2021 (4) TMI 499 - HC - VAT and Sales Tax

Court upholds tax orders, allows deductions for lease rentals pre-import clearance. Petitioner to submit representation within four weeks.

M/s. Russell Credit Ltd. Versus The Commercial Tax Officer, Chennai

The court upheld the tax orders post the delivery and transfer of control to lessees but remitted the cases for the petitioner to receive deductions for ... Levy of tax - transfer of right to use goods or not - sale was in the course in the import or not - Operating lease agreements - eligibility for exemption under Section 3-A(2)(a) of the Tamil Nadu General Sales Tax Act, 1959 - HELD THAT:- Since the dispute pertains to the Assessment Years 2004-2005 and 2005-2006 and since these Writ Petitions are pending considerably for a long period of 13 years before this Court, the Court is inclined to exercise its jurisdiction under Article 226 of the Constitution of India and therefore takes up the case for a final disposal on merits even though the petitioner may have an alternate remedy before an Appellate Authority under the provisions of the Tamil Nadu General Sales Tax Act, 1959. Since the petitioner continued to be the real owner of the goods imported under the arrangement as per the respective Operative Lease Agreements, it was quite natural for the petitioner to have filed the respective Bills of Entry and paid the customs duty on the imported goods. The petitioner also transported the goods to the respective factories of the respective user with whom it had entered to operative lease agreement - Though under the Sale of Goods Act 1930, the definition of sale is restricted, it nevertheless recognizes any other document used in the ordinary course of business as a proof of possession or control of the goods or authorising or purporting to authorise, either by endorsement or by delivery, the processor of the document to transfer to receive the goods thereby represented. The expression “crossing of the customs frontiers of India” has been defined in Section 2(ab) of the Customs Act, 1962. As per the decision of the Hon’ble Supreme Court in BSNL Vs. Union of India, [2006 (3) TMI 1 - SUPREME COURT], actual delivery of the goods may not be necessary for effecting the transfer of the right to use the goods but the goods must be available at the time of transfer and must be deliverable and delivered at some stage - If the above principles in BSNL Vs. Union of India, are applied to the facts of the present case, the petitioner may contending that the extended definition of sale, viz. transfer of the right to use goods took place before actual clearance and there cannot be any levy of tax under Section 3-A of the Tamil Nadu General Sales Tax Act, 1959 as the transaction was exempted under Section 5(2) of the Central Sales Tax Act, 1959. The fact that the petitioner is stated to have acted as an agent of the lessee at the time of import under the respective Operating Lease Agreements is of no relevance as the petitioner neither transferred the possession nor effective control to the lessee till the actual delivery and also continued to receive lease rentals during the currency of the respective Operating Lease Agreements. Therefore, the petitioner cannot claim exemption under Section 5(2) of the Central Sales Tax Act, 1956 for the entire period - Further, it should be noted that in the case of ordinary “sale”, the transaction between the seller and the buyer ends with a single transaction. However, in the case of lease, where there is no transfer of ownership but only a transfer of possession and effective control. Tax is to be paid on the transaction for the period upto the period of lease under the Agreements. Each payment of lease rent would amount to extended definition of sale. While the petitioner is entitled for deduction of lease rental received period upto the date of actual clearance of the imported goods from the customs barriers under Section 3-A of the Tamil Nadu General Sales Tax Act, 1959, for the period thereafter, i.e. after the effective possession and control were transferred to the respective lessees / actual users, the petitioner will be liable to pay tax under Section 3-A of the Tamil Nadu General Sales Tax Act, 1959 - Case remitted back to the respondent to give the benefit of deduction to the petitioner upto the date of import to the petitioner for any lease rental which the petitioner may have received prior to the said date - petition allowed by way of remand. Issues Involved:1. Challenge to the impugned tax orders for Assessment Years 2004-2005 and 2005-2006.2. Applicability of Section 5(2) of the Central Sales Tax Act, 1956.3. Alleged violation of Rule 15(6) of the Tamil Nadu General Sales Tax Rules, 1959.4. Determination of whether transactions were 'deemed sales' in the course of import.5. Interpretation of 'transfer of right to use goods' under tax laws.Detailed Analysis:1. Challenge to the Impugned Tax Orders:The petitioner contested the tax orders dated 30.10.2007 for the Assessment Years 2004-2005 and 2005-2006. The respondent levied tax under Section 3-A of the Tamil Nadu General Sales Tax Act, 1959, asserting that there was a transfer of the right to use goods within Tamil Nadu by the petitioner in favor of four entities.2. Applicability of Section 5(2) of the Central Sales Tax Act, 1956:The petitioner argued that the transactions were exempt from tax under Section 5(2) of the Central Sales Tax Act, 1956, as the sales occurred in the course of import before the goods crossed customs barriers. The petitioner relied on several Supreme Court decisions, emphasizing that the sale in the course of import is exempt from tax if it occurs before the goods cross customs barriers.3. Alleged Violation of Rule 15(6) of the Tamil Nadu General Sales Tax Rules, 1959:The petitioner claimed that the impugned orders violated Rule 15(6) of the Tamil Nadu General Sales Tax Rules, 1959, which requires the Assessing Authority to obtain the concurrence of the Deputy Commissioner if the assessment results in the imposition of tax of one lakh rupees or above.4. Determination of Whether Transactions Were 'Deemed Sales' in the Course of Import:The petitioner contended that the transactions involved payment of monthly lease rentals for a period of 7 years, with the ownership of the machinery remaining with the petitioner. The petitioner argued that the transactions were 'deemed sales' occurring before the goods crossed customs barriers and thus exempt from tax. The respondent countered that the sale did not occur in the course of import as there was no endorsement in the Bills of Lading or Bills of Entry in favor of the lessee, and the Bills of Entry were filed by the petitioner itself.5. Interpretation of 'Transfer of Right to Use Goods' Under Tax Laws:The court examined various precedents and statutory provisions to determine whether the transfer of the right to use goods constituted a sale in the course of import. The court referred to the expanded definition of 'sale' under Article 366(29A) of the Constitution and relevant sections of the Central Sales Tax Act, 1956, and the Tamil Nadu General Sales Tax Act, 1959. The court concluded that the transactions were not exempt from tax as the petitioner continued to exercise effective control and possession over the goods until their actual delivery.Judgment:The court upheld the impugned tax orders for the period after the delivery and transfer of effective control to the lessees. However, it remitted the cases back to the respondent to provide the petitioner with the benefit of deduction for lease rentals received prior to the actual import and clearance of the goods from customs barriers. The petitioner was instructed to file a suitable representation before the respondent within four weeks. The writ petitions were disposed of without costs, and connected miscellaneous petitions were closed.