GOODS UNDER SERVICE TAX

[Dr. Sanjiv Agarwal]

"goods" means every kind of movable property other than actionable claim and money; and includes securities, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale;.

Prior to amendment made by Finance Act, 2012, ‘goods’ was defined in section 65(50) as defined in section 2(7) of the Sale of Goods Act, 1930.  As per Section 2(7) of Sales of Goods Act, ‘Goods’ means every kind of movable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sales or under the contract of sale.

It is evident that for the words ‘stock and shares’, the new definition has substituted the word ‘securities’ which widens the scope of ‘stock and shares’. The term ‘securities’ has been defined in the Securities Contract (Regulation) Act 1956.

The definition of ‘goods’ has essentially been borrowed from the Sale of Goods Act, 1930 with the only variation that in the inclusion clause of the said definition the phrase ‘stocks and shares’ been replaced with ‘securities’. In effect, therefore, activities that are in the nature of only transfer of title by way of sale, redemption, purchase or acquisition of securities on principal-to-principal basis, excluding services of dealers, brokers or agents in relation to such transactions, are outside the ambit of ‘services. However activities which are not in the nature of transfer of title in securities (for example a person agreeing not to exercise his right in a security for a given period of time for a consideration) would not be included in this exclusion clause to the definition of ‘service’.

Goods should have a commercial aspect of capable of being purchased and sold and served as a result of such sale. Supreme Court in Union of India v. Delhi Cloth General Mills 1977 (I) ELT J 199 held that ‘goods’ in order to be called as ‘goods’ should satisfy the test of marketability, i.e., they should be something which can ordinarily come to the market to be bought and sold. It must be something which is known to the customers and the commercial community.

Following discussion also elaborates the concept of ‘goods’ –

The word “goods” is defined under the Constitution of India at Article 366 (12) as under :

“Goods includes all materials, commodities and articles.”

The Constitution Bench of the Apex Court in the case of State of Madras v. Mis. Gannon Dunkerley & Co., (Madras) Ltd. reported in AIR 1958 -TMI - 98924 – (SUPREME COURT OF INDIA) dealing WITh the question as to how the word 'goods' has to be understood after coming into force of the Constitution has held that the" cardinal rule of interpre­tation was that words should be read in their ordinary, natural and grammatical meaning, subject to this rider that in construing words in a constitutional enact­ment conferring legislative power the most liberal construction should be put upon the words so that the same may have effect in their widest amplitude", And they have also pointed that there is no inconsistency between the words goods found in the Constitution and in other statues and therefore, the meaning assigned in one, equally applies to the meaning in the other.

The Constitution Bench of the Supreme Court in the case of Union of India and Another v. Delhi Cloth and General Mills Company Ltd. and Others reported in AIR 1963 SC 791 = 1977 (1) E.L.T. 0199) (S.C.) held as under:

"Moreover, the definitions of 'goods' make it clear that to become 'goods' an article must be something which can ordinarily come to the market to be bought and sold".

Again the Apex Court in the case of South Bihar Sugar Mills Ltd. and Another v. Union of India and Another reported in AIR 1968 -TMI - 40423 – (SUPREME COURT OF INDIA) has held as under:

"The Act charges duty on the manufacture of goods. The word 'manufacture' implies a change but every change in the raw material is not manu­facture. There must be such a transformation that a new and different arti­cle must emerge having a distinctive name character or use.

As the Act does not define goods, the legislature must be taken to have used that word in its ordinary dictionary meaning. The dictionary meaning is that to become goods it must be something which can ordinarily come to the market to be bought and sold and is known to the market."

 In the case of Moti Laminates Pvt. Ltd. v. Collector of Central Ex. Ahmedabad reported in 1995 -TMI - 43951 – (SUPREME COURT OF INDIA), the Apex Court held as under:

"9. Although the duty of excise is on manufacture or production of the goods, but the entire concept of bringing out new commodity etc. is linked with marketability. An article does not become goods in the com­mon parlance unless by production or manufacture something new and dif­ ferent is brought out which can be bought and sold.           

Therefore, any goods to attract excise duty must satisfy the test of marketability. The tariff schedule by placing the goods in specific and general category does not alter the basic character of leviability. The duty is at­tracted not because an article is covered in any of the items or it falls in residuary category but it must further have been produced or manufactured and it is capable of being bought and sold."

Following this judgment, yet another Constitution Bench of t e Apex Court in the case of Tata Consultancy Services v. State of A.P. reported' 2004 -TMI - 4143 – (Supreme Court) at Para 9 held as under -

"In Indiathe test, to determine whether a property is "goods", for purposes of sales tax, is not whether the property is tangible or intangible or incorporeal. The test is whether the concerned item is capable of abstraction, consumption and use and whether it can be transmitted, transferred, delivered, stored, possessed etc.

In Bharti Airtel Ltd. v. State of Karnataka (2012) 25 STR 514 (Karnataka), it was observed that “it is clear that the essential test to be satisfied before an article is said to be 'goods' is the test of marketability. In the market, the said goods is to be known as a commodity which is useful to a customer. In other words it should be known to the market as goods. That is, such goods must be bought and sold in the market. Therefore, an article or commodity or a material must be something which can ordinarily come to the market to be bought and sold. It must have a distinctive name, character or use. Thereafter it should satisfy the test of abstraction, transmission, transfer, de­livery, storage and possession, etc.”

 ‘Goods’ is something which can ordinarily come to market to be brought and sold. They can be subjected to central excise duty depending upon whether they are produced / manufactured [ CC, Bangalore v Motorola India Ltd 2011 -TMI - 211166 – (KARNATAKA HIGH COURT)]

In the case of Union of India and Another v. Delhi Cloth and General Mills Co. Ltd. and Others reported in AIR 1963 SC 791 = 1977 (1) E.L.T (J199) (S.C.), the Constitution Bench of the Supreme Court while construing the word ‘goods' held as under :­

"Moreover, the definitions of 'goods' make it dear that to become 'goods' an articles must be something which can ordinarily come to the market to be bought and sold"

In South Bihar Sugar Mills Ltd. and Another v. Union of India and Another reported in AIR 1968 -TMI - 40423 - (SUPREME COURT OF INDIA)has held as under:­

"The Act charges duty on the manufacture of goods. The word 'manu­facture' implies a change but every change in the raw material is not manu­facture. There must be such a transformation that a new and different arti­cle must emerge having a distinctive name, character or use.

As the Act does not define goods, the legislature must be taken to have used that word in its ordinary dictionary meaning. The dictionary meaning is that to become goods it must be something which can ordinarily come to the market to be bought and sold and is known to the market."

In Bhor Industries Ltd. v. Collector of Central Excise reported in 1989 -TMI - 42414 – (SUPREME COURT OF INDIA), the Apex Court held as under:

"It appears to us that under the Central Excise Act as it stood at the relevant time, in order to be goods as specified in the entry the first condi­tion was that as a result of manufacture goods must come into existence.

For Articles to be goods these must be known in the market as such or these must be capable of being sold in the market as goods. Actual sale in the market is not necessary, user in the captive consumption is not deter­minative but the Articles must be capable of being sold in the market or known in the market as goods."

The Apex Court in the case of Moti Laminates Pvt. Ltd. v. Collector of Central Excise, Ahmedabad reported in 1995 -TMI - 43951 – (SUPREME COURT OF INDIA) interpreting Section 3 of the Central Excise and Salt Act, 1944 has held as under:

"Section 3 levies duty on all excisable goods mentioned in the schedule, provided, they are produced or manufactured. Therefore, when the goods are specified in the schedule, they are excisable goods, but whether the said goods can be subjected to duty depends on whether they are produced or manufactured by the person on whom duty is sought to be levied. The ex­pression production or manufacture has further been explained by this Court to mean that the goods so produced must satisfy the test of market­ability. Consequently, it is always open to the assessee to prove that even though goods in which he was carrying on business were excisable goods being mentioned in the schedule, but they could not be subjected to duty as they were not goods either because they were not produced or manufac­tured by it or if they had been produced or manufactured, they were not marketed or capable of being marketed."

 

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