TMI Blog2011 (1) TMI 1196X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, conclusively it leads to the only conclusion that the petitioners had transferred the right to use goods to Grasim, revision cases fail and dismissed - Tax Revision Case Nos. 154, 155, 156, 157, 160, 169, 170, 181, 205 and 243 of 2010 - - - Dated:- 28-1-2011 - V. V. S. Rao, Ramesh Ranganathan, JJ. Lakshmi Kumaran and Sridharan for the Petitioner P. Balaji Varma, Special Standing Counsel for Commercial Taxes for the Respondent ORDER V. V. S. Rao, J:- These ten tax revision cases under section 22(1) of the Andhra Pradesh General Sales Tax Act, 1956 (the Act) are filed by asses-sees against a common order dated November 30, 2009 of fhe Sales Tax Appellate Tribunal (the Tribunal) in Tax Appeal Nos. 467 of 2009 and batch. The details of various appeals are admitted and hence narration of minute particulars is not necessary. Suffice to mention that the assessing authority passed orders for the assessment years 2001-02 to 2004-05, in all these cases in December, 2005, August and November 2006. The petitioners' appeals were allowed on May 8, 2007. About two years thereafter, the Additional Commissioner (Legal) passed orders on November 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es in good condition. It is also their plea that damages to the goods, during the period of transportation, and the risk of loss of the vehicles have to be incurred by the petitioners, and that registration of the vehicles is never transferred to Grasim. They further contend that, if on reading the contract, two views are possible, revision by the Additional Commissioner, under section 20(2) of the Act, would not lie. Submissions:- The petitioners' counsel contends that five eventualities to infer the transfer of the right to use goods are not completely present in the transaction between the petitioners and Grasim. He would urge that the Tribunal was wrong in relying on clauses (A), (B) and (D) of the contract in concluding that the petitioners had transferred the right to use transit mixers to Grasim. According to him, these clauses would not lead to any such conclusion and that there was no intention to create exclusive right to use the vehicles by Grasim. The clause for providing dedicated fleet of vehicles with Grasim's logo birla concrete being painted on them is no indication that the intention was to transfer the right to use transit mixers. The RMC is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 263(1) of the Income-tax Act, 1961, not with reference to the language of section 20(1) of the APGST Act. The scope of revisional jurisdiction under these provisions is also different. Therefore we are afraid the decisions under section 263(1) of the Income-tax Act would not be applicable here. For comparison, we may quote sections 20(1) and (2) of the APGST Act and section 263(1) of the Income-tax Act in the following table:- Section 20 of the APGST Act Section 263 of the Income-tax Act 20. Revision by Commissioner of Commercial Taxes and other prescribed authorities:- (1) The Commissioner of Commercial Taxes may suo motu call for and examine the record of any order passed or proceeding recorded by any authority, officer or person subordinate to it, under the provisions of this Act, including sub-section (2) of this section and if such order or proceeding recorded is prejudicial to the interests of revenue, may make such enquiry, or cause such enquiry to be made and subject to the provisions of this Act, may initiate proceedings to revise, modify or set aside such order or proceeding and may pass such order i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may have certain exceptions with which we are not concerned here. We are well supported by two decisions of this court in Bankatlal Satyanarayana Parikh and Co. v. Commissioner of Commercial Taxes, A. P. [2001] 122 STC 236 (AP) and GMMCO Limited v. State of Andhra Pradesh [2011] 43 VST 312 (AP) (T. Rev. C. No. 3 of 2010, dated November 11, 2010.). It is axiomatic that the machinery provisions of a taxing statute have to be interpreted in such a manner that they are workable (Commissioner of Income-tax, Central, Calcutta v. National Taj Traders [1980] 121 ITR 535 (SC) ; AIR 1980 SC 485 and J. K. Synthetics Ltd. v. Commercial Taxes Officer [1994] 94 STC 422 (SC) ; AIR 1994 SC 2393). It does not, however, mean that the interpreter can interpolate something not intended by the Legislature, by supplying causus omissus (Illachi Devi (Dead) by Lrs. v. Jain Society, Protection of Orphans India [2003] 8 SCC 413 ; AIR 2003 SC 3397 and Sankar Ram and Co. v. Kasi Naicker [2003] 11 SCC 699 ; AIR 2003 SC 4156). If the plea of the petitioners is accepted, we have to read section 20(1) of the APGST Act as empowering revision, only when an order of assessing officer/appellate authority is err ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly established in State of Madras v. Gannon Dunkerley and Co. (Madras) Ltd. [1958] 9 STC 353 (SC) ; AIR 1958 SC 560, this view influenced the sales tax law enormously. In New India Sugar Mills Ltd. v. Commissioner of Sales Tax [1963] 14 STC 316 (SC) ; AIR 1963 SC 1207, the Supreme Court held that the transfer of controlled commodities, pursuant to a Central Government Order is not a sale as defined in the Sale of Goods Act. In K. L. Johar and Co. v. Deputy Commercial Tax Officer [1965] 16 STC 213 (SC) ; AIR 1965 SC 1082, it was held that the transfer of goods on hire purchase or any system of payment by instalments does not amount to sale, and in A. V. Meiyappan v. Commissioner of Commercial Taxes [1967] 20 STC 115 (Mad), the Madras High Court held that the lease of cinematograph films is not a sale. In Joint Commercial Tax Officer, Harbour Division II, Madras v. Young Men's Indian Association [1970] 26 STC 241 (SC) ; [1970] 1 SCC 462, it was held that supply of goods by any incorporated association or a body of persons to a member of the association is not sale and in State of Punjab v. Associated Hotels of India Ltd. [1972] 29 STC 474 (SC) ; [1972] 1 SCC 472 and Northern Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Illustrative situations:- (a) Hire-purchase. (b) Consignment transfer. 2. The basic defect in the present scheme is that a very limited type of economic activity is taxable by the States, and other economic activities are not taxable, except by way of excise duties or indirectly by way of stamp duties. This leaves room for loopholes and gaps. It would appear that some day, it will be desirable to consider the possibility of devising a tax which will embrace all transactions which are regarded as adding value or which are entered into with that object. The Law Commission of India submitted the report on May 21, 1974. Accepting its recommendations, the Government of India proposed to amend the Constitution to include in article 366, a definition of tax on the sale or purchase of goods by inserting a new clause (29A) and to insert a new entry 92A in the Union List in the Seventh Schedule and to amend articles 269(1) and 286(3) of the Constitution of India to be in consonance with the other proposed amendments. As a result, the Constitution (Forty-sixth) Amendment Act, 1982 was enacted which was published in the Gazette on February 2, 1983. Consequently this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efining deemed sale. Thus under sub-clause (d) there would be deemed sale if the right to use goods is transferred even though delivery is not an essential part of such transfer of the right to use goods. In other words, the moment the right to use goods is transferred, the taxable event happens. When would such transfer of the right to use goods de facto comes within the gravitational field of the species of deemed sale? A score of High Court decisions and half a dozen Supreme Court decisions, notwithstanding, this question remains an unavoidable vexed question. We may, therefore give a brief analysis of the judicial decisions on article 366(29A)(d) of the Constitution which is the basis for section 5E of the APGST Act as well as similar provisions in other States' laws. In Builders Association of India v. Union of India [1989] 73 STC 370 (SC) ; [1989] 2 SCC 645 (para 32), the validity of the Constitution (Forty-sixth) Amendment Act was upheld. But the apex court ruled that the States' power to levy tax on the goods involved in a works contract is subject to the restrictions in article 286. Article 366(29A) was elucidated by the Constitution Bench as below (page 396 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] 4 APSTJ 26. In all probability, for the first time, the scope of above provision fell for consideration before the Division Bench in Rashtriya Ispat Nigam Ltd. v. Commercial Tax Officer, (RINL-I) [1990] 77 STC 182 (AP) comprising Jeevan Reddy and Syed Shah Mohammad Quadri, JJ (as they then were). In certain civil works by contractors, RINL provided special machinery like cranes, docers, dumpers, road rollers, compressors, etc., for hire charges. The plea was that there was no transfer of the right to use in favour of the contractor. Reliance was placed on the agreement between RINL and the contractor. Whether the transaction amounts to transfer of the right or not cannot be determined with reference to a particular word or clause in the agreement. The agreement has to be read as a whole to determine the nature of transaction. This court noticed that the contract did not create exclusivity of use, and the contractor was entitled to use the machinery only for executing the work entrusted. Therefore, it was held that the fundamental requirements of section 5E are not satisfied. In I. T. C. Classic Finance and Services v. Commissioner of Commercial Taxes [1995] 97 STC 330 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inter-State sales or sales in the course of import and export was again emphasized by the Supreme Court in Builders' Association of India v. State of Karnataka [1993] 88 STC 248 (SC) ; AIR 1993 SC 991. In order to get over the above dicta, by A.P. Act No. 22 of 1995, section 5E was substituted, which reads as under:- 5E. Tax on the amount realised in respect of any right to use goods:- Notwithstanding anything contained in this Act,- (a) Every dealer who transfers the right to use any goods for any purpose, whatsoever, whether or hot for a specified period, to any lessee or licencee for cash, deferred payment or other valuable consideration, in the course of his business shall, on the total amount realised or realisable by him by way of payment in cash or otherwise on such transfer or transfers of the right to use such goods from the lessee or licencee, pay a tax at the rate of five paise in every rupee of the aggregate of such amount realised or realisable by him during the year; (b) the transfer of right to use any such goods entered into by any dealer, shall be deemed to have taken place in this State whenever the goods are used within the State, irresp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e deemed sales in the eases of sub-clauses (e) and (f) and the transfer of the right to use any goods will 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 respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are as under (page 116 in 126 STC):- The High Court after scrutiny and close examination of the clauses contained in the agreement and looking to the agreement as a whole, in order to determine the nature of the transaction, concluded that the transactions between the respondent and contractors did not involve transfer of right to use the machinery in favour of the contractors and in the absence of satisfying the essential requirement of section 5E of the Act, i.e., transfer of right to use machinery, the hire charges collected by the respondent from the contractors were not exigible to sales tax. On a careful reading and analysis of the various clauses contained in the agreement and, in particular, looking to clauses 1, 5, 7, 13 and 14, it becomes clear that the transaction did not involve transfer of right to use the machinery in favour of contractors. The High Court was right in arriving at such a conclusion. In the impugned order, it is stated and rightly so in our opinion, that the effective control of the machinery even while the machinery was in use of the contractor was that of the respondent-company, the contractor was not free to make use of the machinery for the wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period for which it is to be transferred, the owner cannot again transfer the same rights to others. At this stage, the following principles to the extent relevant may be summed up:- (a) The Constitution (Forty-sixth) Amendment Act intends to rope in various economic activities by enlarging the scope of tax on sale or purchase of goods 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) of clause (29A) of article 366. The works contracts, hire-purchase contracts, supply of food for human consumption, supply of goods by association and clubs, contract for transfer of the right to use any goods are some such economic activities. (b) The transfer of the right to use goods, as distinct from the transfer of goods, is yet another economic activity intended to be exigible to State tax. (c) There are clear distinguishing features between ordinary sales and deemed sales. (d) article 366(29A)(d) of the Constitution implies tax not on the delivery of the goods for use, but implies tax on the transfer of the right to use goods. The transfer of the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gency v. State of Uttar Pradesh [1997] 106 STC 540 ; (All), Lakshmi Audio Visual Inc. v. Assistant Commissioner of Commercial Taxes [2001] 124 STC 426 (Karn), Commissioner, VAT, Trade and Taxes Department v. International Travel House Ltd, [2009] 25 VST 653 (Delhi) ; [2009-10] DST J-77 (Del), State of Orissa v. Dredging Corporation of India Ltd. [2009] 25 VST 522 (Orissa) and Indian Oil Corporation Ltd. v. Commissioner of Taxes [2009] 22 VST 70 (Gauhati). The Special Counsel for Commercial Taxes relies on the contract between the petitioners and Grasim, and the observations made by this court in Rashtriya Ispat Nigam Ltd. [1990] 77 STC 182 (AP) as well as Bharat Sanchar Nigam Ltd. [2006] 3 VST 95 (SC) ; [2006] 145 STC 91 (SC) ; [2006] 3 SCC 1, to refute the petitioners' case. He also brought to our notice an unreported judgment of this Division Bench in Jasper Aqua Export Private Limited v. State of Andhra Pradesh [2011] 37 VST 481 (T. R. C. No. 270 of 2010, dated November 3, 2010). He also pointed out that the judgment of the learned single judge in Indian Oil Corporation Ltd. v. Commissioner of Taxes [2009] 22 VST 70 (Gauhati) was expressly disapproved in Dipak Nath v. O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estion depends, where other things are not in the way, upon this : whether the owner has by the charter, where there is a charter, parted with the whole possession and control of the ship, and to this extent, that he has given to the charterer a power and right independent of him, and without reference to him to do what he pleases with regard to the captain, the crew, and the management and employment of the ship. That has been called a letting or demise of the ship. The right expression is that it is a parting with the whole possession and control of the ship. Time charters almost always contain expression such as 'letting', 'hiring', 'hire', 'delivery' and 'redelivery', which are really apt only in charters by demise. These expressions serve to distinguish such charters from voyage charters, but they do not in themselves characterize such charters as charters by demise. Indeed many time charters expressly provide that the charter should not be construed as a demise of the vessel. (emphasis supplied) We may now tabulate various precedents in the following statement:- Statement of judicial decisions Sl. N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntractor disentitled from using the vehicle covered by the agreement in any route. The bus was to be run for Corporation as per the agreement and directions of an officer. The transaction is a sale within the extended meaning of the word. Providing of the driver by the owner notwithstanding there was a transfer of the right to use bus for consideration, and effective control, general control and possession of the bus vested in the Corporation. 6. Harbans Lal v. State of Haryana [1993] 88 STC 357 (P and H) Tents, kanats, crockery, utensils, furniture, shuttering material, gas cylinders and buses - These are given on hire to third parties. The authorities levied the sales tax on the hire amount under Haryana Act. The terms of the contract determine whether or not there is transfer of right to use goods. Delivery of possession of goods is essential ingredient. If erected tents are given to customers, it will not be goods and any transfer of right to use shall be exercisable to sales tax. The transfer of chairs, tables, crockery would be deemed sale. Hiring of shuttering material to builders/contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supervised by the owner. After completion of the programme, AV system is dismantled and carried back to owner's stores Department. The lease of the hire or letting with possession and effective and general control is given to the customer with choice of selecting the manner, time and nature of use and enjoyment, it is transfer of the right to use goods. But if the work is entrusted to the contractor for achieving desired results and such work also involves use of the goods, it will not be deemed sale within the meaning of the transfer of the right to use goods. 10. Bharat Sanchar Nigam Ltd. v. Union of India [2006] 3 VST 95 (SC) ; [2006] 145 STC 91(SC) ; [2006] 3 SCC 1 Mobile telephone connections - BSNL and such other service providers - Telephone service connections. The infrastructure/appliances exchanges through which electro magnetic/ radio waves carrying signals are controlled by the service provider. Goods do not include electro magnetic waves or radio frequencies for the purpose of article 366(29A) (d). The goods in telecommunications are limited to the handsets supplied by mobile servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o use goods regardless of when or whether the goods are delivered for use subject to the condition that the goods should be in existence for use; (iii) in the transaction for the transfer of the right to use goods, delivery of goods is not a condition precedent, but the delivery of goods may be one of the elements of the transaction; (iv) the effective or general control does not mean always physical control and, even if the manner, method, modalities and the time of the use of goods is decided by the lessee or the customer, it would be under the effective or general control over the goods; and (v) the approvals, concessions, licences and permits in relation to goods would also be available to the user of goods, even if such licences or permits are in the name of owner (transferor) of the goods; and (vi) during the period of contract exclusive right to use goods along with permits, licences, etc., vests in the lessee. The counsel also brought to our notice the decisions in Ahuja Goods Agency [1997] 106 STG 540 (All), Commissioner, Trade Tax, U. P., Lucknow v. Jamuna Prosad Jaiswal [2008] 13 VST 403 (All), R. P. Kakoti v. Oil and Natural Gas Commission [2009 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atable to this principle. The legal maxim ut res magis valeat quam pereat means that statute must be read always in such a manner that it would not lead to absurdity and make the instrument workable. Literal meaning depends on the circumstances of the parties and technical legal terms will always be given their legal meaning. When the language is very clear, the interpreter is precluded from supplying the words or reading something depending on the oral evidence. But as postulated by the maxim Ambiguitas verborum latens verificatione suppletur nam quod ex facto oritur ambiguum verificatione facti tollitur, latent ambiguity may be explained by evidence because the ambiguity often arises by proof of an intrinsic fact, which may be removed in like manner. Sections 91 to 95 of the Indian Evidence Act, 1872 incorporate this principle. The fourth principle is that in the event of the intrinsic incongruities and inconsistencies flowing from the words and language used in the document, the intention would prevail over the words used . The intention of the parties has to be determined from the attending circumstances leading to the transaction. This principle is an exception to the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rima facie illegal. 'You are to construe the contract, and then see whether it is legal'. On the sidelines, a not so insignificant issue is raised by the special counsel. The agreement which is part of the record does not contain the day or date and the place of execution of the contract by the patties. From this, the Revenue would like the court to draw an inference that the agreement is not genuine ; it is created post transaction to avoid tax, and it is an attempt to project the case that there is no transfer of the right to use transit mixers. It is axiomatic that a document or deed of contract is an instrument written on parchment or paper, ordinarily complying with ten things, viz.,- (i) writing; (ii) on parchment or paper; (iii) date and parties; (iv) recitals; (v) operative part; (vi) exceptions and reservations; (vii) general words; (viii) Habendum; (ix) covenants; and (x) signing and sealing. There is no dispute that the agreement between the petitioners and Grasim satisfies all conditionalities except that it does not contain the date and place of execution. Does it render it ineffective and unenforce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alties. The staff of the petitioners were required to obey the instructions issued by Grasim, and they should use safety equipment like helmets. These transit mixers cannot move or carry RMC to the work sites as per their convenience but are to be used as per the delivery schedule given by Grasim. The counsel also does not dispute that the agreement between the parties speaks of a dedicated fleet of vehicles to be made available on 24/7 basis duly painted in a particular style and colour, and staff being under the instructions of Grasim alone. It is, however, submitted that the parties agreed for five dedicated vehicles as RMC needs to be transported immediately after it is manufactured in the batching plant, and the manufacturer cannot identify and negotiate with the transporter for carrying the products every time an order is placed. Therefore, such a clause was included in the agreement to ensure there is no delay in delivering the product to the customers. He also submits that making available the vehicles throughout the day or painting them with brand name of Grasim is required keeping in view the possible hurdles in logistics, and to ensure customer satisfaction of getting th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ean. The drivers will be qualified and licensed and will not consume any intoxicating substance while on job-whether at the plant or at the site of the customers of the first party. The staff of the second party engaged in providing services to the first party will also ensure that they obey all the lawful instructions of the officials of the first party and conform to the norms of decency while interacting. All the personnel of the second party will carry identification cards with them at all times. F. and G. omitted H. That the second party will obtain proper receipts from the customers of the first party after the goods are delivered and also submit reports to the first party in the formats supplied by the first party at the required intervals. I. to K. omitted. L. That this agreement will come into force from the 1st October, 2002 and remain in effect till March 31, 2006. However, the parties will be at liberty to terminate this contract at any time by giving three months notice in writing to the other party. The first party will be at liberty to terminate this agreement at any time if the second party violates any of the terms of the agreement or if the quali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... belong to the petitioners and they are only being used to meet the transportation needs of Grasim. The third aspect deals with the petitioners indemnifying Grasim, paying all taxes for permits, insurance, etc., the rent/lease amount payable by Grasim, the dispute resolution mechanism and the mutual rights of the parties to modify the agreement. Standing alone all of them by themselves have no meaning. They are clauses intended for working out the contract which is essentially for the petitioners placing the transit mixers painted with brand name at the disposal of Grasim for a period of 42 months for transporting RMC manufactured by Grasim. Reading the recitals and various clauses, indeed there is a transfer of the right to use transit mixers. All the tests as indicated hereinabove exist in the contract between the petitioners and Grasim. The vehicles are maintained by the petitioners. They appoint the drivers and fix their roster. The licences, permits and insurances are taken in their names by the petitioners, which they themselves renew. The transit mixers go to Grasim's batching plants in Miyapur and Nacharam, where they are loaded with RMC and then proceed to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
