Court quashes VAT, interest and penalty on crane hire charges, ruling that ownership and effective control never left the crane owner.
The Bombay High Court has ruled that hiring cranes on contractual terms, where ownership and effective control remain with the crane owner, does not amount to a transfer of the right to use goods under the Maharashtra Value Added Tax Act, 2002 (MVAT Act). The Court held that such transactions are in the nature of a service and cannot be treated as a deemed sale for the purpose of VAT.
A division bench of Justice Suman Shyam and Justice Advait M. Sethna allowed the appeal filed by M/s. Sharma Heavy Lifter against an order of the Maharashtra Sales Tax Tribunal dated 11 July 2023. The Tribunal had earlier held that the hire charges received by the appellant from construction companies attracted VAT, along with interest and penalty, on the ground that the cranes were transferred for use.
The High Court examined contracts entered into by the appellant with Hindustan Construction Company Ltd. and Era Constructions India Ltd. Under those agreements, the cranes were supplied on monthly hire charges for fixed periods. The contracts also showed that the appellant continued to insure the equipment, could provide replacements, and retained responsibility for mobilization and demobilization. On this basis, the Court found that the ownership and effective control of the cranes always remained with the appellant.
Referring to Section 2(24)(b)(iv) of the MVAT Act, the Court reiterated the legal test laid down by the Supreme Court in Bharat Sanchar Nigam Ltd. v. Union of India. A transaction can be treated as a transfer of the right to use goods only if the transferee gets a legal right to use the goods to the exclusion of the transferor, and the owner cannot transfer the same right to others during that period. The Court held that none of these attributes were present in the present case.
The bench also relied on earlier decisions including Commissioner of Sales Tax v. General Cranes, Aurobindo Highway Services, Sanghavi Movers Ltd., and the Supreme Court’s recent ruling in K.P. Mozika v. ONGC. These judgments, the Court said, consistently draw a distinction between a transfer of the right to use goods and a mere licence to use goods.
The High Court rejected the Revenue’s argument that temporary possession and contractual use of the cranes amounted to transfer of ownership or exclusive control. It also held that the fact that fuel was arranged by the hirers did not change the legal nature of the transaction.
Concluding that the Tribunal had proceeded on an erroneous premise, the Court quashed and set aside the order imposing VAT, interest and penalty. The appeal was allowed, and no order as to costs was made.
Bottom Line :
Maharashtra Value Added Tax Act, 2002 - Hiring of cranes - Where ownership and effective/substantive control of cranes always remained with owner and hirer was only given licence to use cranes for specified period on payment of hire charges, transaction does not amount to transfer of right to use goods under Section 2(24)(b)(iv) - It is service and not deemed sale - VAT, interest and penalty not leviable.
Statutory provision(s): Section 2(24)(b)(iv), Maharashtra Value Added Tax Act, 2002
M/s. Sharma Heavy Lifter v. State of Maharashtra, (Bombay)(DB) : Law Finder Doc id # 2983402
