Companies Hire Cranes at Fixed Monthly Rates and Revenue Treats It as Deemed Sale; Bombay High Court Says Retaining Effective Control Makes It Service
Hiring Cranes Does Not Become Sale Merely Because Equipment Remains at Customer’s Site: Bombay High Court
Facts
M/s Sharma Heavy Lifter, a proprietary concern represented by Mrs. Kiran Brijmohan Sharma, challenged a Maharashtra Sales Tax Tribunal order dated 11 July 2023. The central dispute was whether supplying cranes on hire constituted a “transfer of the right to use goods”, and therefore a deemed sale attracting Maharashtra Value Added Tax (“MVAT”), or merely a service.
The appellant entered into crane-hiring contracts with Hindustan Construction Company Ltd. and Era Constructions India Ltd. Under the contracts, cranes were supplied for fixed periods at monthly hire charges of ₹3,10,000 and ₹2,50,000 respectively.
The Revenue treated the transactions as deemed sales involving transfer of the right to use the cranes. The Maharashtra Sales Tax Tribunal accepted that position and consequently upheld levy of VAT along with interest and penalty.
The crane owner appealed to the Bombay High Court.
Issues
The principal issue was whether giving cranes on hire amounted to a transfer of the right to use the cranes under Section 2(24)(b)(iv) of the MVAT Act, or whether the arrangement remained merely a service because ownership and effective control continued with the crane owner.
A related question was whether temporary possession of equipment with the hiring companies during the contractual period was sufficient to constitute a deemed sale.
Appellant’s Arguments
The appellant argued that the cranes were merely supplied on hire and that ownership and effective control always remained with the appellant.
The contractual terms supported this position: the cranes were hired for specified periods at fixed monthly rates; the appellant continued to insure the equipment; and the hirer could require replacement if the crane or operator was unsatisfactory.
The appellant relied principally upon the Supreme Court’s decision in Bharat Sanchar Nigam Ltd. v. Union of India, contending that the essential requirements for a “transfer of right to use” were absent.
It was also argued that although fuel was supplied by the hiring companies, this was merely because it was commercially impractical to repeatedly move the cranes back for refuelling and did not transfer ownership or effective control.
Respondent’s Arguments
The Revenue argued that the cranes were placed at the exclusive disposal of the construction companies for specified periods.
According to the State, such possession gave the hirers an exclusive right to use the cranes during the contractual period and therefore constituted a transfer of the right to use goods, attracting MVAT.
It further relied upon the fact that the contracts prescribed working hours, rental periods, replacement rights and mobilisation/demobilisation arrangements to argue that possession and control effectively stood transferred to the hiring companies.
Analysis of the Law
The High Court examined Section 2(24)(b)(iv) of the MVAT Act, under which a transfer of the right to use goods for any purpose, whether for a specified period or otherwise and for consideration, is treated as a deemed sale.
However, every hiring arrangement does not automatically amount to a transfer of the right to use.
The Court relied heavily upon Bharat Sanchar Nigam Ltd. v. Union of India, (2006) 3 SCC 1, which identifies essential attributes of a transfer of the right to use goods. Among other things, the transferee must acquire a legal right to use the goods to the exclusion of the transferor during the relevant period.
The distinction therefore lies between:
transfer of the right to use the goods, which can constitute a deemed sale; and
a mere licence to use the goods while effective/substantive control remains with the supplier, which does not.
Precedent Analysis
The Court applied Bharat Sanchar Nigam Ltd. v. Union of India, holding that the attributes prescribed by the Supreme Court for transfer of the right to use goods were absent.
It also relied upon Commissioner of Sales Tax v. General Cranes, where crane-hiring arrangements were held not to constitute transfer of the right to use when the requisite control was not transferred.
In Aurobindo Highway Services v. State of Maharashtra, the Bombay High Court had similarly held that where effective control of a tanker remained with its owner, there was no transfer of the right to use the vehicle. The Court found that reasoning directly applicable here.
The Court also followed State of Maharashtra v. Sanghavi Movers Ltd., another crane-hiring case in which the effective control of the cranes had not been parted with and the transaction was consequently held not to amount to a sale.
Finally, the Court relied upon the Supreme Court’s recent decision in K.P. Mozika v. Oil and Natural Gas Corporation Ltd., which recognised the distinction between a transfer of the right to use goods and a mere licence to use them.
Court’s Reasoning
The Court found that the contractual terms showed that ownership and effective control of the cranes remained with Sharma Heavy Lifter throughout the arrangement.
The appellant had never intended to part with ownership. What the construction companies received was essentially a licence to use the cranes on hire.
Importantly, the Court held that temporary possession is not decisive.
Even though the cranes physically remained with the construction companies during the hire period, their temporary possession did not satisfy the legal requirements for a transfer of the right to use because the owner’s legal and effective control had not been excluded.
The Court also rejected the Revenue’s reliance on the fact that the hiring companies supplied fuel. The practical arrangement for refuelling did not alter the legal character of the transaction or transfer ownership/control.
Accordingly, the Court held that the transaction “can at best be regarded as service rendered by the Appellant” and not a transfer of goods attracting MVAT.
Since there was no taxable deemed sale under Section 2(24)(b)(iv), the Tribunal’s consequential findings regarding VAT, interest and penalty could not survive.
Conclusion
The Bombay High Court allowed the appeal and quashed the Maharashtra Sales Tax Tribunal’s order dated 11 July 2023. No order as to costs was passed.
The central principle emerging from the judgment is that mere hiring or temporary physical possession of equipment does not constitute a transfer of the right to use goods when substantive and effective control continues with the owner.
Case Details
Case: M/s Sharma Heavy Lifter v. State of Maharashtra & Anr.
Court: Bombay High Court, Ordinary Original Civil Jurisdiction
Case No.: Maharashtra Value Added Tax Appeal No. 1 of 2024
Citation: 2026:BHC-OS:20829-DB
Coram: Justice Suman Shyam & Justice Advait M. Sethna
Reserved: 11 August 2026
Pronounced: 22 September 2026
Result: Appeal allowed; Tribunal order quashed and set aside. Crane-hiring transaction held to be service rather than a deemed sale attracting MVAT.
