The transaction involving bulldozer hire charges constitutes a works contract, not a transfer of right to use goods, as the respondent retained complete control over the equipment.

ORDER :

P. Sam Koshy, J.

Heard Mr. Swaroop Oorilla, learned Special Government Pleader for State Tax appearing on behalf of the petitioner; and Mr. Suribabu Samudrala, learned counsel for the respondent.

2. The instant Tax Revision Case under Section 22(1) read with Rule 10 of the APGST Rules under the APGST Act has been preferred by the petitioner - State challenging the order passed by the Sales Tax Appellate Tribunal, Andhra Pradesh, Hyderabad (for short, the ‘STAT’), in T.A.No.556 of 2008, decided on 05.09.2008.

3. The respondent M/s. A.P. State Agro Industries Development Corporation Limited is engaged in the business of dealing with tractors, trailers and agricultural implements. During the assessment year 2001-02, under the APGST Act, the assessing authority initially allowed exemption on hire charges received by the respondent for the bulldozers working on an hourly basis considering these transactions as service charges rather than transfer of right to use goods. However, the Deputy Commissioner (CT), Abids, revised this order and levied tax at 8% under Section 5(E) of the APGST Act, treating the bulldozer hire charges as turnover liable to tax. The Deputy Commissioner further held that the transaction involved transfer of right to use goods in the form of bulldozers hired to farmers on hourly basis.

4. Aggrieved by the Deputy Commissioner's order, the respondent filed an appeal before the STAT. The STAT allowed the appeal in favor of the respondent, setting aside the order of the Deputy Commissioner. The STAT opined that there was no transfer of right to use the goods as there was no effective control of the chattel vested with the transferee (farmers). The STAT concluded that the essential ingredients of transfer of right to use goods under Section 5(E) of the APGST Act were not satisfied in the present case thereby granting exemption to the respondent from tax liability on bulldozer hire charges.

5. Aggrieved by the STAT’s order, the instant Tax Revision Case has been preferred by the State.

6. Learned Special Government Pleader for State Tax contended that the STAT erred in law by holding that the bulldozer hire charges collected by the respondent corporation did not constitute turnover under Section 5(E) of the APGST Act. The learned Special Government Pleader for State Tax further contended that all essential ingredients of lease transactions are present in the agreements between the respondent and the farmers, viz., i. A definite period of use (calculated on hourly basis), ii. Consideration (hire charges paid by farmers); and iii. Effective control over the bulldozers transferred to the farmers for the stipulated period.

7. Learned Special Government Pleader for State Tax argues that Section 5(E) was substantially amended by the Act 22 of 1995 w.e.f. 01.04.1995 and by the Act 27 of 1996 w.e.f. 01.08.1996 rendering the earlier Circular dated 25.11.1985 inapplicable to the present transactions. He further relies on the three-fold test laid down by the Hon'ble Supreme Court in the case of BSNL vs. Union of India , (2006) 42 APSTJ 85, which requires:

(i) Goods available for delivery;

(ii) Consensus ad idem as to the identity of goods; and

(iii) The transferee having legal right to use the goods.

According to the learned Special Government Pleader for State Tax, all the aforesaid conditions are satisfied in the instant case.

8. Learned Special Government Pleader for State Tax further submits that the terms and conditions of the agreements clearly establish that effective control over the bulldozers was transferred to the farmers during the period of hire. According to the agreement te