'Hiring' Of Helicopters By Andaman & Nicobar Admin Not Exigible To Tax Under Central Sales Tax Act: Delhi High Court
The Delhi High Court has held that the supply of helicopters by Pawan Hans Ltd. to the Andaman & Nicobar Islands administration, under an agreement executed in the year 2003, is not exigible to tax under the Central Sales Tax Act, 1956.
A division bench of Justices Yashwant Varma and Ravinder Dudeja reasoned that the agreement did not qualify as a 'sale' between the parties.
It noted that while Pawan Hans (appellant) was obliged to place a helicopter at the service of the A&N Administration, the right to operate and maintain it remained with the appellant.
“The helicopter was to be maintained, flown and operated by the appellant. The appellant was required to ensure that the requirements of the A & N Administration were duly met. However, at no point of time was the helicopter placed in the hands of the latter to be operated as it thought fit,” the Court said.
It further noted that the license and permissions continued to be in the name of the appellant and were never transferred to the A&N Administration.
“The latter was not entitled to substitute crew or maintenance staff and who were to be those provided by the appellant. All costs towards maintenance and upkeep of the aircraft, as well as the salaries of the pilots and supportive crew, were to be met by the appellant. Tested cumulatively it becomes evident that there was no transfer of dominion or control of the helicopter to the A & N Administration,” the High Court ruled.
It added that as opposed to “transfer of a right to use”, the A&N Administration merely acquired an exclusive medium of transportation.
The observations come in an appeal preferred by Pawan Hans against tax liability imposed on it by the Appellate Tribunal under Delhi Value Added Tax Act, 2004.
The Tribunal had ruled that the terms of agreement were liable to be acknowledged as constituting a “transfer of a right to use”. In concluding so, it had taken into account factors like (i) confidentiality and security; (ii) effective control and possession (helicopter was to be stationed at Port Blair); (iii) exclusive use of the helicopter during the period of the lease agreement; (iv) sufficient length of the lease period (5 years).
Disagreeing with the Tribunal, the High Court said that the clauses pertaining to confidentiality and security were hardly relevant insofar as the question of a “transfer of a right to use” is concerned.
“We find ourselves unable to appreciate how a confidentiality or security clause could have any bearing on the issue of taxability and whether the agreement constituted a transfer of a right to use as contemplated under Article 366(29A)(d) of the Constitution.”
Article 366(29A)(d) of the Constitution of India states that the sale or purchase of goods includes a tax on the transfer of the right to use those goods.
Coming to the second factor considered by the Tribunal, the High Court said, “mere stationing of the helicopter at a particular base, and in this case at Port Blair, would perhaps neither be decisive nor conclusive of the question which stands posited. We are not concerned with where the equipment may be based or stationed and which, in any case, would distract one from focusing on the primary question of a transfer of a right to use.”
Coming to exclusivity clause, the High Court said, “The placement of the equipment for the exclusive use of the A & N Administration or the dedicated hours which were required to be adhered to would also not be determinative. The primordial question which would remain would be whether the possession and control of the helicopter stood transferred and placed in the hands of the Charterer to be used as thought fit.”
It cited State of A.P. vs. Rashtriya Ispat Nigam Ltd. (2002) where the Supreme Court had in similar facts held that the effective control of the machinery, even while the machinery was in use of the contractor, was that of the respondent Company; the contractor was not free to make use of the machinery for the works other than the project work of the respondent or move it out during the period the machinery was in his use; the condition that the contractor would be responsible for the custody of the machinery while it was on the site did not militate against the respondent's possession and control of the machinery.
The High Court said that in order to satisfy the requirements of Article 366(29A)(d), one would have to be convinced that there was an “actual transfer” of the helicopter to the Charterer and “effective control” over that equipment being ceded to the A & N Administration, which it ruled was absent in this case.
It referred to CST vs. Quick Heal Technologies Ltd. (2023) where the Supreme Court held that Article 366(29A)(d) is not concerned with 'delivery of goods for use' but envisages the levy of a tax on the transfer of a right to use goods. It had proceeded to explain therein that clause (d) of Article 366(29A) cannot be placed in the same category as that of bailment where goods are left in the possession of the bailee solely for the purposes of use on a hire basis.
Accordingly, it held that appellant had not transferred effective control and possession to A&N Administration and thus, it did not qualify as 'transfer of right to use goods' as contemplated under Section 2(g)(vi) of the CST Act.
Appearance: Mr. Tarun Gulati, Sr. Adv. with Mr. Rajat Bose, Mr. Ankit Sachdeva and Ms. Shohini Bhattacharya, Advs for Petitioner; Mr. Rajeev Aggarwal, ASC alongwith Mr. Shubham Goel and Mr. Mayank Kamra, Advocates for Respondent
Case title: M/S Pawan Hans Limited (Formerly Known As Pawan Hans Helicopters Limited) v. Commissioner Of Trade And Taxes
Case no.: ST.APPL. 1/2023