2008 (3) TMI 638
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....er Stoker Water Tube Boiler at its Choudwar Power Plant of Indian Charge Chrome Ltd. (ICCL), which is a sister concern of IMFA. For installation IMFA negotiated with IJT for designing, supplying, erecting and commissioning the said 90 TPH plant at its Choudwar power plant. After the terms and conditions for designing the said plant between IMFA and IJT were settled, the user, i.e., IMFA approached the petitioner-company for the purpose of erection and installation of the said plant and then to lease it out to IMFA. The said lease is a bipartite contract between IMFA and the petitioner. Lease rent was agreed at Rs. 23 lakhs per year. Both the agreements, namely, the tripartite agreement and the lease agreement were executed in Calcutta on July 31, 1995. Pursuant to those two agreements dated July 31, 1995, IJT fabricated and supplied the said boiler and delivered it to the IMFA plant at Choudwar in Orissa where it was installed and commissioned by IJT. Thereafter lease rental was paid by IMFA to the petitioner. The Sales Tax Officer, Cuttack-II Circle, Cuttack (hereinafter called as, "the assessing officer") passed assessment orders demanding sales tax on the amount of lease renta....
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....er the provisions of the OST Act. It was further submitted that in the case of inter-State lease, the place where the transfer of right to use is effected or where the property passes is immaterial. Even if for some reason it is found that the transfer of the right to use or the transfer of property has taken place within the State of Orissa, even then, the State would have no jurisdiction or authority of law to levy tax under the OST Act on such an inter-State lease. It was argued in the alternative, that if this court, for some reason, holds that the lease in the present case has not been effected in the course of inter-State trade, then also, the State of Orissa has no jurisdiction to levy tax on the lease rental, since, admittedly the transfer of right to use goods has been effected by the agreement executed in Calcutta, i.e., outside the State of Orissa. In support of his above contentions, learned counsel relied on the judgment of the honourable Andhra Pradesh High Court in the case of ITC Classic Finance and Services v. Commissioner of Commercial Taxes reported in [1995] 97 STC 330. According to the learned counsel, the facts in ITC Classic [1995] 97 STC 330 almost resembl....
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.... was the same boiler which was installed, erected and commissioned in IMFA's plant at Choudwar. It is also argued that if the said erected and commissioned boiler is regarded as immovable property, then, no tax under section 2(g) of the Orissa Sales Tax Act can be charged on the lease rentals, because tax can only be charged on the transfer of right to use of goods and not in respect of lease of immovable property. The constitutional validity of Explanation to section 2(g) of the Orissa Sales Tax Act has also been challenged by the petitioner on the ground that the provisions of article 286 of the Constitution and sections 3, 4 and 5 of the Central Sales Tax Act and entry 92A of List II of the Seventh Schedule to the Constitution of India have overriding effect on the Orissa Sales Tax Act of the State and no local tax can be imposed on a sale in course of import or export or sale taking place outside the State or in course of inter-State trade. The learned counsel for the Revenue, on the other hand, argued that in order to escape from the liability to pay tax on the transfer of right to use (1)See 20th Century Finance Corpn. Ltd. v. State of Maharashtra [2000] 119 STC 1....
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.... In such circumstances, the stand of the petitioner that the transfer of right to use the 90 TPH boiler plant was by an inter-State lease is not sustainable and the only conclusion that can be derived is that the lease value/rentals received by the petitioner, a registered dealer in Orissa, from IMFA is liable to tax under the OST Act. The further case of the Revenue is that the petitioner transferred the right to use of the 90 TPH boiler with other machineries to IMFA after the same was tested, erected and commissioned at Choudwar. Hence such transfer took place at Choudwar in Orissa and the said deemed sale occurred in Orissa. Therefore, the assessing officer has rightly imposed tax on such deemed sale under the Orissa Sales Tax Act. It is further submitted that though the lease agreement was executed in West Bengal in the office of the petitioner, the transfer of right to the use of boiler and other accessories could not have been taken place at that time since the goods itself was not available to be so transferred. The learned counsel emphasised that the honourable Supreme Court in paragraph 35(d) of the judgment in 20th Century Finance [2000] 119 STC 182 has clearly laid dow....
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.... the goods are for inter-State sale by way of lease. The further case of the Revenue is that the lease agreement in question was not intended to be a lease of immovable property, otherwise the same should have been made through a registered instrument as stipulated in section 107 of the Transfer of Property Act, 1882. Relying on clause (4) of the agreement, the learned counsel submitted that as per section 148 of the Contract Act, 1872, a bailment can only be possible in case of goods and there is no concept of bailment of immovable property. Further case of the Revenue is that, provisions of Explanation (a) to section 2(g) of the OST Act will operate only, where the transfer of right to use took place inside Orissa. Hence, the said provision is not required to be declared ultra vires as it does not prima facie offend article 286 or entry 92A of List I of the Constitution or any provisions of the CST Act. The further case of the Revenue is that the petitioner opened a branch office at Cuttack and site office at Choudwar. On July 9, 1996, the petitioner applied for registration under the Orissa Sales Tax Act and was granted the registration certificates for carrying on the busines....
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....rt to exercise its jurisdiction under article 226 of the Constitution? (ii) Whether a dealer is liable to pay tax on the ground that he admitted to pay tax on a certain transaction even if the said transaction is not taxable within the provisions of the OST Act? (iii) Whether the lease rental received by the petitioner from IMFA is exigible to tax under the provisions of the OST Act? The preliminary objection raised by the Revenue with regard to the maintainability of the writ petition may be taken up first. In this connection, reference may be made to the decision of the honourable Supreme Court in Calcutta Discount Co. Ltd. v. Income-tax Officer, Companies District-I, Calcutta, reported in [1961] 41 ITR 191; [1961] AIR 1961 SC 372, wherein it was held as under (page 207, ITR): ". . . It is well-settled however that though the writ of prohibition or certiorari will not issue against an executive authority, the High Courts have power to issue in a fit case an order prohibiting an executive authority from acting without jurisdiction. Where such action of an executive authority acting without jurisdiction subjects or is likely to subject a person to lengthy proceedings and....
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....uch the honourable Supreme Court set aside the judgment of the High Court and remanded the matter to the High Court for decision on merits. Following the same ratio, here also we find that almost identical questions are involved. In these writ petitions the jurisdiction of the assessing officer for levying tax on lease rental has been questioned. The core issue here is whether there was a taxable transfer of right to use the goods. This issue is not merely a question of law, it is also a question with constitutional overtones and such question may be decided by the High Court under article 226 of the Constitution of India without relegating the assessee to the alternative remedy of appeal. Similarly, in Union of India v. State of Haryana reported in [2000] 10 SCC 482, a question came up for consideration whether alternative remedy is an adequate remedy in the context of the sales tax assessee. In that case the question was whether the sales tax authorities can assess sales tax on rental which was charged by the Union of India for supply of telephones. The Union of India filed writ petitions before the respective High Courts challenging the levy. Those writ petitions were d....
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....e he previously admitted his liability on a wrong notion. Liability to pay tax has always to be imposed by law: it cannot be imposed on admission. Article 265 of the Constitution is very clear on this point. To deal with question No. (iii) it is necessary to notice the relevant constitutional and statutory provisions and some judicial pronouncements. Parliament enacted the Constitution (Forty-sixth Amendment) Act, 1982, by which clause (29A) was inserted in article 366. It reads: "(29A) '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 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 hire-purchase or any system of payment by instalments; (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 ....
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....nd 4 of the Central Sales Tax Act, 1956 are reproduced hereinbelow: "Section 3. When is a sale or purchase of goods said to take place in the course of inter-State trade or commerce.- A sale or purchase of goods shall be deemed to take place in the course of inter-State trade or commerce if the sale or purchase,- (a) occasions the movement of goods from one State to another; or (b) is effected by a transfer of documents of title to the goods during their movement from one State to another. Explanation 1.-Where goods are delivered to a carrier or other bailee for transmission, the movement of the goods shall, for the purposes of clause (b), be deemed to commence at the time of such delivery and terminate at the time when delivery is taken from such carrier or bailee. Explanation 2.-Where the movement of goods commences and terminates in the same State it shall not be deemed to be a movement of goods from one State to another by reason merely of the fact that in the course of such movement the goods pass through the territory of any other State. Section 4. When is a sale or purchase of goods said to take place outside a State:- (1) Subject to the provisions contained i....
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....t or other valuable consideration; but does not include a mortgage, hypothecation, charge or pledge and the words 'buy' and 'purchase' shall be construed accordingly. Explanation:- (a) A sale or purchase of goods shall be deemed to take place inside the State if the goods are within the State- (i) in the case of specific or ascertained goods at the time the contract of sale is made; and (ii) in the case of unascertained or future goods at the time of their appropriation to the contract of sale by the seller or by the buyer, whether assent of the other party is prior or subsequent to such appropriation. (b) Where there is a single contract of sale or purchase of goods situated at more places than one, the provisions of this Explanation shall apply as if there were separate contracts in respect of the goods at each of such places." In Builders Association of India v. Union of India [1989] 73 STC 370, one of the questions considered by the Supreme Court was whether the power of the State Legislature to levy tax on the transfer of property in goods involved in the execution of works contracts referred to in subclause (b) of clause (29A) of article 366 of the Const....
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....cannot be distinguished from an "ordinary sale". In ITC Classic's case [1995] 97 STC 330 the company was a registered dealer under the Andhra Pradesh General Sales Tax Act and the CST Act, 1956 and was carrying on business of hiring out machinery, plant and equipment for rent. For the purpose of lease of equipments, agreement between the customer and ITC was executed. It purchased goods accordingly to the specification of its customers and instructed the manufacturer or suppliers to consign them directly to the customer who took them on hire. In a typical case, the equipment was inspected by the customer at the place of their manufacture outside the State and the customer also placed an order for supply in anticipation of confirmation by the appellant. The manufacturer raised invoices against ITC Classic Finance showing the customer as the consignee. The claim of ITC was that since the goods moved outside the State as a result of lease agreement, the transaction was in the course of inter-State trading and no tax was leviable on the appellant under section 5E of the Andhra Pradesh General Sales Tax Act, 1957 on the transfer of right to use the goods. On these facts, the honour....
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....ers where such sale or purchase takes place in the course of inter-State trade or commerce. Article 269 provides for levy and collection of such taxes. Because of these restrictions, State Legislatures are not competent to enact law imposing tax on the transactions of transfer of right to use any goods which take place in the course of inter-State trade or commerce. Further, by virtue of clause (1) of article 286, the State Legislature is precluded from making law imposing tax on the transactions of transfer of right to use any goods where such deemed sales take place (a) outside the State and (b) in the course of import of goods into the territory of India. Yet, there are other limitations on the taxing power of the State Legislature by virtue of clause (3) of article 286. Although Parliament has enacted law under clause (3)(a) of article 286 no law so far has been enacted by Parliament under clause (3)(b) of article 286. When such law is enacted by Parliament, the State Legislature would be required to exercise its legislative power in conformity with such law. Thus, what we have stated above, are the limitation on the powers of State Legislatures on levy of sales tax on deemed ....
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....t of such transfer which are not either delivery of the goods as such or their subsequent use. Where the written lease agreements were entered into between the parties, the transfer of right to use goods takes place by reason of execution of such agreement and, therefore, the place where such transfer of right to use takes place is necessarily the State where the said agreement is executed. The Constitution Bench further clarified that in cases where goods are not in existence or where there is oral or implied transfer of right to use of goods; such transaction may be effected by delivery of goods. In such cases the taxable event would be the delivery of goods. Thus if the goods covered by lease agreement are not in existence at the time of execution of the agreement but came into existence afterwards, it is only the point of time of transfer of right to use goods which stands posted. But the place where such transfer of right to use goods takes place, i.e. place of execution of lease agreement, still remains the same. "Situs of transaction" is, therefore, not changed only by the reason of the fact that the goods leased out were not in existence at the time of execution of the leas....
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....tutory provision. In the case of inter-State trade, the inter-State transaction can be taxed under the CST Act, only by the State from which the movement of goods originated. In that event, the interState lease cannot be subjected to tax by the State of Orissa under the provisions of the Orissa Sales Tax Act. In case of inter-State lease, the place where the transfer of right to use is effected or where the property passes is immaterial. Apart from that, since the transfer of right to use goods has been effected by two agreements both dated July 31, 1995, which were executed in Calcutta, the same cannot also be taxed in the State of Orissa. The case of the petitioner is identical with ITC Classic's case [1995] 97 STC 330 (AP) . In view of the above, we are of the view that deemed sales including leases were to be treated exactly on the same footing as ordinary sales and were subjected to the same restrictions contained in article 286 of the Constitution of India. Neither ordinary sale nor deemed sale could be subjected to tax by a particular State if such sale or deemed sale was either in the course of inter-State trade or was effected outside the State. Therefore, the Explana....
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....respect of lease of immovable property. The Revenue also strongly relied on two judgments of the Kerala High Court, i.e., (i) Madras Credit and Investments Ltd. v. State of Kerala [2004] 134 STC 264. This case dealt with hire-purchase transactions. In case of a hire-purchase transaction, if the delivery of goods on hire-purchase has taken place within the State then the same can be taxed by that State. This case is of no help to the Revenue in view of the decision of the Constitution Bench of the honourable Supreme Court in the case of 20th Century Finance Corpn. [2000] 119 STC 182 wherein it is held that the place of delivery of goods is immaterial and irrelevant. The other judgment of the Kerala High Court on which the learned counsel for the Revenue relied is in the case of First Leasing Company's case [2007] 6 VST 805. This judgment is also of no help to the Revenue. The transactions in question in that case were partly a hire-purchase and partly a leasing transaction. Under the law a hire-purchase transaction stands on a completely different footing from a lease transaction, but the honourable Kerala High Court has not drawn any distinction between the hire-purchase trans....