Court holds that hire agreements do not amount to "deemed sale" under Section 4(8) of AP VAT Act as possession and control of buses remain with owners
In a significant judgment dated September 3, 2026, the Andhra Pradesh High Court (Division Bench comprising Justices Ninala Jayasurya and T.C.D. Sekhar) ruled in favor of private bus owners operating buses under hire agreements with the Andhra Pradesh State Road Transport Corporation (APSRTC), holding that such transactions do not attract tax under Section 4(8) of the Andhra Pradesh Value Added Tax Act, 2005 ("the Act").
The writ petitions were filed by private bus owners challenging tax demands issued by the Commercial Tax Officer alleging that the hire charges received from APSRTC amounted to a "deemed sale" liable to VAT at 14.5%. The tax authorities contended that since the buses were operated exclusively on APSRTC routes under their directions, it amounted to transfer of the right to use goods and hence taxable under Section 4(8). The petitioners argued that the buses remained under their actual possession and control and only the right to operate on specified routes was granted, which did not constitute a transfer of the right to use goods.
The Court meticulously examined the terms of the hire agreements. The agreements mandated that the bus owners maintained possession, control, and responsibility for operation, insurance, wages of drivers, and compliance with statutory requirements. APSRTC's role was limited to fixing routes and schedules; it had no control over possession or operation of the buses. The Court found that the agreements did not transfer possession or control of the buses to APSRTC, a key requirement for deeming a transaction as a sale under Article 366(29A)(d) of the Constitution of India and Section 4(8) of the VAT Act.
The judgment heavily relied on precedents including the Telangana High Court decision in M/s. NAC Infrastructure Equipment Ltd. v. Assistant Commissioner (CT), the Supreme Court's decision in Bharat Sanchar Nigam Ltd. v. Union of India, and the Supreme Court's recent ruling in K.P. Mozika v. Oil and Natural Gas Corporation Ltd., which clarified the parameters for "transfer of right to use" goods. The Court reiterated the legal principle that transfer of right to use involves transfer of both possession and control of goods, and mere license or permission to use does not amount to deemed sale.
Further, the Court noted that services by way of giving on hire to a State Transport undertaking of motor vehicles carrying more than 12 passengers are exempt from service tax under Notification No. 25/2012, reinforcing the non-taxability of such transactions under VAT.
The Court also held that the tax authorities violated principles of natural justice by passing assessment orders without following appellate directions and without providing proper opportunity to the petitioners, rendering the orders unsustainable.
Consequently, the Court quashed the tax demands and allowed the writ petitions, providing relief to private bus owners engaged with APSRTC under hire agreements.
This ruling provides clarity on the tax treatment of hire agreements involving state transport undertakings and protects owners from unwarranted VAT demands when possession and control remain with them.
Bottom Line:
Transactions involving hire agreements with APSRTC for private buses do not constitute a "deemed sale" under Section 4(8) of the Andhra Pradesh Value Added Tax Act, 2005, as there is no transfer of possession or control of the buses to APSRTC.
Statutory provision(s):
Andhra Pradesh Value Added Tax Act, 2005 Section 4(8), Constitution of India Article 366(29A)(d), Finance Act (Service Tax) Notification No. 25/2012
G Swarajya Lakshmi v. Commercial Tax Officer, (AP)(DB) : Law Finder Doc Id # 2979976
