1996 (5) TMI 363 - SC - VAT / Sales Tax

SC upholds taxation on transfer of import licences finding REP licences constitute goods for sales tax purposes

Vikas Sales Corporation and Another Versus Commissioner of Commercial Taxes and Another (and other appeals and writ petitions)

The SC dismissed appeals challenging the validity of a circular by the Commissioner of Commercial Taxes, Karnataka regarding taxation on transfer of ... Levy of tax upon the sale of goods - Validity of a circular issued by the Commissioner of Commercial Taxes, Karnataka - Nature of licences/scrips - 'property', 'goods' Or 'actionable claims' - Meaning of word 'property' - definition of 'goods' - Whether the transfer of an import licence called REP licence/Exim scrip by the holder thereof to another person constitutes a sale of goods within the meaning of and for the purposes of the sales tax enactments of Tamil Nadu, Karnataka and Kerala? Held that:- Appeal dismissed. Firstly, it is not brought to our notice that any declaration has been made by the Central Government to the effect that these licences/scrips are securities. Secondly, any such declaration can only be for the period subsequent to the coming into force of the said Amendment Act, i.e., subsequent to January 30, 1992. All the cases before us pertain to the period earlier to the said date. In this view of the matter, it is not necessary to pursue this argument further. Issues Involved:1. Whether the transfer of an import licence called REP licence/Exim scrip by the holder thereof to another person constitutes a sale of goods within the meaning of and for the purposes of the sales tax enactments of Tamil Nadu, Karnataka, and Kerala.Detailed Analysis:Issue 1: Definition of Goods and TransferabilityThe primary issue addressed is whether REP licences/Exim scrips constitute 'goods' under the sales tax enactments of Tamil Nadu, Karnataka, and Kerala. The judgment extensively discusses the nature and characteristics of these licences, referencing the Imports and Exports (Control) Act, 1947, and the Import and Export Policy. REP licences/Exim scrips were designed to provide registered exporters with the facility to import essential inputs required for manufacturing exported products. These licences were freely transferable and traded in the market, often without requiring any endorsement or permission from the licensing authority.Issue 2: Legal Precedents and InterpretationThe judgment relies heavily on the precedent set by the Supreme Court in H. Anraj v. Government of Tamil Nadu [1986] 61 STC 165, which held that lottery tickets are goods. The court analogized the content and transferability of REP licences/Exim scrips to lottery tickets, concluding that if lottery tickets are considered goods, then REP licences/Exim scrips, which have a more substantial and real content, should also be considered goods.Issue 3: Actionable Claims and PropertyThe court rejected the argument that REP licences/Exim scrips are in the nature of actionable claims. The definition of actionable claims in section 3 of the Transfer of Property Act was considered, and it was concluded that these licences/scrips, being freely bought and sold in the market with inherent value, do not fit the definition of actionable claims. The court emphasized that these licences/scrips are treated as merchandise in the commercial world.Issue 4: Constitutional and Legislative CompetenceThe judgment also addressed the constitutional competence of State Legislatures to levy sales tax on the transfer of REP licences/Exim scrips. Entry 54 in List II of the Seventh Schedule to the Constitution empowers State Legislatures to make laws concerning 'taxes on the sale or purchase of goods.' The court held that the enactments in question fall within this entry and are not related to entry 41 in List I, which pertains to customs duties.Issue 5: Specific Definitions and ExclusionsThe definitions of 'goods' in the Tamil Nadu, Karnataka, and Kerala Sales Tax Acts were scrutinized. These definitions uniformly include all kinds of movable property, excluding newspapers, actionable claims, stocks, shares, and securities. The court concluded that REP licences/Exim scrips are not securities within the meaning of clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956, and thus do not fall under the exclusions in the sales tax enactments.ConclusionThe court dismissed all appeals and writ petitions, affirming that REP licences/Exim scrips constitute goods within the meaning of the relevant sales tax enactments, and their transfer is exigible to sales tax. The judgment emphasized the commercial treatment of these licences/scrips as merchandise and upheld the legislative competence of State Legislatures to levy sales tax on their transfer.Summary:The Supreme Court of India ruled that REP licences/Exim scrips are goods under the sales tax enactments of Tamil Nadu, Karnataka, and Kerala. The court relied on the precedent set in H. Anraj v. Government of Tamil Nadu and rejected arguments that these licences are actionable claims or securities. The judgment affirmed the legislative competence of State Legislatures to levy sales tax on the transfer of these licences, emphasizing their commercial treatment as merchandise. All appeals and writ petitions were dismissed.