TMI Blog1989 (9) TMI 354X X X X Extracts X X X X X X X X Extracts X X X X ..... rding to the petitioners, the 1st petitioners as lessors enter into a Master Lease Agreement with the lessee (i.e., the party who desires to take the equipment for use on hire). The 1st petitioners agree to give on lease diverse machinery/equipment listed in the lease summary schedule subject to the terms and conditions stipulated in the Master Lease Agreement. The lease summary schedule only mentions the broad category of equipment proposed to be leased and the aggregate value thereof. The Master Lease Agreement provides that orders for individual equipment will be placed by the 1st petitioners at the instance of the lessee and that the equipment to be leased will be despatched by the manufacturer or supplier to the location specified by the lessee. Thereafter at the instance of the lessee the 1st petitioners place their purchase orders with the supplier or manufacturer chosen by the lessee for supply of individual items and equipment falling within the category and aggregate value mentioned in the Master Lease Agreement Schedule. The petitioners' further case is that the 1st petitioners disburse the value of the equipment to the supplier. At the instance of the 1st petitioners th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vires. After the Constitution of India was amended by the Constitution (Sixth Amendment) Act, 1956, the provisions relating to powers to tax sales and purchases of goods were as follows: Under article 269(1)(g) of the Constitution, taxes on sales or purchases of goods other than newspapers which took place in the course of inter-State trade or commerce were to be levied and collected by the Government of India but were to be assigned to the States in the manner provided in clause (2) of article 269 of the Constitution. Clause (3) of article 269 provided that the Parliament may by law formulate the principles for determining when a sale or purchase of goods took place in the course of inter-State trade and commerce. The Union Parliament, under article 246(1) read with entry 92A, List I, Seventh Schedule (inserted by the said Sixth Amendment Act), was given exclusive power to make laws in respect of taxes on sale or purchase of goods other than newspapers, where such sales or purchases took place in the course of inter-State trade and commerce. The power of the States to make laws under article 246(3) read with entry 54, List II, Seventh Schedule, to impose taxes on sale or purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ership. The Constitution (Forty-sixth Amendment) Act, 1982, has inserted in article 366 the following clause (29-A): "'tax on the sale or purchase of goods' includes- (a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; (b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; (c) a tax on the delivery of goods on hire-purchase or any system of payment by instalments; (d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct came into force. We would presently examine the merits of the petitioners' contentions that the impugned Act transgressed the limitations imposed by (a) article 246 read with entry 92A, List I, Seventh Schedule, (b) article 269(1)(g), (c) article 286(1)(a) or (b) and (d) the restrictions and conditions, if any, imposed by the Parliament under article 286(3)(b). The definition of "sale" in section 2(10) of the impugned Act is as follows: "'Sale' means the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or any other valuable consideration, and the word 'sell' with all its grammatical variations and cognate expressions, shall be construed accordingly. Explanation.-For the purposes of this clause, the transfer of the right to use any such goods shall be deemed to have taken place in the State of Maharashtra, if the goods are in the State of Maharashtra at the time of their use irrespective of the place where the agreement for such transfer of the right to use such goods is made, and whether the assent of the party is prior or subsequent to such transfer of the right to use any such goods." The language ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment by instalments, but does not include a mortgage or hypothecation of or a charge or pledge on goods. After clause (29-A) was inserted, clause 2(g) of the Central Sales Tax Act has not yet been amended. The formulation of principles applied in respect of inter-State sales, sales outside the State and sales in the course of import and export contained in sections 3, 4 and 5 was in respect of "sale" as defined in section 2(g) of the Act. On the date of enactment, "transfer of the right to use goods for any purpose" was not a sale within the meaning of the Central Sales Tax Act. As stated hereinbefore, only after clause (29-A) was inserted in article 366 by the Constitution (Forty-sixth Amendment) Act, such transactions would be deemed to be sales and levy of sales tax upon such transfers has become legally permissible. In exercise of the powers conferred by article 269(3), the Parliament has not yet formulated the principles for determining when such transactions which are deemed sales under article 366(29-A), take place in the course of inter-State trade or commerce. The Parliament has not also as yet passed any law specifying restrictions or conditions in regard to a tax on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the original explanation to section 2(10) had been amended by Maharashtra Act 23 of 1986. By reason of the said explanation, transfer of the right to use any goods shall be deemed to have taken place in the State of Maharashtra, irrespective of the place where the agreement for such transfer of the right to use took place, if the goods are in the State of Maharashtra at the time of their use. In other words, the situs or the location of the goods at the time of their use has been chosen as the basis of taxability under the Act. Thus, in view of the amended explanation to section 2(10) of the impugned Act, the place where an agreement is made for transfer of the right to use goods is irrelevant and under the impugned Act, the State of Maharashtra has assumed power to levy tax on such transfer of the right to use goods which are located in the State of Maharashtra at the time of their use. In our view, the said provision contained in the explanation to section 2(10) does not result in bringing inter-State sales or sales taking place outside the State of Maharashtra within the scope of the impugned Act. The reported decisions upon which the learned counsel had relied were rendered in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which resembled sale but might not involve transfer of property in goods. The object was to augment the revenue of States. We ought not to interpret the Constitution and the laws in a manner which instead of widening would curtail the power of the States to impose sales tax on transactions which resemble sale. After clause (29-A) was inserted in article 366, the legislature under entry 54 has legislative competence subject to entry 92A to impose tax upon sale and purchase of goods including deemed sales. The transfer of the right to use goods under article 366(29-A)(d) of the Constitution and also under section 2(10) of the impugned Act does not involve passing of property in the goods. There is a conceptual distinction between a contract of sale as defined in section 4 of the Sale of Goods Act and a transfer of the right to use goods without being accompanied by transfer of ownership in the goods in favour of the hirer. Such a transfer of the right to use goods is a species of bailment. According to section 148 of the Indian Contract Act, a bailment is delivery of goods by one person to another for some purpose upon a contract. Such transfer of the right to use goods, no doubt, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... United Motors (India) Ltd. [1953] 4 STC 133 (SC); [1953] 4 SCR 1069 and Bengal Immunity Company Limited v. State of Bihar [1955] 6 STC 446 (SC); [1955] 2 SCR 603. In order to avoid such controversy, the said explanation to article 286(1)(a) had been deleted by the Constitution (Sixth Amendment) Act. Instead the test of physical location of the goods for determining the situs of a sale had been adopted in sub-section (1) of section 4 of the Central Sales Tax Act. The impugned Act also places incidence of the tax upon transfer of use of goods which are within Maharashtra at the time of their use. It would be neither irrational nor arbitrary to adopt the said test of physical location of the goods at the time of their use for determining the situs of deemed sales under section 2(10) read with section 3 of the impugned Act. We have already pointed out that the impugned Act purports to levy tax upon assumed or disguised sale transactions under which only right to use goods is transferred or leased out. Therefore, it would be legitimate to levy tax under the impugned Act at a place where, at the time of their use, the goods are situated. In case of a tax imposed on a transaction which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x has been levied on goods at the place where goods are yielded up for use by the lessee. The impugned Act does not adopt the nexus concept at all for imposing tax on transfer of the right to use goods. Further, in case of a transfer of the right to use goods, when an agreement is made in one State for giving delivery of goods for use by the transferee in another State, the movement precedes the transfer of the right to use, i.e., the movement is antecedent to the completed transaction. Only upon delivery of the goods the transfer of the right to use goods is completed. The transfer of the right to use goods is not concluded merely by execution of an agreement or document. In their writ petition the petitioners have mentioned that the 1st petitioners initially enter into a Master Lease Agreement with the lessee who desires to take equipment for use on hire. The said agreement mentions the lease of machines and equipment and the terms and conditions for such lease, etc. But such Master Lease Agreement on their own showing does not involve transfer of the right to use specific machineries or equipment. The petitioner's further case is that the 1st petitioners at the instance of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt for the purposes of article 286(1)(b) of the Constitution. Thus, in case there is a transfer of the right to use goods which are already located within the State of Maharashtra at the time of their use, there could be no question of such transaction occasioning import of such goods from outside India. In the example given by the petitioners, import of goods is bound to precede transfer of the right to use such goods in favour of the lessees of the petitioners. Any such import made cannot be considered to be an integral part of the transfer of the right to use goods. Therefore, the explanation to section 2(10) does not provide for levy of tax on inter-State sales or on sales taking place outside the State or on sales which occasion import into India. The choice of the location at the time of use for imposing tax under the impugned Act cannot be held as ultra vires. Therefore, section 2(10) including the explanation thereunder was not in excess of the legislative powers of the Maharashtra Legislature. There is also no substance in the contention that section 3 of the impugned Act purports to levy tax upon transfers and transactions which took place even before clause (29-A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 3rd December, 1986 written by the Director of Sales Tax, Government of India, Ministry of Finance, Department of Revenue, stating that before the Constitution (Forty-sixth Amendment) Act, 1982 received the assent of the President of India, the same had been ratified by requisite number of State Legislatures. After we had reserved our judgment, the Supreme Court has pronounced its decision in the case of Builders' Association of India v. Union of India since reported in [1989] 73 STC 370; AIR 1989 SC 1371. The court was satisfied that the Constitution (Forty-sixth Amendment) Act had been ratified by the Legislatures of not less than one-half of the States in terms of the proviso to article 368(2) of the Constitution. The Supreme Court further held that after the said amendment to the Constitution levy of sales tax on the transfer of property in goods involved in the execution of works contracts would be subject to the restrictions and conditions mentioned in article 286. Having interpreted the relevant provisions of the Constitution, the civil appeals filed against orders of the High Courts were directed to be placed before the appropriate Benches hearing tax matters in ord ..... X X X X Extracts X X X X X X X X Extracts X X X X
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