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2016 DIGILAW 1447 (GUJ)

HDFC Bank Ltd. v. State of Gujarat

2016-07-22

G.R.UDHWANI, K.S.JHAVERI

body2016
JUDGMENT : K.S. Jhaveri, J. 1. By way of this petition, the petitioner challenges the legality, validity and propriety of the impugned notices dated 19/03/2004 and 29/03/2004 issued by the respondent No. 2 whereby the petitioner was asked show-cause as to why the penalty to the tune of Rs. 1,27,11,168/- should not be imposed upon the petitioner for the alleged breach of Section 8(3) of the Central Sales Tax Act, 1956. 2. The short facts of the case are that the petitioner is engaged in the banking business as a scheduled bank. The petitioner while carrying out the business transactions, at the request of one Indo-Gulf Fertilizer and Chemical Corporation Ltd., to provide financial facilities for acquisition of various types of industrial machineries and equipments for setting up a unit called "Birla Copper" at Dahej, Bharuch entered into a tripartite agreement for lease finance for the equipment called "Secondary Gas Scrubbing System" with one Asea Brown Boveri Ltd. It is the case of the petitioner that as per the agreement, the supplier of the said machinery was Asea Brown Boveri Ltd., the lessee was Indo-Gulf Fertilizer and Chemical Corporation Ltd., and the petitioner - Corporation Bank Ltd., was the lessor. The said agreement was entered into at New Delhi on 04/09/1997. 2.1 It is further the case of the petitioner that petitioner issued C-Form prescribed under Rule 12 of the Central Sales Tax (Registration & Turnover) Rules, 1957 to the supplier in respect of the equipment-plant and machinery given on lease to the lessee. The petitioner also paid sales tax at the rate of 4% as prescribed under Section 3A read with Schedule III of the Gujarat Sales Tax Act, 1969 on the aforementioned transaction. 2.2 It is further case of the petitioner that at the time of assessment, a representation was made that the place of execution of the lease agreement is at New Delhi and the Sales Tax Authorities in Gujarat will have no jurisdiction to levy tax for the assessment year 1998-1999. The said submission was accepted while passing the assessment order below Form No. 39 on 31/03/2003 and ordered that the amount of Rs. 8,25,713/- paid by the petitioner at the rate of 4% during the assessment period 1998-99 is required to be refunded and hence the formal order dated 03/06/2003 of refund was passed. The said submission was accepted while passing the assessment order below Form No. 39 on 31/03/2003 and ordered that the amount of Rs. 8,25,713/- paid by the petitioner at the rate of 4% during the assessment period 1998-99 is required to be refunded and hence the formal order dated 03/06/2003 of refund was passed. 2.3 It is further case of the petitioner that to the utter shock and surprise of the petitioner, a notice dated 19/03/2004 was issued by respondent No. 2 by exercising powers under Section 10-A of the Act calling upon the petitioner to show cause as to why penalty should not be imposed upon the petitioner in lieu of prosecution for the alleged breach of Section 8(3) of the Act read with para 4(2) of the Circular issued by the respondent No. 1 dated 20/05/1997. 2.4 It is further case of the petitioner that in the said notice, the petitioner was asked to show cause as to why the penalty to the tune of Rs. 1,27,11,168/- should not be imposed for the breach of Section 10(b) of the Act. 2.5 It is further the case of the petitioner that show cause notices issued by respondent No. 2 was challenged by way of preferring Special Civil Application No. 4579 of 2004. However, the said petition came to be disposed of since the same was at premature stage with a liberty to the petitioner. 2.6 It is further the case of the petitioner that since after the issuance of notices, reply was filed by the petitioner and ultimately the order came to be passed by the respondent No. 2 dated 26/05/2004 confirming the imposition of penalty to the tune of Rs. 1,27,111,168/-, which is under challenge before this Court. 3. Learned Senior Counsel Mr. Manish Bhatt appearing with Mr. Manan Bhatt has contended that the impugned notices and order are without jurisdiction and it is beyond the dispute because the transaction of lease is a sale/resale as contemplated under Section 8(3) of the Act. He has further contended that the impugned notices and order are contrary to the Circular dated 20/05/1997 issued by the respondent No. 1 and the same will be binding upon respondent No. 2 because the transaction of lease of a purchased asset would not contravene the provisions of Section 8(3) of the Act. He has further contended that the impugned notices and order are contrary to the Circular dated 20/05/1997 issued by the respondent No. 1 and the same will be binding upon respondent No. 2 because the transaction of lease of a purchased asset would not contravene the provisions of Section 8(3) of the Act. 3.1 Learned Senior Counsel for the petitioner has further contended that in view of the decision reported in case of N.J. Devani Builders Pvt. Ltd. & Anr., v. Sales Tax Officer & Ors., 99 STC 506 whereby it has been held that in view of Article 366(29A) of the Constitution of India, the transfer of property in goods involved in execution of work was "Sale" and such Sale would also be covered by section 8(3)(b) of the Central Sales Tax Act as resale and therefore it did not amount to breach of declaration given in form "C" and consequently did not attract penalty. He has relied upon the following paragraphs in support of his arguments. "39. As we have noticed, law is well-settled now that each provision under article 286 operates independently in separate field and one cannot be projected everywhere, therefore, while entry 92-A gives Central Act exclusive power to levy tax on sale and purchase of goods in the course of inter-State trade and commerce, article 286 has empowered the Parliament to legislate/to enact the law formulating principles for determining when a sale or purchase of goods takes place outside the State or in the course of export of goods out of the territory of India which also implies determination of when a sale or purchase takes place within the State. This provision makes it abundantly clear that the Central Act is enacted not only for the taxing sale and purchase in the Inter-State trade and commerce but also laying down principles when a sale or purchase takes place outside the State or within the State, consequence of which is that the State Legislature is not empowered to impose a tax on sale or purchase of goods which has taken place outside the State. Thus, the prohibition on the State to legislate for imposition of tax is two-fold; one that it cannot be imposed on a sale or purchase which is in the course of inter-State trade or commerce, i.e., by virtue of entry 54 in the second List of the Seventh Schedule, it cannot impose a tax on sale or purchase of goods which has taken place outside the State and it may not be even a sale or purchase in the course of inter-State trade and commerce, therefore, various provisions of the Central Sales Tax Act have been enacted for other purposes also. It is not the case of anybody that subsequent sale envisaged under section 8(3)(b) must necessarily be a sale attracting levy of the Central Sales Tax Act but it can be a sale attracting levy of State law in which State sales have taken place. In the case of such sales, the intended sale must be a resale within the definition of the State law in which such sale has taken place according to the situs determined in accordance with the provisions of the Central Sales Tax Act. For such determination definition of "sale" under article 366(29A) has to be read even without amendment of the CST Act as per the apex Court. It is also not in dispute that sale of goods of commodity in any way other than enumerated in article 366(29A), if it is a sale attracting levy of State law and is sale within the meaning of that Act such sale is covered by the provisions of section 8(3)(b). This also leads to the conclusion that if transfer of property in goods involved in execution of works is a sale within the meaning of State law within which the sale has taken place, such case will also be covered by section 8(3)(b) as resale. 40. The learned counsel for the Revenue has referred to a decision of Punjab Breweries Limited v. State of Punjab, [1993] 90 STC 211. We may at the outset state that this was not a case in which provisions of section 8(3)(b) were called upon to be interpreted by their Lordships of the Punjab and Haryana High Court. 40. The learned counsel for the Revenue has referred to a decision of Punjab Breweries Limited v. State of Punjab, [1993] 90 STC 211. We may at the outset state that this was not a case in which provisions of section 8(3)(b) were called upon to be interpreted by their Lordships of the Punjab and Haryana High Court. It was a case in which their Lordships were called upon to decide whether in a case where transfer of a work has resulted in movement of goods, would be exigible to the tax under the Central Sales Tax Act. This was the question which was left open by their Lordships while deciding the question whether sections 3, 4 and 5 of the Central Act are applicable for determining the situs and nature of the sale under sections 3, 4 and 5. The case is, therefore, clearly distinguishable. As in the present case also, we are not concerned with the question, whether the transfer of property in goods involved in execution of retreading the tyres resulting in sale has resulted in sale attracting levy under section 6 of the CST Act. We refrain from expression any opinion thereon. 41. As a result of the aforesaid discussion, we hold that at the time of considering the registration of a dealer under section 7 or considering for amending the list of goods to be specified in the certificate of registration for the purpose of section 8(3)(b) and for issuing "C" forms in terms of section 8(4) of the CST Act read with rule 12 of the Central Sales Tax (Registration and Turnover) Rules, 1957, the question whether ultimate intended sale by the dealer will be or will not be assessable to the sales tax is not relevant and the authority is not justified in refusing to amend the certificate of registration on that ground or for refusing supply of "C" form to be used by purchaser dealer for furnishing the same to the seller, whose transaction is presently under consideration and is subject to levy under the Central Sales Tax Act and provisions of section 8(3) of the Act. We further hold that in the context of purpose of section 8(3)(b)as distinct from levy under section 6, for which we express no opinion, the transfer of property in goods which are purchased in the course of inter-State trade or commerce under a declaration in "C" form on their subsequently being involved in the execution of works contract amounts to resale of such goods and does not amount to breach of declaration to that effect given in form "C". Consequently, such transfer does not attract penalty provision." 3.2 Learned Senior Counsel has also relied upon the decision in case of The State of Andhra Pradesh v. Hindustan Shipyard Limited, (1976) 38 STC 515 and relied upon paragraph No. 10 of the said decision which reads thus: "10. In this case, the respondent relied upon the certificate of registration which authorised it to make use of the articles purchased in the manufacture of goods. According to the respondent, it was under the bona fide belief that the certificate of registration empowered it to use the goods for manufacturing purposes; it had used them in the execution of works contracts and not with any deliberate intention to contravene the requirements of S. 8(3)(b). It would appear from the facts that the respondent is technically guilty of contravention, but not in conscious disregard of the requirements of s. 8(3)(b) read with s. 10(d) of the Central Sales Tax Act. The sales tax authorities were equally aware of the decision of this court reported in Hindustan Shipyard Limited vs. Commercial Tax Officer and yet no exception was taken by them to the declaration made by the respondent in the C forms. The declaration made in the C forms is in accordance with the registration certificate issued under the Central Sales Tax Act. It is also stated by Mr. W.V.V. Sundara Rao appearing for the respondent that after it has been discovered that C forms cannot be made use of for the goods purchased in the execution of works contracts, the respondent has not issued any C forms and that it would establish its bona fides. It does not appear that the respondent had any motive to escape liability in using the C forms for the goods purchased from outside the State in the execution of works contracts, i.e. ship-building contracts. It does not appear that the respondent had any motive to escape liability in using the C forms for the goods purchased from outside the State in the execution of works contracts, i.e. ship-building contracts. The respondent, being a public sector undertaking under the Ministry of Transport and Shipping, cannot be said to have deliberately or wilfully made use of the goods purchased by it for a purpose other than the purposes specified in S. 8(3)(b)." 3.3 Learned Senior Counsel has also relied upon the decision in case of M/s. Hindustan Steel Ltd. v. State of Orissa, 1969 (2) SCC 627 and placed relied upon paragraph No. 8 thereof which reads thus: "8. Under the Act penalty may be imposed for failure to register as a dealer--Section 9(1) read with Section 25(1)(a) of the Act. But the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. Those in charge of the affairs of the Company in failing to register the Company as a dealer acted in the honest and 757 genuine belief that the Company was not a dealer. Granting that they erred, no case for imposing penalty was made out." 3.4 Attention of this Court is also invited to a decision rendered by the High Court of New Delhi in case of Commissioner of Value Added Tax Delhi v. M/s. Carzonrent India Pvt. Ltd. in ST. Granting that they erred, no case for imposing penalty was made out." 3.4 Attention of this Court is also invited to a decision rendered by the High Court of New Delhi in case of Commissioner of Value Added Tax Delhi v. M/s. Carzonrent India Pvt. Ltd. in ST. Appeal No. 4 of 2011 and allied matters and he relied upon paragraph Nos. 14 and 15 of the said decision: "14. The term "re-sale" has not been defined. The dictionary meaning (of resale. Dictionary.com. Collins English Dictionary - Complete & Unabridged 10th Edition; Harper Collins Publishers-accessed on December 06, 2012. http://dictionary.reference.com/browse/resale) means the selling again of something purchased. It is therefore, clear that for the purposes of Section 2(1)(zc), the meaning of "sale" includes the transfer of the right to use goods; this includes leasing activity of the assessee-dealers. It clearly falls within the definition of "sale" because what is transferred is the right to use the car or motor vehicle-albeit for a limited duration. The argument of the revenue that "sale" here and "re-sale" mean different kinds of transactions, qualitatively, is unpersuasive. The statute here used the extended definition of "sale" which comprehends the right to lease the car. Absent indication to the contrary-in the statute, either through express provisions or by necessary implication, it is not open to the court to artificially divide the concept. It was held, in East End Dwellings Co. Ltd. v. Finsbury Borough Council (1952 AC 109) that: "if you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it. One of those in this case is ST.APPL. 4/11, 5/11, 6/11, 7/11, 8/11, 9/11 & 16/11 Page 13 emancipation from the 1939 level of rents. The statute says that you must imagine a certain state of affairs; it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs ". 15. 4/11, 5/11, 6/11, 7/11, 8/11, 9/11 & 16/11 Page 13 emancipation from the 1939 level of rents. The statute says that you must imagine a certain state of affairs; it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs ". 15. In the present case, once it is held that the leasing of a car results in transfer of its right to use, the provisions of Section 9(1) would apply, because the cars were purchased by him, for the purpose of making sales (within the extended definition, i.e. as leasing - or selling the right to use). The concept of right to use would cover a wide spectrum of transactions; most certainly, a lease of the article, for a limited period, would be comprehended within the meaning of "right to use". Therefore, the Court rejects the first submission of the revenue, and holds that Question No. 1 has to be answered in favour of the assessee, and against the revenue." 3.5 Learned Senior Counsel for the petitioner has further contended that the circular which has been issued by the State Government and which is sought to be relied upon by the respondent, more particularly, clause 4(2) of circular dated 20/05/1997 is contrary and second transaction is not within the State of Gujarat in view of the decision in case of 20th Century Finance Corpn. Ltd. And Another v. State of Maharashtra, 2000 (6) SCC 12 whereby it has been held that the State cannot levy a tax on the transfer of the right to use goods on the basis that one of the events in the chain of events has taken place within the State. 3.6 Learned Senior Counsel has further submitted that there is no breach of Section 8(3) as availed since in the instant case, there was a "resale" within the meaning of Article 366(29A) of the Constitution of India. 3.7 Learned Senior Counsel has submitted that the penalty cannot be imposed in absence of means rea and penalty levied in the present case is de-hors the provisions of law and in support of his arguments he has relied upon various authorities. 3.7 Learned Senior Counsel has submitted that the penalty cannot be imposed in absence of means rea and penalty levied in the present case is de-hors the provisions of law and in support of his arguments he has relied upon various authorities. 3.8 Learned Senior Counsel has lastly submitted that while assessment made under the Central Sales and the penalty imposed later on is nothing but a review and is not permissible in law. He, therefore, contended that the impugned notices and order is bad in law and deserve to be dismissed. 4. On the other hand, learned Assistant Government Pleader, Mr. Vora, for the respondent - State has contended that the transaction was tripartite agreement and the authorities below have rightly issued the show-cause notice and considering the various provisions of law has passed the order which is just and proper and no interference may be called for at the hands of this Court. 5. We have heard the learned Senior Counsel appearing for the petitioner and learned Assistant Government Pleader for the respondent-State. 6. At the outset, it will not be out of place to mention here that in earlier round of litigation when these notices were challenged by way of preferring SCA No. 4579 of 2004, this Hon'ble Court has passed the following order: "2. Since the impugned notices are mere show cause notices, the petitioner has an opportunity to file reply to the same and satisfy the authorities that the action proposed is not required to be taken, we are of the view that this petition is at a premature stage. However, looking to the penal consequences to which the petitioner is likely to be exposed in case the authority decides the matter against the petitioner, we dispose of this petition with an observation that if any order adverse to the petitioner is passed, the same shall not be acted upon or implemented for a period of 15 days from the date of service of the order on the petitioner. 3. It is clarified that in case any order adverse to the petitioner is passed, the petitioner will be at liberty to challenge the same and it will also be open to the petitioner to raise all the contentions which are raised in the present petition. Direct service is permitted today." 7. 3. It is clarified that in case any order adverse to the petitioner is passed, the petitioner will be at liberty to challenge the same and it will also be open to the petitioner to raise all the contentions which are raised in the present petition. Direct service is permitted today." 7. In spite of the aforesaid order was passed, the respondent No. 2 has not considered the said order in true letter and spirit while passing the impugned order and thereby committed serious error of law. 8. The reliance placed upon by the learned Senior Counsel in case of N.J. Devani Builders Pvt. Ltd. & Anr. (supra) is relevant for the present case. In the said decision, it has been held that in view of Article 366(29A) of the Constitution of India, transfer of property in goods involved in execution of work is "sale" and such sale would also be covered by Section 8(3)(b) of the Central Sales Tax as resale and therefore it did not amount to breach of declaration given in form "C". It is also required to be noted that attention of the Tribunal was also drawn to said aforesaid ratio, however the same was not considered in its true letter and spirit; neither the reply filed by the petitioner was considered by the Tribunal while passing the impugned order. The circular which is sought to be relied upon by the Tribunal is nothing but an attempt to deal with the aforesaid ratio, which is not at all permissible under the law. Therefore, the prayer of the petitioner seeking quashment of para 4(2) of the circular dated 20/05/1997 deserves to be granted. Accordingly, para 4(2) of the circular dated 20/05/1997 issued by respondent No. 2 is quashed and set aside. 9. This Court is in complete agreement with the view taken by this Court in case N.J. Devani Builders Pvt. Ltd. & Anr. (supra), whereby it has been held that the transfer of property in goods which are purchased in the course of inter-State trade or commerce under a declaration in "C" from on their subsequently being involved in execution of works contract amounts to resale of such goods and does not amount to a breach of the declaration to that effect given in form "C" and consequently such a transfer does not attract penalty. While adopting this principle laid in the afore-stated ratio, this Court is of the opinion that the tribunal has committed serious error of law in not considering the material place before it. 10. Accordingly, the petition deserves to be allowed and the same is hereby allowed. The impugned notices dated 19/03/2004 and 29/03/2004 issued by the respondent No. 2 are hereby quashed and set aside. Consequently, the order passed by the respondent No. 2 dated 26/05/2004 is also quashed and set aside. Rule is made absolute to the aforesaid extent. No costs.