Crane Hiring Not Sale, No MVAT If Ownership And Control Remain With Owner: Bombay High Court

The Bombay High Court has ruled that hiring out cranes does not amount to a sale for levy of Maharashtra Value Added Tax (MVAT) when ownership and effective control of the cranes remain with the owner.

A Division Bench of Justice Suman Shyam and Justice Advait M. Sethna allowed an appeal filed by Sharma Heavy Lifter. It quashed the Maharashtra Sales Tax Tribunal's order holding the crane-hiring transactions liable to VAT and imposing interest and penalty.

“None of the attributes, characteristics constituting right to transfer ownership / use of the goods are present, qua the transaction in the present case,” the court observed.

It held that the companies had only temporary possession of the cranes during the hire period.

The dispute concerned cranes hired to Hindustan Construction Company Ltd. and Era Constructions India Ltd. under agreements providing for fixed monthly charges.

The revenue treated the transactions as deemed sales on the ground that the companies had the right to use the cranes during the agreed periods. The tribunal accepted this view and held that the transactions attracted VAT, along with interest and penalty.

The issue before the High Court was whether hiring the cranes amounted to a “transfer of the right to use” goods under Section 2(24)(b)(iv) of the MVAT Act.

The provision treats a transaction as a sale even when ownership of the goods is not transferred, if the right to use the goods is transferred for consideration. The question was whether the companies merely had permission to use the cranes or had acquired the legal right to use them to the exclusion of Sharma Heavy Lifter.

Sharma Heavy Lifter argued that it had retained ownership and effective control of the cranes throughout. The revenue argued that giving the companies possession and use of the cranes for specified periods amounted to a transfer of the right to use them.

The court rejected the revenue's interpretation. It relied on the Supreme Court's ruling in Bharat Sanchar Nigam Ltd. v. Union of India, which held that a transfer of the right to use goods requires the transferee to have that right to the exclusion of the transferor during the relevant period.

That requirement was not met in this case, the court held. The contractual arrangement amounted to a licence to use the cranes, while ownership remained with Sharma Heavy Lifter.

The court also relied on the Supreme Court's decision in K.P. Mozika v. Oil and Natural Gas Corporation Ltd. It noted the distinction between transferring the right to use goods and merely granting a licence to use them.

“Whenever there is effective/substantive control, which remains with the person who supplies/provides the goods, the transaction will be that of rendering service,” the court observed.

The court also referred to its earlier decisions in General Cranes, Aurobindo Highway Services and Sanghavi Movers Ltd., which dealt with similar questions concerning the transfer of the right to use equipment.

Applying those principles, the court held that the crane-hiring arrangements could at best be regarded as services. They did not amount to a transfer of the right to use the cranes attracting MVAT.

The appeal was allowed, and the tribunal's order was quashed and set aside.

For Assessee: Advocates Nikita Badheka, with Parth Badheka

For Revenue: Jyoti Chavan, Additional Government Pleader, for the Revenue/State.