TMI Blog2018 (1) TMI 339X X X X Extracts X X X X X X X X Extracts X X X X ..... x is rendered unsustainable. The levy of tax on the basis of a "transfer of a right to use" cannot be sustained. Revision allowed. - Sales/Trade Tax Revision No. 918, 919 of 2006 - - - Dated:- 27-11-2017 - Hon'ble Yashwant Varma, J. For the Applicant : Piyush Agrawal,Bharat Ji Agrawal For the Opposite Party : S.C. ORDER Heard Shri Piyush Agrawal, learned counsel for the revisionist and Shri A.C. Tripathi, learned standing counsel. Both these revisions are with the consent of parties taken up for disposal together since they raise common questions of law. The two issues, which have been canvassed for consideration, relate to the taxability under Section 3-F of the U.P. Trade Tax 1948 on an agreement transferring a right to use certain machinery items. The second issue which arises is a levy of tax on the sale of molasses effected by the revisionist in the assessment year in question. The issue itself arises in the following backdrop of facts. On 10 August 1993, the revisionist executed a lease agreement in favour of M/s. Gangeshwar Ltd with respect to machinery and equipment described in Schedule-'A' thereof. The lease agreement gave M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... withheld in respect of or with reference to any profits or income from business and activities accruing to the Transferor Company shall be deemed to have been paid or withheld from the Transferor Company in its capacity as a trustee under Section 160 of the Income-tax Act,1961 for the benefit of the Transferee Company. (d) On the Scheme becoming effective, the Transferee Company would be entitled to revise its income tax returns as also the income tax returns filed by the Transferor Company so far as is necessitated on account of the Scheme becoming effective with effect from 1st October, 1997, being the Appointed Date under the Scheme, and such returns may be revised by the Transferee Company within one year of the Scheme becoming effective. 2.7 All properties and assets owned, held or acquired and investments made by the Transferor Company on or after the Appointed Date shall, subject to the other provisions of the Scheme, for all purposes, be deemed to have been owned, held or acquired/made by the Transferor Company as a trustee for the benefit of the Transferee Company, and accordingly, shall, without any further act or deed, stand transferred on the Effective Date fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tory of the bargain between the parties was executed in New Delhi and therefore outside the State of U.P. His submission was that since the agreement transferring a right to use was executed outside the State, no tax could have possibly been levied under section 3-F of the 1948 Act. Shri Tripathi, learned standing counsel appearing for the State respondents has sought to support the order of the Tribunal by submitting that since the machinery in respect of which the right to use was consigned to the State of U.P. and was present within the territorial limits of the State, levy of a tax on the transaction was justified. Having noticed the rival submissions, the Court at the outset notes that the submission of Shri Agrawal with respect to a retrospective operation of the provisions of the Scheme of Arrangement would not commend acceptance. Although the Scheme of Arrangement itself referred to the appointed to be 1 October 1997, the crucial issue which would merit consideration would be the date on which the assets of the Transferor Company were provided to vest in the Transferee Company. The answer to this question rests upon the terms of clause 2.7 which has already been extra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect 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 the goods are located and a written contract is entered into between the parties, the taxable event on such a deemed sale would be the execution of the contract for the transfer of right to use goods. But in case of an oral or implied transfer of the right to use goods it may be effected by the delivery of the goods. 28. No authority of this Court has been shown on behalf of respondents that there would be no completed transfer of right to use goods unless the goods are delivered. Thus, the delivery of goods cannot constitute a basis for levy of tax on the transfer of right to use any goods. We are, therefore, of the view that where the goods are in existence, the taxable event on the transfer of the right to use goods occurs when a contract is executed between the lessor and the lessee and situs of sale of such a deemed sale would be the place where the contract in respect thereof is execute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C 364] The relevant passage of the said judgment runs as under: (SCC p. 393, para 44) The question whether a sale is an outside sale or a sale inside the State or whether it is a sale in the course of import or export will have to be determined in accordance with the principles contained in Sections 4 and 5 of the Central Sales Tax Act and the State Legislature while enacting the sales tax legislation for the State cannot make a departure from those principles. 30. The aforesaid contention advanced has no merit and reliance on Second Gannon Dunkerley Co. [(1993) 1 SCC 364] is totally misplaced. It may be noted that after the Forty-sixth Amendment of the Constitution, the definition of sale in the Central Sales Tax Act has not been amended and further this Court in Second Gannon Dunkerley case [(1993) 1 SCC 364] was dealing with the question of levy of sales tax on works contract as envisaged in Article 366(29-A)(b) and not under Article 366(29-A)(d). In Second Gannon Dunkerley case [(1993) 1 SCC 364] this Court has construed sub-clause (b) of clause (29-A) of Article 366 as conferring power to split the single and indivisible contract into one for sale of goods and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entral Sales Tax Act is not amended, the said reasoning of the High Court is not only erroneous, but runs contrary to two decisions of this Court -- (i) Builders' Assn. of India [(1989) 2 SCC 645 : 1989 SCC (Tax) 317] , and (ii) Gannon Dunkerley and Co. [(1993) 1 SCC 364] wherein, it was categorically held that, in the determination of inter-State character of sale the situs of sale is immaterial. When goods are entrusted to a common carrier for delivery, it amounts to delivery to consignee. If it takes place outside the State, the fact that subsequently the goods have reached the State where they are put to use, cannot be a ground for determining the tax liability on the ground that the goods are located in that State for use. In conclusion, this Court is of the considered view that while the Tribunal was correct in negativing the submission advanced on behalf of the assessee relating to the appointed date , the levy of tax on the basis of a transfer of a right to use cannot be sustained. Accordingly and for the reasons noted above, these revisions shall stand allowed. The order of the Tribunal dated 13 June 2006 is hereby set aside. - - TaxTMI - TMITax - CST, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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