TMI Blog1995 (3) TMI 445X X X X Extracts X X X X X X X X Extracts X X X X ..... achinery, plant and equipment to different parties for rent. It purchases goods according to the specifications of the customers and instructs the supplier/manufacturer to consign the goods directly to the customer, who takes the same on hire. During the assessment year 1988-89, the total receipts of the assessee towards rentals received came to Rs. 1,23,48,118 and in respect of the entire turnover, the assessee claimed exemption on the ground that the same was not exigible to tax under section 5-E of the Act since such an assessment would be violative of the provisions of article 286 of the Constitution of India read with section 4 of the Central Sales Tax Act and section 38 of the Act relying upon the ruling of the Supreme Court in Builders Association of India v. Union of India [1989] 73 STC 370. The assessing authority-the Commercial Tax Officer, S.D. Road Circle, Secunderabad-rejected the claim of the assessee on the view that "the dealer received the lease amounts as against outside assets leased out in Andhra Pradesh. The assets received from outside the State did not suffer tax under the APGST Act. Hence their claim of exemption is not considered". After giving exemption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cause notice that the Appellate Deputy Commissioner has also not taken into account: "1. The lessor, i.e., Classic Finance is the owner of the goods as per agreement. 2.. They issued 'C' forms for the purchase of machinery to be leased out. 3.. Though the goods were moved from other States, they were put to use in Andhra Pradesh only where the taxable event occurred. " A detailed reply, citing various decisions of the Supreme Court and several High Courts, was submitted by the assessee on December 23, 1994. The assessee has pointed out the difference between section 2(10) of the Maharashtra General Sales Tax Act defining the expression "sale", which was considered by the Bombay High Court in 20th Century Finance Corporation Limited [1989] 75 STC 217 and section 2(n) of the APGST Act and pleaded that the assessment order was passed by the Commercial Tax Officer without any investigation into the full facts of the case, without correctly understanding and applying the relevant case law and that the transactions in question being inter-State transactions, the same are immune from exigibility to tax under section 5-E of the Act. By his order dated December 28, 1994, passed und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the second takes place only when the goods are physically delivered to the lessee for, "for a deemed sale under section 5-E of the APGST Act, physical possession is a must. Only then, there can be a real and usable right to use the goods". Distinguishing a lease transaction from an outright sale, the Commissioner observed: "wherever the lease transaction might have originated, when the goods are within the State of Andhra Pradesh, the lease rentals arising for that period when the lease rights are enjoyed within the State of Andhra Pradesh, that part of the lease agreement has to be treated as a deemed sale within the State of Andhra Pradesh and is liable to tax under section 5-E of the Act". Aggrieved by that, the assessee preferred statutory appeal under section 23(1) of the Act to this Court-Spl. A. No. 1 of 1995. In respect of five assessment years, the assessee filed five writ petitions as detailed below: W.P. No Assessment year Turnover Tax due Tax paid 12656 of 1991 1989-90 45,49,375 3,25,280 3,25,280 12673 of 1991 1990-91 74,73,866 4,93,275 4,93,275 12672 of 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Government of India also received reports from the State Governments that large scale avoidance of Central sales tax leviable on inter-State sale of goods was taking place through the device of sending goods from one State to another. In Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi [1978] 42 STC 386, the Supreme Court ruled that the receipts from food and drinks supplied to guests staying in a hotel could not be split up into one of service and the other of sale of food and drinks and so, the proprietor, who provides many services in addition to the supply of food was not liable to pay sales tax on the value of the goods supplied by him. The Law Commission of India considered all these matters in its 61st Report and recommended certain amendments to the Constitution of India, in consequence of which, Parliament enacted the Constitution (Forty-sixth Amendment) Act, 1982, by which clause (29A) was inserted in article 366. It reads: "(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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g a tax of the nature referred to in sub-clause (b), sub-clause (c) or sub-clause (d) of clause (29A) of article 366, be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify." Sections 3 and 4 of the Central Sales Tax Act contain provisions as to when a sale or purchase of goods is said to take place in the course of inter-State trade or commerce and outside a State. These limitations are incorporated in section 38 of the APGST Act. By virtue of the Constitution (Forty-sixth Amendment) Act, legislative power was conferred on State Legislatures to levy sales tax on transactions which are strictly not sales falling within the purview of the Sale of Goods Act but covered by sub-clauses (a) to (f) of clause (29A) of article 366 of the Constitution, and accordingly, various State Legislatures brought amendments to the sales tax laws. In the State of Andhra Pradesh, it was done by Act No. 18 of 1985 which came into force with effect from July 1, 1985. Section 2(n) defines the expression "sale" as follows: "(n) 'Sale' with all its grammatical variations and cognate expressions means every ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansfer of right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration shall be deemed to be a sale." Section 5 speaks of levy of tax on sales or purchases of goods; every dealer is liable to pay a tax under the Act on every rupee of his turnover of sales or purchases of goods in each year irrespective of the quantum of his turnover at the rates of tax and at the points of levy specified in the Schedules. Section 5-E, on the basis of which the disputed turnovers were brought to tax, is in the following terms: "5-E. Tax on the amount realised in respect of any right to use goods.- Every dealer who transfers the right to use any goods for any purpose, whatsoever, whether or not for a specified period, to any lessee or licensee 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 licensee, pay a tax at the rate of five paise in every rupee of the aggregate of such amount realised or realisable by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1985, which was rescinded with effect from July 7, 1993, in respect of transactions for which the taxable event has occurred prior to July 7, 1993, exemption was in force and, therefore, they are immune from taxation. That immunity is not destroyed by the subsequent withdrawal of the exemption notification because the exemption was to the dealer and not to any portion of the turnover exigible to tax in a particular assessment year. The learned counsel also submitted written arguments. In opposition to this, the learned Government Pleader advanced a threshold argument that the writ petitions are not maintainable since the assessee has an effective alternative remedy by way of an appeal provided under the statute. Alternatively, he urges that even on the merits, the special appeal as well as the writ petitions deserve to be dismissed. A transaction of sale is different from hiring goods for remuneration; both are independent transactions and are exigible to tax separately. While conceding that inter-State transactions cannot be subjected to tax by a State law because of the constitutional limitations engrafted in article 286 of the Constitution, the provisions of sections 3 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter set forth. Rs. 1. Lease rental 7,567 per quarter. 2. Lease management fee at 1 per cent of the cost of the equipment. 3. Minimum residual value -per cent of the cost of the equipment. 4. We have placed an order on our supplier M/s. Modi Xerox Ltd., Rampur, which you may please confirm. 3. We look forward to have a mutually beneficial business relationship." The letter clearly shows that the equipment was already inspected by the customer at the place of the manufacturer/supplier and also placed an order for supply in anticipation of confirmation by the assessee. The manufacturer- M/s. Modi Xerox-raised an invoice dated March 7, 1988, against the assessee showing the consignee's address as M/s. Rallis India Limited, the lessee of the assessee. The agreement for lease of the equipment between the assessee and the lessee-M/s. Rallis India Limited-concluded on April 6, 1988, was for a period of 60 months renewable with mutual consent. It was concluded at Calcutta where the head office of the assessee is located. The lessee is referred to as M/s. Rallis India Ltd., a comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. The delivery of the goods is under the contract. The purpose for which the goods are delivered, the duration and the obligation to return after the purpose is accomplished and other details are incorporated in the agreement. Section 149 of the Contract Act says that a delivery to the bailee may be made by doing anything which has the effect of putting the goods in the possession of the intended bailee or of any person authorised to hold them on his behalf. Sub-section (2) of section 23 of the Sale of Goods Act lays down, inter alia, that if in pursuance of a contract, the seller delivers the goods to a common carrier for the purpose of transmission to the buyer, he is deemed to have unconditionally appropriated the goods to the contract. A Division Bench of this Court in Rashtriya Ispat Nigam Ltd. v. Commercial Tax Officer [1990] 77 STC 182 interpreting section 5-E of the Act held that it incorporates one category of bailments as defined in Halsbury's Laws of England (Fourth Edition) at paragraph 1551: "It is a contract by which the hirer obtains a right to use the chattel hired in return for the payment to the owner of the price of the hiring". and it is this category of b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for confirmation and this is clear from the letter dated February 21, 1988, addressed by the customer to the assessee, which is extracted supra. Independent of the lease agreement, such a transaction could not have been possible. In the absence of the lease transaction, it is plain, there was no possibility for the assessee to place the purchase order with the manufacturer. It is not the case of the department, in so far as Spl. Appeal No. 1 of 1995 is concerned, that there was any single transaction in which, independently, without the request of a customer, a purchase order was placed by the assessee with any manufacturer. As it is the admitted case of the department that the consignee is the customer (the lessee) and the invoice was raised against the assessee, the delivery was effected by way of entrustment to a common carrier outside the State of Andhra Pradesh, the consignee being the customer (lessee) within the State of Andhra Pradesh. The Commissioner's reasoning is that there are two appropriations: the first appropriation is complete when the manufacturer of the goods consigned them to the inter-State sale to the assessee but the second appropriation took place only w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstitution Bench of the Supreme Court: "........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. So construed the expression 'tax on the sale or purchase of goods' in entry 54 of the State List, therefore, includes 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 also." The Supreme Court rejected in clear terms the contention of the State that clause (29A) of article 366 has conferred on the Legislatures of States, the power to levy tax independently of the power conferred under entry 54 of the State List. Any tax leviable on deemed sales covered by sub-clauses (a) to (f) of clause (29A) of article 366 would be subject to the prohibition under article 286(1). The statement of law laid do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort into a sale inside the State." The transactions covered by Special Appeal No. 1 of 1995 are clearly inter- State transactions falling within the ambit of section 3(a) of the Central Sales Tax Act, 1956. The movement of the goods from the State of Madras to Hyderabad is the result of the contract. It is immaterial in which State the property in the goods passed. What is material is that the inter-State movement must be the result of a covenant, express or implied, in the contract of sale or an incident of the contract. It is not necessary that the inter-State movement must be preceded by a sale. [English Electric Company of India Ltd. v. Deputy Commercial Tax Officer [1976] 38 STC 475 (SC), Balabhagas Hulaschand v. State of Orissa [1976] 37 STC 207 (SC) and Union of India v. K.G. Khosla and Co. Ltd. [1979] 43 STC 457 (SC)]. If the movement of the goods is because of a clause in the contract or as an incident of contract, the same shall be deemed to have taken place in the course of inter-State trade or commerce. In the transaction illus- tratively discussed by the Commissioner, the transport of goods from one State to another was an incident of the contract between the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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 first petitioner in the Bombay case (20th Century Finance Corporation Limited v. State of Maharashtra [1989] 75 STC 217), as lessor entered into a Master Lease Agreement with the lessee agreeing to give on lease certain machinery/equipment listed in the schedule subject to the terms and conditions stipulated in the Master Lease Agreement. The agreement provided that orders for individual equipment would be placed by the first petitioner at the instance of the lessee and the equipment would be despatched by the manufacturer to the location specified by the lessee. Orders were placed by the first petitioner with the manufacturer chosen by the lessee for supply of individual equipment which was delivered to the lessee by the supplier. After the goods were delivered, the lessee would execute a supplementary lease schedule acknowledging due receipt of the leased equipment. The Bombay High Court held that the right of the lessee would begin only after acquiring physical possession of the goods and the test of physical location o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State or a sale in the course of import or export." For the foregoing reasons, we are of the view that the revisional order of the Commissioner of Commercial Taxes is liable to be set aside. The learned counsel for the assessee has pressed before us that in the event of our setting aside the order of the Commissioner, the matter must be remitted to the original assessing authority to examine the various transactions for the purpose of determining the liability of the assessee under section 5-E of the Act. We are not inclined to accede to the request of the learned counsel. The order of the Appellate Deputy Commissioner was not challenged by the assessee and it would have attained finality had it not been revised by the Commissioner of the Commercial Taxes. It would not, therefore, be permissible for us to reopen the entire assessment by remanding the case to the original assessing authority. The order of the Appellate Deputy Commissioner shows that the assessee had produced evidence with regard to the inter-State character of several transactions and accepting most of them, he had granted relief to a considerable extent. That cannot be set at naught in this special appeal. As r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fied class of persons, in regard to the whole or any part of their turnover. (2) Any exemption from tax or interest or reduction in the rate of tax notified under sub-section (1)- (a) may extend to the whole of the State or to any specified area or areas therein; (b) may be subject to such restrictions and conditions as may be specified in the notification, including conditions as to licences and licence fees." G.O. Ms. No. 1388 dated December 23, 1985, reads: "In exercise of the powers conferred by sub-section (1) of section 9 of the Andhra Pradesh General Sales Tax Act, 1957 (Andhra Pradesh Act VI of 1957), the Governor of Andhra Pradesh hereby exempts the dealers who transfer the right to use any goods from the tax payable under section 5-E of the Act with effect from 1st July, 1985, on such part of the turnover in respect of any right to use goods provided that such goods have suffered tax under the said Act in the State." The exemption granted by the aforesaid notification was withdrawn by G.O. Ms. No. 606 dated July 3, 1993, which is in the following terms: "In exercise of the powers conferred by sub-section (1) of section 9 of the Andhra Pradesh General Sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ......where the Government makes a promise knowing or intending that it would be acted on by the promisee and, in fact, the promisee acting in reliance on it, alters his position, the Government would be held bound by the promise and the promise would be enforceable against the Government at the instance of the promisee, notwithstanding that there is no consideration for the promise and the promise is not recorded in the form of a formal contract as required by article 299 of the Constitution." (Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh [1979] 44 STC 42 (SC); AIR 1979 SC 621). There is no warrant for the inference that basing on the representation contained in the exemption G.O., the assessee has acted to its detriment by purchasing the goods and leasing out the same. No trace of evidence in this regard is placed before us. The fact situation does not call for the invocation of the doctrine of legitimate expectations which was referred to by the learned counsel for the assessee incidentally in the course of his submissions. The decision taken by the Government to withdraw the exemption cannot be characterised as arbitrary or unreasonable or not in the publ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y referred to Jit Ram Shiv Kumar v. State of Haryana AIR 1980 SC 1285 for the proposition that the plea of estoppel is not available against levy of tax for augmenting the revenues. A two-Judge of Bench of the Supreme Court in Jit Ram Shiv Kumar AIR 1980 SC 1285 took a view different from the earlier view of a two-Judge Bench of the Supreme Court in Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh [1979] 44 STC 42; AIR 1979 SC 621 that promissory estoppel is not available against exercise of executive functions of the State. To the extent Jit Ram Shiv Kumar AIR 1980 SC 1285 deviated from the principle laid down in Motilal Padampat Sugar Mills Co. Ltd. [1979] 44 STC 42; AIR 1979 SC 621, disagreement was expressed by a subsequent three-Judge Bench of the Supreme Court in Union of India v. Godfrey Philips India Ltd. [1986] 158 ITR 574: "....we are clearly of the view that what has been laid down in Motilal Padampat Sugar Mills' case [1979] 44 STC 42 (SC); [1979] 118 ITR 326 (SC) represents the correct law in regard to the doctrine of promissory estoppel and we express our disagreement with the observations in Jeet Ram's case [1980] 3 SCR 689, to the extent that they a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of tax and the quantum of turnover. The Constitution of India has chosen to treat sales and deemed sales as belonging to one category [vide clause (29A) of article 366] and they cannot be treated separately for the purpose of taxation after the definition of "sale" was amended by Act 18 of 1985. As the basic norm regulating the tax structure under the Act is confined to levy of tax at a single point, levy of tax on a second sale in respect of goods which have already suffered tax is impermissible and therefore, a deemed sale likewise cannot be subjected to tax if the goods relatable to such deemed sale have already suffered tax. Same goods cannot be subjected to tax twice-once as sale and secondly as deemed sale- in the face of the legislative intent of single point taxation. In the result, Special Appeal No. 1 of 1995 is allowed. The order of the Commissioner of Commercial Taxes is set aside affirming the view of the Appellate Deputy Commissioner (CT), Panjagutta, in Appeal No. B/57/93-94 dated April 27, 1994. W.P. Nos. 12656, 12672, 12673 of 1991 and 21481 and 22349 of 1994 are allowed. The assessment orders impugned in the writ petitions are set aside and the cases are rema ..... X X X X Extracts X X X X X X X X Extracts X X X X
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