TaxTMI 
TaxTMI 
2000 (5) TMI 980
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....anjay Chaudhary, Vineet kumar, Yashank Adhyary, P.K. Jain, Mrs. Urmila Sirur, Mrs. B. Sunitha Rao, D.P. Mukerjee, Mrs, Kamini Jaiswal, G.B. Sathe, Ashish Dholakia, Dilip Sen, J.R. Das, D, Krishnan, V. Krishna-Murthy, A. Mariarputham, T. Harish Kumar, V.Rama Subramaniam, D.Gobur-dhan, Ms. Pinky Anand, Ms,Geeta Luthra, M. Veerappa, Kh.Nobin Singh, A.S. Bhasme, K.R.Nambiar, Ranjan Mukharjee, Mrs. Sumita Mukherjee, K. Ram Kumar, Ms. Santi Narayan, Y Subba Rao, B.Sridhar (For G. Prabhakar), Sushil Jain, Pradeep Agrawal, Prakash Shrivastava, A. Mishra, Ms. Anjali Doshi, Dilip Tandon, Ms. Neera Gupta, M. Shivram, R.C. Verma, P. Parameswaran, S.N. Terdol, and Mrs. Shureshtha Bagga, Advocates. -------------------------------------------------- V.N. KHARE, J.-Despite the decisions of this Court in Builders' Association of India v. Union of India [1989] 73 STC 370; (1989) 2 SCC 645 and Gannon Dunkerley & Co. v. State of Rajasthan [1993] 88 STC 204; (1993) 1 SCC 364, the controversy as regards the power of the State Legislature to levy sales tax under clause (29A)(d) of article 366 of the Constitution in the context of the question where is the taxable event on the transfer o....
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....y the manufacturer or supplier concerned to the locations specified in the lease. Thereafter, at the instance of the lessees, the appellants place their purchase orders to the suppliers or manufacturers for supply of individual items or equipments falling within the category and correct value mentioned in the Master Lease Agreement Schedules. The appellants' and the petitioners' further case is that they disburse the value of equipment to the suppliers and, at the instance of the appellants and the petitioners, the suppliers deliver the equipments to the lessees at the specified locations for use. After the equipments are delivered and put to use, the lessee executes supplementary lease schedules acknowledging due receipt of the lease equipments, and such supplementary lease deeds form an integral part of the Master Lease Agreement. Such is the nature of business carried on by the appellants and the petitioners in this group of cases. According to the appellants and the petitioners, one transaction of transfer of right to use goods is subjected to sales tax by more than one State. On such a transaction, some States levy tax on the appellants and the petitioners, merely because the....
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.... of the party is prior or subsequent to such transfer of the right to use any such goods." Section 3 of the Maharashtra Act provides for incidence of tax and section 4 deals with levy of tax. There is no dispute as regards the definition of "sale". What is under challenge is the Explanation to sub-section (10) of section 2 of the Act, which fixes situs of deemed sale within the State of Maharashtra on location of goods at the time of their use. The appellants in Civil Appeals excepting Civil Appeal Nos. 6218 to 6223 of 1995, had challenged the levy of sales tax by State of Maharashtra by means of writ petitions under article 226 of the Constitution before the Bombay High Court. Before the High Court, it was contended by the appellants that the Maharashtra Act, particularly section 3 read with section 2(10), purports to levy tax not only the transfers of right to use goods which takes place within the State of Maharashtra, but also upon the transfer which occasions the movement of leased or to be leased goods from one State to another, and also upon the transfers effected during movement of goods from one State to another and, therefore, the Act is ultra vires articles 269(3) and 2....
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....y enactment by the Parliament, the nature of contract, i.e., the transfer of right to use goods is to be determined with reference to law dealing with contract, namely, the Indian Contract Act, 1872, and in that connection referred to sections 148 and 149 of the Indian Contract Act. According to him, the transfer of the right to use goods being in the nature of a contract of bailment, there must be delivery or possession of goods before it can be said that the right to use is transferred. According to him, until the goods are delivered to the lessee it is only an agreement to give it on bailment and, in fact, the delivery of goods is sine qua non of the transfer of right to use goods. Thus, the State Legislature was fully competent to enact the Explanation to section 2(10) of the Act. In brief, the argument is that the taxable event would be the location of goods-delivery of which is to be effected for use. Shri C.S. Vaidyanathan, learned Additional Solicitor-General, appearing for the Union of India, Shri A.K. Ganguly, learned Senior Counsel appearing for the State of Tamil Nadu, Shri K. Ram Kumar, appearing for the State of Andhra Pradesh, Shri Adarsh Goel, appearing for the Sta....
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....ed to levy of sales tax by more than one Province resulting in burden on the consumers. These difficulties were well taken care of while framing the Constitution and, as a result of which we find article 286, as it existed in the Constitution, when it was enforced. Relevant article 286 is reproduced below: 286.. Restrictions as to imposition of tax on the sale or purchase of goods.- (1) No law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place- (a) outside the State; or (b) in the course of the import of the goods into, or export of the goods out of, the territory of India. Explanation.-For the purposes of sub-clause (a), a sale or purchase shall be deemed to have taken place in the State in which the goods have actually been delivered as a direct result of such sale or purchase for the purpose of consumption in that State, notwithstanding the fact that under the general law relating to sale of goods the property in the goods has by reason of such sale or purchase passed in another State. (2) Except in so far as Parliament may by law otherwise provide, no law of a State shall impose, or author....
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....he definition of "sale " in the Bombay Sales Tax Act was repugnant to article 286 of the Constitution. But, the said decision of the Bombay High Court was reversed by the Supreme Court in the case of State of Bombay v. United Motors (India) Ltd. [1953] 4 STC 133; [1953] 4 SCR 1069. However, the controversy did not abate and correctness of decision in the case of United Motors [1953] 4 STC 133; [1953] SCR 1069, was doubted and, therefore, it was reconsidered in Bengal Immunity Company Ltd. v. State of Bihar [1955] 6 STC 446 (SC); [1955] 2 SCR 603, wherein it was held, as thus: "The operative provisions of the several parts of article 286, namely, clause (1)(a), clause (1)(b), clause (2) and clause (3) are intended to deal with different topics and, one cannot be projected or read into another and there- fore the Explanation in clause (1)(a) cannot be legitimately extended to clause (2) either as an exception or as a proviso thereto or read as curtailing or limiting the ambit of clause (2). ...................... What is an inter-State sale or purchase continues to be so irrespective of the State where the sale is to be located either under the general law when it is finally deter....
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.... such sale or purchase takes place in the course of inter-State trade or commerce, and also to lay down the principles for determining when sale or purchase of goods takes place in the course of inter-State trade or commerce. The Sixth Amendment also omitted Explanation to clause (1)(a) of article 286 and further, clauses (2) and (3) of article 286 were substituted by two new clauses. Amended article 286 read as under: "286. Restrictions as to imposition of tax on the sale or purchase of goods.- (1) No law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place- (a) outside the State; or (b) in the course of the import of the goods into, or export of the goods out of, the territory of India. (2) Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause (1). (3) Any law of a State shall, in so far as it imposes, or authorises the imposition of a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade or commerce; be subject to such restrictions and conditio....
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....ter the decision of this Court in Gannon Dunkerley case [1958] 9 STC 353; [1959] SCR 379, States suffered losses as a result of avoidance of the Central sales tax leviable on inter-State sales of goods. Therefore, the matters were referred to the Law Commission of India. The Law Commission, after considering the matters referred, made certain recommendations suggesting amendments in the Constitution in order to augment the revenue of the States. In the light of the recommendations of the Law Commission, Parliament passed the Constitution (Forty-sixth Amendment) Act, whereby a new clause (29A) was inserted in article 366 of the Constitution, which is extracted below: "(29A) 'tax on the sale or purchase of goods' includes- (a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; (b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; (c) a tax on the delivery of goods on hire-purchase or any system of payment by instalments; (d) a tax on the transfer of the right to use any goods for any purpose (whether ....
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....7.. After the Forty-sixth Amendment, State Legislatures became competent to levy sales tax on deemed sales envisaged in clause (29A) of article 366 of the Constitution although such transactions were not sales within the meaning of "sale" and most of the State Legislatures enacted law to levy sales tax on deemed sale in terms of the provisions of clause (29A) of article 366 of the Constitution, and sought to assess the contractors on the transactions of works contracts. It is at this stage writ petitions were filed in this Court challenging such levy contending, that the power of State Legislatures to levy tax on transfer of property in goods involved in the execution of works contracts referred to in sub-clause (b) of clause (29A) of article 366, is in excess of power conferred on State Legislatures under entry 54, List II. The respondent-States in those writ petitions defended the levy on the ground that sub-clause (b) of article 366(29A) bestowed on them a power to levy tax on works contract independent of entry 54 of List II. This Court in the case of Builders Association [1989] 73 STC 370; (1989) 2 SCC 645 held, that the power of the State Legislature to levy tax on works cont....
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....e the limitation on the powers of State Legislatures on levy of sales tax on deemed sales envisaged under sub-clause (d) of clause (29A) of article 366 of the Constitution. 20.. While examining the power of State Legislatures under entry 54 of List II in earlier part of this judgment, we have noticed that the situs of the sale or purchase is wholly immaterial as regards the inter-State trade or commerce, as held in Bengal Immunity Co. Ltd.'s. case [1955] 6 STC 446 (SC); [1955] 2 SCR 603. Further, the State Legislature cannot by law treat sales outside the State and sales in the course of import as "sales within the State" by fixing the situs of sales within its State in the definition of sale, as it is within the exclusive domain of the appropriate Legislature, i.e., Parliament, to fix the location of sale by creating legal fiction or otherwise. 21.. It may be noted that the transactions contemplated under sub- clauses (a) to (f) of clause (29A) of article 366 are not actual sales within the meaning of "sale" but are deemed sales by legal fiction created therein. The situs of sale can only be fixed either by the appropriate Legislature or by judge made law, and there is no settle....
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....e two together indicate that it is the passing of property within the State that is intended to be fastened on, for the purpose of determining, whether the sale in question is 'inside' or 'outside' the State, and therefore, subject to the operation of the 'Explanation' that State in which property passes would be the only State which would have the power to levy a tax on the sale. As was explained in the recent decision of this Court in Burmah Shell Oil Storage & Distributing Co. of India Ltd. v. Commercial Tax Officer [1960] 11 STC 764 (SC): By sale here [article 286(1)(a)] is meant a completed transaction by which property in the goods passes. Before the property in the goods passes, "the contract of sale is only executory, and the buyer has only a chose in action".......... The Constitution thinks in terms of a completed sale by the passing of property and not in terms of an executory contract for the sale of goods.' Notwithstanding that is not an 'outside' sale, the power of the State to tax might be negatived by the operation of the Explanation which by its non obstante clause shifts the situs of the sale and renders the sale transaction one within the delivery-cum-consumpti....
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....ion (Sixth Amendment) Act, was not available. Since there was no legal fiction to determine the situs of sale it was held that the sale was "outside" sale and was not "inside" sale qua State of Travancore-Cochin because the property in goods passed when the contract was accepted on the fall of hammer in Fort Cochin which was in the State of Madras. The relevant extract of the judgment is reproduced below: "that the property in the goods passed when the contract was accepted on the fall of the hammer in Fort Cochin. Under article 286(1) it was the 'passing of the property within the State' that was intended to be fastened on for the purpose of determining whether the sale was 'inside' or 'outside' the State. Subject to the operation of the 'explanation' that State in which property passed would be the only State which would have the power to levy the tax on the sale. But the explanation did not apply in the present case as there was no delivery as a direct result of the sale for consumption in any particular State." 24.. The aforesaid decisions unambiguously laid down that where situs of sale has not been fixed or covered by any legal fiction created by the appropriate Legislatur....
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....may be other views to consider, but it is certainly a possible view. It is also possible to hold that this is not inter-State trade or commerce, because there is no movement of goods across a State boundary. Again, we need not decide that because that also may be controversial. But given these two postulates the transaction would fall squarely within the Explanation and yet it would not come within clause (2), for there is no movement of the goods across the border of any State and both the seller and the buyer are in the same place. Surely, the Explanation will, in presenti, govern such cases irrespective of whether Parliament has lifted the ban under clause (2). If these postulates are accepted then by virtue of clause (1)(a) read with the Explanation the State of Delhi alone will be entitled to impose a tax on such a sale or purchase and the State of Punjab will be precluded from doing so by reason of the fictional situs assigned to such a sale or purchase by the Explanation, although the contract was made, price was paid and symbolical or constructive delivery of the goods by the handing over of the delivery order took place in Gurgaon in the State of Punjab." We, therefore,....
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.... be a deemed sale in the case of sub-clause (d). Clause (29A) cannot, in our view, be read as implying that the tax under sub-clause (d) is to be imposed not on the transfer of the right to use goods but on the delivery of the goods for use. Nor, in our view, can a transfer of the right to use goods in sub-clause (d) of clause (29A) be equated with the third sort of bailment referred to in "Bailment" by Palmer, 1979 edition, page 88. The third sort referred to there is when goods are left with the bailee to be used by him for hire, which implies the transfer of the goods to the bailee. In the case of sub-clause (d), the goods are not required to be left with the transferee. All that is required is that there is a transfer of the right to use the goods. In our view, therefore, on a plain construction of sub-clause (d) of clause (29A), the taxable event is the transfer of the right to use the goods regardless of when or whether the goods are delivered for use. What is required is that the goods should be in existence so that they may be used. And further contract in respect thereof is also required to be executed. Given that, the locus of the deemed sale is the place where the right ....
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....where the contract is executed. 29.. Learned counsel representing the respondents-States contended that by virtue of application of section 4 of the Central Sales Tax Act, State Legislatures are competent to enact law imposing tax on the transfer of right to use goods if the goods are located for use within their States and placed reliance on the decision of this Court in the second Gannon Dunkerley & Co. [1993] 88 STC 204; (1993) 1 SCC 364. The relevant passage of the said judgment runs as under: "The question whether a sale is an outside sale or a sale inside the State or whether it is a sale in the course of import or export will have to be determined in accordance with the principles contained in sections 4 and 5 of the Central Sales Tax Act and the State Legislature while enacting the sales tax legislation for the State cannot make a departure from those principles." 30.. The aforesaid contention advanced has no merit and reliance on the second Gannon Dunkerley & Co. [1993] 88 STC 204 (SC); (1993) 1 SCC 364 is totally misplaced. It may be noted that after Forty-sixth Amendment of the Constitution, the definition of "sale " in the Central Sales Tax Act has not been amended a....
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.... legal fiction engrafted in clause (29A) of article 366 of the Constitution. We are, therefore, of the view that the reasoning of the High Court in upholding the Explanation to section 2(10) of the Act is not tenable in law. This question is also related to another question which falls to be considered, namely, whether the State of Maharashtra can levy tax on the transaction which is an inter-State sale. The Bombay High Court expressed the view that in case of transfer of right to use goods when agreement is made in one State for giving delivery of goods for use by the lessee in another State, the movement precedes a transfer of right to use, i.e., the movement is antecedent to the completed transaction and only upon delivery of goods the transfer of right to use is completed as the transfer of right to use goods is not concluded merely by execution of an agreement or document. In view of the fact that the transaction in question is deemed sale and definition of "sale" in the Central Sales Tax Act is not amended, the said reasoning of the High Court is not only erroneous, but runs contrary to two decisions of this Court-(i) Builders Association of India [1989] 73 STC 370; (1989) 2 ....
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.... use the taxable event on the transfer of right to use any goods is on the transfer which results in right to use and the situs of sale would be the place where the contract is executed and not where the goods are located for use. (d) In cases where goods are not in existence or where there is an oral or implied transfer of the right to use goods, such transactions may be effected by the delivery of the goods. In such cases the taxable event would be on the delivery of goods. (e) The transaction of transfer of right to use goods cannot be termed as contract of bailment as it is deemed sale within the meaning of legal fiction engrafted in clause (29A)(d) of article 366 of the Constitution wherein the location or delivery of goods to put to use is immaterial. 36.. In the light of what we have stated above, we will examine the provisions of the various Acts which are impugned in the present case. 37.. These civil appeals and writ petitions are pending for a considerable period of time and during pendency of these cases many States have made various amendments in their State Acts but the appeals and writ petitions were not accordingly amended. We have been supplied with photocopies....
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....sfer of right to use any goods if such deemed sale is (i) an outside sale, (ii) sale in course of the import of the goods into or export of the goods out of the territory of India and (iii) an inter-State sale. 39.. Karnataka Act: The tax on the transfer of right to use any goods is levied under the General Sales Tax Act, namely the Karnataka Sales Tax Act. Section 2(t) of the Karnataka Sales Tax Act, 1957, defines "sale" as under: "'Sale' with all its grammatical variation and cognate expressions means every transfer of the property in goods (other than by way of a mortgage, hypothecation, charge or pledge) by one person to another in the course of trade or business for cash or for deferred payment or other valuable consideration and includes,- .................... (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." The above definition of section 2(t) has Explanations. The relevant portions of which are being reproduced below: Explanation 3.-(a) The sale or purchase of goods other than in the course of inter-State trade or commerce or in the course of import or ....
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....r conferred to the State Legislature under entry 54 of List II of the Seventh Schedule to the Constitution following the reasoning given while discussing the Maharashtra Act. We, accordingly, direct that Explanation 3(d) to section 2(t) of the Act shall be read down to this effect that it would not be applicable to the transactions of transfer of right to use any goods if such deemed sale is (i) an outside sale, (ii) sale in course of the import of the goods into or export of the goods out of the territory of India and (iii) an inter-State sale. 41.. Tamil Nadu: The Tamil Nadu General Sales Tax Act, 1959, also levies tax on transfer of right to use any goods. Section 2(n) defines "sale " as under: " 'Sale' with all its grammatical variations and cognate expressions means every transfer of the property in goods (other than by way of a mortgage, hypothecation, charge or pledge) by one person to another in the course of business for cash, deferred payment or other valuable consideration and includes- ................... (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." ....
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.... a specified period) for cash, deferred payment or other valuable consideration; ". The charging section in relation to tax on transfer of right to use any goods is under the general provisions of the Sales Tax Act. Note 4 of section 2(l) reads as thus: "Note 4: A sale falling under sub-clause (iv) shall be deemed to have taken place within the State if the goods in respect of which right to use has been transferred are within the State at the time of their use." Note 4 is substantially akin to explanation impugned in the Maharashtra Act. Note 4 widens the ambit of definition of "sale" by including outside sale, inter-State sale and import into the territory of India. Following the reasoning given earlier, we direct that Note 4 to section 2(l) of the Act shall be read down to this effect that it would not be applicable to the transactions of transfer of right to use any goods if such deemed sale is (i) an outside sale, (ii) sale in course of the import of the goods into or export of the goods out of the territory of India and (iii) an inter-State sale. 43.. Uttar Pradesh: Uttar Pradesh Trade Tax Act, 1948, also levies tax on transfer of right to use any goods. Section 2(h) ....
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....d by including "outside sale" as "inside sale" on mere location of goods for use within the State irrespective of the fact that the agreement for transfer of right to use has been executed outside the State or whether the sale is outside the State, the tax is chargeable within the State. And, further, on account of a special provision for rates of tax, the other provision such as single point tax as well as exemption, etc., is not applicable to the transaction of transfer of right to use any goods. We find that clause (ii) of Explanation I of section 2(h) is in excess of legislative power under entry 54, List II of the Seventh Schedule and, therefore, we direct that clause (ii) of Explanation I of section 2(h) of the Act shall be read down to this effect that it would not be applicable to the transaction of transfer of right to use any goods if such deemed sale is (i) an outside sale, (ii) sale in course of the import of the goods into or export of the goods out of the territory of India and (iii) an inter-State sale. 46.. Rajasthan: The Rajasthan Sales Tax Act, 1994, levies tax on transfer of a right to use any goods. Section 2(23) defines "lease" which is being reproduced be....
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....s "sale", which is being reproduced below: " 'sale' with all its grammatical variations and cognate expressions means every transfer of the property in goods whether as such goods or in any other form in pursuance of a contract or otherwise by one person to another in the course of trade or business, for cash, or for deferred payment, or for any other valuable consideration or in the supply or distribution of goods by a society (including a co-operative society), club, firm or association to its members, but does not include a mortgage, hypothecation or pledge of, or a charge on goods." The above sub-section has explanations. The relevant Explanations are reproduced below: "Explanation II.-(a) Notwithstanding anything contained in the Indian Sale of Goods Act, 1930 (Central Act III of 1930) a sale or purchase of goods shall be deemed, for the purpose of this Act to have taken place in the State, wherever the contract of sale or purchase might have been made, if the goods are within the State; .................. Explanation IV.-A transfer of right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration s....
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....mport or export. 51.. Although, the aforesaid section was required to be amended after the I.T.C. Classic case [1995] 97 STC 330 (AP) under appeal, it remained unamended and its Explanation provides that the provisions of Chapter II of the Central Sales Tax Act, 1956, shall apply for the purpose of determining when a sale or purchase takes place in the course of inter-State trade or commerce or outside a State or in the course of import or export. 52.. We have already held that since the definition of "sale" so far as it relates to transaction of transfer of right to use any goods is concerned in Central Sales Tax Act has not been amended, the provisions of section 4 of the Central Sales Tax Act will not be applicable to such transactions. Thus, we find that clause (b) of section 5E is in excess of legislative power of the State under entry 54 of List II of Seventh Schedule. We, therefore, direct that clause (b) of section 5E of the Act shall be read down to this effect that it would not be applicable to the transaction of transfer of right to use any goods if such deemed sale is (i) an outside sale, (ii) sale in course of the import of the goods into or export of the goods out....
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....ort of sub-clause (d) of clause (29A) of article 366 and where does the taxable event on the transfer of right to use goods arise. (3) Whether the impugned legislations of the States are unconstitutional being in violation of clauses (1) to (3) of article 286 and clauses (1) and (3) of article 269 of the Constitution, and (4) Whether the orders impugned in the appeals the provisions challenged in writ petitions and transfer petitions are sustainable. 58.. On the first question, after tracing the history of the sales tax legislation both under the Government of India Act, 1935, as well as under the Constitution of India and dealing with the events leading to the insertion of clause (29A) in article 366 of the Constitution and after noticing the law laid down in the decisions of the Constitution Benches of this Court in Builders' Association of India v. Union of India [1989] 73 STC 370; (1989) 2 SCC 645 and Gannon Dunkerley & Co. v. State of Rajasthan [1993] 88 STC 204; (1993) 1 SCC 364, our learned brother reiterated the limitations imposed by clauses (1), (2) and sub-clause (a) of clause (3) of article 286 and clauses (1) and (3) of article 269 of the Constitution as well as sec....
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.... of payment by instalments; (d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made;" 63.. A careful reading of clause (29A) shows that it is an inclusive definition and has two limbs. The first limb says that tax on the sale or purchase of goods includes a tax on transactions specified in sub-clauses (a) to (f) thereof. The second limb provides that such transfer, delive....
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.... to make their use possible. On this construction, it is explicit that the transfer of right to use any goods involves both passing of a right in as well as domain of the goods in which right to use is transferred. 67.. It is a common ground that the transaction mentioned in sub-clause (d) which is treated as a "deemed sale ", is in effect leasing/hiring of the goods, which implies use of the goods by the hirer. 68.. It will be useful to note the following passage in "Introduction to the Law of Property" by Mr. F.H. Lawson 1958 Edition, page 117. "In Roman law hire was nothing more than contract. In English law, however, it is much more. Here again we must distinguish between chattels and land. When a chattel is handed over by way of hire a bailment takes place, and thereby the hirer is put in possession of the thing. For land the corresponding transaction is a lease, and here too there is a transfer of possession. So far the two are very similar, though whereas the lessor always retains what is misleadingly called "possession", a bailor who bails goods for a fixed term loses possession..............." 69.. The Halsbury's Laws of England describes "Hire of chattels" Fourth Editi....
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....b and Haryana (sic) in Upasana Finance Ltd. v. State of Tamil Nadu [1999] 113 STC 403 (TNTST), the High Court of Orissa in Krushna Chandra Behera v. State of Orissa [1991] 83 STC 325. 72.. Reverting to sub-clause (d) of clause (29A), a perusal of the Statement of Objects and Reasons appended to the Constitution (Forty-sixth Amendment) Act, 1982, shows that the Parliament has taken note of the fact that the main right in regard to films relates to its exploitation and after exploitation for a certain period of time, in most cases, the film ceases to have any value, so instead of resorting to the outright sale of a film, only a lease or transfer of the right to exploit the film is made. The device by way of lease of films has been resulting in avoidance of sales tax so to curb that device, sub-clause (d) is inserted in clause (29A). Even so, sub-clause (d) is of wider import than a mere leasing of films. It applies to all kinds of leasing/hiring of goods, for example, leases of plants, machinery, computers, cars, planes, furniture, etc. 73.. A sale of any goods is complete when the property in the goods passes to the purchaser pursuant to a contract of sale of those goods. So also,....
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....d) to pay sales tax would commence immediately even though the equipment in regard to which "the right to use" has been transferred to the hirer is not in existence? But then it is conceded that transfer in sub-clause (d) will not be effectual where the goods are not in existence. Now, the next stage, after placing the order for purchase of an equipment, let us take, an equipment has been manufactured and is thus brought into existence but remains unspecified; will then the transfer be complete at that stage and the appellants' tax liability will start immediately on its manufacture. In our opinion, no. At that stage even the sale of the equipment in favour of the appellants will not be complete as the property in the equipment will not pass to the appellants. The manufacturer will have to specify an equipment and either deliver or appropriate it to the contract of sale by the appellants, which will complete the sale of equipment in their favour. Thereafter, the transfer of the right to use the goods can become effective and the liability of the appellants to pay sales tax will arise. Let us take a case where the equipment is with the supplier as unspecified goods; will the transfe....
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....are ascertained. In particular, where the individuality of the goods depends upon their being separated, weighed, measured, tested or counted, or upon some other act or thing being done in relation to them for their ascertainment, the goods are not ascertained until such act or thing is done. Goods are unascertained, notwithstanding that they are to be taken from a specific larger bulk, if the identity of the portion so to be taken is unascertained. The ascertainment of the goods does not of itself necessarily pass the property. It does so only if the parties have agreed that the property in the goods should pass when ascertained." In our view the same principles will apply in the case of a deemed sale embodied in sub-clause (d). 79.. If these principles are borne in mind, it cannot but be held, in the instant case, that till the equipment is handed over to the carrier to be deliered to the hirer, the sale of the equipment itself, ordered by the appellants, will not be complete much less can it be said that the deemed sale in favour of the hirer will be complete on execution of the master lease in respect of non existent/unspecified goods. That is why we have held above that on e....
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....l that in regard to the sales of tea in 'full lots' the property passed at Fort Cochin and this view has not been challenged in this Court. Therefore, on the majority decision in India Copper Corporation Ltd. v. State of Bihar [1961] 12 STC 56 (SC); [1961] 2 SCR 276, the only State which would have the power to levy a tax on such sale would be the State of Madras and so far as Travancore-Cochin was concerned, the sale would be an outside sale. In the present case, therefore, the sale was an 'outside sale' and cannot be said to be an 'inside sale' qua Travancore-Cochin because the title passed at Fort Cochin which is in the State of Madras. Apart from that, money was paid there and the delivery order was also received there even though the actual physical delivery of goods was made at Willingdon Island in the State of Travancore-Cochin." At that time Explanation to article 286(1) was in force, so it was observed that the fiction created by the Explanation to article 286(1)(a) was inapplicable because there was no delivery as a direct result of sale for the purpose of consumption in any particular State. 82.. By virtue of the said constitutional provisions, the Parliament enacted ....
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....cted by virtue of the power conferred in entry 54, List II of the Seventh Schedule to the Constitution on the agreement for sale, therefore, necessarily the taxable event has to be on the completion of a deemed sale. We have also discussed above as to when and where a deemed sale will be complete in regard to specified goods as also in regard to unspecified goods. However, some aspects which remained untouched may be dealt with here. In the case of a deemed sale of goods, whether specified or unspecified, under sub-clause (d), where more States than one are involved, the taxable event will arise where the transfer is complete ; if the contract is oral at the place of the delivery of the goods in which the right to use is transferred, but, if the contract is in writing, subject to the terms and conditions of the contract evidencing the intention of the parties, where giving the control/ domain of the goods is postulated. In other words, the transfer will be complete where the contract is executed and the control/domain of the goods which are the subject-matter of the contract, is given to the hirer. Let us take an example-the hirer is in Delhi, the lessor is in Mumbai and the goods ....
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.... appropriation by the other, provided the appropriation is made in accordance with the contract." This principle deals with the sale of goods but there is no legal impediment or difficulty in applying the same to a deemed sale as well. 86.. It may be noted that levy of tax under sub-clause (d) is on transfer of right to use any goods. The tax is not on the actual use of the goods; the hirer may use the goods during the period specified in the contract in exercise of the right acquired thereunder or he may not use them at all. The taxable event does not depend on the actual use. For purposes of sub-clause (d), actual exercise of the right to use the goods is not its ingredient and is irrelevant. 87.. It will be convenient to deal with question Nos. 3 and 4 together as they are inter-connected. The impugned provisions of the Sales Tax Acts of seven States which are the subject-matter of some of the cases, are in pari materia being on the subject of levy of impost on the transaction specified under sub-clause (d) of clause (29A). After the insertion of clause (29A) in article 366 of the Constitution, many States, including the following States, amended their Sales Tax Acts by bring....
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....to in Delhi, the control/domain of the car was also given in Delhi by handing over key of the car and the delivery of the car was taken from Gurgaon (Haryana), thus, the taxable event, namely, the transfer was complete in Delhi, but if the hirer uses the car in Bombay, the Maharashtra Act treats such a deemed sale as taxable by that State on the mere use of the car in Maharashtra State which has no nexus to the taxable event under sub-clause (d). 89.. The impugned Explanation is sought to be saved on the following grounds: (i) The incidence of a deemed sale under sub-clause (d) is delivery of possession and the goods can be delivered only at the place where they are located. We have discussed above the requirement of delivery of possession and held that physical delivery of goods is not required to be effected in sub- clause (d) and that what all is required to complete the transfer in sub- clause (d) is giving control/domain of the goods which can be effected at any place and for that situs of the goods is not a relevant factor. Here we may point out that there is a distinction between a case of giving control/domain of the goods and effecting the actual delivery of the goods; i....
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..... For the foregoing reasons, the impugned Explanation cannot be sustained being violative of article 286(1)(a), articles 269(1)(g) and 269(3) read with sections 3 and 4 of the Central Sales Tax Act. 91.. The same result follows in the case of the impugned legislation of the Haryana Act, Note 4 of section 2(l), Andhra Pradesh Act, clause (b) of section 5E of the Act, the U.P. Act, clause (ii) of Explanation I to section 2(h) and in the Rajasthan Act, the definition of sale contained in section 2(38), Explanation II, clause (b) given in the statement above. Though they are differently worded, they convey the same meaning as contained in the Explanation to section 2(10) of the Maharashtra Act, discussed above, and for the same reason, they are also illegal and unconstitutional. 92.. The impugned provisions of the Tamil Nadu Act is contained in clause (a) of explanation 3 which reads thus: "Explanation 3.-(a) The sale or purchase of goods shall be deemed, for the purposes of this Act, to have taken place in the State, wherever the contract of sale or purchase might have been made, if the goods are within the State." This provision, unlike the impugned provisions of the Acts ....
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....le under sub-clause (d)? The Division Bench of the Andhra Pradesh High Court proceeded on the footing, following, among others, the judgment of the Bombay High Court in the 20th Century Finance Corporation [1989] 75 STC 217, as well as the earlier judgments of the Andhra Pradesh High Court, that the transaction referred to in sub-clause (d) is a specie of bailment and on the interpretation of the contract of the master lease, it held that the transfer of right to use the equipment (deemed sale) was complete on execution of the master lease and that the deemed sale occasioned the movements of the goods from Calcutta to Hyderabad and it being an inter- State transaction was not liable to be taxed within the State of Andhra Pradesh. Here two points arise: (i) when and where the transfer of right to use the equipment was complete; and (ii) was it an inter-State transaction. 95.. In the light of the above discussion, as the equipment involved was unspecified goods and indeed an order for purchase of an unspecified equipment was made by the respondent after the lease, the respondent did not become owner of the equipment till the same was despatched to the hirer so the transaction under ....