1.0 HISTORICAL BACKGROUND
1.1 The Constitution of India is a living, dynamic and organic document which secures justice, liberty, equality and fraternity and which provides a harmonized mechanism for the integrated character in action of distinct functioning of the Legislative Wing, the Executive Wing and the Judicial Wing. Entry 54 of List II of the Seventh Schedule to the Constitution provides for “taxes on the sale or purchase of goods other than newspapers”. Under the authority of this entry, Sales Tax Statues/Valued Added Tax Acts have been enacted by the State Legislatures.
1.2 Prior to 46th amendment in the Constitution, sale was generally understood as every transfer of property in goods by one person to another for cash, deferred payment or other valuable consideration. According to the judgments of the Hon’ble Supreme Court given in the cases of (i) Enfield India Ltd. (1968: 21 STC 138) and (II) Karam Chand Thaper & Brothers Ltd. (1969 : 23 STC 210), “sale” constituted four ingredients - (i) Two competent parties, seller and buyer, (ii) Mutual assent or agreement, (iii) Money consideration paid or promised, and (iv) Transfer of property in goods. Whenever the State Legislatures tried to extend the scope of sale by including new/additional business engagements, they were declared ultra vires by the Apex Court.
1.3 In view of the said legal limitations and in view of the growing horizon of trade and commerce, Constitution was amended by the Constitution (Forty Sixth Amendment) Act, 1982 (made effective from 02.02.1983) and a new clause (29A) was inserted in Article 366 as under:
366 : (29A) “Tax on the sale or purchase of the 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 these goods by the person to whom such transfer, delivery or supply is made.
“Deemed sale” or “deemed purchase” is a legal fiction which is always conclusive and therefore, deemed sale and deemed purchase are nothing but sale and purchase. The Constitution Bench of the Hon’ble Supreme Court has, in the case of Builders Association of India And Others Vs. Union of India And Others, reported at (1989) 73 STC 370, held that the law creates a legal fiction, such fiction should be carried to its logical end and there should not be any hesitation in giving full effect to it. In the case of Bhavnagar University Vs. Palitana Sugar Mills Pvt. Ltd., reported at (2003) 3 SCC 111, the Hon’ble Supreme Court has held that the purpose and object of creating a legal fiction in the statute is well known, and when a legal fiction is created it must be given its full effect. The Hon’ble Supreme Court has, in the case of Ashok Leyland Ltd. Vs. State of Tamil Nadu And Another, reported at (2004) 134 STC 473, held that whenever a legal fiction is created by a Statue, the same shall be given full effect.
2.0 PROVISIONS RELATING TO TRANSFER OF THE RIGHT TO USE GOODS IN THE VAT ACT-
The Rajasthan Value Added Tax Act, 2003 (hereinafter referred to as the VAT Act), came into force with effect from 1st day of April, 2006. The provisions in the said Act, related to the transfer of the right to use goods are reproduced below:-
2.1 SALE: According to Section 2(35) of the VAT Act, “sale” with all its grammatical variations and cognate expressions means every transfer of property in goods by one person to another for cash, deferred payment or other valuable consideration and includes -
(i) a transfer, otherwise than in pursuance of a contract, of property in goods for cash, deferred payment or other valuable consideration;
(ii) a transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;
(iii) any delivery of goods on hire-purchase or other systems of payment by installments;
(iv) a transfer of the right to use goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration;
(v) a supply of goods by an unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; and
(vi) a supply, by way of or as part of any service or in any other manner whatsoever of goods, being food or any drink (whether or not intoxicating), where such supply is for cash, deferred payment or other valuable consideration,
and such transfer, delivery or supply shall be deemed to be a sale and the word “purchase” or ‘buy” shall be construed accordingly.
Explanation:- Notwithstanding anything contained in this Act, where any goods, are sold in packing, the packing material in such case shall be deemed to have been sold with the goods.
2.2 Goods:- According to section 2(15) of the VAT Act, “goods” means all kinds of movable property, whether tangible or intangible, other than newspapers, money, actionable claims, stocks, shares and securities, and includes materials, articles and commodities used in any form in the execution of works contract, live stock and all other things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale.
2.3 Lease:-According to section 2(19) of the VAT Act, “lease” means any agreement or arrangement whereby the right to use any goods for any purpose is transferred by one person to another whether or not for a specified period for cash, deferred payment or other valuable consideration without the transfer of ownership and includes a sub-lease but does not include any transfer or hire purchase or any system of payment by installments.
2.4 Lessee:- According to section 2(20) of the VAT Act, “lessee” means any person to whom the right to use any goods for any purpose is transferred under a lease.
2.5 Lessor:- According to section 2(21) of the VAT Act, “lessor” means any person by whom the right to use any goods for any purpose is transferred under a lease.
2.6 Person:- According to section 2(25) of the VAT Act, “person” means any individual or association or body of individuals and includes a Hindu Undivided Family or Joint Family, a firm, a company whether incorporated or not, a cooperative society, a trust, a club, an institution, an agency, a corporation, a local authority, a department of the Government or other artificial or juridical person.
3.0 PROVISIONS RELATING TO TRANSFER OF RIGHT TO USE GOODS IN THE CENTRAL SALES TAX ACT, 1956
Section 2(g) “Sale”, with its grammatical variations and cognate expressions, means any transfer of property in goods by one person to another for cash or deferred payment or for any other valuable consideration, and includes -
(i) x x x
(ii) x x x
(iii) x x x
(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.
(v) x x x
(vi) x x x
It may be noted that by Finance Act, 2002 (w.e.f. 11.5.2002), the definition of “sale” given in the Central sales Tax Act, 1956 (hereinafter referred to as the CST Act) has been amended in the light of the 46th amendment in the Constitution, and if any “sale” falls in the ambit of section 3 of the CST Act, 1956, such sale or purchase of goods shall be said to take place in the course of inter-State trade or commerce and shall be outside the purview of the VAT Act. Similarly, according to article 286 of the Constitution, the following sales shall also be out of the purview of the VAT Act:-
(a) sales outside the State, and
(b) sales in the course of the import of the goods into, or export of the goods out of the territory of India.
4.0 GENERAL APPROACH TO THE CONTRACTS OF TRANSFER OF THE RIGHT TO USE GOODS-
Transfer of the right to use goods is not an issue of law. But it is a question of facts which is answered by the intention of the lessor and the lessee, terms and conditions of the contract and the totality of the specific circumstantial spectrum.
4.1 The Hon’ble Patna High Court has, in the case of Rungta Projects Ltd., reported at (1993) 108 STC 324, held that in deciding the nature of the lease contract the Court will not be guided by the nomenclature of the agreement, rather the contents of the agreement.
4.2 The Hon’ble Allahabad High Court has, in the case of Ahuja Goods Agency and Another Vs. State of Uttar Pradesh And Others, reported at (1997) 106 STC 540, held that the intention of the parties, mode of use and several other surrounding and relevant aspects have to be considered to come to the conclusion whether or not under a particular contract there is transfer of the right to use any goods. A mere contract of hiring without more, is a species of contract of hailment. Transfer of a right to use goods implies that full liberty is vested in the transferee to have the right to use the goods to the exclusion of all others including the owner of goods.
4.3 In the case of Mahesh Travels (P) Ltd. Vs. OIl & Natural Gas Commission And Others, reported at (2009) 22 VST 103, the Hon’ble Gauhati High Court has held that the question relating to transfer of the right to use any goods is essentially a question of fact which has to be determined, in each case, having regard to the terms of the contract entered into by the parties. In view of the fact that the terms of the contract really determine whether, in a given case, there is or there is no transfer of the right to use any goods, it was necessary to take note of the relevant clauses of the agreement which governed the transaction sought to be made exigible to tax.
4.4 In the case of HLS Asia Ltd. Vs. State of Assam And Others, reported at (2007) 8 VST 314, the Hon’ble High Court of Guahati has held that, to constitute a transaction of transfer of the right to use goods, the transaction must have the following attributes:
(a) there must be goods available for delivery;
(b) there must be a consensus ad idem as to the identity of the goods;
(c) the transferee should have a legal right to use the goods;
(d) for the period during which the transferee has such legal right, it has to be to the exclusion of the transferor;
(e) during the period for which it is to be transferred, the owner cannot again transfer the same right to others.
The Hon’ble High Court has further held that the judicially evolved principles to identify a transaction involving the transfer of right to use goods to be a sale clearly exclude the indispensability of delivery of physical possession thereof as an essential precondition.
4.5 The Constitution Bench of the Hon’ble Supreme Court has, in the case of 20th Century Finance Corporation Ltd. Vs. State of Maharashtra, reported at (2001) 119 STC 182, 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. The delivery of goods may be one of the elements of transfer of the right to use, but that would not be the condition for a contract of transfer of the 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 the goods passes, namely, where the contract is entered into but in the case of an oral or implied transfer of the right to use goods, it is effective by the delivery of goods.
4.6 The Hon’ble Supreme Court has, in the case of Bharat Sanchar Nigam Ltd. Vs. Union of India, reported at (2006) 145 STC 91(131), held that, to constitute a transaction for the transfer of the right to use the goods, the transaction must have following attributes:-
(a) There must be goods available for delivery;
(b) There must be a consensus ed item (at the same point) as to the identity of the goods;
(c) The transferee should have a legal right to use the goods - consequently all legal consequences of such including permissions or licenses required therefore should be available to the transferee;
(d) For the period during which transferee has such legal right, it has to be the exclusion to the transferor - this is necessary concomitant of the plain language of the statue- viz., a “transfer of the right to use” and not merely a licence to use the goods;
(e) Having transferred the right to use the goods during the period for which it is to be transferred the owner cannot again transfer the same rights to others.
5.0 ISSUES RELATED TO CONTRACTS OF TRANSFER OF THE RIGHT TO USE GOODS.-
Generally, the following issues are relevant to be understood in the case of contracts of transfer of the right to use goods:-
(i) Transfer of “use” and Transfer of “right to use”.
(ii) Goods (tangible or intangible) or movable property.
(iii) Transfer of possession.
(iv) Transfer of effective control.
(v) Situs of sale
6.0 TRANSFER OF “USE” AND TRANSFER OF “RIGHT TO USE”.-
The Forty-sixth amendment in the Constitution incorporates clause (29A) and the clause (d) thereof extends the scope of “sale or purchase” by including therein the “transfer of the right to use goods”. The basic difference between the two expressions - “transfer of use” and “transfer of right to use” is of “effective control over use”. In the case of the ”transfer of use” the effective control over the goods remains with the lessor, while in the case of “ transfer of the right to use” the effective control passes from the lessor to the lessee for the specified period stipulated in the contract. While interpreting article 366 (29A)(d) of the Constitution of India the Hon’ble Supreme Court has, in the case of 20th Century Finance Corporation, reported at (200) 119 STC 182, held that levy of tax is not on right of goods, but on the transfer of the right to use goods and that right to use goods accrues only on account of the transfer of the right.
For example, A, an owner of a bus, enters into a contract with factory B to carry its (factory B) employees from their residence to the factory and vice versa, at stipulated hours. But the bus remains in the custody of the owner, the driver is an employee of the owner, the propulsion charges are borne by the owner and the bus is used for other purposes also in spare hours other than the hours of use by the factory. This is the case of “transfer of use” and is not covered by the term “sale” and the lease-rental is not exposed to liabililty to tax.
On the other hand, if the bus is handed over to the factory B and the factory controls the use of the bus according to its needs, then this contract would be a contract for “transfer of the right to use” and the lease-rental would invite the tax liability.
7.0 GOODS (TANGIBLE OR INTANGIBLE) OR MOVABLE PROPERTY.-
7.1 According to the definition of goods given in the VAT Act, it covers all kinds of movable property, whether tangible or intangible. Generally speaking, tangible property is that property which has a physical existence, which is open and exposed to the senses of the body and which is capable of being seen, touched or felt. On the other hand, intangible property is impalpable and is incapable of being perceived by touch.
7.1A The Hon’ble Supreme Court has, in the case of Bharat Sanchar Nigam Ltd. Vs. Union of India, reported at (2006) 145 STC 91, held that goods may be tangible property or an intangible one. It would become goods provided it has the attributes thereof having regard to -
(a) its utility,
(b) its capability of being bought and sold, and
(c) its capability of being transmitted, transferred, delivered, stored and possessed.
7.1.B The Hon’ble Karnataka High Court has, in the case of Airtel Ltd. Vs. State of Karnataka, reported at (2009) 22 VST 465, held that M/s. Bharti Airtel Ltd. was the absolute owner and in possession of the entire broadband network and that the light energy artificially created by it within the network was made to carry the data of its subscribers by travelling through the core of optic fibre cables laid by it across the country. This light energy was intangible travelling through the optic fibre cables at the speed of light in free open space. It, unlike the electro-magnetic waves used in mobile phones, was totally absorbed or extinguished and could not be reused. In other words, what was received by the leased-line owner and what was given back by him was only the data, since the movement of light energy was confined and the direction of its movement was regulated it could be said that it was being abstracted, possessed, transmitted and delivered in the course of the activity of transmission of data of the subscribers of M/s. Bharati Airtel Ltd. The creasion, supply, possession, use, transmission and delivery of “artificially created light energy” takes place almost simultaneously as in the case of electricity. Therefore, the artificially created light energy used for transmission of data of subscribers of M/s. Bharti Airtel Ltd. through the optic fiber cable network was “goods” within the meaning of article 366(12) of the Constitution of India, section 2(15) of the Karnataka Value Added Tax Act, 2003 and section 2(7) of the sale of Goods Act, 1930.
7.2 The Hon’ble Supreme Court has in the case of Bharat Sanchar Ltd, reported at (2006) 145 STC 91, 123, held that the electromagnetic waves are not goods within the meaning of the word either in article 366(12) of the Constitution of India or in the State legislations, because they are neither abstracted nor consumed in the sense that they are not extinguished by their user, and they are not delivered, stored or possessed, but they are the medium of communication.
7.3 In the definition of “goods” in section 2(15) of the VAT Act, goods have been referred to all kinds of movable property. But the expression movable property has neither been defined in the VAT Act, nor in the CST Act.
Therefore, the provisions of the Rajasthan General Clause Act, 1955 for the purpose of the VAT Act, and the provisions of the Central General Clauses Act, 1897 for the purpose of the CST Act, have to be referred to:-
(A) Rajasthan General Clauses Act, 1955 :
Section 32(47): “movable property” shall mean property of every description, except immovable property;
Section 32(37): “immovable property” shall include land, benefits to arise out of land and anything attached to the earth, or permanently fastened to anything attached to the earth but shall not include standing timber, growing crops or grass;
(B) Central General Clauses Act, 1897:
Section 3(36) “ movable property” shall mean property of every description, except immovable property;
Section 3(26) “immovable property” shall include land, benefit to arise out of land, and things attached to the earth or permanently fastened anything attached to the earth;
The definitions of “movable property” in both the above Acts are identical; but in case of “definitions of “immovable property” in the case of the Rajasthan Act “standing timber, growing crops or grass” have been excluded while in the Central Act, these have not been excluded.
(C) The Transfer of the Property Act, 1887:
Section 3: attached to earth means -
(a) rooted in the earth, as in the case of trees and shrubs, or
(b) imbedded in the earth, as in the case of walls or buildings, or
(c) attached to what is so imbedded for the permanent beneficial enjoyment of that to which it is attached.
7.4 The specific and explicit expressions in the definition of goods in the VAT Act – “all other things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale” have got the overriding effect over the conflicting provisions of the Rajasthan General Clauses Act. Reason being that according to section 4 of the Rajasthan General Clauses Act, unless otherwise expressly provided or unless the context otherwise requires, the provision of this Act (Raj. Gen. Clauses Act) apply.
7.5 The Hon’ble Bombay High Court has, in the case of Commissioner of Sales Tax Vs. Bombay Sound Service, reported at (1999) 112 STC 290, held that if any property embedded to the earth or attached to the earth in a manner essential for the beneficial use of the immovable property, it would be an immovable property. The real criteria to examine whether a property is movable property or immovable property, is whether the movable property which is embedded or attached to the earth can be used without so attaching and the attachment is only for the proper and smooth functioning of particular movable property or equipment or it is for the beneficial use of the immovable property. If a thing is embedded to the earth or attached to what is so embedded for the permanent beneficial enjoyment of that to which it is attached, then it is part of the immovable property. On the other hand, if the attachment is mainly for the beneficial enjoyment of the movable property itself, then it remains movable property even though fixed for the time being for proper enjoyment thereof.
7.6 The Hon’ble Rajasthan High Court has, in the case of CTO Vs. Sadulshahar Krai Vikrai Sahkari Samiti, reported at (2004) 135 STC 90, held that the taxability of plant and machinery in a case of lease is only possible, if they are movable and can come in the definition of “goods” as contained in the Rajasthan Sales Tax Act. There is no definition of immovable property in the taxing statues. The definition of immovable property as given in the General Clauses Act defines immovable property as land and benefits arising out of land and things attached to earth or permanently fastened. The term “permanently fastened” can not be understood in abstract. Primarily, the Court will have to take into consideration the intention of the parties when they decide to embed the machinery whether such embedment was intended to be temporary or permanent. Whether plant and machinery is permanently fastened or attached to the earth is to be seen from the point of utility. If such plant and machinery can be used without being attached to the earth, it can be found to be movable property.
The Hon’ble High Court has further held that whether a machine attached to earth is an immovable property of the factory is to be decided on the facts of every case. Nothing can be fastened to earth permanently so that, it can never be removed. When machines are attached to earth, not only are they attached for beneficial enjoyment of the machines but also for beneficial enjoyment of the land which is on lease. When whole factory premises are given on lease, a lease of the entire establishment is necessary for beneficial enjoyment of rights under lease. If from the lease, plant and machinery is excluded, the land can not be used for any purpose designed to be fulfilled by the lease. The plant and machinery are embedded to earth to give a character of immovable property for beneficial use of the land. This, according to definition of “immovable property” as contained in the General Clauses Act, 1897 makes the plant and machinery immovable property.
8.0 TRANSFER OF POSSESSION.-
In the case of the contracts relating to the transfer of the right to use goods, transfer of possession of goods is an important issue, which has been examined by the various Hon’ble High Courts of this country as well as by the Hon’ble Supreme Court of India.
8.1 The Hon’ble Andhra Pradesh High Court has, in the case of Rastriya Ispat Nigam Ltd. Vs. Commercial Tax Officer, Visakhapatnam, reported at (1990) 77 STC 182, held that a transfer of the right to use the goods necessarily involves delivery of possession by the transferor to the transferee. Delivery of possession of a thing must be distinguished from the custody.
8.2 The Hon’ble Punjab and Haryana High Court has in the case of Harbans Lal And Others Vs. State of Haryana, reported at (1993) 88 STC 357, held that the delivery of possession of the goods to the transferee by the transferor is one of the essential ingredients where the transferee is put in effective and general control of the goods as distinguished from a mere custody or a licence to use the same.
It may be stated here that the above judgment of the Hon’ble High Court of Punjab And Haryana has been affirmed by the Hon’ble Supreme Court in the case of Agarwal Brothers Vs. State of Haryana, reported at (1999) 113 STC 317.
8.3. The Hon’ble Patna High Court has, in the case of Rungta Projects Ltd. Vs. State of Bihar & Others, reported at (1998) 108 STC, held that the transfer of the right to use goods within the meaning of article 366(29A) of the Constitution and section 2(t) of Bihar Finance Act, 1981 necessarily involves delivery of possession by the transferor to the transferee.
8.4. The Hon’ble Gauhati High Court has, in the case of HLS ASIA LTD. Vs. State of Assam & Others, reported at (2003) 132 STC 217, held that whether terms and conditions of the contract clearly indicated on element of implied possession of the equipment by the lessee, the sale by way of transfer of the right to use goods was complete.
8.5. The Hon’ble Allahabad High Court has, in the case of the Commissioner Trade Tax, U.P. Vs. D.R. Zindal & Sons, reported at (2009) 14 VST 58, held that for a transaction to be brought to tax as transfer of the right to use goods under section 3F of the U.P. Trade Tax Act, 1948, there should be delivery of the possession of the goods at some stage.
8.6. In the case of Commissioner, Trade Tax U.P. Vs. Oswal Agro Mills Ltd., reported at (2009) 20 vst 629, the Hon’ble Allahabad High Court has held that the transfer of possession is sine qua non for the applicability of section 3F of the U.P. Trade Tax Act, 1948.
8.7. The constitution Bench of the Hon’ble Supreme Court has, in the case of 20th Century Finance Corporation Ltd. Vs. State of Maharasthra, reported at (2000) 119 STC 182(202,203,205) held:-
(i) That in the case of sub-clause (d) of clause (29A) of article 366 of the Constitution, 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 goods. In our view, therefore, on a plain construction of sub-clause (d) clause (29A), the taxable event is the transfer of the right to use goods regardless of when or whether the goods are delivered for use.
(ii) That the delivery of goods cannot constitute a basis for levy of tax on the transfer of right to use any goods.
(iii) That the transaction of transfer of the right to use goods cannot be termed as contract of hailment as it is deemed sale within the meaning of legal fiction engrafted in clause (29A)(d) of article 366 of the Constitution wherein location or delivery of goods to put to use is immaterial.
8.8 The Hon’ble Supreme Court has, in the case of State of U.P. And Another Vs. Union of India and Another, reported at (2003) 130 STC 1 held that the handing over of possession is not the sine qua non of completing the transfer of the right to use any goods (2000:119 STC 182:SC:20th Century Finance Corproation Ltd, relied on).
8.9 The Hon’ble Supreme Court has, in the case of Bharat Sanchar Nigam Ltd. Vs. Union of India, reported at (2006) 145 STC 91, held that the taxable event is not complete, until the time the delivery of the goods takes place, for it is upon the delivery of the goods that the transfer of the right to use the goods is completed. The delivery may, however be actual or constructive.
The Hon’ble Supreme Court has also held that delivery of the goods may not take place simultaneously with the transfer of the right to use the goods, but the goods must be in existence, deliverable, when the right is sought to be transferred, and must, at some stage, be delivered.
The Hon’ble Supreme Court has further said that the decision in 20th Century Finance Corporation Ltd, Vs. State of Maharashtra (2000:119 STC 182) cannot be cited as authority for the proposition that the delivery of possession of the goods is not a necessary concomitant for completing a transaction of sale for the purposes of article 366(29A)(d) of the Constitution. In that decision the court had to determine where the taxable event for the purposes of sales tax took place in the context of sub-clause (d) of article 366(29A).
9.0 WHETHER THERE IS CONFLICT BETWEEN THE SAID TWO DECISIONS IN - 20th CENTURY FINANCE CORPORATION LTD, AND BHARAT SANCHAR NIGAM LTD.
9.1 To understand the ratio decidendi of a decision, one has to look to the context and the point for determination and not to obiter dicta.
The Hon’ble Supreme Court has in the case of M/s Goodyear India Ltd. & Others vs. State of Haryana & Others, reported at (1989) 31 STL 49, held that a precedent is an authority only for the point it actually decides and not for other which even logically follows from it.
The Hon’ble Supreme has, in the case of Commissioner of Income Tax Vs. Suv Engineering Works (P) Ltd., reported at AIR 1993 SC 43, held that a decision of this court takes it colour from the questions involved in the case in which it is rendered.
9.2 In the case of 20th Century Finance Corproation Ltd, the question posed for determination before the Hon’ble Supreme Court was : “situs of sale” or the place where sale was completed in the case of a contract for transfer of the right to use goods. The Hon’ble Supreme Court, in the above context, after having examined the material on record and after having examined relevant provisions of the Constitution, held that where the goods were ascertained, the taxable event on transfer of the right to use goods occurred when a contract was executed between the lessor and the lessee and the place of sale was the place where the contract in respect thereof was executed. In this specific context, The Hon’ble Supreme Court observed that the delivery of the goods was, while determining the situs of sale, irrelevant. There appears no ambiguity or anomaly or legal contrast in these observation, because in the case of transfer of the right to use goods the tax is on the “transfer of the right to use” and not on the “delivery of goods”.
9.3 But, in the case of Bharat Sanchar Nigam Ltd, The Hon’ble Supreme Court was called upon to determine the taxability in the case of transfer of the right to use specific goods (telephone sets) involved in that case. In this different context, the Hon’ble Supreme Court while determining the tax liability, on the transfer of the goods (telephone sets) involved in that case, held that the delivery, actual or constructive, was necessary for the right to use goods, which implies actual use thereof.
9.4 Therefore, in my humble opinion, there appears no conflict in the decisions given by the Hon’ble Supreme Court in the case of 20th Century Finance Corporation Ltd, and the others in the case of Bharat Sanchar Nigam Ltd.
10.0 TRANSFER OF THE EFFECTIVE CONTROL.-
10.1 Effective control over use of the goods by the lessee is the basic condition for levying tax on the transfer of the right to use goods. In the case of a constructive delivery of goods (which can be inferred by facts), the lessee does have the unrestricted excess to the use of the goods. Therefore, whether it is actual delivery or constructive delivery, the end result in form of the use of goods is the same. In the case, where the lessee does not enjoy the effective control over the use of the goods, the contract cannot be termed as a contract of transfer of the right to use goods under sub-clause (d) of clause (29A) to the article 366 of the Constitution and the lease rental in such a case does not attract tax liability.
10.2 The Hon’ble Andhra Pradesh High Court has, in the case of Rastriya Ispat Nigam Ltd., Vs. Commercial Taxes Officer, Visakhapatnam, reported at (1990) 77 STC 182, held that under the agreement, the effective control of the machinery, even while the machinery was in the use of the contractor, was that of the petitioner company. The contractor was not free to make use of the same for other works or move it out during the period machinery was in his use. It was not a case of transfer of the right to use the machinery.
10.3 The Hon’ble Allahabad High Court has, in the cases (i) Commissioner of Trade Tax, U.P., Vs. Jamuna Prasad Jaiswal, reported at (2008) 13 VST 403, (ii) Commissioner of Trade Tax, U.P. Vs. Prince Tourists Bus Service, reported at (2008) 13 VST 412 (iii) Mohd. Wasim Khan Vs. Commissioner of Trade Tax, U.P. reported at (2009) 20 VST 196, and (iv) Mohd. Sultan Khan vs. Commissioner of Trade Tax, U.P. reported at (2009) 20 VST 235, held that the respondent-dealer provided buses to the companies under agreements for transportation of their employees from their residence to the factory and from the factory to their residence at a specified amount. The driver and conductor were of the dealer and buses operated for a limited hours. The entire propulsion charges were borne by the dealer. There was no transfer of the right to use the vehicles by the respondent dealer to the companies.
10.4 In the case of Commissioner of Trade Tax, U.P. Vs. Nand Transport Co., reported at (2009) 16 VST 381, the Hon’ble Allahabad High Court held that the respondent owned tankers and entered into an agreement with Indian Oil Corporation for transportation of petroleum products from one place to another place and received transportation charges. The control and possession of the tankers had never been transferred to Indian Oil Corporation. It was not a case of transfer of the right to use the tankers.
10.5 Hon’ble Gauhati High Court has, in the case of R.P. Kakoti Vs. Oil & Natural Gas Commission and Others, reported at (2009) 22 VST 136, held that providing of cranes on day-to-day basis without transfer of possession and control, for stipulated charges, was not a contract for transfer of the right to use the cranes.
10.6 The Hon’ble Supreme Court has, in the case of State of A.P. and Others Vs. Rastriya Ispat Nigam Ltd, reported at (2002) 126 STC 114, held that where the effective control of the machinery even while the machinery was in use, was with the respondent, the transactions between the respondent and the contractors did not involve the transfer of the right to use the machinery in favour of the contractors and the hire charges could not be brought to tax.
10.7 The Hon’ble Supreme Court has, in the case of Bharat Sanchar NIgam Ltd. Vs. Union of India, reported at (2006)145 STC 91, has held that
(i) for the period during which the transferee has the legal right to use the goods, it has to be the exclusion to the transferor; and
(ii) having transferred the right to use the goods during the period for which it has been transferred, the owner cannot again transfer the same rights to others.
These factors are the depiction of the effective control over the use of the goods.
11.0 SITUS OF SALE IN THE CASE OF CONTRACTS FOR TRANSFER OF THE RIGHT TO USE GOODS.
11.1 Prior to the decision of the Hon’ble Supreme Court given in the case of 20th Century Finance Corporation Ltd, the State enactments provided that the situs of sale in the case of the leasing contracts was the place of use of the leased goods and point of taxability arose there. But in the case of 20th Century Finance Corporation Ltd. Vs. State of Maharashtra, reported at (2009) 119 STC 182, the Hon’ble Supreme Court has held that -
(i) where the goods are in existence, the taxable event on transfer of the right to use goods occurs when a contract is executed between the lessor and the lessee and the situs of sale of such deemed sales would be the place where the contract in respect thereof is executed.
(ii) In case 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 and in such cases the taxable event would be on the delivery of the goods.
11.2 The Hon’ble Supreme Court has, in the case of M/s. Goa Carbon Ltd. Vs Commissioner of Trade Tax, U.P. reported at (2008) 20 Tax Up-date 231, held that under section 3F of the U.P. Trade Tax Act, 1948, the subject matter of taxation is transfer of the right to use goods and, therefore, it is necessary to deal with the question of delivery of possession which is related to situs. Therefore, in this case the place where the right to use is transferred is relevant and not place of delivery which may be relevant in case of oral contracts to determine the situs. Under section 3(F), the subject matter of taxation is transfer of the right to use and, therefore the place where such right is transferred assumes importance. In the case of oral contracts with which we are concerned the situs of transfer may be where goods are delivered.
12. DIFFERENT TYPES OF LEASE CONTRACTS AND LEASING TAX.
12.1 Leasing of a Factory:
12.1.1 The Hon’ble Allahabad High Court has, in the case of Commissioner of Sales Tax UP Vs. Prahlad Industries, reported at (1999) 112 STC 548, held that the subject matter of the lease was the woollen factory and the same was leased out as a unit and not as an individual piece of plant and machinery. In that view of the matter there was no transfer of the right to use goods as envisaged in the U.P. Trade Tax Act.
12.1.2 The Rajasthan Taxation Tribunal has, in the case of Padampur Kraya Vikraya Shahkari Samiti Vs. State of Rajasthan and Others, reported at (1997) 22 RTJS 47, held that leasing of Cotton Ginning And Pressing Factory was not sale and tax liability was not attracted. But plant and machinery not embedded in or attached to the earth, and other goods of the said factory may be taxed.
12.2. Leasing of Studio:
The Hon’ble Bombay has, in the case of Commissioner of Sales Tax Vs. Bombay Sound Service, reported at (1999) 112 STC 290, held that the construction of studio is a very sophisticated task and what is taken on hire is the studio and not the recording machines and instruments installed there. The various instruments for recording music are annexed or embedded to the earth for the purpose of beneficial enjoyment of the studio which is an immovable property and not for the beneficial enjoyment of those instruments. The instruments are essential features of studio. Therefore, the hiring of the studio for the purpose of recording songs, background music and dubbing of sound did not amount to transfer of right to use any movable property.
12.3 Leasing of Plant & Machinery:
12.3.1 The Hon’ble Gujarat High Court has, in the case of the Growth Leasing & Finance Ltd. Vs. State of Gujarat, reported at (1992) 85 STC 25, held that whether a particular plant and machinery would be considered to be an immovable property or not would depend upon the facts and circumstances of each case. At the time when the plant and machinery are to be leased out and an agreement to sell the right to use the plant and machinery is being entered into or executed, the plant and machinery would ordinarily not be fixed with land or in the building. In that state both plant and machinery would be chattel, and not immovable property. Unless the facts and circumstances in a particular case show that they are intended to be part of the land or building, and unless it is positively proved that they have been so annexed, they do not cease to be chattel or goods.
12.3.2The Hon’ble Karnataka High Court has, in the case of Karthik Engineering Works Vs. State of Karnataka reported at (2009) 119 STC 88, held that there may be an instance where the machinery has been given under the lease agreement as moveable property. Certain machineries can be used as movable while others because of their nature or other reasons cannot be termed as movable but have to be embedded in the earth so as to make them as immovable property. If at the time of entering into an agreement, the right to use is given of a movable property, i.e. the goods, then there would be liability of tax under section 5C of the Karnataka Sales Tax Act, 1957. But if at the time of entering into an agreement the machinery itself is an immovable property then it will be beyond the scope of the “gods” as defined under section 2 of the Karnataka Sales Tax Act, 1957 and under the definition of “goods” as given in the Sale of Goods Act, 1930, which was considered in the case of State of Madras Vs. Gannon Dunkerly & Co. Ltd. (1958 : 9 STC 353 : SC). In these circumstances, the levy of tax was not proper.
12.3.3 The Hon’ble Rajasthan High Court has, in the case of CTO Vs. Sadsulshahar Krai Vikrai Sahakari Samiti, reported at (2004) 135 STC 90, held that plant and machinery in a ginning and pressing factory can only be used when they are imbeded in the earth and thereby, become attached to earth for its beneficial enjoyment. Such plant and machinery have to be treated as immovable property and lease thereof cannot be separately treated as transfer of right to use goods within the meaning of Notification No.F4(24)FD/Gr.IV/90-44 dated June 27, 1990 under the Rajasthan Sales Tax Act, 1954.
12.3.4 The Hon’ble Supreme Court has, in the case of State of Andhra Pradesh And Others Vs. Rastriya Ispat Nigam Ltd., reported at (2002) 126 STC 114, has affirmed the decision of the Hon’ble Andhra Pradesh High Court (1990: 77 STC 182: AP) given in the case of the said company. The Hon’ble High Court, on consideration of the agreement of control of the machinery, even while the machinery was in use, was with the respondents, the contractors were not free to make use of the machinery for other works or move the machinery out during the period the machinery was in use; held that the transactions between the respondent and the contractors did not involve the transfer of right to use the machinery in favour of the contractors and the hire charges could not be brought to tax.
12.4.0 Leasing of Shutterings:
12.4.1 The Hon’ble High Court of Punjab & Haryana has, in the case of Harbans Lal Vs. State of Haryana, reported at (1993) 88 STC 357, held that where shutterings were supplied and put into possession of the builders for purposes of construction for a specified period, it was a case of transfer of the right to use goods and the consideration received was subject to tax.
12.4.2 Hon’ble Supreme Court has in the case of Aggarwal Brothers Vs. State of Haryana and Another, reported at (1999) 113 STC 317, affirmed the decision of the Hon’ble Punjab and Haryana High Court (1993:88 STC 357). The Hon’ble High Court in the case of the said company held that where shutterings were supplied to builders of construction, possession of the goods was transferred to the transferee for a specified period for use with consideration. The transferee was in effective control of the shuttering during the period it remained in his possession. This transfer of right to use shuttering was covered within the definition of the word “sale” and the consideration received by the dealer was the amount of sale and was to be included in his turnover.
12.5 Leasing of Hoardings:
The West Bengal Taxation Tribunal has, in the case of Selvel Advertising Private Limited And Another, reported at (1993) 89 STC 1, held that the agreement of lease for hoardings entered into by the company with the landlords showed that the structures and other accessories to be erected by it would be the property of the company who would be entitled to remove them on termination of the tenancy. Though the structures erected by the company on the land so leased were attached to earth or permanently fastened to earth or land, the contemplation of severance or removal of these structures from the soil in the agreement itself showed that these hoardings or structures were not immovable properties. The Tribunal further held that in a consideration of the term “immovable property” in the Transfer of Property Act, 1882 and the Registration Act, 1908, as well as the definition of goods in section 2(7) of the Sale of Goods Act, 1930, the hoardings and other erections made by the company for letting to persons or companies for advertisements of their products were “goods” and not immovable properties, and tax was leviable on rentals received for advertisements.
12.6.0 Leasing of Trade Mark:
12.7.0 The Hon’ble Bombay High Court has, in the case of Commissioner of Sales Tax Vs. Duke & Sons Pvt. Ltd., reported at 1990 112 STC 370, held as under:
(i) The manner of transfer of the right to use the goods to the transferee would depend upon the nature of the goods. In the case of tangible property, handing over of the property to the transferee may be essential for the use thereof. The right to use machinery cannot be transferred by the transferor to the transferee without transfer of control over it. But the position in the case of trade mark is different. For transferring the right to use the trade mark, it is not necessary to hand over the trade mark to the transferee or give control or possession of trade mark to him. It can be done merely by authorizing the transferee to use the same in the manner required by the law.
(ii) There is a distinction between transfer of right to use a trade mark and assignment of a trade mark. Assignment of a trade mark is taken to be a sale or transfer of the trade mark by the owner thereof to a third party. By assignment, the original owner of trade mark is divested of his right, title or interest therein. He is not so divested by transfer of right to use the same.
(iii) By agreement between the owner of the trade mark and the purchaser, there was a transfer of the right to use the trade mark. The royalty payable in respect of transfer of the right to use the trade mark fell within the provisions of the Maharastra Sales Tax Act on the Transfer of the Right to use any Goods for any purpose Act, 1985.
12.6.2 The Hon’ble Madras High Court has, in the case of SPS Jayam And Co. Vs. Registrar, Tamil Nadu Taxation Special Tribunal And Others, reported at (2004) 137 STC 117, held that trade mark is a property right and it exclusively belongs to the party who has registered it. Such a right is intangible or incorporeal goods, which can be merchandised by the registered owners. Permission to use the trade mark without any restriction could only be taken as a transfer of the right to use and not a mere right to enjoy.
12.7.0 Leasing of Vehicles
12.7.1 The Hon’ble Orrisa High Court has, in the case of Krishna Chandra Bahera And Another Vs. State of Orissa & Others, reported at (1991) 83 STC 325, held that for the practical purposes the effective control or general Control of the vehicle under the agreement vested with the Orissa State Road Transport Corporation, because the owner of the bus had to abide all orders and directions of the authorized officer of the Corporation in regard to the starting station of the journey, operation, haltage, destination, timing and routes, issued from time to time. Though the driver was provided by the owner but he was answerable to the Corporation. Therefore, there was transfer of the right to use the bus, and it was a case of sale.
12.7.2 The Hon’ble Punjab and Haryana High Court has, in the case of Harbanslal And Another Vs. State of Haryana, reported at (1993) 88 STC 357, held that the petitioner gave four buses on hire to M/s. Eicher Tractor Limited to carry their employees from Delhi to Faridababd and Vice Versa and as the effective control over the buses was of M/s. Eicher Tractor Ltd., it was a case of transfer of the right to use the goods.
12.7.3 The Hon’ble Gauhati High Court has, in the case of Tripura Bus Syndicate Vs. State of Tripura and Others, reported at (1997) 105 STC 409 held that where the Chief Electoral Officer requisitioned the vehicles with drivers for election purposes on the basis of payment of hire on the basis of mileage and the cost of the fuel was to be borne by the owners, there was no transfer of the right to use goods.
12.7.4 The Hon’ble Allahabad High Court has, in the case of Ahuja Goods Agency And Another Vs. State of U.P. And Others, reported at (1997) 106 STC 540, held that according to the agreement, trucks were hired by the respondent (No.3) for carrying his goods and trucks were supplied by the petitioner to him with drivers for carrying specified goods, it was a contract of service and the transportation charges received by the petitioner from respondent (No.3) were not exigible to tax.
12.7.5 The Hon’ble Gauhati High Court has, in the case of Mahabir Transport Agency Vs. Chairman, Food Corporation of India, reported at (1998) 109 STC 99, held that where the petitioner placed trucks at the disposal of the respondent for transporting foodgrains from the railway sidings to the FCI godown, at a negotiated rate of 60 per cent above the schedule rate, it was a case of transfer of the right to use goods and the petitioner was liable to pay tax.
12.7.6 In the case of State of Tripura And Another Vs. Tripura Bus Syndicate, reported at (2001) 122 STC 175, the Hon’ble Gauhati High Court has held that where the election authorities took the vehicles under their control and the vehicles plied in accordance with the directions and instructions of the election authorities as per the election schedule and for transportation of election officials and election material, it was a case of transfer of the right to use goods and was liable to tax.
12.8.0 Leasing of Tents, Kanats and such other items:
12.8.1 The Hon’ble Punjab and Haryana High Court has, in the case of Harbans Lal And Another Vs. State of Haryana, reported at (1993) 88 STC 357, held that where tents, kanats, furniture and crokery were given by dealers to customers as such and the customers erected the tents and kanats and paid hire charges for the tents, kanats, furniture and crockery, there would be transfer of goods and the transfer of right to use them would be taxable.
But where a pandal only after having been erected is given to the customers for use, then it may not be the transfer of the right to use goods within the meaning of section 2(d) of the Haryana General Sales Tax Ac, 1973.
The above judgment of the Hon’ble Punjab and Haryana High Court has been affirmed by the Hon’ble Supreme Court in the case of Agarwal Brothers Vs. State of Haryana, reported at (1999) 113 STC 317.
12.8.2 The Hon’ble Allahabad High Court has, in the case of Banda Tent House Association, reported at (2006) 146 STC 355, held that where tents, chairs, pillows, bedsheets, crokery were given for the use of specific purposes, eg. marriage, birthday party etc. the hire-charges received from the users were covered by transfer of the right to use goods and were exigible to tax.
12.9.0 Leasing of equipment by contractors:
The Hon’ble Gauhati High Court has, in the case of HLS Asia Ltd. Vs State of Assam And Others, reported at (2003) 132 STC 217, held that where the petitioner by an agreement with Oil India Ltd. provided the equipment for the purpose of oil logging and perforation and the petitioner was not entitled to use them for any other purpose or to withdraw them as its volition, the contract was a lease within the meaning of section 2(19) of the Assam General Sales Tax Act, 1993 and the payments received from Oil India Ltd., were liable to tax.
12.10.0 Leasing of Bank Lockers:
12.10.1 The Hon’ble Calcutta High Court has, in the case of Bank of India Vs. Commercial Taxes Officer, Central Section, Calcutta, reported at (1987) 67 STC 199, held that the lease of bank lockers did not come within the meaning of “sale” as contained in section 2(g)(ii) of the Bengal Finance (Sales Tax) Act. The banks had built a strong room, installed a steel cabinet with safety lockers with double locking system and access to lockers was checked and constant guard provided over the property. The locker could not be opened by the customer unless the bank opened the lock with a master key. Customers obtained admission to the vaults only when the bank allowed it. The authority granted to the authorised person had to be recorded in the books of the bank before hand. Therefore, the subject hired out was a complex one, not merely a transfer of right to use goods, but a rendering of various services along with a limited right to use the locker.
12.10.2 The Hon’ble Andhra Pradesh Court has examined the issue of taxability on the rental of lockers in the case of State Bank of India Vs. State of Andhra Pradesh, reported at (188) 70 STC 215. The hire charges collected by banks from customers represent a consolidated charge for a variety of services and facilities provided, of which the use of the locker forms a small part. Any endeavour to levy tax on the aggregate hire charges levied by banks would amount to levying tax not only on the right to use the locker but also on the charges collected for the provision of strong room, round the clock watch and ward facility and employment of necessary staff for close supervision in the operation of strong rooms. The lockers could be operated only during prescribed hours and only with the help of the master key kept by the banks. There was neither delivery of the lockers nor did the banks put the lockers in the possession of the customers. Banks, therefore, could not be called upon to pay sales tax on the hire charges received for the use of lockers which forms a fractional and inseparable part of the composite charge for a variety of services.
12.11.0 Leasing of electric meters:
12.11.1 Electric meters are provided to get the reading of the electricity consumed by the customers. They are sealed and are not allowed to be handled by the customers. The Rajasthan Taxation Tribunal has, in the petition No.245/97 filed by RSEB, decided on 27.4.98 (1998 TW 398) that the rental on electric meters is not subject to leasing tax.
12.11.2 The Hon’ble Rajasthan High Court has, in the case of State of Rajasthan & Others Vs. R.V.P.N. Ltd. reported at (2007) 19 Tax update 366, held that after installing electric meter, the Board continue to have the usage of an meter to find out the energy supplied to the consumer and effective control over the meter continues of that of the Board. The consumer is not free to make use of the meter as he likes. Therefore, fitting of meter does not involve the transfer of right to use the meter in favour of the consumer.
12.11.3 The Hon’ble High Court of Himachal Pradesh has, in the case of S.E. Hydel Circle Vs. Add. Excise Taxation Commissioner, reported at (2008) 18 VST 246, held that the State Electricity Board supplies the meters to measure the energy consumed by the customers and they are sealed and they can be handled only by the employees of the Board. The consumers have no control over meters. Hence rental received for meters are not subject to tax.
12.11.4 The position of water meters is the same as that of the electric meters. Water meters are only a measuring device of water consumed, they are sealed and cannot be handled by the customers. There is no deemed sale of meters for taxability. The various notifications issued by the State Government for exemption of leasing tax on water meters appear redundant.
12.12.0 Leasing of telephones:
The Hon’ble Supreme Court had, in the case of State of UP And Another Vs. Union of India And Another, reported at (2003) 130 STC 1, overruled the judgments of the Hon’ble A.P. High Court given in the case of Union of India Vs. Govt. of A.P. (1999 : 113 STC 203) and of the Hon’ble P&H High Court given in the case of Union of India Vs. State of Haryana (2001 : 123 STC 539) and reversed the judgment given by the Hon’ble Allahabad Court given in the case of Union of India Vs. State of U.P (1999 : 114 STC 288), holding that, providing telephone services by the Department of Telecommunications which comprises of allotment of number, installation of an instrument and other appliances at the premises of the subscriber, which are connected with a telephone line to the area exchange to enable him to have access to the whole system, to dial and receive calls, in effect, fell within the meaning of “transfer of the right to use any goods”,
But the above judgement given in the case of the State of U.P. vs. Union of India (130 STC 1) has been reversed by the Hon’ble Supreme Court in the case of Bharat Sanchar Nigam Ltd. Vs. Union of India & Others, reported at (2006) 145 STC 91. In this judgement, it has been held that electromagntic waves are not goods for the purpose of article 366 (29A)(d) of the Constitution, because they are neither abstracted nor consumed. They are not delivered, stored or possessed. Nor they are marketable. A subscriber to a telephone service cannot reasonbly be taken to have intended to purchase or obtain any right to use electromagnatic waves or radio frequencies when a telephone connection is given. At the most the goods in telecommunication are limited to the hand sets supplied by the telephone department.
12.13.0 Leasing of Office Equipment:
12.13.1 The Rajasthan Sales Tax Tribunal has, in the case of Modi Xerox Limited, Jaipur, reported at (1994) 16 TRJS 201, held that photocopier machine is covered by the entry “office equipment” and receipt of rental in lieu of use of such machine is liable to tax.
12.13.2 The Rajasthan taxation Tribunal has, in the case of Modi Xerox Limited, Jaipur, reported at (1991) 115 STC 1, held that transfer of spare parts under full Service Maintenance Agreement and Spares Service Maintenance Agreement were the sale of spares by way of transfer of the right to use goods.
12.14.0 Leasing of Oil Tankers:
12.14.1 The Tamil Nadu Taxation Special Tribunal has, in the case of Madras Petroleum Ltd. Vs. Commercial Tax Officer, reported at (1996) 103 STC 54, held that the oil tankers which the petitioners permitted Madras Refineries Ltd. to use for storage, against collection of charges, were of huge capacity, permanently imbedded in the earth and were immovable properties within the meaning of the Transfer of Property Act, 1882, and the charges received by the petitioners were not taxable turnover within the meaning of section 3-A of the Tamil Nadu General Sales Tax Act, 1959.
12.14.2 But the Motor Tankers are the movable properties and lease taxability thereon would depend upon the terms and conditions of the contract of lease. In the case of Nand Transport Company (2008:16 VST 38 The Hon’ble Allahabad High Court has held that where tankers were used to transport petroleum products for petrol pumps, there was no transfer of the right to use goods.
12.15.0 Leasing of Gas Cylinders:
12.15.1 The Hon’ble Orissa High Court has, in the case of Asiatic Gases Ltd., reported at (2001) 121 STC 495, held that as the gas cylinders were to be detained for 14 days, beyond 14 days the detention was in total disregard of the terms of the contract of lease and the amount for such unauthorised detention received was by way of penalty and was not liable to tax.
12.15.2 But, the Hon’ble Kerala High Court has, in the case of West Coast Industrial Gases Ltd., reported at (2003) 132 STC 177, has followed the judgment of the Hon’ble High Court of Orissa given in the case of Asiatic Gases Ltd. and held that the rent received for the delayed return of the cylinders was not liable to tax.
12.15.3 The Hon’ble Andhra Pradesh Court has, reported at (1992) 86 STC539, held that the cylinders were goods and they were handed over to the customers and there was transfer of the right to use the cylinders as containers of the gases purchased by them, and therefore, the amount that was collected was treated as rental for the use of the cylinders beyond the stipulated period till they were returned, and such rental was liable to tax.
12.15.4 Similarly, the Hon’ble Punjab and Haryana High Court, in the case of Harbans Lal and Another, reported at (1993) 88 STC 357, held the where the gas was supplied to customers with cylinders and the price for the right to use the cylinders was included in the total amount charged and according to a further condition, a charge of Re. 1/- per day per cylinder was to be recovered in case of retention of cylinders beyond the stipulated period, the extra retention of cylinders would fall within the definition of goods and it involved the transfer of the right to use the goods, and such charges were subject to tax.
The above judgment of the Hon’ble Punjab and Haryana High Court has been affirmed by the the Hon’ble Supreme Court and the said judgment of the The Hon’ble Supreme Court has been reported at (1999) 113 STC 317 (SC) in the case of Agarwal Brothers Vs. State of Haryana And Others, reported at (1999) 113STC 317. The judgment of the The Hon’ble Supreme Court is the law of the land according to article 141 of the Constitution and it has to be respected by all.
12.16.0 Leasing of Audio/Video Articles:
12.16.1 The Hon’ble Kerala High Court has, in the case of Rohini Paniker Vs. Additional Sales Tax Officer, reported at (1997) 104 STC 498, held that supply of video cassettes against a fee to the customers was a sale by way of transfer of the right to use goods.
12.16.2 The Hon’ble Karnataka High Court, in the case of Lakshmi Audio Visual Inc. And Another Vs. Assistant Commissioner of Commercial Taxes, reported at (2001) 124 STC 426, had an occasion to examine the issue of hiring audio visual and multimedia equipment:
(i) Under the first situation, the petitioner delivers the equipment to the customer on hire and leaves it to the customer to transport the equipment, install and operate them in any manner he wants and at the end of the period of hiring, return them to the petitioner, the possession and the effective control is transferred to the customer. The transaction will, therefore, be a deemed sale and exigible to tax.
(ii) Under the second situation, where the customer engages the petitioner for providing audio visual services for any programme and the petitioner takes the equipment to the site of the programme, install them, operate them and then dismantle them and bring them back after the period of hiring, the possession and effective control never leave the petitioner and the customer never gets the right to the use of equipment. In such an event, there is no deemed sale attracting tax.
13.0 CONCLUSION
Taxability generally arises from the combination of three factors - (i) Taxable goods, (ii) Taxable person and (iii) Taxable event. Under the contract of transfer of the right to use goods, it is the transfer of the right to use goods which is the basis of taxability. Delivery, actual or constructive of goods may not be precondition to fix the situs of sale, yet it has a positive role in determining the ultimate tax liability in a given case. Right to use has not to be taken as a imaginary hypothesis, but it has to be considered as a pragmatic reality, wherein, use is appropriated either through physical possession of the goods or through unrestrained excess thereto. Law makes the goods taxable, situs of sale identifies the person exposed to liability to tax and delivery of goods, whether actual or constructive, facilitates use which becomes the womb of the taxability. Transfer of the right to use goods without delivery of goods, actual or constructive, and use thereof is a fiction. Therefore, transfer of the right to use goods has not to be put in water-tight compartments of isolation but it has to be viewed in the context of taxable goods, taxable person and taxable event.