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TMI Blog2010 (4) TMI 1002X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) Whether the Tribunal was correct in law in holding that the appellant in effecting sale of goods through its consignment agent who has paid due tax on the said sales to the Government, he is also liable to pay tax under the DVAT Act, 2004?" Since the questions, as framed earlier, do not reflect the true controversy involved in the appeals, we have reframed the question as under and have heard the parties accordingly: "(i) Whether, in the facts and circumstances of the case, the Tribunal was correct in law in holding that the appellant was liable to pay VAT in respect of goods transferred by it to its agent on consignment basis?" The brief facts, as noted by the Tribunal, are that the appellant-company is engaged in the sale of electronic goods and has appointed a consignment agent in Delhi. In the monthly returns filed by it, the appellant disclosed that certain goods, on which credit of input tax had been claimed by it, were physically transferred by it to the consignment agent, for sale through him. The consignment agent sold the goods of the appellant under a written agreement which provided that he would sell the goods on behalf of the appellant and would deposit the tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jurisdiction. (3) However, in case the branches are registered as independent dealers, a transfer by one such branch to another branch is transfer by one principal to another principal and such transfers are covered under the definition of 'sale' and to be taxed accordingly. (4) The notification shall be treated as effective from the date the Delhi Value Added Tax Act came into effect." Though the notification was challenged before the Tribunal, it did not examine its validity and held that transfer of goods to an agent for a consideration, whether received in advance or subsequently, in consequence of sale, shall amount to sale and shall be taxed accordingly and in such case the consignment agent shall be eligible to claim input-tax credit for the tax paid to the principal. The Tribunal also held that appointment of consignment agent was contrary to the provisions of the Act. In WP(C) No. 5430 of 2008, petitioner No. 1, ITC Limited, which is engaged in the business of sale of apparels and other accessories, has appointed five consignment agents in NCT of Delhi. It is alleged that the petitioner-company transferred the goods from its warehouses to the consignment agents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T Act. It has been claimed that the consignment agents issue their invoices, pay taxes on them and carry on business under their own TIN number. It has also been stated that under the DVAT Act, there is no provision for intra-State transfer of goods to the agents without payment of tax and since the consignment agent is covered under the definition of "dealer", he is liable to pay tax on the goods transferred to him. Section 3 of the Delhi Value Added Tax Act, which is the charging section for VAT, to the extent it is relevant, provides as under: "3. Imposition of tax.- (1) . . . (2) Every dealer shall be liable to pay tax at the rates specified in section 4 of this Act on every sale of goods effected by him,- (a) while he is a registered dealer under this Act; or (b) on and from the day on which he was required to be registered under this Act." It would, thus, be seen that the liability of a dealer to pay tax in terms of DVAT Act arises only in respect of the goods sold by him. "Sale" has been defined under section 2(zc) of the Act which reads as under: "(zc) 'sale' with its grammatical variations and cognate expression means any transfer of property in good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was to be made on instalment, there was no supply of goods by a society, club, firm or any association to its members, there was no transfer of right to use the goods and there was no supply, by way of or as part of any service and, in any case, the goods in question were not any food, drink or other article for human consumption. Sub-clause (viii) of section 2(zc) is also not attracted, since the transaction does not come within the purview of sub-clause (ix) of clause (j) of section 2. Therefore, the transaction between the principal and the consignment agent would not constitute "sale" unless there is transfer of property in the goods. Sub-clauses (iii), (iv) and (v) of clause (zc) of section 2, which do not apply to transactions between the principal and a consignment agent, in any case require transfer of property in the goods before the transaction can constitute "sale" within the meaning of the Act. Transfer of property in goods implies that the ownership or title of the goods must necessarily get transferred from one person to another. In the appeals referred to above, the facts, as recorded by the ATVAT, do not indicate that the title or ownership of the goods got transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent, without transfer of title in the goods, from the principal to the agent, will not amount to sale and, consequently, will not be liable to payment of value added tax under section 3(2) of the Act. Even if the consignment agent is covered under the definition of "dealer" under section 2(j) of the Act, that by itself will not attract payment of value added tax unless the physical transfer of goods to the "dealer" is coupled with transfer of ownership in those goods to him so as to constitute a "sale" within the meaning of section 2(zc). We have examined the terms and conditions of the agreement for consignment executed between the appellant and its consignment agent. The relevant terms and conditions of the agreement read as under: "1. General 1.04 That the title to the goods shall rest with the principal and agent shall not create any charge or lien or hypothecate such goods lying in their custody in any manner, and the principal alone shall have the right to hypothecate or create a charge or lien on such goods lying in the agent's custody. 2.. That the agents shall: 2.03 Maintain separate books of accounts, i.e., bill register, challan register, stock register, debtor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... continues to vest in the appellant and the agent has no right or title in them, as is evident from the prohibition against hypothecation of such goods or creation of any charge or lien on them by the agent, while specifically retaining such right with the appellant. The requirement to deposit all the sale proceeds in a separate bank account, to be jointly operated by the parties also indicates that property in the goods did not pass to the consignment agent and that is why the sale proceeds were to be kept in a separate bank account. Conferring a right upon the appellant to scrutinize the account books and requiring the agent to send monthly statements of all receipts, dispatches, sales, stock position, etc., to the appellant, in terms of clause 2.15 of the agreement is yet another term which shows that title in the goods did not pass to the consignment agent and that is why he was required to send all these statements to the appellant for the purpose of rendering true and complete account of the sales effected by him on behalf of the appellant. Had the title in the goods passed to the consignment agent, there would have been no reason for him to agree for monthly authentication of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... permissible to levy and collect value added tax merely on the strength of the advance ruling published by the Commissioner under section 85 of the Act when the transaction does not constitute sale within the meaning of the Act. In State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. [1958] 9 STC 353 (SC), it was held by the Supreme Court that the expression "sale of goods" in entry 48 in List II of the Seventh Schedule to the Government of India Act, 1935 cannot be construed in its popular sense but must be interpreted in its legal sense and should be given the same meaning which it has in the Sale of Goods Act, 1930, its essential ingredients being an agreement to sell movables for a price and property passing therein pursuant to that agreement. Thus, passing of property in movable goods was held to be an essential ingredients of sale. Article 366 of the Constitution which defines certain expressions used in the Constitution was amended by the Constitution (46th Amendment) Act, 1982 so as to include certain transactions within the expression "tax on sale or purchase of goods" used in entry 54 in the List II of the Seventh Schedule to the Constitution and to provide that such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Supreme Court held that the real effect of the third Explanation is to impose the tax only when there was a transfer of title to the goods and not where there is a mere contract of agency. It was further held that the phrase "goods are transferred" in clauses (1) and (2) of Explanation III on a proper construction meant "title to the goods is transferred". During the course of judgment, the Supreme Court, inter alia, noted as under (at page 316 of 21 STC): ". . . As a matter of law there is a distinction between a contract of sale and a contract of agency by which the agent is authorised to sell or buy on behalf of the principal and make over either the sale proceeds or the goods to the principal. The essence of a contract of sale is the transfer of title to the goods for a price paid or promised to be paid. The transferee in such a case is liable to the transferor as a debtor for the price to be paid and not as agent for the proceeds of the sale. The essence of agency to sell is the delivery of the goods to a person who is to sell them, not as his own property but as the property of the principal who continues to be the owner of the goods and will therefore be liable t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the goods from the principal to the consignment agent. Hence, it was not open to the respondent to demand value added tax unless either the property in the goods supplied by petitioner No. 1 to its consignment agents got transferred to the agents or the transaction between the parties amounted to "sale" within the meaning of some other provision of the Act. In fact, a perusal of the demand notices issued by the Department of Trade Tax would show that it has relied upon the decision of the Tribunal in the case of Havell's India Limited, which has not found favour with us. During the course of arguments, it was contended before us that neither consignment agents nor supply on consignment basis is recognized by the Delhi Value Added Tax Act, 2004. In our view, it is absolutely immaterial that the Act does not deal with appointment of consignment agents or supply of goods on consignment basis. So long as the transaction between the principal and consignment agent or between any two persons, does not amount to a "sale" within the meaning of section 2(zc) or any other provisions of the Act it is not open to the Department to insist upon payment of value added tax on such a transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the goods to the consignment agent and the transaction between the parties otherwise does not amount to "sale" in terms of the provisions of the Delhi Value Added Tax Act, 2004, is, therefore, liable to be set aside. Since demand notices to the writ petitioner have been issued, without examining as to whether the property in the goods transferred from the possession of petitioner No. 1, ITC Limited, to its consignment agents, also got transferred to the agents or not, the same are also liable to be quashed. Conclusions: 1.. The Tribunal, in the facts and circumstances of the case, was not correct in law in holding that the appellant was liable to pay VAT in respect of goods transferred by it to its agent on consignment basis. The impugned order is, therefore, set aside. 2.. Notification No. F.4(3)/P-II/VAT/2005/1158 dated December 2, 2005 issued by the Commissioner, Value Added Tax to the extent it requires payment of value added tax on the supplies made by a principal to a consignment agent, even if such supply is not coupled with transfer of property in the goods to the consignment agent and the transaction between the parties otherwise does not amount to "sale" in terms of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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