TMI Blog2009 (2) TMI 749X X X X Extracts X X X X X X X X Extracts X X X X ..... ive agreements. As per the agreements, the contractors are liable to bear and pay the entire cost of the trucks/tankers, given on hire to the petitioner-company, including maintenance, repairing, insurance, fuel and salaries to the drivers, cleaners, etc. The petitioner-company does not guarantee the minimum mileage for each vehicle, which it obtains on hire, and it does not guarantee the minimum number of vehicles, which it may utilize per month. There is, thus, according to the petitioner-company, no transfer of the right to use vehicles from the contractors to the petitioner-company inasmuch as possession and custody of the vehicles remain, for all practical purposes, with the contractors and the petitioner-company pays only the hire charges to the contractors for the vehicles hired from them. (ii) However, the Senior Superintendent of Taxes, Bongaigaon, issued a notice, dated May 16, 1998, addressed to the petitioner-company's plant manager, who is in-charge of the LPG bottling plant, directing him to deduct tax under section 27(a) of the Assam General Sales Tax Act, 1993, (in short, the Act ) on payment of hire charges to the contractors, who are owners of vehicles hir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act agreement on the basis of which the petitioner-company hires the vehicles. The respondents also rely, in this regard, on the Schedules A and B to the contract agreement. Countering the contentions of the respondents that the contract between the parties is nothing but a transfer of the right to use the vehicles, in question, the petitioner-company refers to, and relies upon, clauses 1, 4, 5, 8, 9, 11, 12, 13, 15, 17, 19, 21 and 38 of the contract agreement. I have heard Dr. A.K. Saraf, learned senior counsel for the petitionercompany, and Mr. D. Saikia, learned counsel, appearing on behalf of the respondents. There is no dispute that the power of the State Legislature to impose tax on sale and purchase of goods emanates from entry 54 of List II of the Seventh Schedule to the Constitution of India nor is there any dispute that 46th Amendment of the Constitution, which inserted clause (29A) in article 366 of the Constitution of India, has expanded the definition of tax on sale or purchase of goods inasmuch as it has included, within the definition of sale , the transfer of the right to use any goods for any purpose, whether or not for a specified period, on cash, deferre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, for a consideration. The sales tax authorities were of the view that though the transaction was termed as lease for 49 years, the assessee had actually effected a sale of the negative print of the picture for a consideration and, therefore, the transaction was liable to sales tax under the Madras General Sales Tax Act, 1959. The Madras High Court, however, turned down the imposition of the sales tax by holding that even if a copyright is regarded as species of movable property, the transaction did not connote a sale at all inasmuch as there was no transfer of property in the goods in such a case and the transaction was, therefore, not liable to payment of sales tax. The decision of the Madras High Court, in A.V. Meiyappan [1967] 20 STC 115, created immense difficulty for the States for quite a long time, because novel device of leasing of films resulted into avoidance of huge amounts of sales tax. This apart, in State of Madras v. Gannon Dunkerley Co. (Madras) Ltd. reported in [1958] 9 STC 353, the Supreme Court gave a new approach to the definition of sale by prohibiting States from taxing transfer of property in goods involved in the execution of indivisible works ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eferred 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; The effect of the amendment, which has been introduced to article 366, by inserting clause (29A), is that a State Legislature has become competent to impose sales tax, amongst others, on the transfer of the right to use any goods, which, before the amendment, so made, the State Legislature was not competent to do. What the insertion of clause (29A) has done is that various transactions, enumerated therein, which were, otherwise, n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment or other valuable consideration without the transfer of ownership and includes a sub-lease but does not include any transfer on hire purchase or any system of payment by instalments. Section 2(20) of the Act defines lessee to mean a person to whom the right to use any goods for any purpose is transferred under a lease. Section 2(21) of the Act defines lessor to mean a person by whom any right to use any goods for any purpose is transferred under a lease. From a combined reading of the various provisions of law, which have been pointed out above, what clearly transpires is that there must be a transfer of the right to use any goods in order to attract levy of sales tax . In other words, transfer of the right to use any goods, for any purpose, is a condition precedent for imposition of sales tax. This tax is not a tax on the right to use any goods or on the use of any goods; it is, rather, a tax on the transfer of the right to use any goods . Thus, unless and until the incidence of transfer of the right to use goods, in a given case, is present, a transaction would not become a sale even under the expanded definition of sale . Similarly, a transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, therefore, concluded, in 20th Century Finance Corpn. Ltd. [2000] 119 STC 182; [2000] 6 SCC 12, that delivery of goods cannot constitute a basis for levy of tax on the transfer of the right to use any goods. The relevant observations made, on the above aspects of the law, by the apex court in 20th Century Finance Corpn. Ltd. [2000] 119 STC 182; [2000] 6 SCC 12, read as under: 27. 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 in respect thereof is executed. As soon as the contract is executed, the right is vested in the lessee. Thus, the situs of taxable event of such a tax would be the transfer which legally transfers the right to use goods. In other words, if the goods are available irrespective of the fact where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [2006] 3 SCC 1, that the decision, in 20th Century Finance Corpn. Ltd. [2000] 119 STC 182 (SC); [2000] 6 SCC 12, cannot be cited as an authority for the proposition that delivery of possession of goods is not a necessary concomitant for completing a transaction of sale for the purpose of bringing such a transaction within the ambit of article 366(29A)(d). The apex court also pointed out, in Bharat Sanchar Nigam Ltd. [2006] 3 VST 95; [2006] 145 STC 91; [2006] 282 ITR 273; [2006] 3 SCC 1 that in 20th Century Finance Corpn. Ltd. [2000] 119 STC 182; [2000] 6 SCC 12, what the Constitution Bench was required to determine was the situs of the taxable event. In other words, what the Constitution Bench, in 20th Century Finance Corpn. Ltd. [2000] 119 STC 182 (SC); [2000] 6 SCC 12, was required to determine was as to where the taxable event, for the purpose of sales tax, takes place in the context of subclause (d) of article 366(29A), because the States had selected three distinct places for imposing sales tax. In other words, in 20th Century Finance Corpn. Ltd. [2000] 119 STC 182 (SC); [2000] 6 SCC 12, three distinctly separate criteria were found to have been used by the States for the purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. [2006] 3 VST 95 (SC); [2006] 145 STC 91 (SC); [2006] 282 ITR 273 (SC); [2006] 3 SCC 1, read as under: 73 See para 72 of 3 VST. With respect, the decision in 20th Century Finance Corpn. Ltd. v. State of Maharshtra [2000] 119 STC 182 (SC); [2000] 6 SCC 12 cannot be cited as authority for the proposition that delivery of possession of the goods is not a necessary concomitant for completing a transaction of sale for the purposes of article 366(29A)(d) of the Constitution. In that decision the court had to determine where the taxable event for the purposes of sales tax took place in the context of sub-clause (d) of article 366(29A). Some States had levied tax on the transfer of the right to use goods on the location of goods at the time of their use irrespective of the place where the agreement for such transfer of right to use such goods was made. Other States levied tax upon delivery of the goods in the State pursuant to agreements of transfer while some other States levied tax on deemed sales on the premise that the agreement for transfer of the right to use had been executed within that State (vide para 2 of the judgment as reported). This court upheld the third view, n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arily involves delivery of possession by the transferor to the transferee; but the delivery of possession must be distinct from its custody and that mere transfer of possession does not amount to delivery in the context of the transfer of the right to use goods. In the facts of the case in Rashtriya Ispat Nigam Ltd., it was held by the Division Bench See [1990] 77 STC 182 (AP). that although the possession of the machinery was given to the transferee, yet the effective custody and control of the machinery having remained with the transferor, such transaction would not amount to transfer of the right to use goods. This decision of the Division Bench was upheld by the apex court in State of Andhra Pradesh v. Rashtriya Ispat Nigam Ltd. [2002] 126 STC 114; [2002] 3 SCC 314. In contrast, Aggarwal Brothers v. State of Haryana reported in [1999] 113 STC 317 (SC); [1999] 9 SCC 182, was a case, wherein assessee had hired shuttering in favour of the contractor for use of the latter in the course of construction of the building. The apex court opined that the possession of the shuttering materials had been transferred by the assessee to the contractor for their use and, therefore, the tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment clearly intended to treat a buyer as buyer and not as an agent, the mere formal description of a person as an agent or buyer is not conclusive. The observations made, in this regard, in Bhopal Sugar Industries Ltd. [1977] 40 STC 42 (SC), read as under: (page 48) ...While interpreting the terms of the agreement, the court has to look to the substance rather than the form of it. The mere fact that the word 'agent' or 'agency' is used or the words 'buyer' and 'seller' are used to describe the status of the parties concerned is not sufficient to lead to the irresistible inferences that the parties did in fact intend that the said status would be conferred. Thus the mere formal description of a person as an agent or a buyer is not conclusive, unless the context shows that the parties clearly intended to treat a buyer as a buyer and not as an agent... From the above discussion, what also clearly emerges is that the question as to whether, in a given case, there is or there is no transfer of the right to use goods becomes a question of fact and this fact can be determined on the basis of the terms of the contract, which may govern a given trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being discharged by non-performance and/or abandoned by the Contractor/s and claim such damages, loss and expenses and other amounts as the corporation may have suffered or may suffer on account or by reason of the contractor/s aforesaid delay or default. 1(a) The corporation shall be entitled to requisition further number of tank-trucks in addition to the list given under Schedule B and to put them into operation under the terms and conditions of these presents. Clause 2 The contractor/s shall get the said tank truck/s to conform to design and fittings as specified by the corporation as also will have the said tank trucks calibrated by weights and measures wherever applicable and will also allow the corporation to calibrate the same whenever found necessary. The contractor/s shall also immediately furnish to the corporation certificates in respect of calibration of weights and measures and have the same periodically checked and inspected by the concerned authorities and file such certificates with the corporation. The decision of the corporation regarding the correctness of the calibration and any allowance to be made therein shall be final and binding on the contractor/s. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing transportation of petroleum products and route permits, etc., will be the responsibility of contractor/s and any fines for non-compliance of any such rules will be borne by the contractor/s. The contractor/s will also comply with the provision of the new Petroleum Rule 1979 or any amendment made thereto from time to time and any Rules made thereunder affecting the construction and operation of the tank truck/s and will obtain certificate from the Chief Controller of Explosive or any appropriate Government Authority to the effect that the vehicle is fit for transporting the said products. The contractor shall also carry out, fulfil and implement all directions whether in writing or oral, that may be issued by the corporation or its authorized representative relating to loading, unloading, transport, operation and delivery of petroleum products in the tank/trucks and any violation, breach or default thereof will be construed and means a breach or default of this agreement entitling the corporation to terminate the same forthwith without prejudice to its other rights. Clause 11 That the contractor/s will make good to the corporation any loss arising from: (a) The confiscat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntractors either to run concurrently with the contractor/s or separately and to enter into a parallel contract with them. Clause 19 That the corporation do not guarantee a minimum mileage for each and/or any vehicle per month, do not even guarantee the minimum number of vehicles that will be utilized per month, and no liability whatsoever shall be attached to the corporation on account thereof. Clause 21 That in case the tank truck/s is/are found unserviceable for want of repairs servicing, the contactors will make arrangements to keep them serviceable immediately and if failed the contractor shall be bound to effect supplies to outstations in drums by stake trucks. The contractors will be paid for such other arrangement pro rata on the rates indicated in the Schedule A or any substituted Schedule as provided herein and computed on the actual quantity carried by the vehicles. In the event of the contractors' failure to provide alternative mode of transportation the contractor/s shall be liable to make good to the corporation the extra expenses that may be incurred by the corporation in making other arrangement for effecting supplies without prejudice to all other rig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hicle in favour of the petitioner-company . Had the transaction amounted to transfer of the right to use the vehicle, whose particulars the contractor was required to furnish to the petitioner-company, the contractor would not have been obliged to carry the petroleum and petroleum products in drums if his vehicle is not in serviceable state. Thus, clause 21, once again, demonstrates that the intention of the parties is that the contractor shall carry the petroleum and petroleum products from one place to another and such carriage shall, ordinarily be, in those vehicles, which have been accepted by the petitioner-company, but, in unavoidable circumstances, the contractor may carry the petroleum and petroleum products in drums by stake-trucks . Thus, when the custody and effective control of the vehicles remain with the contractor, it would be incorrect to contend that there is transfer of the right to use the vehicles. Clause 1 further makes it clear that if there be any lay off or lack of utilization of the tanker/trucks by accident or breakdown or for any other reason, which may affect the use thereof by the company, the contractor shall be liable to pay liquidated dama ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and petroleum products, being highly inflammable substances, can be carried safely and securely only in vehicles with specified designs and fittings. Clause 4 cannot be held to support the case of the respondents inasmuch as the petitioner-company does not guarantee any minimum use of the vehicle, which the contractor may have agreed to operate for the purpose of carrying petroleum and petroleum products. When even the minimum turnover is not guaranteed by the petitioner-company and when it is unknown as to whether a vehicle, during the subsistence of the contract agreement, will or will not be required to be operated by the contractor, it would not be possible to hold that there is transfer of the right to use the vehicle. Thus, when the transfer of the right to use the vehicles (which is sine qua non for the purpose of attracting imposition of sales tax), is lacking in the present case, the question of the present transaction being treated as a deemed sale cannot arise at all. We may, now, come to clause 5 of the agreement. This clause obliges the petitioner-company to make payment to the contractor for operation of the tanker/trucks at the rate as is specified in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made good by the contractor. Had the transfer of the right to use the vehicle stood transferred to the petitioner-company, the contractor could not have been made liable for confiscation of the petroleum and petroleum products carried in the vehicle of the contractor. This provision has been, admittedly, made in order to ensure that the petroleum and petroleum products, which are handed over to the contractor by loading the same into the contractor's vehicle, is carried by the contractor in accordance with the terms of the contract agreement and in accordance with law. Clause 12 of the contract agreement also proceeds in the same direction inasmuch as it makes it clear that the loading and unloading of the petroleum and petroleum products will not be the unilateral act of the petitioner-company; rather, the loading will be done by the personnel of the petitioner-company with the help of the driver and cleaner of the vehicle and, as far as unloading is concerned, the same will be exclusive responsibility of the contractor. This clause (clause 12), once again, shows that it is not the petitioner-company, which has exclusive right to load the petroleum products or unload the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntractor, to deliver the petroleum and petroleum products, at its destination, within a reasonable time and not to permit the vehicle to be off the roads for unreasonable period. This clause can, by no means, be stretched to hold that there is a transfer of the right to use the vehicle in favour of the petitioner-company by the contractor. As far as clauses 23, 26 and 28 are concerned, these clauses relate to payments to be made to the contractor and also the manner of computation of the dues of the contractor. These clauses give no indication at all that there is any transfer of the right to use the vehicle in favour of the petitioner-company. As far as clause 38 is concerned, it puts an obligation on the contractor to engage tanker/trucks from outside if he fails to place his vehicle at the depot/installation. Clause 38, though relied upon by the respondents, really helps the case of the petitioner-company inasmuch as clause 38 belies the respondents' contention that there is transfer of the right to use the vehicle, for, clause 38 makes it possible for the contractor to put a vehicle other than the one which he had agreed to operate. When the contract agreement allows ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adesh reported in [1997] 106 STC 540. In this decision, a Division Bench of the Allahabad High Court observed as under: (page 540) The intention of the parties, mode of use and several other surrounding and relevant aspects have to be considered to come to the conclusion whether or not under a particular contract there is transfer of the right to use any goods. A mere contract of hiring without more, is a species of contract of bailment. Transfer of a right to use goods implies that full liberty is vested in the transferee to have the right to use the goods to the exclusion of all others including the owner of the goods. I respectfully agree with the above observations made in Ahuja Goods Agency [1997] 106 STC 540 (All). There cannot be, therefore, any doubt that a contract agreement has to be read, as a whole, in order to determine the intention of the parties. Merely because of the fact that the vehicles stand identified under the contract agreement, it does not necessarily mean that the right to use the vehicles stands transferred in favour of the petitioner-company by the contractor; more so, when the contract agreement provides for substitution of the vehicles and also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of the right to use the goods inasmuch as the contractor, as a trustee of the petroleum and petroleum products, carries the same in the identified vehicles or, in exceptional circumstances, in such a manner as have been agreed to by the parties concerned. Let me, now, turn to the momentous question and the question is: In the face of the facts, as discussed above, indicating that there is really no transfer of the right to use the vehicles in favour of the petitioner-company, whether it is possible for the petitioner-company to file a writ petition challenging the order(s), whereby the petitioner-company has been directed make deductions at source, and/or the notice, whereby the petitioner-company has been directed to show cause as to why penal action shall not be taken against the petitioner-company for its failure to make deductions of tax at source. In this regard, what needs to be pointed out is that in order to invoke a High Court's jurisdiction under article 226, it is not necessary that the right, which is alleged to have been infringed, is a fundamental right. High Court can exercise its extraordinary jurisdiction, under article 226, for any purpose. Hence it is p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the right to use goods, such a liability cannot be imposed by making rules or issuing executive instructions and thereby expose the person, who is so made liable to make deductions, to criminal prosecution for contravention of the provisions of law. Thus, the effect of directing the petitioner-company to make deduction would expose the petitioner to criminal prosecution and such prosecution would be impermissible in law, when law does not permit the State to compel a person, situated as the petitioner-company is, to make deduction at source. Under article 265, no tax shall be levied or collected except by authority of law. The words levy and collect are words of wide amplitude so as to cover any process employed to collect any amount purporting to be a tax. If the procedure employed is unauthorized, the process of collection would render a levy or collection illegal and, hence, unconstitutional. In almost similar circumstances, the Delhi High Court, in S.R.F. Finance Ltd. v. Central Board of Direct Taxes reported in [1995] 211 ITR 861, observed and held as follows: (page 868) It is unnecessary to burden this judgment with the precedents in support of a principle whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of authority can avail of a writ even though he has no proprietary or even fiduciary interest in the subject-matter thereof.' The preliminary objections are, accordingly rejected. I am wholly in respectful agreement with the views expressed by the Delhi High Court in S.R.F. Finance Ltd. [1995] 211 ITR 861. The observations, made in S.R.F. Finance Ltd. [1995] 211 ITR 861, further fortifies the conclusion reached by me that the respondents could not have, in the facts and attending circumstances of the present case, directed, much less compel, the petitioner-company to make deductions at source. The reference made, in this regard, by Dr. Saraf to the case of Steel Authority of India Ltd. v. State of Orissa reported in [2000] 118 STC 297 (SC); [2000] 3 SCC 200 is not misplaced, wherein the apex court has held as follows: (page 305 of STC) It was contended on behalf of the State that the appellant, as owner, had no locus to challenge the validity of section 13AA. It was contended that the moneys that were deducted were moneys that belonged to the contractor and it was only the contractor who could successfully lay such a challenge. The contention ignores the fact th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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