cranes supplied by the
contractor - Therefore, the tests laid down by Dr AR Laxmanan, J.
in clauses (c) and (d) of paragraph 97 in the case of Bharat Sanchar
[2024] 1 S.C.R.
489
M/s. K.P. Mozika v. Oil and Natural Gas Corporation Ltd. and Ors.
Nigam Limited & Anr. v. Union of India & Ors. [2006] 2 SCR 823
are not fulfilled - Moreover, on a conjoint reading of the clauses,
it appears that the use of the cranes provided by the contractor
to ONGC will be by way of only a permissive use - Though the
cranes are used for carrying out the work as suggested by ONGC,
the entire control over the cranes is retained by the contractor,
inasmuch as it is the contractor who provides crew members for
operating the cranes, it is the contractor who has to pay for fuel, oil,
etc. and for maintenance of any loss or damage to the equipment
of the contractor, staff of the contractor, any third party and staff
and property of ONGC - Therefore, as regards the contract to
provide cranes, the finding of the High Court that there was a
transfer of the right to use cranes was not correct - Similarly in
other cases, it is apparent that there is no intention to transfer the
use of any particular tank truck in favour of IOCL - 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 - The test (c) is not satisfied - Therefore, it is impossible
to conclude that there is a transfer of the right to use tank trucks in
favour of IOCL - In the given appeals, all the five tests laid down
by Dr AR Laxmanan, J. are not fulfilled - 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
- All the appeals preferred by assessee are allowed. [Paras 35,
40 and 42]
Constitution of India - sub-clause (d) of Clause 29A of Art.
366 - What are the tests applied to determine whether the
transaction involved the transfer of the right to use any
goods under sub-clause (d) of Clause 29A of Article 366 of
the Constitution of India.
Held: What is relevant in the case of Bharat Sanchar Nigam
Limited & Anr. v. Union of India & Ors. [2006] 2 SCR 823 is
the concurring view taken by Dr. AR Laxmanan, J. and the tests
laid down in paragraph 97 of the decision. [Para 31]
490
[2024] 1 S.C.R.
Digital Supreme Court Reports
Case Law Cited
Bharat Sanchar Nigam Limited & Anr. v. Union of India &
Ors. [2006] 2 SCR 823: (2006) 3 SCC 1; Great Eastern
Shipping Company Limited v. State of Karnataka & Ors
[2019] 17 SCR 856: (2020) 3 SCC 354; Commissioner
of Service Tax, Ahmedabad v. Adani Gas Limited 2020
SCCOnline SC 682; Commissioner of Service Tax, Delhi
v. Quick Heal Technologies Limited 2022 SCC Online
SC 976 - relied on.
Sales Tax Officer, Pilibhit v. Budh Prakash Jai Prakash
[1955] SCR 243: AIR 1954 SC 459, The State of Madras
v. Gannon Dunkerley & Co. [1959] SCR 379: AIR 1958
SC 560; M/s. K.L. Johar & Co. v. The Deputy Commercial
Tax Officer, Coimbatore III [1965] SCR 112: AIR 1965
SC 1082; V. Meiyappan v. Commissioner of Commercial
Taxes, Board of Revenue, Madras & Anr. (1967) 20 STC
115 (Madras); The State of A.P. & Anr. v. Rashtriya Ispat
Nigam Limited (2002) 3 SCC 314; Ahuja Goods Agency
& Anr. v. State of Uttar Pradesh & Ors.1997 SCC online
All 1381; Imagic Creative (P) Ltd. v. Commissioner of
Commercial Taxes & Ors. [2008] 1 SCR 457: (2008)
2 SCC 614; 20th Century Finance Corporation Ltd. &
Anr. v. State of Maharashtra [2000] 1 Suppl. SCR 120:
(2000) 6 SCC 12; Aggarwal Brothers v. State of Haryana
& Anr (1999) 9 SCC 182 - referred to.
List of Acts
Constitution of India - sub-clause (d) of Clause 29A of Art.
366; Assam General Sales Tax Act, 1993; Assam Value Added
Tax Act, 2003; Finance Act (brought into force with effect from
16.05.2008) - s. 65(105)(zzzzj).
List of Keywords
Transfer of the right to use any goods for any purpose;
Sale; Service; Sales tax; Service tax; Taxable service; Tax
on sale or purchase of goods; Hiring of the motor vehicles;
Agreements for hiring cranes; Agreements for hiring trucks;
Agreements for hiring of buses; Agreements for transportation
of petroleum products by vehicles; Agreements for hiring
trailers; Agreements for hiring water tankers; Agreements for
hiring of scrapping winch chassis.
[2024] 1 S.C.R.
491
M/s. K.P. Mozika v. Oil and Natural Gas Corporation Ltd. and Ors.
Case Arising From
CIVIL APPELLATE JURISDICTION : Civil Appeal No.3548 of 2017.
From the Judgment and Order dated 25.11.2009 of the High Court of
Gauhati in WA No.140 of 2007.
With
Civil Appeal Nos.4658, 4657, 383 of 2013, 3580 of 2017, 8714, 8705,
8710, 9291, 8715 Of 2012, 3579, 3578 of 2017, 4659, 4661, 4660 of
2013, 3573, 3575, 3574, 3577, 3576 of 2017, 4662 of 2013, 3549,
3557 of 2017, 7954, 8693 of 2012, 3554, 3556, 3553, 3555, 3565,
3551, 3552, 3558, 3559, 3566-3569, 3572, 3561, 3562, 3564, 3563,
3570, 3571, 3560 And 3550 of 2017
Appearances for Parties
N. Venkatraman, A.S.G., Nalin Kohli, Sr. A.A.G., S Ganesh, Arijit
Prasad, Sr. Advs., Hrishikesh Baruah, Kumar Kshitij, Ms. Apoorva
Jain, Uday Gupta, Ms. Shivani M. Lal, Ms. Sanam Singh, Hiren Dasan,
M.K.Tripathi, Harish Dasan, Rajiv Ranjan, Ms. Yogamaya M.G.,
Rajeev Kumar Gupta, R. C. Kaushik, Vijaynand Tripathi, Vivasvan
Gautam, Raj Bahadur Yadav, Mohan Pandey, Anil Shrivastav,
Ananga Bhattacharyya, Manish Goswami, Rameshwar Prasad
Goyal, Sumeet Lall, Jagjit Singh Chhabra, Mukesh Kumar Maroria,
Mohd. Akhil, Ms. Ruchi Kohli, Ms. Nisha Bagchi, Shuvodeep Roy,
Aastik Dhingra, Ms. Nimisha Menon, Ankit Roy, Sarthak Sharma, Raj
Bahadur Yadav, Mrs. Nisha Bagchi, Shashank Bajpai, Mrs. Ruchi
Kohli, Prashant Singh II, Sabarish Subramanium, B. Krishna Prasad,
Ms. Ruchi Kohli, M/s. Corporate Law Group, Ms. Sangeeta Bharti,
Ms. Sangeeta Bharati, Ashish Kumar, Ms. Prerna Mehta, Saurav
Agrawal, Ravindra Raizada, Ms. Anmol Dhindsa, Kamlendra Mishra,
Advs. for the appearing parties.
Judgment / Order of the Supreme Court
Judgment
Abhay S. Oka, J.
FACTUAL ASPECTS
1.
This group of appeals concerns the liability to pay tax under the
Assam General Sales Tax Act, 1993 (for short, 'the Sales Tax Act')
and the Assam Value Added Tax Act, 2003 (for short, 'the VAT Act'),
492
[2024] 1 S.C.R.
Digital Supreme Court Reports
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 (for short, 'ONGC'). There are other cases where Indian Oil
Corporation Limited (for short, 'IOCL') has entered into agreements
with transporters to provide tank trucks to deliver its petroleum
products.
2.
These cases have been clubbed together as similar questions of law
and fact arise. Broadly, 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. In short, 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.
3.
We are referring to the facts in Civil Appeal No. 3548 of 2017 and
Civil Appeal No. 383 of 2013 for convenience. The judgment dated
25th November 2009 subject matter of challenge in Civil Appeal
no.3548 of 2017 is the main judgment. Most of the other impugned
judgments directly or indirectly rely upon the said judgments. There
are different impugned judgments and orders passed on 24th July
2012, 25th November 2009, 9th December 2009, 29th June 2010
and 25th August 2010. Civil Appeal no.3548 of 2017 arises from the
impugned judgment dated 25th November 2009 passed by a Division
Bench of the Gauhati High Court in a writ appeal. In this case, the
agreement is of 13th April 2006, by which the appellant agreed to
provide services of truck-mounted hydraulic cranes with crew, etc.,
to ONGC for carrying out its various operations. The appellant had
to approach the High Court on the threat given by ONGC to deduct
tax at source under the VAT Act in respect of the services provided
by the appellant. Similar petitions were filed before the learned Single
Judge of the Gauhati High Court. The learned Single Judge dismissed
the petitions by holding that the contract was for the transfer of the
right to use the goods and, therefore, there is a liability under the VAT
Act and the Sales Tax Act. The learned Single Judge also passed
orders in similar writ petitions disposing of the same in terms of the
[2024] 1 S.C.R.
493
M/s. K.P. Mozika v. Oil and Natural Gas Corporation Ltd. and Ors.
order dated 19th December 2006. Therefore, the appellants filed
writ appeals before the Division Bench. By the impugned judgment
dated 25th November 2009, the Division Bench dismissed the writ
appeals by holding that under the agreements in question, there
was a transfer of the right to use the goods covered by the contract.
SUBMISSIONS OF THE LEARNED COUNSEL APPEARING FOR
THE APPELLANTS IN CIVIL APPEAL NO.3548 OF 2017 AND
OTHER CONNECTED CASES
4.
In Civil Appeal no.3548 of 2017 and other connected matters, i.e.
Civil Appeal no.7954 of 2012, Civil Appeal no.8715 of 2012, Civil
Appeal no.9291 of 2012, Civil Appeal no.3549 of 2017, Civil Appeal
no.3550 of 2017, Civil Appeal no.3551 of 2017, Civil Appeal no.3552
of 2017, Civil Appeal no.3553 of 2017, Civil Appeal no.3555 of
2017, Civil Appeal no.3558 of 2017, Civil Appeal no.3559 of 2017,
Civil Appeal no.3564 of 2017, Civil Appeal no.3565 of 2017, Civil
Appeal nos.3566-3569 of 2017, Civil Appeal no.3570 of 2017 and
Civil Appeal no.3571 of 2017, the learned counsel appearing for
the appellants pointed out that the taxes on sale of goods and
advertisements were covered by Entry 48 in List-II of the Seventh
Schedule to the Government of India Act, 1935. Under the Seventh
Schedule to the Constitution of India, Entry 92A of List-I confers
power on the Government of India to impose taxes on the sale of
goods. Similar legislative powers were vested in the State under
Entry 54 of List-II of levy of taxes on the sale or purchase of goods
other than newspapers, subject to the provisions of Entry 92-A of
List-I. On the interpretation of the sale of goods covered by Entry 54
of List-II, the learned counsel relied upon several decisions of this
Court in the cases of Sales Tax Officer, Pilibhit v. Budh Prakash
Jai Prakash1, The State of Madras v. Gannon Dunkerley & Co.2,
and M/s. K.L. Johar & Co. v. The Deputy Commercial Tax Officer,
Coimbatore III3. The learned counsel also pointed out the provisions
of Clause 29A, added by way of the 46th Amendment Act 1982 to
Article 366 of the Constitution of India. He pointed out that in the
present group of appeals, we are concerned with sub-clause (d) of
1
AIR 1954 SC 459
2
AIR 1958 SC 560
3
AIR 1965 SC 1082
494
[2024] 1 S.C.R.
Digital Supreme Court Reports
Clause 29A of Article 366 of the Constitution of India, which provides
that the tax on the sale and purchase of goods includes 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. He pointed out that by this amendment to the
Constitution of India, by way of legal fiction, six cases of transactions
were treated as deemed sale of goods. Therefore, 'deemed sale'
must be read in every provision wherever the phrase 'tax on sale and
purchase of goods' appears. He pointed out the decisions that cover
the contingencies covered by sub-clauses (a) to (f) of Clause 29A
of Article 366 of the Constitution of India. As far as sub-clause (d) is
concerned, he relied upon the decision of the High Court of Madras
in the case of A. V. Meiyappan v. Commissioner of Commercial
Taxes, Board of Revenue, Madras & Anr.4.
5.
Coming to the Sales Tax Act, the learned counsel pointed out that
the same was repealed by virtue of Section 107 of the VAT Act. He
submitted that the VAT Act is in conformity with the 46th Amendment
to the Constitution of India. He also pointed out the view taken by
the High Court of Tripura in the judgments and orders dated 3rd
November 2014 and 29th February 2016, wherein the said High
Court, after analysing the similar contract, came to the conclusion
that the said transaction did not involve any transfer of right to use.
6.
He pointed out that the question will be whether the transactions
subject matter of these appeals constitute deemed sales within the
meaning of Section 2(43)(iv) of the VAT Act with effect from 1st May
2005. He submitted that if the said provisions of the VAT Act are
not applicable, the transactions will be subject to service tax under
Section 65(105)(zzzzj) of the Finance Act, 1994 (for short, 'the
Finance Act'). On facts, he pointed out that the agreement subject
matter of Civil Appeal nos.3566-3569 of 2017 specifically provided
that the transactions in question would not be by way of lease or
transfer of right to use the vehicle/equipment.
7.
He mainly relied upon the concurring view of the Hon'ble Dr.Justice AR
Lakshmanan in the case of Bharat Sanchar Nigam Limited & Anr.
v. Union of India & Ors.5 He relied upon what is held in paragraph
4
(1967) 20 STC 115 (Madras)
5
(2006) 3 SCC 1
[2024] 1 S.C.R.
495
M/s. K.P. Mozika v. Oil and Natural Gas Corporation Ltd. and Ors.
97 of the said decision. He submitted that the five tests laid down
therein can be called the Panchratna Test. His submission is that at
no point was the complete and exclusive dominion of cranes, and
other vehicles passed on to ONGC in view of the express terms of
the contracts in question. He pointed out that in the present case, the
employees on cranes worked for the contractor and not for ONGC.
The contractor appoints those who work on cranes and not ONGC.
The responsibility of repair and maintenance, including alternative
arrangements, is of the contractor, not ONGC. The contractor is
obliged to make arrangements at his own cost for shelter, food, night
stay and other requirements of the employees working on the cranes.
He pointed out that as per the terms of the agreement, the contractor
and ONGC are not responsible for providing secured parking to the
cranes in the sense that even if the cranes are parked at the site of
ONGC, the same are at the risk of the contractor. More importantly,
the contractor is liable for a claim for compensation that may arise
due to injury to any third party by reason of the use of the cranes.
The contractor is mandated to fully indemnify ONGC against any
consequence under law arising from any accident caused by the
cranes to the equipment/property/personnel of ONGC. He submitted
that in the facts of the case, sub-clauses (c), (d) and (e) of the
Panchratna test are not fulfilled.
8.
He relied upon a decision of this Court in the case of The State
of A.P. & Anr. v. Rashtriya Ispat Nigam Limited.6 By inviting the
attention of this Court to the decision in the case of Great Eastern
Shipping Company Limited v. State of Karnataka & Ors.7, he
submitted that in the facts of the case before this Court, the 'Tug'
which was the subject matter of the contract was made available
to the port twenty-four hours a day throughout the contract period.
The contract provided that during the contract period, the tug will be
available with the port for all purposes and under control in every
respect. He also referred to this Court's decision in Commissioner
of Service Tax, Delhi v. Quick Heal Technologies Limited8.
In the said case, this Court observed that the transaction was of
software sale, and once it is accepted that the software put in a
6
(2002) 3 SCC 314
7
(2020) 3 SCC 354
8
2022 SCC Online SC 976
496
[2024] 1 S.C.R.
Digital Supreme Court Reports
compact disk is goods, there cannot be any service element in the
transaction. He submitted that by accepting the contentions raised
by him, consequential directions will have to be issued to settle the
account of the contractors.
Submissions in Civil Appeal No. 383 of 2013
9.
The learned senior counsel appearing for the appellant in Civil Appeal
No. 383 of 2013 has also made detailed submissions. He relied upon
the standard contract executed between the appellants-Indian Oil
Corporation Limited (IOCL), and the transporters operating tank trucks
to deliver petroleum products at specified rates. He pointed out that
the Superintendent of Tax issued notice to the appellants (IOCL) to
deduct sales tax while paying hiring charges to the contractors on
the footing that by hiring the tank trucks, there is a transfer of the
right to use goods and, therefore, the transaction is of sale covered
by Clause 29A of Article 366 of the Constitution of India. In the writ
petition filed by the appellants, the learned Single Judge took the view
that the transactions do not constitute transfer of right to use goods.
In the writ appeals preferred by the respondent, the Division Bench
interfered. The learned senior counsel submitted that the expression
'transfer of right to use any goods' has been the subject matter of
several decisions of this Court. He urged that mere execution of a
contract without passing the domain of the goods does not result in
the transfer of the right to use any goods, and therefore, it will not
be a 'deemed sale'. He also relied on this Court's decisions in the
cases of BSNL5 and Rashtriya Ispat Nigam Limited6. He submitted
that the test consistently applied by this Court is that there can be a
transfer of the right to use goods provided that there is a parting with
possession of goods for the limited period of its use. During the said
period, the effective control of goods must be transferred. By relying
upon several clauses of the agreements, he submitted that there is
no transfer of the right to use the tank trucks under the contract. He
pointed out that the effective control over the vehicles remains with the
transporter and is never transferred to the appellants. Relying upon
the decision of Allahabad High Court in the case of Ahuja Goods
Agency & Anr. v. State of Uttar Pradesh & Ors.9. He submitted
that there is a consistent judicial opinion that hiring vehicles does
not amount to a transfer of effective control and possession.
9
(1997) 106 STC 540 = 1997 SCC online All 1381
[2024] 1 S.C.R.
497
M/s. K.P. Mozika v. Oil and Natural Gas Corporation Ltd. and Ors.
10. He submitted that a transaction can be subject to either service or
sales tax, and the said transaction cannot be subjected to both taxing
statutes. He relied upon a decision of this Court in the case of Imagic
Creative (P) Ltd. v. Commissioner of Commercial Taxes & Ors.10
11. Therefore, he relied upon the decision of this Court in the case of
Gannon Dunkerley & Co2. He pointed out why the Law Commission
suggested an amendment to the Constitution of India by incorporating
clause 29A under Article 366. He submitted that under clause 29A of
Article 366, it is provided that the transfer, delivery, or supply of goods
shall be deemed to be a sale of those goods by the person making
the transfer, delivery, or supply. He relied upon the decision in the
case of BSNL5. He submitted that whether the contract falls in one
category or the other is to be decided by finding out the substance
of the contract. He also pointed out the decision of this Court in the
case of Rashtriya Ispat Nigam Ltd.6 for dealing with the issue of
effective control. He heavily relied upon the opinion of the Hon'ble
Dr. Justice A.R. Laxmanan in the case of BSNL5.
12. The learned senior counsel relied upon several clauses in the
agreement executed by the appellant. He submitted that after 2003,
the transaction was liable to service tax.
13. The learned counsel appearing for the appellants in Civil Appeal
nos.8714, 8710, 8705, 8693, and 3573-3579 of 2017 submitted that
the contract of providing SCB trailers to ONGC was a contract of
service and not of transfer of right to use goods in view of the terms
of the contract in question. He invited the attention of this Court to
several clauses in the contract. Therefore, the learned counsel urged
that the specific terms of the contract indicate that it was a service
contract and was not a sale.
Submissions by the State of Assam
14. The learned counsel appearing for the State of Assam relied
upon a decision of this Court in the case of 20th Century Finance
Corporation Ltd. & Anr. v. State of Maharashtra11. He submitted
that the contracts entered into by ONGC will have to be read as
a whole. He relied upon the test of effective control found in this
Court's decision in the case of Rashtriya Ispat Nigam Limited6. He
10
(2008) 2 SCC 614
11
(2000) 6 SCC 12
498
[2024] 1 S.C.R.
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urged that it is not lawful to split the "transfer of right to use goods"
into "sale and service" for the purposes of taxation. He relied upon
a decision of this Court in the case of BSNL5. His submission is that
the transaction covered by the contract of hiring cranes presupposes
that there is a transfer of the right to use the cranes. Therefore,
the provisions regarding making available staff, maintenance, etc.,
are irrelevant. He urged that the actual delivery of goods is not
necessary for effecting the transfer which are deliverable and are
actually delivered at some stage. He submitted that if the tests laid
down in the case of BSNL5 by the Hon'ble Dr. Justice AR Laxmanan
are applied, it will establish that what was transferred was the right
to use the goods. He submitted that as regards all the contracts
subject matter of this group of appeals, such as contracts for hiring
cranes, water tankers and trailers, the suppliers have transferred
exclusive control and dominion over the goods to the hirer during
the subsistence of the contracts.
15. In the case of Gannon Dunkerley & Co2, this Court has reiterated
that in the case of composite contracts, the States did not have
the power to severe sale and service components and impose tax
only on sales. The learned counsel also invited our attention to the
statement of objects and reasons of the Constitution (46th Amendment)
Bill, 1981. He pointed out the statement of objects and reasons
mentioned therein. He submitted that the contracts in the present
cases clearly show that during the contract period, complete control
and dominion over the cranes, trucks and trailers is given to the
hirer. It is irrelevant that the cranes, trucks, etc., come back to the
contractor after the contract period. He submitted that the concept
of 'deemed sale' under sub-clause (d) of Clause 29A of Article 366
of the Constitution of India comes into operation even if there is no
legal transfer of ownership of the vehicles followed by its delivery.
He pointed out that deemed sale is not a sale of the goods, but it
is of the right to use the goods. Even if there is actually no sale of
cranes, tankers or trailers in terms of the Sale of Goods Act, there is
a deemed sale as the terms of the contracts read as a whole show
that there was an intention on the part of the parties to transfer the
right to use the said goods. He pointed out that this Court, in the case
of Aggarwal Brothers v. State of Haryana & Anr.12 , reiterated that
12
(1999) 9 SCC 182
[2024] 1 S.C.R.
499
M/s. K.P. Mozika v. Oil and Natural Gas Corporation Ltd. and Ors.
the provisions are for transferring the right to use the goods and not
the transfer of goods. He submitted that the test of effective control
is satisfied in this case.
16. Inviting our attention to Section 65(105)(zzzzj) of the Finance Act,
the learned counsel submitted that the said provisions exclude those
transactions in which there is a transfer of possession and effective
control.
17. The learned counsel invited our attention to the various clauses in
the contract subject matter of Civil Appeal No. 3548 of 2017. The
learned counsel, relying upon what is held in paragraph 51(iv) of
the decision of this Court in the case of Quick Heal Technologies
Ltd.8, submitted that when we talk about effective control, it does
not mean physical control. He reiterated that the return of physical
possession of the trailers, trucks, and cranes has no relevance.
Submissions of the Union of India
18. The learned Additional Solicitor General appearing on behalf of the
Union of India contended that the transactions subject matter of this
group of appeals are essentially in the nature of rendering service,
thereby attracting service tax. He submitted that the VAT Act and
the Sales Tax Act will have no application, and the transactions will
attract service tax. Therefore, the submission is that no interference
is called for.
CONSIDERATION OF SUBMISSIONS
19. We have carefully considered the submissions canvassed across the
Bar. Entry 48 of List-II of the Seventh Schedule to the Government
of India Act, 1935 provided for "taxes on sale of goods and on
advertisement". In the case of Gannon Dunkerley & Co2, which
is a landmark judgment, this Court dealt with the interpretation of
Entry 48 of List-II of the Seventh Schedule to the Government of
India Act, 1935 and Entry 54 of List-II of the Seventh Schedule to the
Constitution of India which provided for "taxes on sale of goods". This
Court held that the expression "sale of goods" has a well-recognised
legal import. It was held that the expression "sale of goods" will have
to be given the same meaning as defined in the Sale of Goods Act.
The same view was reiterated in the case of K.L.Johar & Co. v.
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Deputy Commercial Tax Officer, Coimbatore III13. Thus, the State
legislature was empowered to levy tax on the sale of goods provided
there was a sale within the meaning of the Sale of Goods Act. A
necessary ingredient of the sale of goods is the transfer of property
in the goods subject matter of sale from the seller to the buyer. The
essential ingredient of such a sale is handing over possession of the
goods and transferring the property in the goods to the buyer. Under
Entry 92A of List-I of the Seventh Schedule to the Constitution of India,
even the Central legislature is empowered to levy tax on the sale
and purchase of goods other than newspapers where such sale or
purchase occurs during the course of inter-state trade or commerce.
20. Thereafter, the 46th Amendment to the Constitution of India was made.
By the said amendment, Clause 29A was added to Article 366 with
effect from 2nd February 1983. Clause 29A reads thus:
"(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;
13
AIR 1965 SC 1082
[2024] 1 S.C.R.
501
M/s. K.P. Mozika v. Oil and Natural Gas Corporation Ltd. and Ors.
(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."
(underline supplied)
In this case, we are concerned with sub-clause (d) of Clause 29A.
Sub-clause (d) essentially defines "tax on the sale or purchase of
goods". Sub-clause (d) provides that tax on the sale or purchase of
goods includes a tax on the transfer of the right to use any goods for
any purpose. We will have to interpret the statutory provisions in the
light of sub-clause (d) of Clause 29A of Article 366. The amendment
came into force on 2nd February 1983.
21. Before we interpret sub-clause (d) of Clause 29A, it is necessary
to refer to the provisions of the Sales Tax Act. In the said Act, the
definition of "sale" required the transfer of property in goods by any
person by cash, deferred payment, or other valuable consideration.
The VAT Act came into force with effect from 28th April 2005. The VAT
Act repealed the Sales Tax Act. The VAT Act is in conformity with the
46th Amendment to the Constitution of India, particularly Clause 29A
of Article 366. The definition of "sale" in sub-section (43) of Section
2 of the VAT Act is very exhaustive which is in terms of Clause 29A
of Article 366 of the Constitution of India. Clause (iv) of sub-section
(43) of Section 2 of the VAT Act contains an inclusive definition of
"sale", which includes, "a 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".
22. In the present group of appeals, broadly, we are dealing with the
following categories of cases:
a.
Agreements for hiring cranes;
b.
Agreements for hiring trucks;
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c.
Agreements for hiring of buses;
d.
Agreements for transportation of petroleum products by
vehicles;
e.
Agreements for hiring trailers;
f.
Agreements for hiring water tankers; and
g.
Agreements for hiring of scrapping winch chassis.
23. The impugned judgment and order subject matter of challenge in
Civil Appeal no.3548 of 2017 decides a group of 20 cases wherein
the agreements were for providing/hiring cranes to ONGC and
agreements pertaining to water tankers and trailers. The said judgment
was against the assessee.
24. Civil Appeal no.383 of 2013 arises from the contract between the
transport agencies and the appellant-IOCL, for transporting petroleum
products by vehicles. The impugned judgment and order is of 24th
July 2012. Civil Appeal No. 3548 of 2017 has been preferred by the
assessee. The same is the case with Civil Appeal No. 383 of 2013.
Civil Appeal No. 3580 of 2017 has been preferred by the Union of
India. Civil Appeal no.4657 of 2013 is preferred by the assessee for
challenging the judgment and order dated 24th July 2012. By the said
judgment, again, a group of cases were decided by the Gauhati High
Court. Even the said cases were decided against the assessee on
the basis of the decision, which is the subject matter of challenge
in Civil Appeal No. 3548 of 2017.
25. Civil Appeal no.3580 of 2017 is in the nature of a cross-appeal
preferred by the Union of India against the judgment, which is the
subject matter of challenge in Civil Appeal 4657 of 2013. This was a
case of a contract for the supply of trailers. In this case, the contention
raised by the Union of India is that the transaction does not amount
to a sale within the meaning of the VAT Act and that the agreement
is of rendering service.
26. The entire controversy revolves around the question of whether
the transactions reflected from the agreements subject matter of
these appeals amount to a sale within the meaning of sub-clause
(d) of Clause 29A of Article 366 of the Constitution of India and,
consequently, whether it is a "sale" within the meaning of clause
(iv) of sub-section (43) of Section 2 of the VAT Act. The definition
[2024] 1 S.C.R.
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M/s. K.P. Mozika v. Oil and Natural Gas Corporation Ltd. and Ors.
of "sale" under the Sales Tax Act, in sub-section (33) of Section 2,
incorporates the requirement of transfer of property in goods.
27. Now, we come to the interpretation of sub-clause (d) of Clause
29A of Article 366. As pointed out earlier, the States had legislative
competence for enacting a law regarding imposing a tax on the
sale of goods as per Entry 54 of List-II. Followed by the decision
of this Court in the case of Gannon Dunkerley & Co2, there are
several decisions wherein the view taken was that though there were
transactions which resembled sale, the tax could not be levied on
the same as there was no sale of goods within the meaning of the
Sale of Goods Act. The sale of goods contemplated under Entry 54
of List-II was consistently interpreted as a sale in terms of the Sale
of Goods Act.
28. Clause 29A of Article 366 was inserted on 2nd February 1983, thereby
introducing the concept of "deemed sale". We are concerned with
sub-clause (d) of Clause 29A, which we have reproduced earlier. As
noted earlier, the condition for applicability of the sale of goods under
the Sale of Goods Act is that apart from the transfer of possession
of the goods, there must be a transfer of the property in goods to
the buyer. However, sub-clause (d) of Clause 29A refers not to the
transfer of property in the goods to the buyer but to the transfer
of the right to use any goods for any purpose for consideration
as mentioned in sub-clause (d) of Clause 29A. The transfer of the
right to use any goods can be for any purpose (whether or not for
a specified period) for cash, deferred payment or other valuable
consideration. Only because a person is allowed to use certain
goods of the owner, per se, there is no transfer of the right to use
any goods. The transaction can be either of transfer of right to use
the goods or granting mere permission to use the goods without
transfer of the right to use the goods.
29. This Court has interpreted sub-clause (d) of Clause 29A in various
decisions. The first important decision on this aspect is a decision
of the Constitution Bench in the case of 20th Century Finance
Corporation Ltd.11. This was a case where the appellant had
entered into a master-lease agreement with the lessee. The lessee
was a party that desired to take equipment for use on hire. Under
the agreement, the appellant agreed to give diverse machinery/
equipment listed in the schedule to the master-lease agreement.
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The master-lease agreement provided that the appellants would
place the orders for individual equipment on the request made by
the lessee, and the equipment to be leased would be dispatched
by the manufacturer or supplier concerned to the location specified
in the lease agreement. At the instance of the lessee, the appellant
used to place purchase orders to the suppliers or manufacturers for
the supply of individual items or equipment. After the equipment was
delivered and put to use, the lessee used to execute supplementary
lease schedules acknowledging the receipt of the leased equipment.
Such supplementary lease agreements used to form an integral part
of the master-lease agreements. The controversy arose because
some States started levying tax merely because the goods were
found to be located in their States at the time of executing the
master contract. The States where the goods were delivered started
levying taxes on the said goods. In particular, the challenge was to
the validity of legislations of various States on the ground that one
transaction of transfer of the right to use goods was subjected to
tax in different States. In the facts of the case, the issue considered
by the Constitution Bench was "Where is the situs of the taxable
event on the transfer of right to use goods under Article 366(29-A)
(d) of the Constitution." In paragraph 27 of the aforesaid decision,
the Constitution Bench held that the levy of tax in accordance with
Clause 29A(d) is not on the use of goods but on the transfer of the
right to use goods. In other words, it was held that the right to use
goods accrues only because of the transfer of the right to use goods.
It was held that the transfer is sine qua non for the right to use any
goods. It was held that if the goods are available, the transfer of the
right to use goods occurs when the contract for the goods is executed.
In other words, if the goods are available, irrespective of whether
the goods are delivered and the written agreement is entered into
between the parties, a taxable event on such a deemed sale would
be executing a contract to transfer the right to use goods. However,
when there is no written agreement but an oral or implied transfer of
the right to use goods, it may be effected by the delivery of goods.
Only in such cases the taxable event would be the delivery of goods.
In this context, in paragraph 28, the Constitution Bench held that it
cannot be said that there would be no complete transfer of the right
to use goods unless the goods are delivered. When the goods are
in existence, the taxable event for the transfer of the right to use
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M/s. K.P. Mozika v. Oil and Natural Gas Corporation Ltd. and Ors.
goods occurs when a contract is executed between the lessor and
the lessee, and the situs of sale of such a deemed sale would be
where the agreement in respect thereof is executed.
30. There is another decision of this Court in the case of BSNL5. This case
was decided by a bench of three Hon'ble Judges of this Court. The
question decided in this case was about the nature of the transaction
by which mobile phone connections were provided.