Supreme Court: Hiring of cranes, trucks to ONGC/IOCL not deemed-sale but service; Reverses HC findings as reported by Taxsutra

SC allows a batch of appeals, holds that, supply of cranes, trucks, buses, trailers, water tankers, oil tankers, etc. on ‘hire basis’ to ONGC and IOCL,

without ‘transfer of effective control’ cannot be referred as ‘transfer of right to use goods’ so as to be considered as ‘sale’ under Article 366(29A)(d) of Constitution, and hence, cannot be taxed under Sales Tax Act or VAT Act.

Perusing the scope of work contract in each of the appeals and tracing the evolution of concept of ‘deemed sale’,

SC finds that, contractor retains the right to replace the vehicle, maintains them and is liable for consumables like fuel, oil, etc and legal consequences in case of any mishap or accident;

Testing the hiring contracts on the touchstone of five tests laid in landmark case of BSNL, SC categorically outlines the distinction “between transferring the right to use and merely a license to use goods”;

Therefore, SC concludes that, 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. ,

same is a contract for providing a service and grants liberty to Revenue (UOI) "to initiate proceedings, if any, for recovery of service tax in accordance with law..." : SC in KP Mozika vs Oil and Natural Gas Corporation Ltd. (08-Jan-2024)