The Delhi High Court recently ruled that no “transfer of right to use” of Goods shall stand effectuated under the provisions of the Central Sales Tax Act, 1956 ( CST Act ) and the Delhi Value Added Tax Act, 2004 ( DVAT Act ) without the transfer of effective control and possession, validating transfer of right to use goods as contemplated under Section 2(g)(vi) of the CST Act and Section 2(zc)(vi) of the DVAT Act.
Two Appeals were presented before the Delhi High Court by M/s Pawan Hans Limited (Pawan Helicopters) impugning a judgment dated 6th October, 2022 passed by the Value Added Tax Appellate Tribunal (VAT Tribunal) dismissing Appeals in relation to Financial Years (F.Y.) 2006-07 and 2009-10.
Pawan Helicopters queried before the lower Tribunals whether the supply of helicopters to the Andaman and Nicobar Islands Administration constitutes a “transfer of right to use” and therefore exigible to tax.
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The High Court noted that the Appeal seeks to adjudicate two questions of law – the first being whether the agreements executed between the Appellants and the Andaman Government for hiring of helicopters constitutes “sale” under under Section 2(g)(iv) CST Act and whether the preceding Tribunals had erred in holding that the Appellant had transferred effective control, possession and right to use the helicopters to its customers, constituting “deemed sale”.
The Agreements entered into by both parties provided for the supplied Helicopters to be stationed at specific bases and were manned by pilots and crew exclusively provided by Pawan Helicopters.
Senior Advocate Tarun Gulati, with Rajat Bose, Ankit Sachdeva and Shohini Bhattacharya argued against the “transfer of right to use” contending the inability of the Andaman Administration to independently operate or manage the helicopters, indicating the Administration to be mere recipients of services than transferees or legal rights. Furthermore, the clauses within the Agreement point towards the payment of fixed monthly charges for the services, further vitiating the claim of “sale”.
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In contrast, Rajeev Aggarwal, ASC,along with Shubham Goel and Mayank Kamra asserted that the agreements conferred exclusive use and substantial control of the helicopters to the Lessee during the stipulated contract period. The Respondent Counsel further argued that the lessees dictated the operational schedule, bore certain risks associated with usage, and derived economic benefits, thus fulfilling the criteria for a “transfer of right to use” under the relevant statutory provisions.
The Division Bench constituted by Justice Yashwant Varma and Justice Ravinder Dudeja observed that the provision of pilots, maintenance and ancillary functions rendered by Pawan Helicopters to the Andaman Administration does not negate the transfer of control since the Administration retained the right to utilize the helicopters exclusively.
Referring to a catena of decisions delivered by the Supreme Court in Great Eastern Shipping Co. Ltd. vs State of Karnataka (2020), Aggarwal Bros. vs. State of Haryana (1999) and CST vs. Quick Heal Technologies Ltd. (2023), the Division Bench observed that the lower Tribunals had erred in concluding that the Appellant had transferred effective control and possession of the helicopters and that the conditions of transfer of right to use goods as per Section 2(g)(vi) of the CST Act and Section 2(zc)(vi) of the DVAT Act were not fulfilled.
Accordingly, the Delhi High Court allowed the Appeals, setting aside the decision of the Tribunals, granting relief to the Assessee and effectively vitiating the applicability of VAT or sales tax since no “deemed sales” took place.
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