No tax on rent for Furniture in commercial lease as deemed sale: Telangana HC

Held: Assessee-company was engaged in providing specially designed transit mixers to transport Ready-Mix Concrete (RMC) manufactured by Grasim Industries. The RMC had a limited shelf life of 3–4 hours, necessitating dedicated transportation services. Under the agreements, assessee retained ownership, possession and effective control of the transit mixers, including responsibility for drivers, route permits, maintenance, insurance, operational risks and transportation losses. The tax authorities treated the arrangement as a transfer of the right to use goods under Section 5E of the APGST Act and subjected the consideration to sales tax/VAT as a deemed sale. Assessee challenged the levy, contending that the contracts were purely for transportation services and not for transfer of the right to use the vehicles. Assessee contended that the transit mixers were never transferred to Grasim and that effective possession and operational control always remained with them. The contracts merely obligated them to transport RMC and did not confer any exclusive legal right upon Grasim to use the vehicles. They argued that the arrangement was an indivisible service contract liable, if at all, only to service tax and not VAT under the deeming provisions relating to transfer of the right to use goods. They further submitted that the agreement had to be read as a whole and that the essential attributes of a deemed sale under Article 366(29A)(d) of the Constitution were absent. Revenue contended that the transit mixers were dedicated exclusively for Grasim’s use under the agreement and that such exclusive deployment amounted to a transfer of the right to use goods. According to the Revenue, the vehicles constituted movable goods whose use had been transferred for consideration, thereby attracting tax under Section 5E of the APGST Act as a deemed sale. The Court held that the taxable event under Article 366(29A)(d) is not the mere use of goods but the transfer of the legal right to use them. Such transfer requires the transferee to obtain effective control and dominion over the goods to the exclusion of the owner. Merely making goods available while the owner continues to retain possession, operational control, maintenance obligations, drivers and associated risks does not constitute a transfer of the right to use goods. The agreement must be read in its entirety to determine its true nature, and the substance of the arrangement in the present case established only a transportation service contract. The fact that the transit mixers were dedicated for Grasim’s work did not divest the petitioners of possession or effective control over the vehicles. Consequently, the essential ingredients of a deemed sale were absent, and the transaction could not be subjected to VAT under Section 5E of the APGST Act.