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TMI Blog2011 (1) TMI 1196X X X X Extracts X X X X X X X X Extracts X X X X ..... reafter, the Additional Commissioner (Legal) passed orders on November 29, 2008 under section 20(1) of the Act which were preceded by the show-cause notices dated September 2, 2008. All the tax appeals filed by the petitioners, being Tax Appeal No. 467 of 2009 and batch, were dismissed on November 30, 2009. Facts:- The undisputed factual matrix is in a narrow compass. The petitioners-M/s. G. S. Lamba and Company, G. S. Lamba and Sons, and G. S. L. Coal Sales Pvt. Ltd.,-are dealers on the rolls of the Commercial Tax Officer (CTO), Begumpet Circle. In pursuance of the inspection and investigation by the Vigilance and Enforcement Wing, the CTO assessed tax for 2001-02 and 2002-03 under section 5E of the Act in respect of the taxable event, namely, the petitioners hiring their fleet of transit mixers to M/s. Grasim Industries Ltd., Secunderabad, a unit of M/s. Birla Ready Mix Concrete (hereafter, "Grasim"). The Appellate Deputy Commissioner agreed with assessees and treated the hiring of transit mixers as contract of transport service, and not the transfer of the right to use the goods. The Additional Commissioner (Legal), in exercise of the revisional jurisdiction, lev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation that the intention was to transfer the right to use transit mixers. The RMC is a product with short shelf life and its marketability depends on the quality. So as to assure the product quality to end-user, it was agreed to paint the brand name on the vehicles. The same, however, does not lead to an inference that there is consensus ad idem ; and that the petitioners should keep ready the dedicated fleet of eight vehicles to be used by Grasim. In the absence of transfer of possession and effective control, section 5E of the Act is inapplicable. Lastly it is urged that the Tribunal was in error in not recording findings on all the issues raised by the petitioners. The counsel relied on various precedents to which a reference would be made at the appropriate place. The Special Counsel for Commercial Taxes points out that the agreement between the petitioners and Grasim is a post created document and no importance can be attached to the same. Alternatively he submits that the Tribunal has correctly appreciated the questions of fact in the light of the agreement between the parties which clinchingly reveals the presence of the essential requirements of section 5E of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order or proceeding and may pass such order in reference thereto as it thinks fit. (2) Powers of the nature referred to subsection (1) may also be exercised by the Additional Commissioner, Joint Commissioner, Deputy Commissioner, Assistant Commissioner and the Commercial Tax Officer in the case of orders passed or proceedings recorded by authorities, officers or persons subordinate to them. (Sub-sections (2A), (3), (5) and (6) are omitted.) (emphasis supplied) 263. Revision of orders prejudicial to revenue:- (1) the Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. (Explanation and sub-sections (2) and (3) are omitted.) The power under section 263(1) of the Income-tax Act confe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellate authority is erroneous in so far as it is prejudicial to the interest of revenue. This is plainly not permissible. The impugned order of the Tribunal is also attacked on the ground that the Tribunal erred in not recording a finding on the issue raised. This cannot be a ground for us to exercise revisional jurisdiction under section 22(1) of the Act. As rightly pointed out by the Special Counsel for Commercial Taxes, the submissions were noted in the order. The learned Tribunal considered the core issue and, having found that the agreement is a contract for the transfer of the right to use transit mixers, dismissed the appeals. We fail to understand as to how the impugned order can be put to challenge only on the ground that a finding is not recorded on one of the issues raised by the assessee before the Tribunal. Transportation service or transfer of the right to use transit mixers?:- The petitioners allege that the contract with Grasim is for transportation service. They deny that it is for the transfer of the right to use the goods. Transit mixers are indisputably goods as defined in section 2(h) of the Act. Section 2(h) defines "sales" to mean t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) ; [1972] 1 SCC 472 and Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi [1978] 42 STC 386 (SC) ; [1978] 4 SCC 36, it was held that service of meals in a hotel or restaurant does not constitute sale of food for the purpose of levy of sales tax and must be regarded as rendering service in the satisfaction of human need. So as to tackle these issues, which affected the State's revenue (by depriving tax on such type of sales), the matter was referred to the Law Commission of India. In their Sixty First Report, the Law Commission of India dealt with specific transactions like transfer of control commodities, supply of food in hotels, transfer of goods on hire purchase and the works contracts. In Chapter 1E the Law Commission made pertinent observations, which compel excerption:- "Chapter 1E Some general observations as to taxation on sale 1E. General observations as to 'sale':- (1) So far, we have dealt with specific transactions. A few general observations may now be made. A sale of goods requires an agreement to transfer title in goods for money, followed by the actual passing of such title as a result of the agreement. This broad concept, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itherto not considered as sale of goods, came within the fold of State laws. Indeed, as observed by the Law Commission of India, the underlying theme was to devise a tax, which will embrace all transactions which are regarded as adding value or which is entered into with that object. This is reflected in the new definition in article 366(29A), which reads as under:- "366. Definitions:- (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 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 ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of a works contract. The emphasis is on the transfer of property in goods (whether as goods or in some other form). The latter part of clause (29A) of article 366 of the Constitution makes the position, very clear. While referring to the transfer, delivery or supply of any goods that takes place as per sub-clauses (a) to (f) of clause (29A), the latter part of clause (29A) says that '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 . . . The object of the new definition introduced in clause (29A) of article 366 of the Constitution is, therefore, to enlarge the scope of 'tax on sale or purchase of goods' wherever it occurs in the Constitution so that it may include within its scope the transfer, delivery or supply of goods that may take place under any of the transactions referred to in sub-clauses (a) to (f) thereof wherever such transfer, delivery or supply becomes subject to levy of sales tax..." (emphasis supplied) Inspired by the Forty-sixth Amendment, like many ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pment for rent. After purchasing the goods of required specifications, the manufacturer was advised to consign them directly to the customer on hire under an agreement of lease of the equipment for a period of sixty months or more. As these goods were moved out of the State during the course of inter-State trade, in their sales tax return for the year 1988-89; the assessee claimed exemption on the ground that the transaction was not excisable to tax under section 5E of the Act. The original authority rejected the contention. The assessee was successful before the Appellate Deputy Commissioner. However, the Commissioner following the judgment of the Bombay High Court in 20th Century Finance Corporation Limited v. State of Maharashtra [1989] 75 STC 217 (Bom) in suo motu revision, set aside the appellate order restoring the original assessment order. The assessee then -filed special appeal before this court, inter alia, contending that deemed sales cannot be distinguished from ordinary sales for the purpose of taxation under the Act, and that, the taxable event of delivering the goods having occurred in the State of Tamil Nadu, the same is not excisable under section 5E of the Act. Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; Provided that no such tax shall be levied if the total turnover of the dealer including such aggregate is less than Rs. two lakhs. The decision in I. T. C. Classic Finance [1995] 97 STC 330 (AP) ; [1995] 20 APSTJ 150 went in appeal to the Supreme Court. The appeal was heard along with other similar appeals (20th Century Finance Corpn. Ltd. v. State of Maharashtra [2000] 119 STC 182 (SC) ; [2000] 6 SCC 12) by a Constitution Bench of the Supreme Court which, inter alia, considered the import of sub-clause (d) of clause (29A) of article 366 of the Constitution, and the constitutional validity of section 5E of the APGST Act and similar provisions in Haryana, Maharashtra, Rajasthan, Uttar Pradesh and Tamil Nadu Acts. By majority of 3:2, section 5E(b) was held to be in excess of the legislative power of the State under entry 54 of List II of the Seventh Schedule to the Constitution. But to save it from being unconstitutional, the court read down holding that it would not be applicable to the transaction of the transfer of the right to use goods if such deemed sale is:- (i) an outside sale; (ii) sale in the course of import or export of the goods; and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the place where the right to use the goods is transferred, where the goods are when the right to use them is transferred is of no relevance; to the locus of the deemed sale. Also of no relevance, to the deemed sale is where the goods are delivered for use pursuant to the transfer of the right to use them, though it may be that in the case of an oral or implied transfer of the right to use goods, it is effected by the delivery of the goods." (emphasis supplied) While holding that, in a contract for the transfer of the right to use goods, the taxable event would be the execution of the contract for delivery of the goods, it was observed (page 202 in 119 STC):- "Article 366(29A)(d) further shows that levy of tax is not on use of goods but on the transfer of the right to use goods. The right to use goods accrues only on account of the transfer of right. In other words, right to use arises only on the transfer of such a right and unless there is transfer of right, the right to use does not arise. Therefore, it is the transfer which is sine qua non for the right to use any goods. If the goods are available, the transfer of the right to use takes place when the contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riod the machinery was in his use ; the condition that the contractor would be responsible for the custody of the machinery while it was on the site did not militate against respondent's possession and control of the machinery. . ." (emphasis supplied) In Bharat Sanchar Nigam Ltd. v. Union of India [2006] 3 VST 95 (SC) ; [2006] 145 STC 91 (SC) ; [2006] 3 SCC 1, the principal question was regarding the nature of transaction by which mobile phone connections are enjoyed. In an earlier decision marked as State of Uttar Pradesh v. Union of India [2003] 130 STC 1 (SC) ; [2003] 3 SCC 239, a two-judge Bench took the view that transferring the right to use the telephone instrument/apparatus, fell within section 2(h) of the Uttar Pradesh Trade Tax Act, which defined "sale" to include the transfer of the right to use goods. Doubting the correctness, the matter went before a three-judge Bench. In the lead opinion, as well as in concurring opinion, it was held that though giving a telephone connection would be a transfer of the right to use the goods, there cannot be transfer of the right to use in the case of telephone service. "Providing the use of electro magnetic waves are nei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of clause (29A) cannot be equated with that category of bailment where goods are left with the bailee to be used by him for hire. (e) In the case of article 366(29A)(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 goods. In such a case taxable event occurs 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. (f) The levy of tax under article 366(29A)(d) is not on the use of goods. It is on the transfer of the right to use goods which accrues only on account of the transfer of the right. In other words, the right to use goods arises only on the transfer of such right to use goods. (g) The transfer of right is the sine qua non for the right to use any goods, and such transfer takes place when the contract is executed under which the right is vested in the lessee. (h) The agreement or the contract between the parties would determine the nature of the contract. Such agreement has to be read as a whole to determine the nature of the transaction. If the consensus ad idem as to ide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion Ltd. [2010] 31 VST 337 (Gauhati). We have culled out the principles to be applied to determine the nature of the transaction which, according to the Revenue, falls within the ambit of article 366(29A)(d). These principles govern the situation here as well. Though we do not feel compelled to refer to all the cited judgments in detail, and add to the length of this judgment, we are inclined to summarise these cases in a tabular column below. Before that we propose to begin by making a reference to a passage from Scrutton which lucidly distinguishes the lease (involving transfer of the right to use) and licence in the context of charterparties. Referring to Sandeman v. Scurr [1866] LR 2 QB. 86, Baumvoll v. Gilchrest and Co. [1892] 1 QB. 253 and Sea and Land Securities v. William Dickinson and Co. Ltd. [1942] 2 KB 65 the learned author classifies charterparties by demise in the following manner:- Charterparties may be categorized according to whether or not they amount to a demise or lease of the ship. A charter by demise operates as a lease of the ship itself, to which the services of the master and crew may nor may not be superadded. The charter becomes f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of transaction Finding of the court 1. Bank of India v. Commercial Tax Officer [1987] 67 STC 199 (Cal) Bank lockers-hiring of bank lockers fixed and/ or attached to the walls and embedded in the floors of strong room specially built for the purpose. The bank collects rent. The transaction is not merely transfer of the right to use goods, but involved rendering various services along with a limited right to use the locker. The lease of bank lockers did not come within the meaning of "sale" by transfer of the right to use. 2. State Bank of India v. State of Andhra Pradesh [1988] 70 STC 215 (AP) -do- Bank lockers embedded in the floor are not "goods" for the purpose of the APGST Act. There is no transfer of right to use and it is only licence to use the goods without securing possession. The contract is one of bailment and the essential requirement of delivery in a "sale" is lacking in hiring of bank locker. 3. Rashtriya Ispat Nigam Ltd. v. Commercial Tax Officer [1990] 77 STC 182 (AP) Sophisticated imported machinery like cranes, docers, dumfors and compressors in the construction of steel plant. Providing machinery to the contractor in connection with the executi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to hire of shuttering to builders and contractors who use in the construction of building. Rejecting the challenge to the provision to levy sales tax, High Court of Punjab and Haryana found that possession was transferred for use that customers were in effective control during the contract period and hence transactions fell within the ambit of the transfer of the right to use shuttering material. The Supreme Court affirmed the High Court's view in Harbans Lal. It was held that the owners transferred the shuttering for consideration for use in the construction of buildings and that the requirements of a deemed sale are satisfied. 8. 20th Century Finance, Corpn. Ltd. v. State of Maharashtra [2000] 119 STC 182 (SC) ; [2000] 6 SCC 12 Lease of machinery/equipment under master agreement. The lease financier placed purchase orders with manufacturers and delivers them to the lessees. The value of the equipment is disbursed by the financier. On executing supplementary lease deed forming part of master lease agreement, the machinery is allowed to be used. Sales tax was levied on the financier by the State where the equipment was located. State cannot impose tax on inter-State trade/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enses for drivers and cleaners have to be borne by owner of the tankers. The learned single Judge held that there is no transfer of the right to use goods for the reason that there was only agreement for paying hire charges that the contractor retained possession and effective control of vehicle and that even though the vehicles were identified, there is a provision for substitution of vehicles. 12. Dipak Nath v. Oil and Natural Gas Corporation Ltd. [2010] 31 VST 337 (Gauhati) Trucks, trailers, tankers and cranes - the owner makes available these to ONGC under contracts in writing - the owner is paid operational charges as agreed to during the period of contract - ONGC also deducts tax at source under Assam Sales Tax Act. The Division Bench held that the goods are made available 24 hours a day throughout the duration of the contract, and method and manner of using the goods decided by ONGC, there is transfer of the right to use the goods, even though the staff remained under his control. (NB:- The decision in IOC v. Commr., was impliedly overruled) From the judicial decisions, the settled essential requirement of a transaction for transfer of the right to use goods are:- &nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterpretation treatised in Herbert Broom's Legal Maxims, (1939, 10th Edition by R. H. Kersley), deduced four principles of interpretation of documents, which are as follows. The first principle is to construe the document as a whole. It is common in courts that the scope of rights and obligations and limitations thereto created under a document are in issue. Unless a document is thoroughly scrutinized and read as a whole, it would not be possible to know the intention of the parties with regard to all these aspects. Quihaeret in litera haeret in cortice and Contemporanea expositio est optima et fortissima in lege very lucidly explain this principle. The second principle is to understand the meaning of a document or a part of it from the document itself. The legal maxims relevant to this are Quoties in verbis nulla est ambiguitas, ibi nulla expositio contra verba fienda est and Verba generalia restringunter ad habilitatem rei vel personae. In addition to these, the legal maxims Ex antecedentibus et consequentibus fit optima interpretatio, Noscitur a sociis, Certum est quod cerium reddi potest, Utile per inutile non vitiatur, Expressio unius est exclusio alterius ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eanings, one of which is lawful and the other unlawful, the former construction should be preferred. Sir Edward Coke (Co. Litt. 42a) expressed the proposition thus:- 'It is a general rule, that whensoever the words of a deed, or of one of the parties without deed, may have a double intendment and the one stahdeth with law and right, and the other is wrongful and against law, the intendment that standeth with law shall be taken.' In more modern times that statement was approved by the Privy Council in Rodger v. Comptoir D'Escomple de Paris [1869] LR 2 PC 393 ; 16 ER 618, in which Sir Joseph Napier, delivering the advice of the Board said:- 'The rule that words shall be construed most strongly against him who uses them gives place to a higher rule ; higher because it has a moral element, that the construction shall not be such as to work a wrong.' Similarly, in Fausset v. Carpenter [1831] 2 Dow and Cl. 232 ; 6 ER 715, the House of Lords accepted the submission of counsel that the court:- ' ...in judging of the design and object of a deed, will not presume that a party executing the deed meant to do and did what he was w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in effect till March 31, 2006, with liberty to parties to terminate the contract by giving three months notice in writing to the other party". The reading of the agreement does not anywhere indicate that it was entered into between the parties elsewhere than at Secunderabad. The first page of the agreement in its footnote contains the address of the Marketing Department of Grasim sufficient enough to conclude that it was entered into between the parties at Secunderabad. Even otherwise it is fairly well-settled that the transfer of the right to use goods can be effected even under an oral agreement. Hence, submission of the special counsel is rejected. That brings us to the construction of the agreement between the parties which indisputably came into force on October 1, 2002. The intention of the parties as noticed supra has to be understood by reading the entire agreement ; reading a word here or a clause there is not sufficient. Grasim was looking for a transporter to take care of the transporting need of their RMC plants in Hyderabad. The petitioners, who are owners of Transit Mixers, were looking for advancing their business interest in Hyderabad. The latter approached ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uired to be dedicated for the use will be subject to change and the parties will mutually agree to the new fleet size. This number shall not change unless otherwise indicated by the first party and agreed to by the second party and the remaining terms and conditions of this agreement will remain unaffected by this change. B. That the second party will ensure that adequate number of vehicles are made available on a 24/7 basis, i.e., 24 hours and everyday of the weeks as per the instructions of the officials of the first party. If the second party fails to provide the vehicles as desired it shall attract penalties as prescribed later in this document. The first party agrees that the second party will require up to two days a month for the maintenance and upkeep of the vehicles and will, therefore, allow two days a month for this activity and will not demand any penalty for these days. C. That the second party will be solely responsible for ensuring that the produce of the first party reach the destination in time and as per the agreed schedule. No delay on any account will be acceptable and the second party must ensure safe delivery of the produce. D. That the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of transit mixers used for carrying RMC, and further admitting that Grasim was looking for a transporter of RMC, the recitals reveal that both the parties entered into an agreement for transporting RMC by using the vehicles owned by the petitioners. Though the phrase "offer services to take care of transporting solution needs" is used the real purpose, as can be seen from the second part, is to enable Grasim to have the right to use the transit mixers. The agreement requires the petitioners to provide drivers to be dressed in uniform, and all of them are to obey the lawful instructions issued by Grasim. Further RMC has to be delivered by these drivers in transit mixers only at the time and places as instructed by the officials of Grasim, and the petitioners have no right to carry RMC wherever and whenever they like. Thus the full control on the method, manner and time of using the transit mixers, owned by the petitioners vests absolutely in Grasim. Clauses A to E and L deal with the second aspect of the agreement. Under these, the petitioners agreed to provide five dedicated fleet of five transit mixers 24/7, i.e., twenty-four hours every day of the week as per the instruc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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