2021 (3) TMI 192 - HC - VAT and Sales Tax

Court quashes tax assessment orders re: 'transfer of right to use' goods under sales tax laws.

The court quashed the assessment orders under the Tamil Nadu General Sales Tax Act, 1959, and Central Sales Tax Act, 1956, finding that the petitioner's ... Maintainability of petition - Validity of assessment order - transfer of right to use of goods - whether the petitioner should be relegated at this distant point of time to avail the alternate remedy before the Appellate Authority under the respective enactment or whether these writ petitions can be disposed on merits as there are no disputed questions of fact involved? - HELD THAT:- Since there are no disputed questions of fact and only application of settled position of law to the facts of the case, I am inclined to exercise the jurisdiction of the court under article 226 of the Constitution of India. Further, clarity on the law is available as on this date in the light of the decision of the Hon'ble Supreme Court in BHARAT SANCHAR NIGAM LTD. (BSNL) VERSUS UNION OF INDIA [2006 (3) TMI 1 - SUPREME COURT]. The said decision was not available when the impugned orders were passed. Article 366(29A) of the Constitution of India was amended by the 46th Amendment to the Constitution to bring transactions where one or more of the essential ingredients of a sale as defined in the Sale of Goods Act, 1930 were absent, within the ambit of the definition of purchase and sales for the purposes of levy of sales tax. The amendment especially allowed specific composite contracts viz. works contracts [Clause (b)], hire purchase contracts [Clause (c)], catering contracts [Clause (e)] by legal fiction to be divisible contracts where the sale element could be isolated and be subjected to sales tax. In the facts and circumstances of the present case, the above test enunciated for “transfer of right to use” is not satisfied. Therefore, the petitioner cannot be subjected to tax under the provisions of the Tamil Nadu General Sales Tax Act, 1959 and/or under the provisions of the Central Sales Tax Act, 1956. In the transactions entered between the petitioner and the banks, the effective control over to ATM's continued to vest with the petitioner. Since the issue stands fully covered in favour of the petitioner in the above cited decision of the Hon'ble Supreme Court in BHARAT SANCHAR NIGAM LTD. (BSNL) VERSUS UNION OF INDIA [2006 (3) TMI 1 - SUPREME COURT], these writ petitions deserve to be allowed by quashing the impugned orders. As a matter of fact, the subject transaction may have been liable to tax under Section 65(105)(zzzzj) of the Finance Act, 1994 with effect from 2008 after service tax was levied on “Supply of Tangible Goods” as about test for “transfer of right to use” is conspicuously absent - Petition allowed - decided in favor of petitioner. Issues Involved:1. Challenge to assessment orders under Tamil Nadu General Sales Tax Act, 1959 and Central Sales Tax Act, 1956.2. Allegations of 'transfer of right to use' goods.3. Liability to pay tax on leasing of ATMs.4. Alternative remedy through statutory appeal.5. Application of settled law to the facts of the case.Detailed Analysis:1. Challenge to Assessment Orders:The petitioner challenged the assessment orders dated 15.10.2005 for the assessment years 2002-03 to 2004-05 under the Tamil Nadu General Sales Tax Act, 1959, and for the assessment years 2001-02 to 2004-05 under the Central Sales Tax Act, 1956. The assessment orders were based on notices issued under the respective Acts.2. Allegations of 'Transfer of Right to Use' Goods:The notices alleged that the petitioner’s activities, including installation and maintenance of ATMs and related services for banks, constituted a 'transfer of right to use' goods, thus making them liable for tax. The petitioner refuted this, claiming that effective possession and control of the ATMs remained with them, negating the 'transfer of right to use' as defined under the Acts.3. Liability to Pay Tax on Leasing of ATMs:The respondent argued that the petitioner was liable to pay tax under Section 3-A of the TNGST Act, 1959, and post-amendment to the CST Act, 1956, for hiring ATMs to banks. The petitioner countered that the transactions did not meet the criteria for 'transfer of right to use' since the petitioner retained control over the ATMs.4. Alternative Remedy through Statutory Appeal:The respondents contended that the petitioner had an alternative and efficacious remedy through a statutory appeal under the respective enactments, and thus, the writ petitions should be dismissed. However, the court noted that since there were no disputed questions of fact and only the application of settled law was required, it was appropriate to exercise jurisdiction under Article 226 of the Constitution of India.5. Application of Settled Law to the Facts of the Case:The court referred to the Supreme Court’s decision in Bharat Sanchar Nigam Ltd. vs. Union of India (2006) 3 SCC 1, which clarified the scope of 'transfer of right to use' under Article 366(29A) of the Constitution. The court concluded that the essential attributes for 'transfer of right to use' were not satisfied in the petitioner’s case, as effective control over the ATMs remained with the petitioner. Consequently, the petitioner could not be subjected to tax under the TNGST Act, 1959, or the CST Act, 1956.Conclusion:The court quashed the impugned orders, granting consequential relief to the petitioner. The writ petitions were allowed, and no costs were imposed. The judgment emphasized that the transactions in question did not constitute a 'transfer of right to use' as per the settled law, and thus, the petitioner was not liable to the taxes imposed by the assessment orders.