Holding

The contracts do not transfer the right to use the goods; they are services and therefore do not attract sales tax or VAT under Clause 29A(d).

Summary

The assessees entered into contracts to provide motor vehicles, cranes and related equipment to ONGC and tank trucks to IOCL, and the tax authorities treated these arrangements as sales under Clause 29A(d) of Article 366, imposing sales tax and VAT. The assessees contended that the contracts were for services, not for the transfer of the right to use the goods, and thus should attract service tax under Section 65(105)(zzzzj) of the Finance Act. The Supreme Court applied the five‑test "Panchratna" criteria laid down by Dr. A.R. Laxmanan, examining availability of goods, consensus on identity, legal right to use, exclusive control by the user, and non‑retransferability. It found that in each contract the contractor retained control, provided crew, bore maintenance costs and indemnified ONGC/IOCL, so the tests were not satisfied and no transfer of the right to use occurred. Consequently, the transactions were held to be services, not sales, and the assessees were not liable to pay sales tax or VAT, but could be liable for service tax. All the appeals filed by the assessees were allowed, and the Union of India's cross‑appeal was dismissed.

Issues considered

The contracts for hiring cranes, trucks, trailers and tankers constitute a transfer of the right to use goods within the meaning of sub‑clause (d) of Clause 29A of Article 366?
Whether the transactions attract tax under the Assam General Sales Tax Act, 1993 or the Assam Value Added Tax Act, 2003 as sales, or under Section 65(105)(zzzzj) of the Finance Act as taxable services?
Whether the five‑test criteria (availability, identity, legal right, exclusive control, non‑retransferability) are satisfied in the present agreements?

Legislation cited

Assam General Sales Tax Act, 1993
Assam Value Added Tax Act, 2003
Constitution of Indias. Art. 366(29A)(d)
Finance Act (2008)s. s.65(105)(zzzzj)
Value Added Tax Acts. s.2(43)(iv)

Subjects

Transfer of the right to use any goods for any purposeSaleServiceSales taxService taxTaxable serviceTax on sale or purchase of goodsHiring of the motor vehiclesAgreements for hiring cranesAgreements for hiring trucksAgreements for hiring of busesAgreements for transportation of petroleum products by vehiclesAgreements for hiring trailersAgreements for hiring water tankersAgreements for hiring of scrapping winch chassis

Judgment

[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
* Author
[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.

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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.

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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.

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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.

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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. 503

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
[2024] 1 S.C.R. 505

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. The question
was whether it was a sale of goods that would attract sales tax or a
service that would attract service tax under Entry 97 of List-I of the
Seventh Schedule to the Constitution of India. There were several
issues, including an issue of whether there is any transfer of the right
to use any goods by providing access to telephone connection by
the telephone service provider to the subscriber. Another issue was
whether a transaction of providing a telephone connection was a
sale, which is an inter-state sale. There were separate but concurring
judgments delivered. Justice Ruma Pal authored the leading judgment
for herself and Justice Dalveer Bhandari. In this decision, reference
was made to the decision in the case of Gannon Dunkerley & Co.2.
It was held that even after Clause 29A of Article 366 was introduced,
the meaning of the word “goods” was not altered. It was held that
even after Clause 29A was introduced, the ingredients of the sale of
goods continue to have the same definition as discussed in the case
of Gannon Dunkerley & Co.2. It was held that the transactions which
are mutant sales are limited to Clause 29A of Article 366. However,
all the transactions must qualify as sales within the meaning of the
Sales Tax Act to levy sales tax. In paragraph 74, the decision in the
case of 20th Century Finance Corporation Ltd.11 was interpreted.
In paragraphs 74 and 75 of the judgment in the case of BSNL5,
Justice Ruma Pal observed thus:-
“74. In determining the situs of the transfer of the right to
use the goods, the Court did not say that delivery of the
goods was inessential for the purposes of completing the
transfer of the right to use. The emphasised portions in the
quoted passage evidences that the goods must be available
when the transfer of the right to use the goods takes place.
The Court also recognised that for oral contracts the situs
of the transfer may be where the goods are delivered (see
para 26 of the judgment).
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75. In our opinion, the essence of the right under Article
366(29-A)(d) is that it relates to user of goods. It may be
that the actual delivery of the goods is not necessary for
effecting the transfer of the right to use the goods but the
goods must be available at the time of transfer, must be
deliverable and delivered at some stage. It is assumed, at
the time of execution of any agreement to transfer the right
to use, that the goods are available and deliverable. If the
goods, or what is claimed to be goods by the respondents,
are not deliverable at all by the service providers to the
subscribers, the question of the right to use those goods,
would not arise.”
(underline supplied)
Thus, this Court held that to attract sub-clause (d) of Clause 29A
of Article 366, the goods must be available at the time of transfer,
must be deliverable and delivered at some stage. If the goods are
not deliverable at all by the service provider to the subscriber, the
question of the right to use those goods would not arise.
31. What is relevant in the case of BSNL5 is the concurring view taken by
Dr. AR Laxmanan, J. In paragraph 97, Dr. AR Laxmanan, J held thus:
“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 use the
goods—consequently all legal consequences of such
use including any permissions or licences required
therefor 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 licence to use the goods;
[2024] 1 S.C.R. 507

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(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.”
(underline supplied)
32. The view taken by Dr AR Laxmanan, J has been consistently followed
thereafter by this Court in various decisions. In the case of Great
Eastern Shipping Company Limited7, paragraph 97 of the view
expressed by Dr. AR Laxmanan, J was quoted with approval. A Bench
of three Hon’ble Judges of this Court in the case of Commissioner of
Service Tax, Ahmedabad v. Adani Gas Limited14 quoted paragraph
97 of the view expressed by Dr AR Laxmanan, J with approval. In
fact, in paragraph 17, the Bench observed that the tests laid down
in paragraph 97 of the decision in the case of BSNL5 have been
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.
33. In the case of Quick Heal Technologies Ltd.8, in paragraph 46,
the tests laid down by Dr. AR Laxmanan, J have been quoted with
approval. In paragraph 53 of the said decision, this Court held thus:
“53. The following principles to the extent relevant may be
summed up:
53.1. The Constitution (Forty-sixth Amendment) Act intends
to rope in various economic activities by enlarging the
scope of “tax on sale or purchase of goods” so that it may
include within its scope, the transfer, delivery or supply of
goods that may take place under any of the transactions
referred to in sub-clauses (a) to (f) of clause (29-A) of
Article 366. The works contracts, hire purchase contracts,
supply of food for human consumption, supply of goods
by association and clubs, contract for transfer of the right
to use any goods are some such economic activities.
53.2. The transfer of the right to use goods, as distinct
from the transfer of goods, is yet another economic activity
intended to be exigible to State tax.

14 2020 SCCOnline SC 682
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53.3. There are clear distinguishing features between
ordinary sales and deemed sales.
53.4. Article 366(29-A)(d) of the Constitution implies tax
not on the delivery of the goods for use, but implies tax
on the transfer of the right to use goods. The transfer of
the right to use the goods contemplated in sub-clause (d)
of clause (29-A) cannot be equated with that category of
bailment where goods are left with the bailee to be used
by him for hire.
53.5. In the case of Article 366(29-A)(d) the goods are not
required to be left with the transferee. All that is required is
that there is a transfer of the right to use goods. In such a
case taxable event occurs regardless of when or whether
the goods are delivered for use. What is required is that the
goods should be in existence so that they may be used.
53.6. The levy of tax under Article 366(29-A)(d) is not on
the use of goods. It is on the transfer of the right to use
goods which accrues only on account of the transfer of
the right. In other words, the right to use goods arises only
on the transfer of such right to use goods.
53.7. The transfer of right is the sine qua non for the right
to use any goods, and such transfer takes place when
the contract is executed under which the right is vested
in the lessee.
53.8. The agreement or the contract between the parties
would determine the nature of the contract. Such agreement
has to be read as a whole to determine the nature of the
transaction. If the consensus ad idem as to the identity
of the good is shown the transaction is exigible to tax.
53.9. The locus of the deemed sale, by transfer of the
right to use goods, is the place where the relevant right to
use the goods is transferred. The place where the goods
are situated or where the goods are delivered or used is
not relevant.”
Thus, to decide the controversy involved in this group of appeals, the
contract between the parties will have to be tested on the touchstone
of the five tests laid down by Dr AR Laxmanan, J in the case of
[2024] 1 S.C.R. 509

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

BSNL5. Thus, the contract will be covered by sub-clause (d) of
Clause 29A of Article 366, provided all the five conditions laid down
are fulfilled. This Court has made a distinction between transferring
the right to use and merely a license to use goods. In every case
where the owner of the goods permits another person to use goods,
the transaction need not be of the transfer of the right to use the
goods. It can be simply a license to use the goods which may not
amount to the transfer of the right to use.
34. In Civil Appeal no.3548 of 2017, in the impugned judgment, the
Division Bench of the High Court proceeded on the footing that
the terms and conditions of the agreement, by which cranes were
supplied to ONGC, were more or less similar. In paragraph 12 of
the impugned judgment, the Division Bench has also dealt with the
contracts of supply of water tankers and trailers. Thus, the contracts,
as far as the supply of cranes is concerned, are almost identical. It
is stated that the contract subject matter of challenge in Civil Appeal
nos.3566-3569 of 2017 is slightly different. Therefore, by way of
illustration, firstly, we are referring to the terms and conditions of the
contract dated 13th April 2006, which is the subject matter of challenge
in Civil Appeal no.3548 of 2017. Some of the relevant clauses and
features of the said agreement are as follows:
a. Clause 2 regarding scope of work/contract, reads thus:
“2. Scope of Work/Contract:
1.The services of the manned (Driver/Operator/Slinger/
Khalasi etc. as the case may be) Crane (type of vehicle/
equipment to be given) as per the technical specifications
given herein or a vehicle/equipment of equivalent technical
specifications and acceptable to ONGC, along with
the necessary accessories, with valid permits/licenses,
insurance etc. Sufficient fuel, in well maintained condition
and fulfilling other pre-requisites, should be available
for performing the duties as advised by ONGC, at the
appointed time and place, throughout the contract period,
not by way of lease or transfer or rights, for use of the
vehicle/equipment, by the contractor to ONGC.
2. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..”
(underline supplied)
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Thus, the contract itself provides that there is no transfer of the right
to use the crane/equipment;
b. The other salient features are :
i. The specifications of cranes and other equipment are
provided in clause 3.1. Clause 3.3 provides that apart from
the cranes, the contract shall provide a necessary number
of slings, hooks, dunnage material and other material for
loading and unloading. The specific material is mentioned
in the said clause;
ii. Though in clause 6.2, the registration number of two
cranes has been mentioned, what is important here is
clause 5.2. It provides that even if a particular crane or its
documents have been approved by ONGC, when a crane
is defective, another crane of similar specifications must
be offered as a replacement by the contractor. Therefore,
the contract does not remain confined only to the two
cranes described in clause 6.2, but the contractor has an
obligation to replace the cranes;
iii. The operational staff, such as driver, crane operator, rigor-
slinger, khalasi, cleaner, etc. as specifically mentioned in
clause 8.17 and 8.18 shall be provided by the contractor.
The crew must operate the cranes with requisite safety
accessories, such as safety shoes, gloves, safety helmets,
etc. The contractor shall provide these safety accessories
at his own cost and shall be replaced by him from time
to time;
iv. The contractor shall make arrangements at his own cost
for shelter, food, night-stay and other requirements of the
staff near the site of operation;
v. The normal working hours on the cranes shall be from 7
to 10 hours with a break of half an hour. These timings
shall be subject to change. There shall be four days’
maintenance off for the cranes;
vi. The contractor must make adequate and proper
arrangements for fuel, lubricants and other consumables,
etc., in relation to the cranes and other items. The contractor
shall look after the repair and maintenance of the cranes;
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M/s. K.P. Mozika v. Oil and Natural Gas Corporation Ltd. and Ors.

vii. The contractor shall ensure that the cranes comply with
the requirements of the Motor Vehicles Act, 1988 and
the rules and regulations framed thereunder. Similarly,
the crew members must be legally competent and hold
valid licences;
viii. The contractor will be solely responsible and shall keep
ONGC indemnified against any consequence under any
law arising from any accident caused to the equipment/
property/personnel engaged in the contract. Even for
damage or injury to any third party due to the operation of
cranes, the contractor will be responsible. The contractor
shall safeguard his interest through comprehensive
insurance at his own cost, and the ONGC shall not be
liable to pay any amount towards the insurance;
ix. It will be the contractor’s responsibility to arrange parking
of the cranes at selected places. However, the contractor
shall be responsible for providing the cranes at the requisite
site at the requisite time;
x. The insurance taken by the contractor shall cover all
the risks of whatsoever nature to any third party, any
equipment/property/personnel of the contractor and
damage to the property or personnel of ONGC;
xi. It will be the responsibility of the contractor to register
himself under the Contract Labour (Regulation and
Abolition) Act, 1970; and
xii. It is provided that after using cranes for a specific period,
as mentioned in the contract, the contractor has to park
the cranes on the sites provided by ONGC at the risk of
the contractor.
35. On a conjoint reading of the aforesaid terms of the contract, it
is apparent that the contractor has an option of replacing the
cranes in case one of the cranes was not working properly. Only
the contractor is liable to take care of the legal consequences of
using the cranes. The contractor must maintain the cranes, and it
is for the contractor to pay for consumables like fuel, oil, etc. Even
the cranes must be moved and operated by the crew members
appointed by the contractor. Moreover, in case of any mishap or
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accident in connection with the cranes or connection with the use
of the cranes or as a consequence thereof, the entire liability will be
of the contractor and not of the ONGC. Thus, in short, 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 in clauses (c) and (d) of paragraph 97 of the decision of
Dr AR Laxmanan, J are not fulfilled in this case. Moreover, on a
conjoint reading of the aforesaid 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, we find
that 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 as the transactions do not satisfy all the five tests referred
to above.
36. We have also carefully perused the terms and conditions of the
contract subject matter of challenge in Civil Appeal nos.3566-3569
of 2017. The contract concerns hiring services of ten truck-mounted
all-terrain hydraulic cranes with the crew. In this case, like the other
contracts, Clause 2 provides that the supply of equipment will not
be by way of lease or transfer or right to use the equipment. All the
other clauses are practically the same. Even in this case, also, the
reasons which are recorded earlier will squarely apply. The contracts
do not reflect the intention on the part of the contractor to transfer
the right to use the goods.
37. Now, we come to Civil Appeal No. 4657 of 2013 and Civil Appeal
no.3580 of 2017. In this case, the contract is of 20th November 2008
by and between the ONGC and M/s.Ali Brothers. The contract is for
hiring a 20-metre-ton trailer. The salient features of the said contract
are as under:
a. Even in this contract, the entire manpower was to be provided
by the Contractor;
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b. The contractor was required to indemnify ONGC from all the
actions, proceedings, claims, demands, and liabilities arising
out of or in the course of or caused by the execution of work
under the contract;
c. The driver must be appointed by the employer having a valid
professional driving license with three years of experience;
d. The contractor must register himself under the Contract Labour
(Regulation and Abolition) Act, 1970;
e. The trailer shall be available for 26 days in a calendar month.
The normal working hours will be 12 hours;
f. The contractor shall make his own arrangements for parking
all the trailers after duty hours;
g. The contractor shall be responsible for the loss of the material
provided by ONGC during transportation. In case of any accident
or damage while the trailer is on ONGC duty, there shall be no
liability of any nature incurred by the ONGC;
h. The contractor must take insurance of trailers covering all the
risks and liabilities, which will cover unlimited third-party claims
and the claims under the Workmen’s Compensation Act, 1923,
made by the workmen.
38. Looking at these clauses, it is obvious that the contractor fully controls
the trailers during the contract period, and therefore, again, this is a
case of a license granted to ONGC to use the trailer, and the right
to use the trailer is not transferred to ONGC. Hence, test (c) out of
the five tests is not fulfilled in this case.
39. Now, we come to Civil Appeal no.383 of 2013. In this case, the
contract was for operating tank trucks to deliver petroleum products
at specified rates. The salient features of the contract are as under:
a. The contractors shall operate the tank trucks;
b. IOCL will have the right to requisition a further number of tank
trucks in addition to what is provided in the contract;
c. IOCL did not guarantee any minimum turnover, whether daily,
monthly or annually, during the contract period and therefore, the
contractor will not be entitled to take ideal charges or minimum
charges from IOCL;
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d. The entire operational cost, including salary and other
emoluments of drivers, cleaners, cost of fuel and lubricating
oil, maintenance and repairs of the tank trucks, road tax and
other taxes, and insurance shall be borne by the Contractor;
e. The contractor will be liable to any loss or damage caused to
the IOCL, its employees or any third party resulting from fire,
leakage, negligence, explosion, accident or any other cause
in operating the said tank trucks at the time of loading and
unloading and during transit;
f. The personnel of IOCL will do the loading of the tank trucks at
the depot with the help of the driver and the cleaner, but the
unloading will be the responsibility of the contractor;
g. The complete responsibility for delivering the correct quality
and quantity of the products at the destination will be of the
contractor;
h. The contractor will keep the tank trucks in serviceable condition.
In the event that a tank truck is not serviceable, the contractor
shall be bound to effect supplies to outstation in drums by
using stake trucks;
i. The contractor shall remain fully responsible to IOCL for custody
of the product, its quantity and quality;
j. If the contractor fails to place its tank trucks at the depots of
IOCL, it will be the contractor’s responsibility to engage tank
trucks from outside.
40. On a conjoint reading of the clauses mentioned above, 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
in this case. Therefore, it is impossible to conclude that there is a
transfer of the right to use tank trucks in favour of IOCL. Essentially,
it is a contract to provide the service of transporting the goods using
tank trucks to IOCL. Therefore, even in this case, all the five tests
laid down by Dr AR Laxmanan, J are not fulfilled.
[2024] 1 S.C.R. 515

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

41. Now, at this stage, we may refer to Section 65(105)(zzzzj) of the
Finance Act, which was brought into force with effect from 16th May
2008. Section 65(105)(zzzzj) reads thus:
“Section 65. Definitions – .. .. .. .. .. .. .. .. .. ..
(1) .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
(105) “Taxable service” means any service provided or
to be provided –
(a) .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
(zzzzj) to any person, by any other person in relation to
supply of tangible goods including machinery, equipment
and appliances for use, without transferring right of
possession and effective control of such machinery,
equipment and appliances.”
It provides that “taxable service” means any service provided to
any person by any other person in relation to the supply of tangible
goods, including machinery, equipment and appliances for use
without transferring the right of possession and effective control of
such machinery, equipment and appliances.
42. Essentially, the transfer of the right to use will involve not only
possession, which may be granted at some stage (after execution
of the contract), but also the control of the goods by the user. 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.
CONCLUSION
43. To conclude, all the appeals preferred by the assessees will have
to be allowed.
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44. Accordingly, we allow all the appeals of the assessees by holding
that the contracts are not covered by the relevant provisions of the
Sales Tax Act and of the VAT Act, as the contracts do not provide
for the transfer of the right to use the goods made available to the
person who is allowed to use the same. Civil Appeal no.3580 of 2017
preferred by the Union of India is disposed of in view of the earlier
findings with the liberty to the Union of India to initiate proceedings,
if any, for recovery of service tax in accordance with law.
45. There will be no order as to costs.

Headnotes prepared by: Ankit Gyan Result of the case: Appeal preferred
by assesses, allowed.