TELECOMMUNICATION CONSULTANTS INDIA LTD. v. OMMISSIONER OF COMMERCIAL TAXES, UTTARAKHAND
2010-02-19
B.C.KANDPAL, JAGDISH SINGH KHEHAR
body2010
DigiLaw.ai
JUDGMENT J.S. KHEHAR, C.J. - The revision petitioner, i.e. M/s. Telecommunication Consultants India Ltd. (hereinafter referred to as "TCIL"), is a Government of India undertaking, which is controlled by the Ministry of Telecommunications. While the head office of the revision petitioner's business is located in New Delhi, it has a branch office in Dehradun, presently in the State of Uttarakhand (earlier in the State of Uttar Pradesh). The revision petitioner is carrying on the business of providing and establishing telecommunication networks. TCIL is registered under the State Trade Tax Act and the Central Trade Tax Act with the Trade Tax Office, Dehradun. On 01.11.1988, the revision petitioner entered into an agreement with the Oil and Natural Gas Corporation (hereinafter referred to as the "ONGC") for installation of two EPABX systems along with allied accessories and spare parts, on rent and guarantee basis. The equipment contemplated under the said agreement was not available with the TCIL at the time of execution of the contract. Accordingly, TCIL placed a purchase order with M/s. Northern Digital Exchange Ltd., New Delhi (hereinafter referred to as the "NDEL") on 27.12.1989. In furtherance of the said purchase order, NDEL supplied equipment, in furtherance of the aforesaid purchase order, from Mohali (in the State of Punjab) to Dehradun (in the State of Uttar Pradesh/Uttarakhand) on 08.01.1990. It is not a matter of dispute that the purchase order dated 27.12.1989 and the movement of goods based thereon, from Mohali to Dehradun, were in pursuance of the agreement entered into by the revision petitioner with the ONGC dated 01.11.1988. The revision petitioner entered into another similar agreement (as it had earlier entered into with the ONGC) with M/s. Bharat Heavy Electricals Ltd. (hereinafter referred to as the "BHEL") for installation of Digital ISND-EPABX along with allied accessories and spare parts, on rent and guarantee basis on 24.02.2000. The equipment contemplated by the said agreement, was not available with the TCIL at the time of execution of the said contract. Accordingly, a purchase order was placed by TCIL with M/s. Alcatel Business Systems (India) Ltd. (hereinafter referred to as the "ABSL") on 03.11.2000. ABSL supplied the equipment in furtherance of the aforesaid purchase order from Bangalore (in the State of Karnataka) to Haridwar (in the State of Uttar Pradesh/Uttarakhand) on 03.11.2000. In furtherance of the aforesaid, an invoice dated 24.01.2001 was issued from Bangalore.
ABSL supplied the equipment in furtherance of the aforesaid purchase order from Bangalore (in the State of Karnataka) to Haridwar (in the State of Uttar Pradesh/Uttarakhand) on 03.11.2000. In furtherance of the aforesaid, an invoice dated 24.01.2001 was issued from Bangalore. It is not a matter of dispute that the purchase order dated 03.11.2000 and the movement of goods based thereon, from Bangalore to Haridwar, were in pursuance of the agreement entered into by the revision petitioner with the BHEL dated 24.02.2000. Yet another contract was entered into by the revision petitioner, i.e. TCIL, with the ONGC on 20.06.2001, again for the installation of EPABX facilities at Dehradun along with allied accessories and spare parts, on rent and guarantee basis. The equipment contemplated by the said agreement was not available with the TCIL at the time of execution of the said contract. Accordingly, another purchase order dated 06.07.2001 was placed by the TCIL with the ABSL on 06.07.2001 so as to be able to procure the equipment for the execution of the contract dated 20.06.2001. Yet again, in furtherance of the said purchase order dated 06.07.2001, ABSL supplied the equipment from Bangalore (in the State of Karnataka) to Dehradun (in the State of Uttar Pradesh/Uttarakhand). It is not a matter of dispute, that the purchase order dated 06.07.2001 and the movement of goods based thereon, from Bangalore to Dehradun, were in pursuance of the agreement entered into by the revision petitioner with the ONGC dated 20.06.2001. The revision petitioner, i.e. TCIL, received rent in respect of the concerned equipments. Since the period during which the aforesaid rent was received, relevant to the present controversy, is from 1997 to 2002 only, the aforesaid details are being furnished. For the period from 1997-1998, TCIL received total rent of Rs. 40,11,912/- (from the ONGC). For 1998-1999, TCIL received total rent of Rs. 28,38,000/- (from the ONGC). For the year 1999-2000, TCIL received total rent of Rs. 28,38,000/- (from the ONGC). During the period 2000-2001, TCIL received total rent of Rs. 46,96,862/- (Rs. 25,54,200/- from the ONGC and Rs. 21,42,662/- from the BHEL). For the year 2001-2002, TCIL received total rent of Rs. 43,62,871/- (Rs. 29,14,999/- from the ONGC and Rs. 14,47,872/- from the BHEL).
For the year 1999-2000, TCIL received total rent of Rs. 28,38,000/- (from the ONGC). During the period 2000-2001, TCIL received total rent of Rs. 46,96,862/- (Rs. 25,54,200/- from the ONGC and Rs. 21,42,662/- from the BHEL). For the year 2001-2002, TCIL received total rent of Rs. 43,62,871/- (Rs. 29,14,999/- from the ONGC and Rs. 14,47,872/- from the BHEL). The Assessing Authority under the Uttar Pradesh Trade Tax Act, 1948 (hereinafter referred to as the "Trade Tax Act, 1948") passed an assessment order dated 28.02.2003 levying tax under Section 3-F of the Trade Tax Act, 1948, in respect of the amount of rent received by the revision petitioner, i.e. the TCIL, in lieu of the transfer of the right to use equipment, given by the TCIL to the ONGC, as well as, the BHEL. The Assessing Authority was of the view, that since both the lessor (ONGC/BHEL) and the lessee (TCIL) were registered with the Trade Tax Office, Dehradun (in the State of Uttar Pradesh/Uttarakhand) and the agreements executed by the lessor and the lessee were in respect of equipment supplied for use in the State of Uttar Pradesh/Uttarakhand, Section 3-F of the Trade Tax Act, 1948 was invokable, for levy of sales tax on the transfer of the right to use goods. Accordingly, the rent received by the TCIL from the ONGC, as well as, from the BHEL was subjected to the liability of sales tax under the Trade Tax Act, 1948. Dissatisfied with the assessment order dated 28.02.2003, the revision petitioner, i.e. the TCIL, preferred an appeal under Section 9 of the Trade Tax Act, 1948 before the Joint Commissioner (Appeals), Dehradun. By an order dated 21.09.2005, the Appellate Authority dismissed the appeal preferred by the TCIL, thereby confirming the order passed by the Assessing Authority dated 28.02.2003. Dissatisfied with the assessment order dated 28.02.2003 as well as the appellate order dated 21.09.2005, the revision petitioner filed a further appeal under Section 10(2) of the Trade Tax Act, 1948, read with the Adoption and Modification Order, 2002, before the Commercial Tax Tribunal, Uttarakhand, Dehradun (hereinafter referred to as the "Tribunal"). The Tribunal, vide its order dated 29.12.2008, dismissed the appeal preferred by the revision petitioner. The instant revision petition has therefore been filed, to assail all the orders referred to herein above, which culminated in the order passed by the Tribunal on 29.12.2008.
The Tribunal, vide its order dated 29.12.2008, dismissed the appeal preferred by the revision petitioner. The instant revision petition has therefore been filed, to assail all the orders referred to herein above, which culminated in the order passed by the Tribunal on 29.12.2008. Before we venture to embark on the pointed controversy, which has been raised for determination at our hands, it would be essential to make a reference to certain constitutional provisions, which will have to be kept in mind while dealing with the controversy. Able assistance in this behalf has been rendered to us by the learned senior counsel representing the revision petitioner. In examining the historical perspective of the constitutional provisions, it would be essential, first and foremost, to make a reference to the judgment rendered by the Madras High Court in Gannon Dunkerley and Company (Madras) Ltd. v. State of Madras, AIR 1954 Madras 1130. The issue which arose for consideration in the aforesaid case was, whether payments made towards the execution of a building contract could be subjected to sales tax after excluding labour costs therefrom. The payments under reference, which were being subjected to sales tax, represented the value of goods used in the execution of the building contract. After debating the issue, the Court arrived at the conclusion, that the contract under reference was not for sale of goods, but a composite building contract, and as such, the payments received by the contractor in execution of the building contract, could not be divided into two components, one representing the goods used in the execution of the contract, and the other representing the labour costs. The Madras High Court, accordingly, held, that tax could not be levied by splitting the total consideration into two components. On the same issue, the High Courts of Nagpur, Rajasthan, Mysore and Kerala had held otherwise. The Supreme Court in State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd., (1958) 9 STC 353 , upheld the view taken by the Madras High Court. Again in Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi, (1978) 42 STC 386 , the Apex Court held, that payments in lieu of food and drinks provided to guests staying in a hotel could not be divided into two components, one representing the value of food and drinks, and the other representing the charges for services rendered.
Again in Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi, (1978) 42 STC 386 , the Apex Court held, that payments in lieu of food and drinks provided to guests staying in a hotel could not be divided into two components, one representing the value of food and drinks, and the other representing the charges for services rendered. The issue of avoidance of tax based on the aforesaid pronouncements, as well as, avoidance of central sales tax leviable on inter-State sale of goods, was examined by the Law Commission of India. In its Sixty First Report, the Law Commission of India suggested certain amendments to the provisions of the Constitution of India. By the Constitution (Forty Sixth Amendment) Act, 1982, the Parliament inserted clause (29-A) in Article 366 of the Constitution of India.
In its Sixty First Report, the Law Commission of India suggested certain amendments to the provisions of the Constitution of India. By the Constitution (Forty Sixth Amendment) Act, 1982, the Parliament inserted clause (29-A) in Article 366 of the Constitution of India. Clause (29-A) (aforementioned) is being reproduced hereunder : "(29A) "tax on the sale or purchase of goods" includes - (a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; (b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; (c) a tax on the delivery of goods on hire purchase or any system of payment by instalments; (d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made." Besides the liberal definition of the term "sale" or "purchase" emerging out of the insertion of clause (29-A) in Article 366 of the Constitution of India, it is also essential for us in the determination of the present controversy, to make a reference to Article 286 of the Constitution of India. Article 286 of the Constitution of India is being extracted hereunder : "286. Restrictions as to imposition of tax on the sale or purchase of goods.
Article 286 of the Constitution of India is being extracted hereunder : "286. Restrictions as to imposition of tax on the sale or purchase of goods. - (1) No law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place - (a) outside the State; or (b) in the course of the import of the goods into, or export of the goods out of, the territory of India. (2) Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause (1). (3) Any law of a State shall, in so far as it imposes, or authorises the imposition of, - (a) a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade or commerce; or (b) a tax on the sale or purchase of goods, being a tax of the nature referred to in sub-clause (b), sub-clause (c) or sub-clause (d) of clause (29A) of article 366, be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify." A perusal of clause (1) of Article 286 of the Constitution of India reveals, that it is not open to a State to frame laws for imposing or authorising the imposition of tax on the sale (or purchase) of goods from outside the State, i.e. on inter-State sale (or purchase) transactions. The other aspects of the aforesaid provision need not be deliberated here, as the same are irrelevant to the present controversy. From a collective reading of clause (29-A) of Article 366 of the Constitution of India, and Article 286 of the Constitution of India, it emerges that sales tax is leviable even on transactions which do not fall strictly within the definition of the term "sale", under the Sales of Goods Act, 1954 (as amended), in view of the liberal definition of the term "sale" in sub-clauses (a) to (f) of clause (29-A) of Article 366 of the Constitution of India.
The aforesaid enlarged definition of the term "sale", for the levy of sales tax, at the hands of a State, would however be subjected to the embargo expressed in Article 286 of the Constitution of India, namely, that a State cannot levy tax on sale (or purchase) of goods from outside the State, i.e. on inter-State sale (or purchase) transactions. The conclusions drawn by us herein above are based on the legal position declared by the Supreme Court in Builders Association of India v. Union of India (1989) 73 STC 370 , wherein it was inter alia held : "..... The object of the new definition introduced in clause (29A) of article 366 of the Constitution is, therefore, to enlarge the scope of 'tax on sale or purchase of goods' wherever it occurs in the Constitution so that it may include within its scope the transfer, delivery or supply of goods that may take place under any of the transactions referred to in sub-clauses (a) to (f) thereof wherever such transfer, delivery or supply becomes subject to levy of sales tax. So construed the expression 'tax on the sale or purchase of goods' in entry 54 of the State List, therefore, includes a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract also. ..." The instant aspect of the matter was also dealt with in 20th Century Finance Corporation Ltd. and another v. State of Maharashtra, (2000) 6 SCC 12 . The relevant conclusions recorded therein are reproduced hereunder : "19. Following the decisions referred to above, we are of the view that the power of States Legislatures to enact law to levy tax on the transfer of right to use any goods under Entry 54 of List - II of Seventh Schedule has two limitations - one arising out of the Entry itself, which is subject to Entry 92-A of List - I, and the other flowing from the restrictions embodied in Article 286. By virtue of Entry 92-A of List - I, Parliament has power to legislate in regard to taxes on sales or purchase of goods other than newspapers where such sale or purchase takes place in the course of inter-State trade or commerce. Article 269 provides for levy and collection of such taxes.
By virtue of Entry 92-A of List - I, Parliament has power to legislate in regard to taxes on sales or purchase of goods other than newspapers where such sale or purchase takes place in the course of inter-State trade or commerce. Article 269 provides for levy and collection of such taxes. Because of these restrictions, States Legislatures are not competent to enact law imposing impose tax on the transactions of transfer of right to use any goods which take place in the course of inter-State trade or commerce. Further, by virtue of Clause (1) of Article 286, the State Legislature is precluded to make law imposing tax on the transactions of transfer of right to use any goods where such deemed sales take place (a) outside the State and (b) in the course of import of goods into the territory of India. Yet, there are other limitations on the taxing power of the State Legislature by virtue of Clause (3) of Article 286. Although Parliament has enacted law under Clause (3)(a) of Article 286 but no law so far has been enacted by Parliament under Clause (3)(b) of Article 286. When such law is enacted by Parliament, the State Legislature would be required to exercise its legislative power in conformity with such law. Thus, what we have stated above, are the limitations on the powers of States Legislatures on levy of sales tax on deemed sales envisaged under sub-clause (d) of Clause (29-A) of Article 366 of the Constitution." It would be further relevant to mention, that in Builders Association of India's case (supra), the submission advanced on behalf of the State, that clause (29-A) of Article 366 of the Constitution of India, conferred power on State Legislatures to levy tax independently of the power emerging out of Entry 54 of the State List contained in the Seventh Schedule of the Constitution of India, was rejected. The Apex Court in Builders Association of India's case (supra) also clarified, that the tax liability under sub-clauses (a) to (f) of clause (29A) of Article 366 of the Constitution of India, would be subject to the embargo expressed under Article 286(1) of the Constitution of India.
The Apex Court in Builders Association of India's case (supra) also clarified, that the tax liability under sub-clauses (a) to (f) of clause (29A) of Article 366 of the Constitution of India, would be subject to the embargo expressed under Article 286(1) of the Constitution of India. Besides the constitutional provisions, referred to herein above, another issue relevant for the determination of the present controversy is, whether situs of the sale (or purchase) is a relevant consideration for determining whether a contract had been executed within the State or was an inter-State transaction. Insofar as the instant issue is concerned, reference may be made to the judgment rendered by the Apex Court in 20th Century Finance Corporation Ltd. v. State of Maharashtra, (2000) 6 SCC 12 , wherein the Court recorded the following observations on the issue (of situs of sale) : "20. While examining the power of States Legislatures under Entry 54 of List - II in earlier part of this judgment, we have noticed that the situs of the sale or purchase is wholly immaterial as regards the inter-State trade or commerce, as held in Bengal Immunity Co. Ltd.'s case. Further, the State Legislature cannot by law, treat sales outside the State and sales in the course of import as 'sales within the State' by fixing the situs of sales within its State in the definition of sale as it is within the exclusive domain of the appropriate Legislature, i.e. Parliament to fix the location of sale by creating legal fiction or otherwise. 21. It may be noted that the transactions contemplated under sub-clauses (a) to (f) of clause (29-A) of Article 366 are not actual sales within the meaning of "sale" but are deemed sales by legal fiction created therein. The situs of sale can only be fixed either by the appropriate legislature or by judge made law, and there are no settled principles for determining the situs of sale. There are conflicting views on this question. One of the principles providing situs of sale was engrafted in the explanation to clause (1)(a) of Article 286, as it existed prior to the Constitution (Sixth Amendment) Act, which provided that the situs of sale would be where the goods are delivered for consumption. The second view is, situs of sale would be the place where the contract is concluded.
The second view is, situs of sale would be the place where the contract is concluded. The third view is that the place where the goods are sold or delivered would be the situs of sale. The fourth view is that where the essential ingredients, which complete a sale, are found in majority would be the situs of sale. There would be no difficulty in finding out situs of sale where it has been provided by legal fiction by the appropriate legislature. In the present case, we do not find that Parliament has, by creating any fiction, fixed the location of sale in case of the transfer of right to use goods. We, therefore, have to look into the decisional law." Having made reference to various judgments, the issue under reference was then concluded as under : "We, therefore, find that the location or delivery of goods within the State cannot be made a basis for levy of tax on sales of goods. Under general law, merely because the goods are located or delivery of which has been effected for use within the State would not be the situs of deemed sale for levy of tax if the transfer of right to use has taken place in another State. Therefore, the contention, on behalf of the respondents that there would be no completed transfer of right to use goods till the goods are delivered is to prevail, then the respondents are further required to show that the contract of transfer of right to use goods is also entered into in the said State in which the goods are located or delivered for use. The State cannot levy a tax on the basis that one of the events in the chain of events has taken place within the State. The delivery of goods may be one of the elements of transfer of right to use, but the same would not be condition precedent for a contract of transfer of right to use goods.
The State cannot levy a tax on the basis that one of the events in the chain of events has taken place within the State. The delivery of goods may be one of the elements of transfer of right to use, but the same would not be condition precedent for a contract of transfer of right to use goods. Where a party has entered into a formal contract and the goods are available for delivery irrespective of the place where they are located, the situs of such sale would be where the property in goods passes, namely, where the contract is entered into." It is apparent from the observations extracted above, that the situs of a deemed sale, would depend on a variety of facts peculiar to the facts and circumstances of the contractual transaction whereby the sale (or purchase) takes place. During motion hearing, a Division Bench of this Court, vide an order dated 06.04.2009, noticed the submission advanced on behalf of the revision petitioner, and framed the questions of law arising for consideration. A relevant extract of the aforesaid order is being reproduced hereunder : "(3) Learned counsel for the revisionist argued that the revisionist/Assessee is a public sector undertaking. It is contended that the Tribunal has erred in law in following the minority view given by the apex court in 20th Century Finance Corpn. Ltd. & another v. State of Maharashtra (2000) 6 Supreme Court Cases, 12, in holding that use of goods within the State (in pursuance of the lease agreement, where purchase has taken place outside the State), is taxable under the local Sales Tax Law. In this connection, it is further contended that situs of such sale would be treated in the State from where the goods were consigned and it shall be treated only Inter-State. (4) Admit the revision on following questions of law :- (i) Whether the lease agreement and purchase order were integrally connected with the movement of goods and ultimate delivery of the goods to the lessee at whose address the goods are consigned by Ex State Supplier, and was it an integral transfer under Section 3A of the Central Sales Tax Act, as held in the case of ITC Classic Finance Services v. Commercial Tax Officer, 97 STC, 330, and accepted by the apex court in 20th Century Finance Corpn.
Ltd. & another v. State of Maharashtra (2000) 6 Supreme Court Cases, 12 ? (ii) Whether the Commercial Tax Tribunal has erred in law in relying the minority view given in the aforesaid 20th Century Financer Corpn. Ltd. case (supra) and not following the majority view given by the apex court on the point that the tax was leviable only under Central Sales Tax treating it as Inter-State transaction ?" During the course of hearing, principal reliance by the rival parties was placed on the judgment rendered in 20th Century Finance Corporation Ltd.'s case (supra). Therefore, before examining the controversy raised in the instant revision petition, it will first and foremost be necessary, to understand the controversy which came up for consideration in the aforesaid case, as also the conclusions rendered thereon. Before adverting to the conclusions drawn in the aforesaid case, it would be necessary to mention, that the judgment rendered in 20th Century Finance Corporation Ltd.'s case (supra) was rendered by a constitution bench of the Apex Court. The majority view in the aforesaid judgment was rendered by Hon'ble Mr. Justice V. N. Khare (as he then was), whereas the minority view was authored by Hon'ble Mr. Justice Syed Shah Mohammed Quadri. The question posed for adjudication in the aforesaid judgment was noticed in the opening paragraph of the said judgment. The opening paragraph of the judgment is accordingly being extracted hereunder : "Despite the decisions of this Court in Builders' Association of India and others v. Union of India and others, (1989) 2 S.C.C. 645 : 1989 U.P.T.C. 645 (SC) and M/s. Gannon Dunkerley and Co. and others v. State of Rajasthan and others, (1993) 1 S.C.C. 364 : 1993 U.P.T.C. 416 (SC), the controversy as regards the power of the State Legislature to levy sales tax under Clause (29-A)(d) of Article 366 of the Constitution in the context of the question where is the taxable event on the transfer of right to use any goods remained unresolved. In this group of cases, we are concerned with the power of States Legislatures to levy sales tax on the transfer of right to use any goods envisaged under Clause (29-A)(d) of Article 366 of the Constitution on the premise that goods put to use are located within their States.
In this group of cases, we are concerned with the power of States Legislatures to levy sales tax on the transfer of right to use any goods envisaged under Clause (29-A)(d) of Article 366 of the Constitution on the premise that goods put to use are located within their States. Several States by their legislations have levied tax on the transactions of transfer of right to use goods on the location of goods at the time of their use within their States irrespective of the place where the agreement for such transfer of the right to use such goods is made. The questions therefore, that arise for consideration in these cases are, whether a State can levy sales tax on transfer of right to use goods merely on the basis that the goods put to use are located within its State irrespective of the facts that - (a) the contract of transfer of right to use has been executed outside the State; (b) sale has taken place in the course of an inter-State trade; and (c) sales are in the course of export or import into the territory of India. The appellant's case is that, the State Legislature cannot so frame its law as to convert an outside sale or a sale in the course of import or a sale in the course of an inter-State trade or commerce into a sale inside the State." The factual background of the controversy in 20th Century Finance Corporation Ltd.'s case (supra) was narrated in paragraph 2 of the said judgment. The same is also being extracted hereunder : "2. The appellants in civil appeals and the petitioners in the writ petitions filed under Article 32 of the Constitution and transferred petition, and respondent in Civil Appeal Nos. 6218-23/95 are the companies incorporated under the Companies' Act, and some have their registered offices at places outside the respondent States and others have inside the States. They carry on business of leasing diverse equipments. According to them, they entered into Master Lease Agreements with the lessee i.e. party who desired to take equipment for use on hire. The appellants and the petitioners agree to give on lease diverse machinery equipments listed in the Lease Summary Schedule, subject to terms and conditions stipulated in the Master Lease Agreements.
According to them, they entered into Master Lease Agreements with the lessee i.e. party who desired to take equipment for use on hire. The appellants and the petitioners agree to give on lease diverse machinery equipments listed in the Lease Summary Schedule, subject to terms and conditions stipulated in the Master Lease Agreements. The Lease Summary Schedule only mentions the board category of equipment proposed to be leased and the correct value thereof. The Master Lease Agreement provides that orders for individual equipment will be placed by the appellants at the instance of lessees and that the equipment to be leased will be dispatched by the manufacturer or supplier concerned to the locations specified in the lease. Thereafter, at the instance of the lessees, the appellants place their purchase orders to the suppliers or manufacturers for supply of individual items or equipments falling within the category and correct value mentioned in the Master Lease Agreement Schedules. The appellants' and the petitioners' further case is that, they disburse the value of equipment to the suppliers and at the instance of the appellants and the petitioners the suppliers deliver the equipments to the lessees at the specified locations for use. After the equipments are delivered and put to use, the lessee executes supplementary lease schedules acknowledging due receipt of the lease equipments, and such supplementary lease deeds form and integral part of the Master Lease Agreement. Such is the nature business carried on by the appellants and the petitioners in this group of case. According to the appellants and the petitioners, one transaction of transfer of right to use goods is subjected to sales tax by more than one States. On such a transaction some states levy tax on the appellants and the petitioners, merely because the goods were found to be located in their States at the time of execution of contract which has taken place outside the State. Some States levy tax when the goods are delivered in their States for use in pursuance of agreements of transfer executed outside the States and some States tax such transactions of deemed sales on the premise that agreements for transfer of right to use have been executed within their States.
Some States levy tax when the goods are delivered in their States for use in pursuance of agreements of transfer executed outside the States and some States tax such transactions of deemed sales on the premise that agreements for transfer of right to use have been executed within their States. The appellants and the petitioners, therefore, have challenged the validity of the legislations by various States whereby one transaction of transfer of right to use goods has been subjected to tax by more than one States." The majority view considered the issue of fictional sale expressed in sub-clause (d) of Article 366(29-A) pertaining to the fructification of a sale based on the transfer of a right to use goods. In this behalf, the question which arose for consideration was in respect of the place, where the "taxable event" on the transfer of the right to use goods had arisen. The deliberations in this behalf were recorded in the majority view as under : "26. Next question that arises for consideration is, where is the taxable event on the transfer of the right to use any goods. Article 366(29-A)(d) empowers the State Legislature to enact law imposing sales tax on the transfer of the right to use goods. The various sub-clauses of clause (29-A) of Article 366 permit the imposition of tax thus : sub-clause (a) on transfer of property in goods; sub-clause (b) on transfer of property in goods; sub-clause (c) on delivery of goods; sub-clause (d) on transfer of the right to use goods; sub-clause (e) on supply of goods; and sub-clause (f) on supply of services. The words "and such transfer, delivery or supply. ..." in the latter portion of clause (29-A), therefore, refer to the words transfer, delivery and supply, as applicable, used in the various sub-clauses. Thus, the transfer of goods will be a deemed sale in the cases of sub-clauses (a) and (b), the delivery of goods will be a deemed sale in case of sub-clause (c), the supply of goods and services respectively will be deemed sales in the cases of sub-clauses (e) and (f) and the transfer of the right to use any goods will be a deemed sale in the case of sub-clause (d).
Clause (29-A) cannot, in our view, be read as implying that the tax under sub-clause (d) is to be imposed not on the transfer of the right to use goods but on the delivery of the goods for use. Nor, in our view, can a transfer of the right to use goods in sub-clause (d) of clause (29-A) be equated with the third sort of bailment referred to in Bailment by Palmer, 1979 Edn., p. 88. The third sort referred to there is when goods are left with the bailee to be used by him for hire, which implies the transfer of the goods to the bailee. In the case of sub-clause (d), the goods are not required to be left with the transferee. All that is required is that there is a transfer of the right to use the goods. In our view, therefore, on a plain construction of sub-clause (d) of clause (29-A), the taxable event is the transfer of the right to use the goods regardless of when or whether the goods are delivered for use. What is required is that the goods should be in existence so that they may be used. And further contract in respect thereof is also required to be executed. Given that, the locus of the deemed sale is the place where the right to use the goods is transferred. Where the goods are when the right to use them is transferred is of no relevance to the locus of the deemed sale. Also of no relevance to the deemed sale is where the goods are delivered for use pursuant to the transfer of the right to use them, though it may be that in the case of an oral or implied transfer of the right to use goods, it is effected by the delivery of the goods. 27. Article 366(29-A)(d) further shows that levy of tax is not on use of goods but on the transfer of the right to use goods. The right to use goods accrues only on account of the transfer of right. In other words, right to use arises only on the transfer of such a right and unless there is transfer of right, the right to use does not arise. Therefore, it is the transfer which is sine qua non for the right to use any goods.
The right to use goods accrues only on account of the transfer of right. In other words, right to use arises only on the transfer of such a right and unless there is transfer of right, the right to use does not arise. Therefore, it is the transfer which is sine qua non for the right to use any goods. If the goods are available, the transfer of the right to use takes place when the contract in respect thereof is executed. As soon as the contract is executed, the right is vested in the lessee. Thus, the situs of taxable event of such a tax would be the transfer which legally transfers the right to use goods. In other words, if the goods are available irrespective of the fact where the goods are located and a written contract is entered into between the parties, the taxable event on such a deemed sale would be the execution of the contract for the transfer of right to use goods. But in case of an oral or implied transfer of the right to use goods it may be effected by the delivery of the goods. 28. No authority of this Court has been shown on behalf of the respondents that there would be no completed transfer of right to use goods unless the goods are delivered. Thus, the delivery of goods cannot constitute a basis for levy of tax on the transfer of right to use any goods. We are, therefore, of the view that where the goods are in existence, the taxable event on the transfer of the right to use goods occurs when a contract is executed between the lessor and the lessee and situs of sale of such a deemed sale would be the place where the contract in respect thereof is executed. Thus, where goods to be transferred are available and a written contract is executed between the parties, it is at that point situs of taxable event on the transfer of right to use goods would occur and situs of sale of such a transaction would be the place where the contract is executed." When examined closely, it emerges that the primary issue examined by the majority view pertained to situations, where goods were available, before the contract in respect of transfer of the right for the use of the said goods was executed.
Insofar as the situation which has arisen for our consideration, namely, wherein the goods in respect of which the contract for use is executed were not available, at the time of execution of the contract for use of goods is concerned, the only meaningful reference could be to the following observation recorded at the end of paragraph 26, "... but in case of an oral or implied transfer of the right to use goods it may be effected by the delivery of the goods." The impression gathered by us (as has been indicated herein above) emerges from a reading of the narration immediately preceding the words reproduced above. Thus viewed, it would not be incorrect to suggest, that the majority view, on its deliberations expressed the view, that in case the goods are not available at the time of execution of the "right to use" contract, the situs of the taxable event would be determined from "the delivery of the goods". Having recorded the deliberations as have been extracted in the preceding paragraph, the majority view crystallised its conclusions in the following words : "35. As a result of the aforesaid discussion our conclusions are these : (a) The States in exercise of power under Entry 54 of List II read with Article 366(29-A)(d) are not competent to levy sales tax on the transfer of right to use goods, which is a deemed sale, if such sale takes place outside the State or is a sale in the course of inter-State trade or commerce or is a sale in the course of import or export. (b) The appropriate legislature by creating legal fiction can fix situs of sale. In the absence of any such legal fiction the situs of sale in case of the transaction of transfer of right to use any goods would be the place where the property in goods passes, i.e., where the written agreement transferring the right to use is executed. (c) Where the goods are available for the transfer of right to use the taxable event on the transfer of right to use any goods is on the transfer which results in right to use and the situs of sale would be the place where the contract is executed and not where the goods are located for use.
(c) Where the goods are available for the transfer of right to use the taxable event on the transfer of right to use any goods is on the transfer which results in right to use and the situs of sale would be the place where the contract is executed and not where the goods are located for use. (d) In cases where goods are not in existence or where there is an oral or implied transfer of the right to use goods, such transactions may be effected by the delivery of the goods. In such cases, the taxable event would be on the delivery of goods. (e) The transaction of transfer of right to use goods cannot be termed as contract of bailment as it is deemed sale within the meaning of the legal fiction engrafted in clause (29-A)(d) of Article 366 of the Constitution wherein the location or delivery of goods to put to use is immaterial." It is essential to notice and emphasize here, that in so far as the present controversy is concerned, only the conclusions recorded at (a) and (d) above will be relevant. Conclusion (a) would be relevant because, learned counsel for the revision petitioner had primarily canvassed the proposition, that the levy of tax in the instant case was not sustainable, as the deemed sale in the present controversy must be deemed to be an inter-State sale. Since the facts of the present controversy also reveal, that the goods to be transferred to the lessees (ONGC/BHEL) were not in existence when the TCIL executed the "right to use" contracts with the ONGC and the BHEL, conclusion (d) would also be relevant. We will now advert to the opinion expressed by the minority. In this behalf, it is our first and foremost responsibility to pinpoint the issues of concurrence, as also the issue of dissent. The minority view expressly recorded in paragraph 58, that the conclusions and the principles recorded by the majority at (a) and (d) of paragraph 35 of the judgment were in concurrence with the view entertained by the minority. We have already noticed in the foregoing paragraph that only the conclusions recorded at (a) and (d) above will be relevant for the determination of the controversy in hand. Our task is, therefore, apparently simpler.
We have already noticed in the foregoing paragraph that only the conclusions recorded at (a) and (d) above will be relevant for the determination of the controversy in hand. Our task is, therefore, apparently simpler. All the same two observations may be noticed, which will have a bearing on the outcome of the controversy in hand. Firstly, that the legislative competence of a State Legislature, so as to levy sales tax in respect of a sale contemplated under sub-clause (d) of Article 366(29-A), would not be valid, if such sale takes place outside the, State or is a sale in the course of inter-State trade or commerce [as in conclusion (a) above]. Secondly, in case where goods are not in existence or where there is an oral or implied transfer of the right to use goods, in such cases the taxable event would be based on the delivery of goods [as in conclusion (d) above]. Despite the concurrence recorded in the minority view, as has been noticed in the foregoing paragraph, the minority view recorded its deliberations, based on the following questions framed by it : "57. The questions that arise for consideration in this batch of cases are : (1) What are the limitations on the power of the State Legislature to levy tax on the transaction embodied in sub-clause (d) of clause (29-A) of Article 366 of the Constitution ? (2) What is the real import of sub-clause (d) of clause (29-A) of Article 366 and where does the taxable event on the transfer of right to use goods arise ? (3) Whether the impugned legislations of the States are unconstitutional being in violation of clauses (1) to (3) of Article 286 and clauses (1) and (3) of Article 269 of the Constitution ? (4) Whether the orders impugned in the appeals, the provisions challenged in writ petitions and transfer petitions are sustainable ?" In the course of its consideration in respect of the transfer of the right to use goods, wherein the goods are not in existence at the time of execution of the contract, the minority expressed its determination in the following manner : "75. We shall now examine the contention that the transfer of right to use the goods is complete on executing the master lease only and nothing more need be done.
We shall now examine the contention that the transfer of right to use the goods is complete on executing the master lease only and nothing more need be done. In the factual matrix, in the case of the appellants, there is a master lease which is entered into between the appellants and the hirer for leasing of an equipment. The equipment, on that date, is not in existence. After execution of the master lease, the appellants will place an order for purchase of an equipment with the manufacturer purporting to be at the instance of the hirer with the instruction that the same be delivered at his place. On the aforementioned premise, can the transfer of the right to use the equipment be complete on execution of the master lease and the appellants' liability under sub-clause (d) to pay sales tax would commence immediately even though the equipment in regard to which "the right to use" has been transferred to the hirer is not in existence ? But then it is conceded that transfer in sub-clause (d) will not be effectual where the goods are not in existence. Now, the next stage, after placing the order for purchase of an equipment, let us take, an equipment has been manufactured and is thus brought into existence but remains unspecified; will then the transfer be complete at that stage and the appellants' tax liability start immediately on its manufacture ? In our opinion, no. At that stage even the sale of the equipment in favour of the appellants will not be complete as the property in the equipment will not pass to the appellants. The manufacturer will have to specify an equipment and either deliver or appropriate it to the contract of sale by the appellants, which will complete the sale of equipment in their favour. Thereafter, the transfer of the right to use the goods can become effective and the liability of the appellants to pay sales tax will arise. Let us take a case where the equipment is with the supplier as unspecified goods; will the transfer to use the goods be complete on execution of the master lease in respect of any unascertained equipment ? Can in such a case the appellants be called upon by the Revenue to pay sales tax on the execution of the master lease ?
Can in such a case the appellants be called upon by the Revenue to pay sales tax on the execution of the master lease ? We shall answer this question in the negative because, in our view, a transfer under sub-clause (d) will not be complete on execution of the master lease. It will be complete when the supplier delivers the equipment to the appellants or hands it over to a carrier or a bailee or as per the instructions in this case to the hirer, which is deemed unconditional appropriation of goods to the contract of sale and then only the transfer under clause (d) will take effect. In other words, in this case, it is only after execution of the master lease when the control of the equipment passes to the hirer that the transfer of right to use the goods will be complete. And it is at that stage that the liability of the appellants to pay sales tax will arise." Insofar as deemed sales covered by sub-clause (d) of Article 366(29-A) are concerned, the minority expressed the view, that the taxable event emerged from the "... transfer of right to use any goods ..." Elucidating the issue of a deemed sales under sub-clause (d) of Article 366(29-A) of the Constitution of India, the minority concluded, that in case of a deemed sale of goods, whether specified or unspecified, under sub-clause (d), where more than one State is involved, the taxable event would arise at the place where the transfer is completed. It was further observed that in case where the contract for use of goods is oral, the taxable event would arise at the place of the delivery of the goods. In case of a contract in writing, the taxable event would be subject to the terms and conditions of the contract based on the intention of the parties, i.e. at the place where giving control of the goods was postulated. The minority clarified to observe, that the transfer will be complete where the contract is executed and the control of the goods, which are subject-matter of the contract, is given to the hirer. In paragraph 84 of the judgment, while recording the aforesaid conclusions, the minority expressed its views illustratively through a series of hypothetical sets of facts. Two illustrative instances recorded by the minority view caught our attention.
In paragraph 84 of the judgment, while recording the aforesaid conclusions, the minority expressed its views illustratively through a series of hypothetical sets of facts. Two illustrative instances recorded by the minority view caught our attention. The same are being extracted hereunder : "... Let us take an example - the hirer is in Delhi, the lessor is in Mumbai and the goods are in West Bengal, the contract of the transfer of right to use any goods is entered into in Mumbai. On the execution of contract on the lessor's direction, the goods are moved from West Bengal to Delhi to be delivered to the hirer. As the deemed sale occasions movement of the goods from West Bengal to Delhi the deemed sale in sub-clause (d) will be an inter-State sale in respect of each of the said States and the transaction cannot be taxed under any of the State Acts ... Regarding non-existent and unspecified goods, the following example will clarify the position. In the example referred to above - the contract of the right to transfer an unspecified equipment (which is not in existence or which may be with the supplier) is entered into in Gujarat. The lessor places the order to the manufacturer/supplier who is in West Bengal. On the principle discussed above, the sale of the equipment itself will be complete only on delivery of the equipment to the lessor or on his instruction to the hirer at Delhi. The taxable event cannot, therefore, be at any earlier stage and at a place other than Delhi." We have noticed that our task to apply the law declared in 20th Century Finance Corporation Ltd.'s case (supra) was apparently simple, in spite of the divergence of the two set of views recorded therein, because on the issues involved in the present case, there was concurrence. That, however, does not seem to be the case on an examination of the two illustrative instances extracted above. If the facts of the present case are applied to the two illustrative instances extracted above, we would arrive at diametrically opposite conclusions. The conclusions at the hands of the minority view are recorded in paragraph 95 of the aforesaid judgment, though some observations recorded in paragraph 94 are also relevant for determination of the present controversy.
If the facts of the present case are applied to the two illustrative instances extracted above, we would arrive at diametrically opposite conclusions. The conclusions at the hands of the minority view are recorded in paragraph 95 of the aforesaid judgment, though some observations recorded in paragraph 94 are also relevant for determination of the present controversy. Accordingly, paragraphs 94 & 95, expounding the conclusions of the minority view, are being reproduced hereunder : "94. One aspect, however, remains to be considered and that arises in CAs Nos. 6218-23 of 1995 from the judgment of the Andhra Pradesh High Court reported in ITC Classic Finance and Services v. Commr. of Commercial Taxes. The facts in that case are identical with the facts in 20th Century Finance Corpn. Ltd. v. State of Maharashtra except for the fact that in cases before the High Court of Andhra Pradesh assessment of tax for the years 1989-90 to 1994-95 was in fact made under the provisions of the Andhra Pradesh General Sales Tax Act. The crucial question before the High Court was when on the basis of master lease, the contract to take the equipment on lease, entered into between the respondent and the hirer, the respondent placed an order with the supplier at Calcutta with instructions to deliver it to the hirer at Hyderabad, was the movement of the equipment from Calcutta to Hyderabad pursuant to the sale of the equipment or deemed sale under sub-clause (d) ? The Division Bench of the Andhra Pradesh High Court proceeded on the footing, following, among others, the judgment of the Bombay High Court in 20th Century Finance Corpn. 11 as well as the earlier judgments of the Andhra Pradesh High Court, that the transaction referred to in sub-clause (d) is a specie of bailment and on the interpretation of the contract of the master lease, it held that the transfer of right to use the equipment (deemed sale) was complete on execution of the master lease and that the deemed sale occasioned the movements of the goods from Calcutta to Hyderabad and it being an inter-State transaction was not liable to be taxed within the State of Andhra Pradesh. Here two points arise : (i) when and where the transfer of right to use the equipment was complete; and (ii) was it an inter-State transaction ? 95.
Here two points arise : (i) when and where the transfer of right to use the equipment was complete; and (ii) was it an inter-State transaction ? 95. In the light of the above discussion, as the equipment involved was unspecified goods and indeed an order for purchase of an unspecified equipment was made by the respondent after the lease, the respondent did not become owner of the equipment till the same was despatched to the hirer so the transaction under sub-clause (d) could be complete only after the completion of the sale of the equipment which happened only when the equipment was actually delivered to the hirer in Hyderabad (Andhra Pradesh). Therefore, the transaction of deemed sale under sub-clause (d) cannot be said to be complete on the execution of the contract of master lease. If that be so, the question of the deemed sale being an inter-State sale would not arise. On this aspect, the Andhra Pradesh High Court has referred to the view of the Bombay High Court in 20th Century Finance Corpn. 11 and differed from the same. But the Andhra Pradesh High Court failed to take note of the fact that though the deemed sale is subject to the same limitations as the sale, in view of the provisions of Article 286 of the Constitution and the provisions of Sections 3 and 4 of the Central Sales Tax Act, and the State is denuded of the power to tax an inter-State transaction, yet in this case there has been no inter-State deemed sale. The fact that the master lease agreement refers to hiring of the equipment and the fact that at the instance of the hirer the appellant placed the order for purchase are immaterial. There is always a difference between purchasing any goods for the reason that the hirer wanted to hire it and the hirer himself ordering purchase of the goods. In the instant case, the purchase of the equipment was by the respondent, the fact that the hirer wanted to hire the equipment might have prompted the respondent to place an order for its purchase but that fact is irrelevant in arriving at the conclusion whether the lease in respect of non-existent unspecified equipment would be complete on the execution of the master lease.
On this aspect, we have held that before an unspecified equipment reaches the hirer, the sale of the equipment by the respondent itself would not be complete. The deemed sale under sub-clause (d) is only a consequential transaction which follows the completion of the sale in favour of the respondent and cannot precede it." Despite the conclusions recorded in the paragraphs extracted herein above, certain vital observations were also recorded by the minority in paragraph 96. The same is, therefore, also being reproduced hereunder : "96. The transaction in question, namely, entering into master lease between the hirer and the respondent and placing the order for purchase of an equipment desired to be taken on lease by the hirer as an order for purchase of an equipment at the instance of the hirer is an attempt to save sales tax either on sale of the equipment or on the deemed sale. The Revenue can have no grudge against a person who so arranges his affairs as to minimise his tax liability under the provisions of a taxing statute. Indeed, it is expected of the Revenue to ensure that correct tax as ordained by the statute is paid by every assessable person - no more no less. But that does not mean the tax evasion should be equated with tax planning. The tax evasion has to be dealt with promptly under the provisions of the relevant taxing statute. It appears to us that clubbing of the two transactions - the master lease and the purchase of the equipment pursuant thereto purporting to be at the instance of the hirer with instructions to the manufacturer/supplier to deliver the same to the hirer, to wit, as if the transaction under sub-clause (d) is also an inter-State transaction whereas the sale alone will be an inter-State transaction - cannot but be an attempt to evade the tax leviable on transaction under sub-clause (d) of clause (29-A) of Article 366 of the Constitution." The deliberations recorded during the course of the rival views, as also the respective conclusions drawn in 20th Century Finance Corporation Ltd.'s case (supra), have been noticed by us in the foregoing paragraphs. It is, however, imperative for us to delineate another aspect of the matter dealt with in 20th Century Finance Corporation Ltd.'s case (supra).
It is, however, imperative for us to delineate another aspect of the matter dealt with in 20th Century Finance Corporation Ltd.'s case (supra). In this behalf, it is relevant to notice, that the vires of the taxing provision in the present controversy, namely, Sections 2(h) and 3-F also came up for consideration. The majority recorded its conclusions on the instant aspect of the matter in the following manner : "43. The Uttar Pradesh Trade Tax Act, 1948 also levies tax on transfer of right to use any goods. Section 2(h) defines "sale", which is reproduced below : "2(h) 'sale', with its grammatical variations and cognate expressions, means any transfer of property in goods (otherwise than by way of a mortgage, hypothecation, charge or pledge) for cash or deferred payment or other valuable consideration, and includes - (i) to (iii) ... (iv) a transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration." 44. Clause (ii) of Explanation I to Section 2(h) runs as under : "(ii) in a case falling under sub-clause (iv), if the goods are used by the lessee within the State during any period, notwithstanding that the agreement for the lease has been entered into outside the State or that the goods have been delivered to the lessee outside the State." 45. Section 3-F is a charging section which provides tax on transfer of right to use any goods and it is extracted as under : "3-F(1) Notwithstanding anything contained in section 3-A or Section 3-AAA or Section 3-D but subject to the provisions of Sections 14 and 15 of the Central Sales Tax Act, 1956, every dealer shall, for each assessment year, pay a tax on the net turnover of - (a) transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment of other valuable consideration; or (b) ... at such rate not exceeding fifteen percentum as the State Government may, by notification, declare and different rates may be declared for different goods or different classes of dealers.
at such rate not exceeding fifteen percentum as the State Government may, by notification, declare and different rates may be declared for different goods or different classes of dealers. (2) For the purposes of determining the net turnover referred to in sub-section (1), the following amounts shall be deducted from the total amount received or receivable by a dealer in respect of a - (a) transfer referred to in clause (a) of sub-section (1) whether such transfer was agreed to during that assessment year or earlier, - (i) the amount representing the value of the goods covered by Sections 3, 4 and 5 of the Central Sales Tax Act, 1956; (ii) the amount representing the value of the goods exempted under Section 4; (iii) ... (b)(i) to (xii) ..." The aforesaid provisions show that so far as the inter-State sales are concerned, in substance they are not taxable, but no provision has been made for declared goods. Yet, there is another aspect. By virtue of clause (ii) of Explanation I to Section 2(h), the ambit of sale has been widened by including "outside sale" as "inside sale" on mere location of goods for use within the State irrespective of the fact that the agreement for transfer of right to use has been executed outside the State or whether the sale is outside the State, the tax is chargeable within the State. And, further, on account of a special provision for rates of tax, the other provision such as single-point tax as well as exemption etc. is not applicable to the transaction of transfer of right to use any goods.
And, further, on account of a special provision for rates of tax, the other provision such as single-point tax as well as exemption etc. is not applicable to the transaction of transfer of right to use any goods. We find that clause (ii) of Explanation I of Section 2(h) is in excess of legislative power under Entry 54, List II of Seventh Schedule and, therefore, we direct that clause (ii) of Explanation I of Section 2(h) of the Act shall be read down to this effect that it would not be applicable to the transaction of transfer of right to use any goods if such deemed sale is (i) an outside sale, (ii) sale in course of the import of the goods into or export of the goods out of the territory of India; and (iii) an inter-State sale." In sum and substance, the majority upheld the vires of the provisions of the Trade Tax Act, 1948 subject to the condition that the levy of sales tax envisaged therein would not be applicable to transactions of sales outside the State or in respect of inter-State sales. As against the view expressed by the majority, the minority in its conclusion held, that the statutory provisions pertaining to the imposition of sales tax of all the concerned States (Maharashtra, Haryana, Andhra Pradesh, Uttar Pradesh and Rajasthan), were ultra vires the mandate of Article 366(29-A) of the Constitution of India. Relevant observations recorded by the minority in this behalf are being reproduced hereunder : "88. Since the subject-matter of the appeal under consideration is the impugned provisions of the Maharashtra Act which are similar to the provisions of the Acts of other States, noted in the statement, we shall examine the explanation to Section 2(10) of the Maharashtra Act. The impugned explanation says that for purposes of sub-clause (d) the transfer of the right to use any goods shall be deemed to have taken place in the State of Maharashtra, if the goods are in the State of Maharashtra at the time of their use irrespective of the place where the agreement for such transfer of the right to use such goods is made and whether the assent of the party is prior or subsequent to such transfer.
From the above provision, it is evident that the taxable event in respect of the deemed sale under sub-clause (d) is treated not at the place where the transfer of the right to use the goods is complete but is fixed by a deeming provision contained in the impugned explanation in the State of Maharashtra. From the above, it is also apparent that this deeming provision runs counter to the import of sub-clause (d) of clause (29-A), discussed above; it has no nexus with the taxable event, that is, with the transfer of right to use any goods. Indeed it appears to us that in the guise of fixing the situs of the sale by the legislation, which is held permissible by the decisions of the Constitution Benches of this Court in Tata Iron & Steel Co. Ltd. v. State of Bihar and in Gannon Dunkerley case the very taxable event has been altered from "the transfer of the right to use the goods" to the situs of the goods in the State of Maharashtra at the time of their use. In the example referred to above, namely, taking the car 'X' on rent by the hirer though the contract of the transfer of right to use the car was entered into in Delhi, the control/domain of the car was also given in Delhi by handing over the key of the car and the delivery of the car was taken from Gurgaon (Haryana), thus, the taxable event, namely, the transfer was complete in Delhi, but if the hirer uses the car in Bombay, the Maharashtra Act treats such a deemed sale as taxable by that State on the mere use of the car in Maharashtra State which has no nexus with the taxable event under sub-clause (d). ... 90. For the foregoing reasons, the impugned explanation cannot be sustained being violative of Article 286(1)(a), Articles 269(1)(g) and 269(3) read with Sections 3 and 4 of the Central Sales Tax Act." On the issue of vires, therefore, the conclusions recorded by the majority view, upholding the relevant provisions of the Trade Tax Act, 1948 (subject to the embargo recorded by the majority) shall be deemed to be the declared law on the subject.
We, therefore, hereby proceed to examine the controversy by accepting, that the provisions of the Trade Tax Act, 1948 are constitutionally valid, subject to the condition that the aforesaid provisions do not authorise the levy of sales tax in respect of sale (or purchase of goods) in respect of an "outside sale", as also in respect of an "inter-State sale". A perusal of the motion bench order dated 06.04.2009 (extracted above) would reveal that the learned counsel for the revision petitioner also placed reliance on the decision rendered by a Division Bench of the Andhra Pradesh High Court in ITC Classic Finance and Services v. Commissioner of Commercial Taxes, (1995) 97 STC 330 . Referring to the aforesaid judgment, learned counsel for the revision petitioner pointed out, that a controversy similar to the one in hand, came up for consideration before the High Court of Andhra Pradesh in ITC Classic Finance and Services case (supra), wherein Section 5-E of the Andhra Pradesh General Sales Tax Act, 1957 was applied to levy tax on the assessee. The Division Bench, while dealing with the issues canvassed, inter alia reasoned and held as under : "... The placing of the purchase order by the assessee with the manufacturer was because of the lease agreement with the customer. Both are integrally connected; one cannot be split up from the other. ... Independent of the lease agreement, such a transaction could not have been possible. In the absence of the lease transaction, it is plain, there was no possibility for the assessee to place the purchase order with the manufacturer. It is not the case of the department, in so far as Spl. Appeal No. 1 of 1995 is concerned, that there was any single transaction in which, independently, without the request of a customer, a purchase order was placed by the assessee with any manufacturer. As it is the admitted case of the department that the consignee is the customer (the lessee) and the invoice was raised against the assessee, the delivery was effected by way of entrustment to a common carrier outside the State of Andhra Pradesh, the consignee being the customer (lessee) within the State of Andhra Pradesh.
As it is the admitted case of the department that the consignee is the customer (the lessee) and the invoice was raised against the assessee, the delivery was effected by way of entrustment to a common carrier outside the State of Andhra Pradesh, the consignee being the customer (lessee) within the State of Andhra Pradesh. The Commissioner's reasoning is that there are two appropriations : the first appropriation is complete when the manufacturer of the goods consigned them to the inter-State sale to the assessee but the second appropriation took place only when the goods are physically delivered to the lessee for a deemed sale under section 5-E of the Act for, for a deemed sale under section 5-E, physical possession is a must. The reasoning is clearly unsustainable in law. Once the goods are entrusted to a common carrier, the carrier becomes an agent and such a delivery amounts to delivery to the consignee (the lessee in this case). The taxable event under section 5-E of the Act is the transfer of the right to use any goods [Rashtriya Ispat Nigam Ltd. v. Commercial Tax Officer [1990] 77 STC 182 (AP) and State Bank of India v. State of Andhra Pradesh [1988] 70 STC 215 (AP)] and that right will be vested in the customer (the lessee) the moment the goods are delivered to a common carrier. That right does not depend upon the "actual physical possession" of the goods by the customer. There are no two appropriations as erroneously held by the Commissioner - one at the stage when the goods are consigned to the inter-State sale and the other when the customer comes into physical possession of the goods." Having examined the issue in the aforesaid perspective, the Division Bench then summed up the position in the following words : "The transactions covered by Special Appeal No. 1 of 1995 are clearly inter-State transactions falling within the ambit of section 3(a) of the Central Sales Tax Act, 1956. The movement of the goods from the State of Madras to Hyderabad is the result of the contract. It is immaterial in which State the property in the goods passed. What is material is that the inter-State movement must be the result of a covenant, express or implied, in the contract of sale or an incident of the contract.
The movement of the goods from the State of Madras to Hyderabad is the result of the contract. It is immaterial in which State the property in the goods passed. What is material is that the inter-State movement must be the result of a covenant, express or implied, in the contract of sale or an incident of the contract. It is not necessary that the inter-State movement must be preceded by a sale. [English Electric Company of India Ltd. v. Deputy Commercial Tax Officer [1976] 38 STC 475 (SC), Balabhagas Hulaschand v. State of Orissa [1976] 37 STC 207 (SC) and Union of India v. K.G. Khosla and Co. Ltd. [1979]43 STC 457 (SC)]. If the movement of the goods is because of a clause in the contract or as an incident of contract, the same shall be deemed to have taken place in the course of inter-State trade or commerce. In the transaction illustratively discussed by the Commissioner, the transport of goods from one State to another was an incident of the contract between the assessee and the lessee. The very hiring itself is the incident of the contract of sale, which occasioned the inter-State movement of the goods from Madras to Andhra Pradesh. Without this contract, the goods would not have moved out of Madras. This aspect we have already discussed while dealing with the question whether the purchase order and the lease agreement are separate or constitute one integral transaction. It is true that Explanation II(a) to section 2(n) of the Act lays down that notwithstanding anything contained in the Indian Sale of Goods Act, 1930, a sale or purchase of goods shall be deemed for the purpose of the Act to have taken place in the State, wherever the contract of sale or purchase might have been made, if the goods are within the State. If construed literally, this implies that goods which are the subject-matter of inter-State transactions also can be brought to tax if they are within the State. Such an interpretation is not permissible in view of the rulings of the Supreme Court in Builders Association of India [1989] 73 STC 370 and Gannon Dunkerley & Co. [1993] 88 STC 204.
If construed literally, this implies that goods which are the subject-matter of inter-State transactions also can be brought to tax if they are within the State. Such an interpretation is not permissible in view of the rulings of the Supreme Court in Builders Association of India [1989] 73 STC 370 and Gannon Dunkerley & Co. [1993] 88 STC 204. The Commissioner of Commercial Taxes erroneously relied upon the test of "situs" - the transfer of the right to use the goods had taken place in Andhra Pradesh because the goods are found in Andhra Pradesh." Insofar as the determination rendered in 20th Century Finance Corporation Ltd.'s case (supra) is concerned, it may be pointed out that in paragraph 53 of the judgment, the majority view affirmed the decision rendered by the Division Bench of the High Court in ITC Classic Finance and Services case (supra), whereas the minority expressed a view to the contrary in paragraph 95 of the judgment. For the present deliberations, therefore, we shall proceed by accepting, that the conclusions recorded by the Division Bench of the Andhra Pradesh High Court in ITC Classic Finance and Services case (supra), represents the declared position of law. We shall now examine the submissions advanced at the hands of the revision petitioner. The first contention advanced by the learned counsel for the revision petitioner was based on the judgment rendered by the Division Bench of the Andhra Pradesh High Court in ITC Classic Finance and Services case (supra). Learned counsel, then, invited our pointed attention to the observations of the Andhra Pradesh High Court. It was also pointed out, that the factual matrix of the present controversy was exactly similar to the one dealt with in ITC Classic Finance and Services case (supra), wherein the Court arrived at the conclusion, that the purchase order, which occasioned the movement of the goods, was indeed the direct outcome of "the right to use" contract executed (just as is the case of the revision petitioner in the present controversy). It was submitted, that the lease agreement and the purchase order should be treated as a part and parcel of the same transaction, as the both are integrally connected. It was pointed out, that independent of the lease order executed with the ONGC/BHEL, the purchase order would not have been placed by the TCIL with the NDEL/ABSL.
It was submitted, that the lease agreement and the purchase order should be treated as a part and parcel of the same transaction, as the both are integrally connected. It was pointed out, that independent of the lease order executed with the ONGC/BHEL, the purchase order would not have been placed by the TCIL with the NDEL/ABSL. Consequently, for the same reasons as have been recorded in ITC Classic Finance and Services case (supra), it was submitted, that the "right to use" agreement was nothing but an inter-State sale. And, therefore, the same cannot be subjected to the imposition of sales tax at the hands of the State Government. In order to give further credence to his aforesaid submission, based on the decision rendered by the Andhra Pradesh High Court in ITC Classic Finance and Services case (supra), learned counsel for the revision petitioner invited our attention to the decision rendered in 20th Century Finance Corporation Ltd.'s case (supra), and more particularly, to the observations recorded in paragraph 53 thereof, which are being extracted hereunder : "53. Following what we have stated above, we are of the opinion that the decision of the Bombay High Court in 20th Century Finance Corpn. Ltd. v. State of Maharashtra (under appeal) is erroneous, whereas, we affirm the decision of the Andhra Pradesh High Court in ITC Classic Finance & Services v. Commr. of Commercial Taxes (under appeal)." Based on the affirmation of the view expressed by the Andhra Pradesh High Court in ITC Classic Finance and Services case (supra) by the Supreme Court, it was submitted that the "right to use" contract executed by the TCIL with the ONGC/BHEL, should be treated as an inter-State sale which, according to the prevailing legal position emerging out of the mandate of Article 286(1) of the Constitution of India, cannot be subjected to sales tax at the hands of a State Government. It was, therefore, prayed that the imposition of sales tax on the revision petitioner at the hands of the authorities under the Trade Tax Act, 1948, be set aside. The second contention advanced by the learned counsel for the revision petitioner was based on a Division Bench judgment, rendered by this Court in Tata Elxsi Limited v. State of Uttaranchal and others, 2004 UPTC 19.
The second contention advanced by the learned counsel for the revision petitioner was based on a Division Bench judgment, rendered by this Court in Tata Elxsi Limited v. State of Uttaranchal and others, 2004 UPTC 19. In order to demonstrate the similarity of the controversy, which came up for consideration in Tata Elxsi Ltd.'s case (supra), and the controversy which is subject-matter of consideration in the present case, learned counsel for the revision petitioner invited this Court's attention to the facts delineated by this Court in paragraph 2 of the judgment. Paragraph 2 of the judgment in Tata Elxsi Ltd.'s case (supra) is being reproduced hereunder : "2. Facts : A lease agreement was executed on 11th January, 1995 between M/s. Tata Elxsi Ltd. and Bharat Heavy Electricals Ltd. for giving on lease nine computers of a particular specification as enumerated in the agreement. They were not in existence on 11th January, 1995. The said nine computer machines were to be accompanied by accessories. The computers were to be manufactured later on. In pursuance of the said agreement dated 11th January, 1995, M/s. Tata Elxsi Ltd. placed a purchase order on various manufacturers/suppliers of computers accessories in the month of February, 1995. One such purchase order was dated 31st January, 1995 on NIT for supply/manufacture in accordance with specification enumerated in the lease agreement. At the time of the lease agreement the computers were no available. The goods were made to order. Before the Assessing Authority, the petitioner contended that since the goods were not in existence, the transfer of right to use did not take place at Haridwar where the agreement was executed. According to the petitioner, the placing of the purchase order by the petitioner with the manufacturers/suppliers was only because of the lease agreement between petitioner and Bharat Heavy Electricals Ltd., and, therefore, the purchase order was an integral part of the lease and, therefore, the purchase order could not be separated from the lease. According to the petitioner in the present case petitioner received rental orders from Bharat Heavy Electricals Ltd. in terms of the lease agreement and in pursuance of the rental orders petitioner placed purchase orders pursuant to which computers were delivered from Bangalore and Delhi to Bharat Heavy Electricals Ltd. at Haridwar and therefore the transactions were inn the nature of inter-State trade.
According to the petitioners all the computers were supplied against rental orders placed by Bharat Heavy Electricals Ltd. under the above lease. According to the petitioner all the computers were supplied from outside the State of Uttaranchal. Before the Assessing Authority, petitioner placed reliance on the judgment of the Supreme Court in the case of 20th Century Finance Corporation Ltd. v. State of Maharashtra, reported in 2000 U.P. Tax Cases 593. Before the Assessing Authority, petitioner also relied upon judgment of the Andhra Pradesh High Court in case of I.T.C. Classic Finance and Services v. Commissioner of Commercial Taxes, reported in (1995) 97 Sales Tax Cases 330. At this stage it may be mentioned that in the above writ petition we are concerned with imposition of tax under Section 3-F of U.P. Trade Tax Act, 1948 for the Assessment Year 2000-2001. In the writ petition the petitioner has challenged the validity of assessment order dated 30th June, 2003. This assessment order follows decisions of the Tribunal for the earlier assessment years which decisions are the subject-matter of the above revisions. Similarly, in pursuance of the lease agreement dated 11th January, 1995 one more purchase order dated 9th February, 1995 was placed by the petitioner on Silicon Graphics Systems India Pvt., New Delhi who sold the computer system to the petitioner which were dispatched from Delhi Bharat Heavy Electrical Ltd., Haridwar. Similarly, one more lease agreement was executed on 10th December, 1999 between the petitioner and Bharat Heavy Electricals Ltd. pursuant to which petitioner placed purchase orders on 14th December, 1999 with M/s. Nortel, U.S.A. and another order dated 22nd December, 2000 with M/s. Range Pay International Ltd. U.K. for purchase of equipments mentioned in the lease agreement dated 10th December, 1999.
These two purchase orders were placed by the petitioner on the selling dealers of U.S.A. and U.K. In the circumstances, in all the above three cases it has been argued that the movement of the goods was in pursuance of the lease; that the purchase order was issued because of the lease; that the purchase order was a part of the lease transaction; that the lease transaction was a sale in the course of inter-State trade and commerce and, therefore, it cannot be subjected to tax within the State of Uttaranchal merely because lease was executed at Haridwar and consequently imposition of tax under Section 3-F of U.P. Trade Tax Act, 1948 was alleged and bad in law." Having demonstrated that the facts in the present controversy were similar to the facts in Tata Elxsi Ltd.'s case (supra), learned counsel for the revision petitioner, then, invited our attention to Section 3 of the Central Sales Tax Act, 1956. Section 3 (aforesaid) is being reproduced hereunder : "3. When is a sale or purchase of goods said to take place in the course of inter-State trade or commerce. - A sale or purchase of goods shall be deemed to take place in the course of inter-State trade or commerce if the sale or purchase - (a) occasions the movement of goods from one State to another; or (b) is effected by a transfer of documents of title to the goods during their movement from one State to another." It was pointed out by the learned counsel for the revision petitioner, that Section 3 (extracted herein above), in fact, defines the term "inter-State sale". It is submitted that the aforesaid definition should be applied to the facts of the present case to determine whether the transactions between the TCIL and the ONGC/BHEL are in the nature of "inter-State sales". It is submitted that the permissibility to impose sales tax on an inter-State sale, is exclusively in the domain of the Central Government, and as such, if the transaction in the present controversy can be treated as falling within the definition of Section 3 (extracted above), it would automatically emerge that the "right to use" contracts executed by the TCIL with the ONGC/BHEL constitute inter-State sales, and would, as such, be beyond the purview of sales tax at the hands of the State Government.
Learned counsel for the revision petitioner, then, pointed out that while disposing of Tata Elxsi Ltd.'s case (supra), the Division Bench had remanded the matter for reconsideration at the hands of the authorities under the Trade Tax Act, 1948, so as to re-examine the controversy on the basis of express guidelines recorded therein, to determine, whether or not, the "right to use" contract executed between the parties constituted an inter-State sale. The directions and the guidelines issued by the Division Bench have been noticed in paragraph 5 of the judgment, which is being extracted hereunder : "5. In the present matter it is not necessary to dissect various decisions of the Supreme Court cited before us as the learned Counsel for the State has submitted that the matter needs to remanded back to the Assessing Authority. However, for the guidance of the Assessing Authority we have culled out a few principles which define inter-State sale. The principles are as follows : (i) Under Section 3(A) of Central Sales Tax Act, 1956, only a transaction of sale connected with the movement of goods is regarded as an inter-State sale. The movement and sale must have a direct link. Such movement can be stipulated as a term in the contract or it may be contemplated by the parties as an implied term of the contract. Even if the movement of the goods is not specified in the contract still if the movement of the goods takes place incidental to the contract then also in such cases the transactions would be an inter-State sale. (ii) The question as to whether a sale is an inter-State sale or intra-State sale does not depend upon the passing of the property in the goods. What is decisive is whether the sale causes the movement of goods from one State to other. (iii) Depending upon facts and circumstances of each case, even lease transaction could be construed as deemed sale in the course of inter-State trade and commerce. In the determination of inter-State character of a sale the situs is immaterial. Where, a State, while defining the expression "sale", makes the situs relevant for the purpose of deciding a deemed sale it cannot touch inter-State sale.
In the determination of inter-State character of a sale the situs is immaterial. Where, a State, while defining the expression "sale", makes the situs relevant for the purpose of deciding a deemed sale it cannot touch inter-State sale. This is because any State law concerning "deemed sale" covered by Article 366(29-A)(a) to (f) of Constitution must satisfy the requirement of Article 286 as also the provisions of Central Sales Tax Act, 1956. In fact, Article 366(29-A) explains the expression 'sale or purchase of goods' occurring in Article 286 and also occurring in Entry 54 of list II of the Constitution and further Article 366(29-A) amplifies the said expression 'sale or purchase of goods' by a fiction. For the purposes of taxation, however, a deemed sale cannot be distinguished from an ordinary sales. Therefore, in cases of inter-State sales falling under Section 3(a) of Central Sales Tax Act, it is not relevant to consider the situs of the sale or the State in which the property in the goods happens to pass. (iv) A sale can occasion the movement of the goods sold only when the terms of the sale provides that the goods shall be moved or if the movement of the goods is under a convenient or if it is an incident of the contract of sale. The movement must be linked with the sale. Therefore, the Assessing Authority is bound to examine each individual transaction and decide whether it constitutes an inter-State sale [TELCO v. Asstt. Commissioner of Commercial Tax, (1970) 26 S.T.C. 354 ]. (v) Section 3-F of U.P. Trade Tax Act, 1948 levies tax on the right to use any goods. However, in the case of 20th Century Finance Corporation Ltd. (supra) the Supreme Court has held that the States in exercise of powers under Entry 54 of list I read with Article 366(29-A) cannot levy Sales Tax on the transfer of right to use goods, which is a deemed sale, if such sale is inter-State sale. That, in the determination of inter-State character of sale the situs is immaterial. That in cases where the goods are not in existence on the date of the agreement the taxable event would be the date of delivery of goods. (vi) The State can levy tax on Deemed Sales subject to Article 286 of the Constitution and Sections 3 to 5 of Central Sales Tax Act, 1956.
That in cases where the goods are not in existence on the date of the agreement the taxable event would be the date of delivery of goods. (vi) The State can levy tax on Deemed Sales subject to Article 286 of the Constitution and Sections 3 to 5 of Central Sales Tax Act, 1956. Within these parameters, The State can fix by fiction the situs of Deemed Sales, however, in the absence of the fiction in cases where the goods are available the taxable even would take place where the property in the goods passes that is where agreement is executed and in cases of non-existent goods the taxable event would be at the place of delivery." Learned counsel also brought to the notice of this Court one express remark addressed by the Division Bench clarifying the task which was entrusted to the Assessing Authority while remanding the matter. The aforesaid remark, contained in paragraph 6 of the judgment, is extracted hereunder : "... In this connection the Assessing Authority has to ascertain whether the movement of goods sold is contemplated by the terms of contract of sale or by a covenant or whether the movement of goods sold is incidental to the contract of sale. In the present case it is alleged that at the time of execution of lease dated 11th January, 1995 and 10th December, 1999, the goods were not in existence. The Assessing Authority is bound to give a finding on the allegation after examining the terms and conditions of the lease, rental order, invoice and account of the petitioner. If the Assessing Authority finds that computers were not in existence on the date of the lease then he has to consider also the status of the purchase order. He has to find out whether the purchaser order was an integral part of lease or whether purchase order was a separate transaction vis-a-vis the lease. ..." Based on Section 3 of the Central Sales Tax Act, 1956, as also the observations recorded by the Division Bench of this Court (extracted herein above) in Tata Elxsi Ltd.'s case (supra), it is the submission of the learned counsel for the revision petitioner, that the purchase orders in the instant case were executed by the TCIL with the NDEL/ABSL, after the TCIL had executed the lease agreements with the ONGC/BHEL allowing the lessees the "right to use".
But for the aforesaid "right to use" agreements executed by the TCIL with the ONGC/BHEL, the purchase orders would not have been placed by the TCIL with the NDEL/ABSL. It is submitted that the purchase orders were placed by the TCIL, only to fulfill the lease agreements authorising "right to use" of goods. The purchase orders had to be placed by the TCIL with the NDEL/ABSL because the goods in question were not in existence on the date of execution of the "right to use" agreements. Inviting the Court's attention to the purchase order appended to the instant Revision Petition as Annexure No. 2, it was pointed out that the goods sought to be purchased from the NDEL/ABSL were required to be dispatched by the manufacturers, through a suitable mode of transport, to be delivered to the "consignee" at destination. Learned counsel for the revision petitioner, then, pointed out from Annexure No. 3 (appended to the Revision Petition), that the representatives of the ONGC/BHEL were expressly defined as the "consignees" to receive the goods from NDEL/ABSL. From the aforesaid Annexure No. 3, it was also pointed out, that the liberty to inspect the goods, purchased by the TCIL through purchase orders placed on NDEL/ABSL, was expressly vested with the lessees, i.e. the ONGC/BHEL. Based on the aforesaid facts, it was submitted that the movement of goods from the premises of the NDEL/ABSL, for onward transmission to the ONGC/BHEL, should be deemed to have been based on the lease agreements authorising "right to use" of goods, rather than the purchase orders placed on the aforesaid firms by the TCIL. Accordingly, it is the vehement contention of the learned counsel for the revision petitioner, that the movement of goods from Mohali/Bangalore to Dehradun/Haridwar would squarely fall within the definition of the term "inter-State sale" under Section 3 of the Central Sales Tax Act, 1956. To emphasize the veracity of his submission, learned counsel for the revision petitioner also supported his claim on the basis of the guidelines issued by the Division Bench in Tata Elxsi Ltd.'s case (supra) (extracted herein above) so as to contend, that in the facts and circumstances of this case, the deemed sales contemplated by the contracts, authorising "right to use" to the ONGC/BHEL through the lease deeds executed by the TCIL, are liable to be treated as inter-State sale transactions.
It is, therefore, prayed that the Assessing Authority, as also the Appellate Authorities, must be held to have erred in arriving at the conclusion, that sales tax was leviable on the rent received by the TCIL on the basis of the aforesaid "right to use" contracts. The third contention advanced by the learned counsel for the revision petitioner was, that in recording its conclusions, the authorities, while passing the impugned orders, had relied on the minority view expressed in 20th Century Finance Corporation Ltd.'s case (supra). In this behalf, it was pointed out that there was divergence of views expressed by the Andhra Pradesh High Court in ITC Classic Finance and Services v. Commissioner of Commercial Taxes, (1995) 97 STC 330 and the one rendered by the Bombay High Court in 20th Century Finance Corporation Ltd. v. State of Maharashtra, (1989) 75 STC 217 . The majority view had upheld the position expressed by the Andhra Pradesh High Court, whereas, the minority view upheld the contrary position expressed by the Bombay High Court. In adjudicating the controversy on the basis of the view expressed by the minority, it was submitted, that the authorities under the Trade Tax Act, 1948 had seriously erred in recording its conclusions. It was contended that the decision in the matter could only have been based on the majority view, which represents the declared position of law on the subject. We shall now deal with the first contention advanced by the learned counsel for the revision petitioner. While dealing with the first contention, we have considered some of the aspects of the second contention as well. It is for this reason that we have recorded the contentions advanced on behalf of the revision petitioner together before commencing to determine their veracity. First the response of the respondents. So as to repudiate the first contention advanced by the learned counsel for the revision petitioner, learned counsel for the respondent invited the pointed attention of this Court to the following observations recorded in ITC Classic Finance and Services case (supra) : "...
First the response of the respondents. So as to repudiate the first contention advanced by the learned counsel for the revision petitioner, learned counsel for the respondent invited the pointed attention of this Court to the following observations recorded in ITC Classic Finance and Services case (supra) : "... The following is the reasoning discernible from the order of the Commissioner for allowing the revision : The assessee purchased the goods and gave instructions to the manufacturer to deliver the goods to the lessees and so the movement of the goods originated from the manufacturer of the goods and that movement started because of the purchase order placed by the assessee with the manufacturer outside the State of Andhra Pradesh. And so the cause of action for the inter-State movement of the goods was the purchase order placed by the assessee with the manufacturer which, incidentally, might have been motivated by the lease agreement. To say that the lease agreement occasioned the movement of the goods is not correct. It is only the purchase order which occasioned the movement of goods, for, in the absence of the purchase order, with the lease agreement only, the movement of the goods could not have begun. Hence to say that the contract of lease is an inter-State sale is not correct. ..." The first two lines (reproduced herein above), though not pointed out by the learned counsel for the respondent, have been extracted by us so as to be able to record, that the observations relied upon by the learned counsel for the respondent, do not actually represent the view expressed by the Court, but was the basis of the determination of the controversy by the first appellate authority. The conclusions drawn by the Court in ITC Classic Finance and Services case (supra) have been extracted by us in paragraphs 32 and 33 herein above. Based on the aforesaid conclusions, we are satisfied that the submission advanced by the learned counsel for the respondent, does not, in any manner whatsoever, repudiate the submission advanced at the hands of the learned counsel for the revision petitioner. Having examined the sole objection raised by the learned counsel for the respondent, we have considered the first contention advanced by the learned counsel for the revision petitioner.
Having examined the sole objection raised by the learned counsel for the respondent, we have considered the first contention advanced by the learned counsel for the revision petitioner. By a fiction of law, a contract authorising "right to use" goods, constitutes a deemed sale [Article 366(29-A)(d) of the Constitution of India]. Such a contract, authorising "right to use" of goods as consideration, flowing from one party is set of by the agreed financial consideration flowing to the other. The consideration from the TCIL to the ONGC/BHEL in the present controversy is represented by the "right to use" EPABX systems. The rent agreed to be paid by the ONGC/BHEL constitutes the financial consideration flowing to the TCIL. The consideration flowing to the ONGC/BHEL, in the present case, is not "transfer of property in goods" contemplated by sub-clauses (a) and (b) of clause (29-A) of Article 366 of the Constitution of India, but a mere "transfer of right to use goods" contemplated under sub-clause (d) of Article 366(29-A) of the Constitution of India. Therefore, the purchase orders in the present case, dealing with the "transfer of property in goods" from NDEL/ABSL to TCIL, appears to be an irrelevant consideration (insofar as sub-clause (d) of Article 366(29-A) of the Constitution of India is concerned). The only seemingly relevant consideration being, the lease agreements entered into between the TCIL on the one hand and the ONGC/BHEL on the other. Seemingly because, these agreements, executed between the TCIL and the ONGC/BHEL, had resulted in the passing of financial consideration (in the form of rent) to the TCIL in lieu of the facility of "transfer of the right to use goods" allowed to the ONGC/BHEL. Despite the tentative inference recorded by us herein above, depicting the irrelevance of the purchase orders, the same may assume significance, as also relevance, in a situation wherein the transfer of "right to use goods" precedes the availability of the goods in the hands of the lessor, and where, it can be concluded that the lease orders had been executed through the purchase orders, the purchase order would be relevant to determine the real course and effect of the lease order.
Stated differently, when the purchase order is so connected to the lease order so as to form a part of it, the purchase order will be deemed to merge with the lease order, and therefore, the purchase order would be relevant to determine the real course and effect of the lease order. In the present controversy, although the lease agreements were executed by the TCIL with the ONGC/BHEL earlier, the same could not have been fulfilled/satisfied, as the goods agreed to be leased by the TCIL to the ONGC/BHEL, were not available with the TCIL at the time of execution of the lease agreements. The purchase orders, placed by the TCIL with the NDEL/ABSL, arose out of the necessity to fulfill the obligation undertaken by the TCIL in executing the lease agreements with the ONGC/BHEL. The purchase orders are, therefore, the inevitable outcome of the lease agreements. In the absence of the lease agreements, executed between the TCIL and the ONGC/BHEL, there would have been no occasion for the TCIL to execute the purchase orders (which were placed with the NDEL/ABSL). In the absence of the purchase order, the lease agreement could not have been fulfilled. Facts brought to our notice by the learned counsel for the revision petitioner, would also be relevant for us to arrive at a conclusion, on way or the other, on the instant aspect of the matter. Although the purchase order was placed by the TCIL, the goods were to be delivered to the ONGC/BHEL. The representatives of the ONGC/BHEL were identified by the purchase orders as the consignees to receive the goods dispatched by the NDEL/ABSL. Furthermore, the ONGC/BHEL had also been given the authority to determine suitability of the goods purchased. It is therefore apparent that the goods purchased had to be delivered to the ONGC/BHEL and not to the party which had placed the purchase orders, i.e. the TCIL. The goods were to be inspected by the ONGC/BHEL (before and after their delivery) and not by the party which had placed the purchase order, i.e. the TCIL. We are, therefore, satisfied in concluding, that the lease agreements, executed by the TCIL with the ONGC/BHEL, as also the purchase orders placed thereafter by the TCIL with the NDEL/ABSL, are so connected with one another that they must be deemed to be a part and parcel of the same transaction.
We are, therefore, satisfied in concluding, that the lease agreements, executed by the TCIL with the ONGC/BHEL, as also the purchase orders placed thereafter by the TCIL with the NDEL/ABSL, are so connected with one another that they must be deemed to be a part and parcel of the same transaction. Having arrived at the conclusion, that the purchase orders, as also the lease agreements, constitute a part of the same transaction, it is liable to be concluded that the lease agreements executed by the TCIL with the ONGC/BHEL had actually resulted in the movement of the goods from the NDEL/ABSL to the ONGC/BHEL. Accordingly, the next conclusion is inevitable, namely, that the deemed sale constituted by the execution of the contracts authorising "right to use" between the TCIL and the ONGC/BHEL, constitutes an inter-State sale, wherein goods were purchased from Mohali (in the State of Punjab), as also Bangalore (in the State of Karnataka) for delivery at Dehradun/Haridwar (in the State of Uttar Pradesh/Uttarakhand). The transaction under reference being an inter-State sale, there was no question of levy of sales tax thereon by the State Government under the Trade Tax Act, 1948, in view of the express mandate of Article 286(1) of the Constitution of India. And also, in view of the legal position declared by the Supreme Court in 20th Century Finance Corporation Ltd.'s case (supra), wherein, the vires of Section 3-F of the Trade Tax Act, 1948 was conditionally upheld by the Apex Court by expressly recording that the sales tax liability under the aforesaid provision, would not extend to "outside sales", and in respect of "inter-State sales". Insofar as the second contention advanced by the learned counsel for the revision petitioner is concerned, it was additionally submitted by the learned counsel for the respondent, that the TCIL (i.e. the lessor) and the ONGC/BHEL (i.e., the lessees) were registered with the Trade Tax Office at Dehradun (in the State of Uttar Pradesh/Uttarakhand). The lease agreements executed by the TCIL with the ONGC/BHEL were entered into at Dehradun/Haridwar (in the State of Uttar Pradesh/Uttarakhand). The goods, which were leased in the nature of a deemed sale to the ONGC/BHEL, were handed over to the ONGC/BHEL at Dehradun/Haridwar (in the State of Uttar Pradesh/Uttarakhand). The lessees, i.e. the ONGC/BHEL, had also put the leased goods to effective use at Dehradun/Haridwar (in the State of Uttar Pradesh/Uttarakhand).
The goods, which were leased in the nature of a deemed sale to the ONGC/BHEL, were handed over to the ONGC/BHEL at Dehradun/Haridwar (in the State of Uttar Pradesh/Uttarakhand). The lessees, i.e. the ONGC/BHEL, had also put the leased goods to effective use at Dehradun/Haridwar (in the State of Uttar Pradesh/Uttarakhand). Accordingly, it was pointed out, that since all components of the transactions, resulting in the deemed sale authorising the ONGC/BHEL the "right to use" goods, had taken place in the State of Uttar Pradesh/Uttarakhand, there could be no justification whatsoever, in treating the deemed sale transaction, contemplated through the lease agreements executed by the TCIL with the ONGC/BHEL, as inter-State sales. It is, therefore, contended that the submission advanced by the learned counsel for the revision petitioner, based on Section 3 of the Central Sales Tax Act, 1956, as also the judgment rendered by this Court in Tata Elxsi Ltd.'s case (supra), is liable to be rejected. We have given our thoughtful consideration to the second aspect of the contention advanced by the learned counsel for the revision petitioner (noticed in the foregoing paragraph as also in paragraph 36 herein above). For an effective determination of the second contention advanced by the learned counsel for the revision petitioner, the only exercise required to be carried out by us is, to determine whether or not the ingredients of the definition of the term "inter-State sale", recorded in Section 3 of the Central Sales Tax Act, 1956, in respect of the transactions recorded as lease agreements in the present controversy authorising ONGC/BHEL the "right to use goods", stands satisfied. In case it is concluded that the aforesaid ingredients are satisfied, then the inevitable conclusion would be that the lease agreements executed in the present case would constitute an inter-State sale. So as to examine the facts of the present case in the aforesaid perspective, we consider it appropriate to record that we have examined the guidelines recorded by the Division Bench in Tata Elxsi Ltd.'s case (supra), requiring the Assessing Authority to re-examine the controversy so as to determine whether the transactions in the said case constituted inter-State sales. We have also examined the remarks recorded by the Division Bench emphasizing the manner in which the aforesaid consideration has to be effected.
We have also examined the remarks recorded by the Division Bench emphasizing the manner in which the aforesaid consideration has to be effected. We are satisfied that the guidelines, as also the remarks, recorded by the Division Bench in Tata Elxsi Ltd.'s case (supra), flow from the statutory definition of the term "inter-State sale" contained in Section 3 of the Central Sales Tax Act, 1956, as also, the legal position expressed by the Andhra Pradesh High Court in ITC Classic Finance and Services case (supra), as also, the law declared by the Supreme Court in 20th Century Finance Corporation Ltd.'s case (supra). While examining the first contention advanced by the learned counsel for the revision petitioner, we have already concluded herein above (while dealing with the first contention) that the lease agreements, executed by the TCIL with the ONGC/BHEL, as well as the purchase orders executed by the TCIL with the NDEL/ABSL, are two transactions so intertwined with one another so as to form part of the same transaction. Based on the aforesaid conclusion, we have been satisfied to hold, that the lease agreements executed by the TCIL with the ONGC/BHEL, prompted the execution of the purchase orders between the TCIL and the NDEL/ABSL, which in turn, prompted the movement of goods from Mohali/Bangalore (in the States of Punjab/Karnataka respectively) to Dehradun/Haridwar (in the State of Uttar Pradesh/Uttarakhand) (our conclusions on this aspect of the matter, as well as, the basis thereof, have been recorded in the foregoing paragraph). In our view, therefore, the movement of goods from the States of Punjab/Karnataka to the State of Uttar Pradesh/Uttarakhand was initiated by the lease agreements executed by the TCIL with the ONGC/BHEL. Having so concluded, we have further held, that the ingredients of Section 3 of the Central Sales Tax Act, 1956 must be deemed to have been satisfied by the deemed sales, contemplated through the lease agreements executed between the TCIL and the ONGC/BHEL. This determination has lead to the further conclusion, that the same constitute inter-State sales. The Central Government alone is however competent to levy sales tax on inter-State sales.
This determination has lead to the further conclusion, that the same constitute inter-State sales. The Central Government alone is however competent to levy sales tax on inter-State sales. That being so, the imposition of sales tax at the hands of the State of Uttar Pradesh on the revision petitioner, would be in clear conflict with the provisions of Article 286(1) of the Constitution of India, as also the law declared by the Apex Court in 20th Century Finance Corporation Ltd.'s case (supra), specially while interpreting Section 3-F of the Trade Tax Act, 1948, inasmuch as, the vires of the aforesaid provision (under which tax has been levied in this case) has been upheld subject to the condition that the sales tax is not levied on an "outside sale" or an "inter-State sale". We shall now deal with the third contention advanced by the learned counsel for the revision petitioner. So as to repudiate the submission advanced by the learned counsel for the revision petitioner, it is the pointed contention of the learned counsel for the respondent, that while adjudicating upon the controversy, the Supreme Court in 20th Century Finance Corporation Ltd.'s case (supra), while recording the majority view, did not deal with the situation contemplated in the present controversy, namely, where the goods leased under a "right to use" agreement executed by the lessor, were not available with the lessor at the time of execution of the said agreement. Insofar as the instance submission is concerned, this aspect of the matter has also been examined by us in paragraph 21 herein above. Based on the aforesaid contention, it is the submission of the learned counsel for the respondent that the conclusions recorded in the minority view, specially in paragraphs 94 to 96 cannot be deemed to be in conflict with the majority view. It is, therefore, the contention of the learned counsel for the respondent, that there is no apparent merit in the third contention advanced by the learned counsel for the revision petitioner. We have given our thoughtful consideration to the third and the last submission advanced by the learned counsel for the revision petitioner, as also the repudiation thereof at the hands of the learned counsel for the respondent.
We have given our thoughtful consideration to the third and the last submission advanced by the learned counsel for the revision petitioner, as also the repudiation thereof at the hands of the learned counsel for the respondent. In our considered view, the only relevant conclusions, recorded by the majority view (insofar as the present controversy is concerned) are those which were recorded as (a) and (d) in paragraph 35 of the judgment rendered in 20th Century Finance Corporation Ltd.'s case (supra). Insofar as the aforesaid conclusions (as were recorded as (a) and (d) in paragraph 35) are concerned, the minority view, in paragraph 58 of the judgment, also expressed its concurrence with the same. Thus viewed, we are of the view that insofar as the merits of the present controversy are concerned, wherein only the conclusions drawn at (a) and (d) in paragraph 35 in 20th Century Finance Corporation Ltd.'s case (supra) are relevant, there is no divergence of opinion. As such, reference to the majority view or the minority view, for the adjudication of the present controversy, would be a debate in futility. But then, it is not possible to overlook the contention advanced by the learned counsel for the respondent to substantiate his submission. It is the pointed assertion of the learned counsel for the respondent, that if the observations recorded by the minority view in paragraphs 94 to 96 are taken into consideration, the impugned orders passed by the Assessing Authority, as also, the appellate orders, will have to be upheld. The submission advanced by the learned counsel for the respondent, in our view, is intertwined in an unnecessary jugglery of words. A closer examination of the observations recorded by the minority view in paragraphs 94 to 96 reveal that the deliberations recorded therein were aimed at determining which of the two views expressed by the High Courts (the one expressed by the Division Bench of the Andhra Pradesh High Court in ITC Classic Finance and Services case (supra), or the one expressed by the Bombay High Court in 20th Century Finance Corporation Ltd.'s case (supra)), was correct. The minority view, during the course of the deliberations in paragraphs 94 to 96, arrived at the conclusion that the view expressed by the Bombay High Court in 20th Century Finance Corporation Ltd. v. State of Maharashtra, (1989) 75 STC 217 , was legally justified.
The minority view, during the course of the deliberations in paragraphs 94 to 96, arrived at the conclusion that the view expressed by the Bombay High Court in 20th Century Finance Corporation Ltd. v. State of Maharashtra, (1989) 75 STC 217 , was legally justified. But then, the majority had arrived at the conclusion that the view expressed by the Division Bench of the Andhra Pradesh High Court in ITC Classic Finance and Services v. Commissioner of Commercial Taxes, (1995) 97 STC 330 , was legally valid. In the aforesaid view of the matter, as a matter of precedent, the declared proposition of law would be, the one expressed by the majority view. Thus viewed, the observations recorded by the minority in 20th Century Finance Corporation Ltd.'s case (supra) cannot be taken into consideration for deciding the present case. Since, admittedly, the authorities under the Trade Tax Act, 1948 have based their conclusions on the minority view whereas the majority view is to the contrary, we are satisfied that the third submission advanced by the learned counsel for the revision petitioner also deserves to be accepted. In view of the conclusions drawn by us in paragraphs 38, 40 and 41 herein above on the three submissions advanced by the learned counsel for the revision petitioner, we are of the view that the instant Revision Petition deserves to be accepted and the impugned orders dated 28.02.2003 (passed by the Assessing Authority), dated 21.09.2005 (passed by the first Appellate Authority) and dated 29.12.2008 (passed by the Tribunal), deserve to be set aside. Ordered accordingly. The instant revision petition stands allowed in the aforesaid terms.