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TMI Blog2017 (7) TMI 727X X X X Extracts X X X X X X X X Extracts X X X X ..... services and repairs the motor vehicles it sells. To this extent its business is conventional. But it also sells or deals in used or pre-owned cars through its "True Value Division"--the very expression "sale" being contested. It holds Service Tax Registration Certificate under the categories of the authorised service centre, Input-service distributor, and Business Auxiliary Services provider. 3. Taking a view that the activity undertaken by Sai's True Value Division--exchange of old cars for new ones--amounts to business auxiliary service and the difference between the sale price for the old cars and the purchased price of the new ones has to be treated as remuneration for the service rendered by Sai, the appellant-Department issued a show cause notice on 10.04.2012 why the Department should not collect from Sai service tax of Rs. 53,76,644/- with interest and penalty for the period from 01.10.2006 to 30.09.2011. 4. After hearing Sai, the Commissioner of Central Excise and Customs at Cochin, the adjudicating authority, through his order-in-original, dated 20.09.2013, confirmed the demand. Aggrieved, Sai filed an appeal before the CESTAT, Bangalore, which allowed it through i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Car Business: 11. As to the manner of business, we may note that whenever a prospective purchaser already owning a car approaches the dealer, and if he is willing to exchange his used car with the new one, he needs to pay the difference amount to the dealer. From the used-car owner, the dealer takes in blank Form-29 and Form-30, the so-called sale letter and transfer letter, prescribed under the Motor Vehicle Rules; it also collects all the old documents, for example, R.C., from the owner. In the records of the Transport Department, the ownership remains unchanged, though. 12. The used vehicle delivered to it, the dealer gives it a face- lift, refurbishes and makes it saleable. Eventually, it sells the refurbished used-car to another person and transfers to that new owner the documents the previous owner signed in the blank. The Department's Contentions: 13. Sri P.R. Sreejith, the learned Standing Counsel, has contended that the vehicle ownership remains with the original owner till it is transferred to the prospective buyer; the dealer is only a custodian of the vehicle till it is sold to a prospective buyer. In fact, it only helps the owner of the used vehicle to find a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pays sales tax. So she supports the Tribunal's impugned order. 19. Heard Sri P.R. Sreejith, the learned Standing Counsel and Smt. K. Latha, the learned counsel for Sai and Indus, the dealers, besides perusing the record. Issues: 20. Section 19 of the Sale of Goods Act mandates how the title in the movable property--chattel--passes; section 50 of the Motor Vehicles Act deals with how "the ownership of any motor vehicle" registered under the Act gets transferred. The dealer exchanges a new motor vehicle for an old one after collecting the difference amount. It later sells the old vehicle. But it never gets the registration certificate under the MV Act in its name. Then the questions are these: (1) Is the change of name in the registration certificate under the MV Act mandatory for an effective sale of a motor vehicle? (2) Does the dealer actually purchase the used vehicle or merely act as an agent or intermediary to the original owner? Discussion: 21. Both the issues are inter-related, we propose to discuss them together. From the narration in the order-in-common passed by the Commissioner, we gather the following modus operandi adopted by the dealer. The narration seem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the used car includes the cost of the used car, the refurbishment charges, the management fee, free service and warranty, besides business margin. 27. So, conceptually we may have to examine what is "sale", what is "service" and what is "title" of chattel. More important, we must examine which enactment applies to the dealer's selling the used vehicles: The Motor Vehicles Act, 1980, or the Sale of Goods Act, 1930. The Motor Vehicles Act, 1988: 28. As we see from the Statement of Objects and Reasons to the Parent Act, The Motor Vehicles Act, 1939, it consolidates and amends the law relating to motor vehicles. This Act encompasses, among other things, changes in the road transport technology, the pattern of passenger and freight movements, development of the road network in the country and, particularly, the improved techniques in the motor vehicles management. 29. A Working Group was constituted in 1984 to review the Motor Vehicles Act, 1939. Besides the Group's recommendations, the Union Government considered the suggestions and recommendations of various other bodies and institutions. Eventually, all the suggestions were discussed at a specially convened meeting of T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir of motor vehicles; or (c) in the business of hypothecation, leasing, or hire-purchase of motor vehicle. It is pertinent to note that the activity of selling is conspicuously omitted. As per Section 2 (13), the "goods" includes livestock, and anything else (other than equipment ordinarily used with the vehicle) carried by a vehicle except living persons, but does not include luggage, or personal effects carried in a motor car or in a trailer attached to a motor car, or the personal luggage of passengers travelling in the vehicle. 33. Of much significance is the fact that the very vehicle, undoubtedly "goods" is not included in the definition. It compels us to conclude that this Act does not deal with the motor vehicle per se but treats it only as a means to transport men and of material. A motor cab, as defined under Section 2 (25) is any motor vehicle constructed or adapted to carry not over six passengers excluding the driver for hire or reward; a "motor car", defined Section 2 (26), means any motor vehicle other than a transport vehicle, omnibus, road-roller, tractor, motor cycle or invalid carriage; and Section 2 (28) defines "motor vehicle" or "vehicle" comprehensively keep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... possessing a vehicle as such. We can get a further clue on the dichotomy between owning and using a motor vehicle from Section 41, which deals with how one should register a motor vehicle. As per sub-section (1), "an application by or on behalf of the owner of a motor vehicle for registration shall be in such form and shall be accompanied by such documents, particulars and information . . . ." Again the Act stresses the owner's statutory responsibility to have the vehicle registered--indeed, to use it on "public or any other place." 39. Talismanic is Section 50 of the Act for the Department. This Section deals with transferring ownership. To the extent relevant, it reads: "50. Transfer of ownership--(1) Where the ownership of any motor vehicle registered under this Chapter is transferred,-- (a) the transferor shall-- (i) in the case of a vehicle registered within the same State, within fourteen days of the transfer, report the fact of transfer, in such form with such documents and in such manner, as may be prescribed by the Central Government to the registering authority within whose jurisdiction the transfer is to be effected and shall simultaneously send a copy of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cerns the transfer of motor vehicles, aimed at defeating an impending legislation fixing a ceiling on the transport permits a person could have. The plaintiff denied he had ever physically transferred the vehicles to the defendant; he intended to transfer them after completing all the statutory formalities. To complete the statutory formalities, both the parties had to litigate for long. On the contrary, the defendant contended that the plaintiff transferred the vehicles even before the statutory formalities could be completed. Of many judicial proceedings, one was a suit filed by the defendant for an injunction against the plaintiff. He obtained one. 42. Eventually, the High Court of Madras, on appeal, found that the defendant forcibly took possession of the vehicle under cover of the injunction. On further appeal, the Supreme Court affirmed the High Court's judgment. In that process, it has observed that transferring a vehicle is not effected under Section 31 of the Motor Vehicles Act,1939, which simply prescribes the procedure for entering the factum of transfer in the registration certificate. This administrative act is posterior to the transfer. The Court holds: 10. [The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f of the possession or control of goods, or authorising or purporting to authorise, either by endorsement or by delivery, the possessor of the document to transfer or receive goods thereby represented. (Section 2(4)) 48. Goods, as per Section 2 (7), means every kind of movable property other than actionable claims and money. Mercantile agent, as defined in Section 2 (9), means a mercantile agent having in the customary course of business as such agent authority either to sell goods, or to consign goods for sale, or to buy goods, or to raise money on the security of goods; and "price" means the money consideration for a sale of goods (Section 2 (10). (b) Sale and Agreement to sell: 49. Section 4 of the Act distinguishes between "Sale" and "Agreement of Sale": a contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. It may be absolute or conditional. If the property in the goods is transferred from the seller to the buyer, the contract is a sale. But if the transfer of the property in the goods is to take place in future or subject to some conditions to be fulfilled, the contract is a mere agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a "sale"; but if the transfer is to take place at a future time and subject to some conditions to be fulfilled subsequently, the contract is called "an agreement to sell". When the time in the agreement to sell lapses or the conditions therein subject to which the property in goods is to be transferred are fulfilled, the "agreement to sell" becomes a "sale"." 54. The Supreme Court in State of Rajasthan v. Rajasthan Chemists (2006) 6 SCC, para 50 (as quoted in Pullock & Mulla, p.60) has held that according to the law, both of England and of India, in order to constitute a sake, it is necessary that there should be an agreement between the parties for the purpose of transferring title to goods, that it must be supported by money consideration, that as a result of the transaction, the property must actually pass in the goods. Unless all these elements were present, there would be no sale. Price is an essential element of sale of goods. 55. Emphatic is the observation of the Supreme Court in Canbank Financial Services Ltd. v. Custodian (2004) 8 SCC 355 at page 383, that right, title, and interest in a movable property can pass by delivery of possession and upon paying of the conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithout the authority or consent from the owner, the buyer acquires no better title to the goods than the seller had. On the contrary, if a mercantile agent, as defined in Section 2 (9), sells the goods "in the ordinary course of business", the sale is valid. Is the Dealer a Mercantile Agent? 61. The concept of `mercantile agent' is wider than that of `agency' in the general law of contract. This concept overcomes the limitation imposed by the general law of agency. If a person puts his car into the hands of a motor dealer to sell on his behalf, the owner will normally be bound by the contract which the dealer makes even though the dealer goes outside the owner's authority, for instance, by accepting a lower price than the owner has agreed (Lloyds and Scottish Finance Ltd. v. Williamson [1965] 1 All ER 641, as quoted by Fumston). 62. Here, the dealer's officials have affirmed that the original owner of the used vehicle will have nothing to do with the fluctuations in the price--for that matter, even with the loss the dealer may sustain while selling the used vehicle after refurbishing. The Commissioner in his order has quoted the dealer's statement: "After ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he show-cause notice, as later interpreted or justified by the Commissioner in the Order-in-Common ("the order"), reveals the Department's mind. From para 9 of the order it is evident that the Department has proceeded on a fundamentally flawed premise that "sale of motor vehicle in India is governed by Motor Vehicle Act." To support this contention, the order profusely draws from the Internet, Wikipedia included. The order holds that the vehicle registration is mandatory; indeed, true. But the registration is confined to using the vehicle. Further, the order's holding that registration is essential to prove the ownership (also observed in para 18 of the order) flies in the face of the proposition in Vasantha Viswanthan. 67. As we gather, the order conflates the concepts of sale of immovable property and that of the movable property, as is found in para 19 of the order. 68. A person purchased a motor vehicle but did not immediately have the name changed in the official registers. When the vehicle was with a mechanic, it met with an accident. He wanted the insurance company to indemnify him. In The Oriental Fire & General Insurance Co. Ltd. v. Vimal Rai 1972 ACJ 314, a Divi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le for registration. Therefore, the word "owner" appearing in Chapter IV in the context will not mean a registered owner as the vehicle is yet to be registered and for which application is required to be made for registration. Section 50 of the MV Act, 1988 is pari materia with Section 31 of the MV Act, 1939. A conjoint reading of Sub-sections (3) and (5) of Section 50 of the MV Act, 1988, shows that if the transferor or the transferee fails to report to the Registering Authority the fact of transfer the Registering Authority may require the transferor or the transferee to pay such amount not exceeding one hundred rupees as may be prescribed under Sub-section (5) in lieu of any action that may be taken against him under Section 177. It, thus, transpires that the ownership of a movable property is not dependent upon the entries in the registration certificate. For the delay in seeking mutation of change in the registration certificate, the transferor or the transferee, as the case may be, can be penalized and proceeded against in terms of Section 177 of the MV Act, 1988. Such default is again compoundable on payment of prescribed fee under Sub- section (5) of Section 50 of the MV Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... --wealth in itself--being a case in point. To conclude, we observe that the sale of a motor vehicle is governed by the Sale of Good Act, and its use by the Motor Vehicles Act. 76. In para 27 of the order, the Commissioner observes that the used-car dealer does not legally purchase the vehicle from its customer. Regrettably, it is more a surmise than an assertion of substance. As we have already discussed, the transaction is in part exchange. The used-car owner gets a new car and pays the balance price. He signs Forms 29 and 39 in blank and leaves the scene for good--literally. He has no concern how the dealer repairs or refurbishes the car, he has no concern how the dealer displays his wares--the car--and he has no concern what price the used-car fetches. The dealer's not getting the vehicle registered in his name or having the transfer of entry in the road transport registers does not sound the death knell of the transaction so long as the dealer does not intend to use the motor vehicle in "public or other place." 77. As Section 19 of the Sale of Goods Act insists on the contracting parties' intention--rather than the price payment or physical delivery of possession--we ..... X X X X Extracts X X X X X X X X Extracts X X X X
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