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TMI Blog2006 (10) TMI 498X X X X Extracts X X X X X X X X Extracts X X X X ..... with 'Kirloskar' make 1000 KW 1500 RPM, 415 volts alternator alongwith required accessories. On enquiry with M/S Kesar Enterprises Limited Mumbai, it was found that a sum of ₹ 52, 58, 528/-, ₹ 51, 59, 537/- and ₹ 51, 59, 537/- were paid towards rent to the applicant during the years under consideration 1994-95, 1995-96 and 1996-97 respectively. Assessing authority passed ex-parte assessment orders against the applicant and levied the tax on the aforesaid lease rent under Section 3-F of the Act. The Assessment orders have been confirmed in appeals by the Deputy Commissioner (Appeals), Trade Tax, Bareilly. Applicant filed appeals before the Tribunal. Before the Tribunal, it was contended that the agreement was executed at Mumbai and, therefore, in view of the decision of the Apex Court in the case of 20th Century Finance Corporation, Ltd. and Anr. v. State of Maharashtra reported in 2000 UPTC 593, State of U.P. has no jurisdiction to levy the Tax. It was further submitted that the machinery were purchased by the applicant from M/S Punjab Chemicals & Pharmaceuticals Ltd., and the same were dispatched directly from Punjab to Baheri at the premises of M/S Kesa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the bill dated 26th February. 1992, there is a reference of the order dated 28.11.1991. On these facts it has been held that it is not the case where, in pursuance of the order executed outside the State of U.P., machinery have been supplied and payments have been received. Assessing authority, however, observed that the agreement also reveals that before the agreement dated 24th March, 1992 one more agreement oral or written have been entered into and in pursuance thereof, the order was given on 28.11.1992 to M/S Punjab Chemicals & Pharmaceuticals Limited for the purchases of the alleged machinery. With regard to the letter of intent dated 29th October, 1991, the assessing authority observed that it is simply a letter and is being produced with the intend to twist the fact of the case in favour of the applicant. Assessing authority after rejecting the plea of the applicant, levied the tax on the entire lease rent under Section 3-F of the Act. 4. Being aggrieved by the assessment orders for the aforesaid assessment years, applicant filed appeals before the Joint Commissioner (Appeals), Trade Tax, Bareilly. Joint Commissioner (Appeals) , Trade Tax, Bareilly vide order dated 25th J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsuance of the said letter of intent, the orders dated 28.11.1991 were placed to M/S Punjab Chemicals & Pharmaceuticals Limited for the purchase of machinery. Thereafter, Machinery were purchased against invoices Nos. E-99, E-99-A dated 26th February, 1992 and invoice No. E-100 dated 10th March, 1992. In two invoice Nos. E-99 and E-99A, there are reference of the order dated 28.11.1991 and in the invoice No. E-100 there is a reference of the order dated 28th January, 1992. Invoices were prepared in favour of the applicant in connection with M/S Kesar Enterprises Limited and such machinery were directly dispatched to M/S Kesar Enterprises Limited, therefore, movement of machinery were in pursuance of the agreement in the course of inter-State. He submitted that the letter of intent is a part of the agreement dated 24th March, 1992 and merely because there is no reference of the letter of intent in the agreement dated 24th March, 1992, it cannot be ignored. He submitted that the assessing authority on the basis of the invoices etc., has accepted that there was some agreement oral or written prior to the agreement dated 24th March, 1992 in pursuance of which the machinery have been pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lease rent have been received are the same which have been described in Annexure-1 of the lease agreement dated 24th March, 1992. 11. Perusal of the record reveals that there was some understanding between the applicant and M/S Kesar Enterprises Limited prior to 24th March, 1992 to provide machinery on lease. In the purchase invoices of the machinery referred hereinabove, the name of M/S Kesar Enterprises Limited are mentioned and in the dispatch particulars, the dispatch of the machinery have been shown at the premises of M/S Kesar Enterprises Limited. Assessing authority has also accepted that before the agreement dated 24th March, 1992, there was some agreement oral or written between the parties for the purchases and providing machinery on lease. Thus, in my view even though, there is no reference of the letter of intent dated 29th October, 1991 in the agreement dated 24th March, 1992, which should be, but on the facts and circumstances of the case, its existence cannot be disputed. Thus, the facts of the case are that the applicant and M/S Kesar Enterprises Limited executed a letter of intent dated 29th October, 1991 for the purchase of machinery and providing the same on le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly or in part entered into outside the State; (ii) in a case falling under Sub-clause (iv), if the goods are used by the lessee within the State during any period, notwithstanding that the agreement for the lease has been entered into outside the State or that the goods have been delivered to the lessee outside the State. Explanation-II- Notwithstanding anything contained in this Act, two independent sales or purchases shall, for the purposes of this Act, be deemed to have taken place- (a) when the goods or transferred from a principal to his selling agent and from the selling agent to his purchaser. (b) When the goods are transferred from the seller to a buying agent and from the buying agent to his principal, if the agent is found, in either of the cases aforesaid,- (i) to have sold the goods at one rate and passed on the sale proceeds to his principal at another rate; or (ii) to have purchased the goods at one rate and passed them on to his principal at another rate; or (iii) not to have accounted to his principal for the entire collection or deductions made by him, in the sales or purchases effected by him on behalf of his principal; or (iv) to have acted for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cution of the works contract; (vii) all amounts paid to the sub-contractors as the consideration for execution of the works contract, whether wholly or in part: Provided that no deduction under this sub-clause shall be allowed unless the dealer claiming deduction produces proof that the sub-contractor is a registered dealer liable to tax under this Act and that such amount is included in the return of turnover filed by such sub-contractor under the provisions of this Act; (viii) the amount representing the charges for planning, designing and architects fees; (ix) the amount representing the charges for obtaining on hire otherwise machinery and tools used for execution of the works contract; (x) the amount representing the cost of consumables used in the execution of the works contract, the property in which is not transferred in the execution of the works contract; (xi) the amount representing the cost of establishment and other similar expenses of the contractor to the extent it is relatable to supply of labour and services; (xii) the amount representing the profit earned by the contractor to the extent it is relatable to the supply of labour and services. (3) Wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to include works contracts. The commission prefers the last one, it would avoid multiple amendments. 18. Keeping in view the said recommendation of the Law Commission, the Constitution was amended by the Forty-sixth Amendment. By the said amendment Clause (29-A) was inserted in Article 366 and Clause (3) of Article 286 was substituted. The other amendments introduced by it are not relevant for this case. Clause (29-A) of Article 366 is in the following terms: (29-A) 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 transfer of the property in goods (whether as goods or in some other form) involved in the execution of a works contract; (c) a tax on the delivery of goods on the hire purchase or any system of payment by installments; (d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (e) a tax on the supply of goods by any unincorporated association or body of persons to a member ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the execution of the works contract further came up for consideration before the Constitution Bench of the Apex Court in the case of Gannon Dunkerley and Co. v. State of Rajasthan report in 1993 UPTC 416. Apex Court concluded as follows: In exercise of its legislative power to impose tax on sale or purchases of goods under entry 54 of the State List read with Article 366(29-A)(b), the State Legislature, while imposing 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 is not competent to impose a tax on such a transfer (deemed sale) which constitutes a sale in the course of inter-State trade or commerce or a sale outside the State or a sale in the course of import or export. The provisions of Sections 3, 4 and 5 and Sections 14 and 15 of the Central Sales Tax Act, 1956, are applicable to a transfer of property in goods involved in the execution of a works contract covered by Article 366(29-A)(b). While defining the expression 'sale' in the sales tax . legislation, it is open to the State Legislature to fix the situs of a deemed sale resulting from a transfer falling within the ambit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t would be incurred in normal circumstances in respect of that particular type of works contract. It would be permissible for the Legislature to prescribe varying scales for deduction on account of cost of labour and services for various types of works contract. While fixing the rate of tax, it is permissible to fix a uniform rate of tax for the various goods involved in the execution of a works contract which rate may be different from the rates of tax fixed in respect of sales or purchase of those goods as a separate article. 22. Apex Court further held as follows: On behalf of the State, it has been seriously contended that a deemed sale resulting from transfer of property in goods involved in the execution of a works contract can never be a sale in the course of inter-State trade or commerce and it cannot be an outside sale or a sale in the of import since the transfer of property in the goods takes place only at the stage when the goods are incorporated in the works and that can take place only in the State where the work is required to be executed. On behalf of the contractors, on the other hand, it has been urged that a works contract can involve transactions constituti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons contained in Section 15 of the Central Sales Tax Act. It has been contended on behalf of the contractors that while it is permissible for the State Legislature to define the expression 'sale' in the sales tax legislation to include transfer of property in goods involved in the execution of a works contract, it is not permissible for the State Legislature to locate the situs of such sale in a manner as to treat a sale in the course of inter-State trade or commerce or a sale outside the State or a sale in the course of import and export, as a sale inside the State and thereby assume the power to impose a tax on sales which are actually sales in the course of inter-State trade or commerce or outside sales or sales in the course of import and export. In this regard, it may be stated that so far as sales in the course of inter-State trade or commerce are concerned, the position is well settled that the situs of the sale or purchase is wholly irrelevant as regards its inter-State character, See Bengal Immunity Co. Ltd. v. State of Bihar [1955] 2 SCR 603 . In Onkarlal Nandlal v. State of Rajasthan 1985 : AIR 1986 SC 2146 , it has been observed: There is, in our opinion, no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with Article 366(29-A)(d) are not competent to levy sales tax on the transfer of right to use goods, which is deemed sale, if such sale takes place outside the State or is a sale in the course of inter-State trade or commerce or is a sale in the course of import or export. (b) The appropriate Legislature by creating legal fiction can fix situs of sale. In the absence of any such legal fiction the situs of sale in case of the transaction of transfer of right to use any goods would be the place where the property in goods passes, i.e. where the written agreement transferring the right to use is executed. (c) Where the goods are available for the transfer of right to use the taxable event on the transfer of right to use any goods is on the transfer which results in the right to use and the situs of sale would be the place where the contract is executed and not where the goods are located for use. (d) In cases where goods are not in existence or where there is an oral or implied transfer of the right to use goods, such transactions may be effected by the delivery of the goods. In such cases the taxable event would be on the delivery of goods. (e) The transaction of transfer of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to use any goods is on the transfer which results in right to use and the situs of sale would be the place where the contract is executed and not where the goods are located for use; in case where the goods are not in existence or where there is an oral or implied transfer of right to use the goods, such transactions may be effected by the delivery of the goods and in such cases the taxable event would be on the delivery of the goods. 27. Clause (ii) of Explanation-I of Section 2 (h) of the Act is to be read down to the effect that it would not be applicable to the transaction of transfer of right to use any goods, if such deemed sale is (i) an outside sale, (ii) sale in course of the import of the goods into or export of the goods out of the territory of India and (iii) an inter-State sale. 28. In the case of Bharat Sanchar Nigam Ltd. and Anr. v. Union of India and Ors. reported in 2006 29 NTN 307 the decision of the Apex Court in the case of 20th Century Finance Corporation Ltd and Anr. v. State of Maharashtra (supra) came up for consideration. The quarrel was with regard to the following observation of the Apex Court. "In our view, therefore, on a plain reading of Sub-section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 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 executed. Thus, where goods to be transferred are available and a written contract, is executed between the parties, it is at that point situs of taxable event on the transfer of right to use goods would occur and situs of sale of such a transaction would be the place where the contract is executed. (emphasis ours) In determining the situs of the transfer of the right to use the goods, the Court did not say that delivery of the goods was inessential for the purposes of completing the transfer of the right to use. The emphasized portions in the quoted passage evidences that the goods must be available when the transfer of the right to use the goods take place. The Court also recognized that for oral contracts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yer by lifting a toll gate. Of course the toll payer will use the road or bridge in one sense. But the distinction with a sale of goods is that the user would be of the thing or goods delivered. The delivery may not be simultaneous with the transfer of the right to use. But the goods must be in existence and deliverable when the right is sought to be transferred. Therefore whether goods are incorporeal or corporeal, tangible or intangible, they must be deliverable. To the extent that the decision in State of U.P. v. Union of India held otherwise, it was, in our humble opinion erroneous. (Emphasis provided) 29. In the same case Hon'ble Dr.A.R. Lakshamanan. J. held as follows: To constitute a transaction for the transfer of the right to use the goods the transaction must have the following attributes: a. There must be goods available for delivery; b. There must be a consensus an item as to the identity of the goods; c. The transferee should have a legal right to use the goods consequently all legal consequences of such use including any permissions or licenses required therefore should be available to the transferee; d. For the period during which the transferee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HER REQUIRED ACCESSORIES AND ONE NUMBER ' A.P.E. BELLISS' MADE MS-26, MULTISTAGE BACK TURBINE INLET STEAM 21 KG/CM (g) WITH 'KIRLOSKAR' MAKE 1000 KW, 1500 RPM, 415 VOLTS ALTERNATOR-ALONGWITH REQUIRED ACCESSORIES" and will provide the same on case to Kesar Enterprises Limited. Detailed Agreement to be finalized later on. For & on behalf of For & on behalf of KESAR ENTERPRISES LIMITED GOA CARBON LIMITED AUTHORISED SIGNATORY AUTHORISED SIGNATORY 34. By the aforesaid letter of intent, there was no transfer of right to use the goods. The goods were not in existence and were not in a deliverable stage. The right to use the machinery was transferred only by the agreement dated 24th March, 1991 and not prior to that. When the lease agreement was executed on 24th March, 1992, the impugned machinery were already in existence inside the State of U.P. Admittedly, they have not been imported in the course of inter-State transaction from outside the State of U.P. in pursuance of the agreement dated 24th March, 1992. Thus, the applicant cannot claim the benefit of Clause (i) of Section 3-F(2)(a) of the Act. 35. For the reasons stated above, I do not find any merit in the prese ..... X X X X Extracts X X X X X X X X Extracts X X X X
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