Introduction The identification of lease transaction is a vexed issue. The sale by “transfer of right to use goods” (Lease) is provided by a deeming clause in Article 366 (29A) of Constitution of India. However, there is no definition of the nature of lease transaction in constitution or in the respective sales tax laws. Therefore, its nature is required to be determined in light of decided cases. The controversy remains alive till the issue reaches the Supreme Court.
The decisions are also based on facts of each case.
BSNL case
One of the important judgments on the issue is of Supreme Court in case of Bharat Sanchar Nigam Limited (145 STC 91). In this judgment, the Hon’ble Supreme Court has specified criteria for deciding the nature of lease transaction. The said criteria can be reproduced below.
“98. 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 licenses required therefore should be available to the transferee;
(d)For the period during which the transferee has such legal right, it has to be the exclusion to the transferor – this is the necessary concomitant of the plain language of the statute – viz., a “transfer of the right to use” and not merely a licence to use the goods;
(e) Having transferred the right to use the goods during the period for which it is to be transferred, the owner cannot again transfer the same rights to others.”
However, in spite of such clear criteria laid down by highest court, the litigation continues.
Case of crane
There are commercial transactions where work is carried out by parties, with use of cranes. It is but natural that the customer who employees the crane owner will request /direct the crane owner to operate the crane as he requires. However, such transactions are being attempted to be classified as lease transactions by the state sales tax authorities.
Recently, there is judgment of the Hon’ble Bombay High Court in relation to such controversy.
Commissioner of Sales Tax vs. General Cranes
This judgment is given by the Hon’ble Bombay High Court on 21st April 2015 in Sales Tax Reference No. 5 Of 2009 In Reference To Application No. 72 Of 2005.
The facts in this case, as noted by the Hon’ble Bombay High Court, are as under.
“The facts, in brief, giving rise to the present Reference are as under:
The respondent is registered under the Lease Act and is engaged in carrying on the business of hiring of cranes. The respondent had filed an application under section 8 of the Lease Act for determination of question as to whether he would fall under the term of “dealer” under the Maharashtra Sales Tax on the Transfer of Right to use any goods for any purpose Act, 1985 (hereinafter referred to as the ‘Lease Tax Act’) along with Section 52 of the Bombay Sales Tax Act, 1959. The Additional Commissioner while dealing with the said application held that the respondents would fall within the definition of a ‘dealer’ and as such, the transaction entered into by him with M/s. Offshore Hook-Up & Construction Services (I) Pvt. Ltd. would be governed by the provisions of the said Act and as such taxable. Being aggrieved thereby, an Appeal came to be preferred. The learned Tribunal reversed the finding of the learned Additional Commissioner and held that the transaction entered into between the respondent and M/s. Offshore Hook-Up & Construction Services (I) Pvt. Ltd. would not amount to sale as defined u/s. 2(10) of the Lease Act.”
In subsequent paras, the Hon’ble High Court has reproduced certain relevant portion from the agreement between the parties. Thereafter, the Hon’ble High Court has referred to the definition and provisions of the Lease Act.
More particularly, the Hon’ble High Court has relied upon the judgment in case of BSNL (cited supra) and Rashtriya Ispat Nigam Limited 126 STC 114 (SC).
After analysing facts and legal position, the Hon’ble High Court observed as under, about nature of transaction:
“As already discussed hereinabove, the learned Tribunal has extensively reproduced the terms of contract which are also been reproduced by us hereinabove. Perusal of the terms of contract would reveal that as per the contract, the driver, cleaner, diesel and oil was to be provided by the respondent. So also, transportation of accessories was to be done by the respondent. It can further be seen that there is no provision in the contract that the legal consequences such as permissions or licences were to be transferred to the transferee. The ultimate control over the crane retained with the respondent. We find that the learned Tribunal, applying the judgment of Apex Court, has rightly construed that the transaction which were entered into by the respondent with Offshore Hook Up & Construction Services (I) Pvt. Ltd. would not fall within the meaning of Lease Act and the respondent was not a dealer within the meaning of definition of section 2(4) of the Lease Act.”
Thus, the Hon’ble High Court decided that there is no transfer of right to use goods and the judgment given by the Hon’ble Tribunal is correct as per facts and law.
The concept of effective control is also discussed by Hon’ble High Court in above para. Though the judgment is in relation to cranes it can apply with equal force to other such vehicles like, buses, etc. Therefore, the above judgment will be a guiding judgment for similar transactions.
Conclusion:
It seems as though, that the dealers have to wage a long struggle to get the correct position of Law decided. And this is happening due to fact that there is no definition of the ‘nature of lease transaction’. The parameters considered by different courts further add to the controversy. Therefore, it will be useful if a statutory definition of relevant terms is provided in the Law itself. Hopefully, due care will be taken in the drafting of GST Law.
