Deemed sale of right to use goods supports State tax on lease transactions under constitutional amendment

Article 366(29A)(d) treats transfer of the right to use goods for consideration as a deemed sale within the constitutional taxing framework, and the commentary notes that the Forty-sixth Amendment and later Supreme Court authority support that position. It further explains that sections 2(t)(vi) and 9-A of the M.P. Vanijyik Kar Adhiniyam, 1994 adopt the same definition and levy tax on such transfers, including lease transactions involving plant, machinery and allied goods. On that basis, the State provisions are described as consistent with Entry 54 of List II and within legislative competence.

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Issues: (i) Whether clause (d) of Article 366(29A) of the Constitution of India, which treats transfer of the right to use goods as a sale, was ultra vires Entry 54 of List II of the Seventh Schedule. (ii) Whether section 2(t)(vi) and section 9-A of the M.P. Vanijyik Kar Adhiniyam, 1994, which levy tax on transfer of the right to use goods, were beyond the State Legislature's competence and invalid.

Issue (i): Whether clause (d) of Article 366(29A) of the Constitution of India, which treats transfer of the right to use goods as a sale, was ultra vires Entry 54 of List II of the Seventh Schedule.

Analysis: The extended constitutional definition of tax on sale or purchase of goods expressly includes tax on transfer of the right to use any goods for consideration. The validity of the Forty-sixth Amendment had already been upheld, and the later Supreme Court decisions reaffirmed that position. In light of that binding authority, the constitutional amendment could not be reopened on the basis of isolated observations or a narrower reading of entry 54.

Conclusion: The challenge to clause (d) of Article 366(29A) failed and the provision was held valid.

Issue (ii): Whether section 2(t)(vi) and section 9-A of the M.P. Vanijyik Kar Adhiniyam, 1994, which levy tax on transfer of the right to use goods, were beyond the State Legislature's competence and invalid.

Analysis: Section 2(t)(vi) and section 9-A of the State Act substantially tracked the constitutional definition by including transfer of the right to use goods within the concept of sale and by imposing tax on such transfers. The notification issued under section 9-A specifically covered plant and machinery and allied goods, showing that lease transactions of such goods fell within the taxable field. Since the constitutional amendment and the governing Supreme Court decisions recognized such transactions as taxable, the State provisions were within competence and did not suffer from invalidity.

Conclusion: Sections 2(t)(vi) and 9-A of the M.P. Vanijyik Kar Adhiniyam, 1994 were upheld as valid.

Final Conclusion: The writ petitions challenging both the constitutional amendment and the State levy were rejected, and the impugned tax provisions were sustained.

Ratio Decidendi: A transfer of the right to use goods for consideration is a deemed sale within the constitutional taxing power, and State legislation adopting that definition and levying tax on such transfers is valid when consistent with the constitutional amendment and binding Supreme Court precedent.

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