M/s. K.P. Mozika vs. Oil and Natural Gas Corporation Ltd.
Citation: 2024 INSC 27; [2024] 1 S.C.R. 488
Bench: Justice Abhay S. Oka, Justice Rajesh Bindal
Background
This case concerned the taxability of contracts for hiring out motor vehicles, cranes, and other equipment by M/s. K.P. Mozika (and similarly situated assessees) to Oil and Natural Gas Corporation Ltd. (ONGC) and Indian Oil Corporation Ltd. (IOCL). The core issue was whether such contracts amounted to a "transfer of the right to use goods" under Article 366(29A)(d) of the Constitution, making them liable to sales tax or value-added tax (VAT) under the Assam General Sales Tax Act, 1993, and the Assam Value Added Tax Act, 2003, or whether they were merely service contracts.
Supreme Court’s Analysis
Nature of the Contracts:
The Court analyzed the terms of the agreements, which involved providing trucks, trailers, tankers, buses, cranes, and other vehicles to ONGC/IOCL for specified purposes. The contracts did not confer exclusive possession or control of the vehicles/equipment to ONGC or IOCL. Instead, the vehicles were to be operated by drivers/employees of the contractor (assessees), and the hiring company could not use the vehicles independently.
Transfer of Right to Use:
The Supreme Court reiterated that for a transaction to be considered a "transfer of the right to use goods" (and thus a deemed sale for sales tax/VAT purposes), exclusive possession and effective control of the goods must be transferred to the hirer for a certain period. In these contracts, such transfer was absent, as the assessees retained possession and operational control throughout the contract period.
Distinction from Service Contracts:
The Court held that these contracts were service contracts, not sales, because the essential element of transfer of the right to use was missing. The ruling clarified that merely providing vehicles or equipment with operators, without ceding exclusive control, does not amount to a deemed sale.
Tax Implications:
Accordingly, the contracts were not liable to sales tax or VAT under the relevant Assam Acts. The Court left open the question of service tax liability, stating that the Union of India could initiate proceedings for recovery of service tax if applicable, in accordance with law.
Decision
The Supreme Court allowed the appeals of the assessees, holding that the contracts in question were not covered by the sales tax or VAT provisions, as there was no transfer of the right to use goods. The impugned judgments of the High Court were set aside.
Significance
This judgment provides clarity on the distinction between service contracts and deemed sales for tax purposes, emphasizing the necessity of exclusive possession and control for a transaction to qualify as a "transfer of the right to use goods" under Article 366(29A)(d) of the Constitution
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