TaxTMI 
TaxTMI 
2009 (2) TMI 749
X X X X Extracts X X X X
X X X X Extracts X X X X
....es not guarantee the minimum mileage for each vehicle, which it obtains on hire, and it does not guarantee the minimum number of vehicles, which it may utilize per month. There is, thus, according to the petitioner-company, no transfer of the right to use vehicles from the contractors to the petitioner-company inasmuch as possession and custody of the vehicles remain, for all practical purposes, with the contractors and the petitioner-company pays only the hire charges to the contractors for the vehicles hired from them. (ii) However, the Senior Superintendent of Taxes, Bongaigaon, issued a notice, dated May 16, 1998, addressed to the petitioner-company's plant manager, who is in-charge of the LPG bottling plant, directing him to deduct tax under section 27(a) of the Assam General Sales Tax Act, 1993, (in short, "the Act") on payment of hire charges to the contractors, who are owners of vehicles hired by the petitioner-company. This was followed by yet another notice, dated May 15, 1998, issued by the Senior Superintendent of Taxes, Bongaigaon, directing the petitioner-company's plant manager to show cause as to why penal action shall not be taken for failure to furnish th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he right to use the vehicles, in question, the petitioner-company refers to, and relies upon, clauses 1, 4, 5, 8, 9, 11, 12, 13, 15, 17, 19, 21 and 38 of the contract agreement. I have heard Dr. A.K. Saraf, learned senior counsel for the petitionercompany, and Mr. D. Saikia, learned counsel, appearing on behalf of the respondents. There is no dispute that the power of the State Legislature to impose tax on sale and purchase of goods emanates from entry 54 of List II of the Seventh Schedule to the Constitution of India nor is there any dispute that 46th Amendment of the Constitution, which inserted clause (29A) in article 366 of the Constitution of India, has expanded the definition of "tax on sale or purchase of goods" inasmuch as it has included, within the definition of "sale", the transfer of the right to use any goods for any purpose, whether or not for a specified period, on cash, deferred payment or other valuable consideration. There is also no dispute that pursuant to the changes so introduced, amendments have been made by the Legislature, in the State of Assam, in the provisions of the Act, particularly section 2(33) and 2(19) thereof, which embody the definition of "sale....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Madras General Sales Tax Act, 1959. The Madras High Court, however, turned down the imposition of the sales tax by holding that even if a copyright is regarded as species of movable property, the transaction did not connote a "sale" at all inasmuch as there was no transfer of property in the goods in such a case and the transaction was, therefore, not liable to payment of sales tax. The decision of the Madras High Court, in A.V. Meiyappan [1967] 20 STC 115, created immense difficulty for the States for quite a long time, because novel device of leasing of films resulted into avoidance of huge amounts of sales tax. This apart, in State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. reported in [1958] 9 STC 353, the Supreme Court gave a new approach to the definition of "sale" by prohibiting States from taxing transfer of property in goods involved in the execution of indivisible works contract. This decision also affected the revenue of the States. The State's revenue was further reduced to a great extent in view of the decision in K.L. Johar & Co. v. Deputy Commercial Tax Officer reported in [1965] 16 STC 213, wherein the apex court decided that the State can tax only the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made;" The effect of the amendment, which has been introduced to article 366, by inserting clause (29A), is that a State Legislature has become competent to impose sales tax, amongst others, on the transfer of the right to use any goods, which, before the amendment, so made, the State Legislature was not competent to do. What the insertion of clause (29A) has done is that various transactions, enumerated therein, which were, otherwise, not sales, have to be deemed, by a legal fiction, as sales. Such sales are commonly called deemed sales. Under clause (29A)(d), a "transfer of the right to use any goods" for any purpose and for any period, for cash, deferred payment or other valuable consideration, shall be deemed to be a sale of goods by the perso....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ease. Section 2(21) of the Act defines "lessor" to mean a person by whom any right to use any goods for any purpose is transferred under a lease. From a combined reading of the various provisions of law, which have been pointed out above, what clearly transpires is that there must be "a transfer of the right to use any goods" in order to attract levy of "sales tax". In other words, transfer of the right to use any goods, for any purpose, is a condition precedent for imposition of sales tax. This tax is not a tax on the right to use any goods or on the use of any goods; it is, rather, a tax on the "transfer" of the "right" to "use" any "goods". Thus, unless and until the incidence of "transfer" of the right to use goods, in a given case, is present, a transaction would not become a "sale" even under the expanded definition of "sale". Similarly, a transaction would not attract "sales tax" merely because of the fact that the goods have been hired and the hiring charges have been paid to the person, who gives, on hire, the goods unless one can show that the transaction is not confined to "use" of the goods, but it is, in substance, a "transfer" of the "right" to "use" the "goods ". ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....] 119 STC 182; [2000] 6 SCC 12, read as under: "27. Article 366(29A)(d) further shows that levy of tax is not on use of goods but on the transfer of the right to use goods. The right to use goods accrues only on account of the transfer of right. In other words, right to use arises only on the transfer of such a right and unless there is transfer of right, the right to use does not arise. Therefore, it is the transfer which is sine qua non for the right to use any goods. If the goods are available, the transfer of the right to use takes place when the contract in respect thereof is executed. As soon as the contract is executed, the right is vested in the lessee. Thus, the situs of taxable event of such a tax would be the transfer which legally transfers the right to use goods. In other words, if the goods are available irrespective of the fact where the goods are located and a written contract is entered into between the parties, the taxable event on such a deemed sale would be the execution of the contract for the transfer of right to use goods. But in case of an oral or implied transfer of the right to use goods it may be effected by the delivery of the goods. 28.. No authority ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....366(29A)(d). The apex court also pointed out, in Bharat Sanchar Nigam Ltd. [2006] 3 VST 95; [2006] 145 STC 91; [2006] 282 ITR 273; [2006] 3 SCC 1 that in 20th Century Finance Corpn. Ltd. [2000] 119 STC 182; [2000] 6 SCC 12, what the Constitution Bench was required to determine was the situs of the taxable event. In other words, what the Constitution Bench, in 20th Century Finance Corpn. Ltd. [2000] 119 STC 182 (SC); [2000] 6 SCC 12, was required to determine was as to where the taxable event, for the purpose of sales tax, takes place in the context of subclause (d) of article 366(29A), because the States had selected three distinct places for imposing sales tax. In other words, in 20th Century Finance Corpn. Ltd. [2000] 119 STC 182 (SC); [2000] 6 SCC 12, three distinctly separate criteria were found to have been used by the States for the purpose of levying sales tax under article 366(29A)(d). Some States had levied tax, on the transfer of the right to use goods, on the basis of the location of the goods at the time of their use irrespective of the place, where the agreement for such transfer of the right to use such goods was made; while some States had levied tax upon delivery of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ds is not a necessary concomitant for completing a transaction of sale for the purposes of article 366(29A)(d) of the Constitution. In that decision the court had to determine where the taxable event for the purposes of sales tax took place in the context of sub-clause (d) of article 366(29A). Some States had levied tax on the transfer of the right to use goods on the location of goods at the time of their use irrespective of the place where the agreement for such transfer of right to use such goods was made. Other States levied tax upon delivery of the goods in the State pursuant to agreements of transfer while some other States levied tax on deemed sales on the premise that the agreement for transfer of the right to use had been executed within that State (vide para 2 of the judgment as reported). This court upheld the third view, namely, merely that the transfer of the right to use took place where the agreements were executed..." Explaining, in Bharat Sanchar Nigam Ltd. [2006] 3 VST 95 (SC); [2006] 145 STC 91 (SC); [2006] 282 ITR 273 (SC); [2006] 3 SCC 1, its earlier decision, in 20th Century Finance Corpn. Ltd. [2000] 119 STC 182; [2000] 6 SCC 12, the apex court pointed out t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....990] 77 STC 182 (AP). that although the possession of the machinery was given to the transferee, yet the effective custody and control of the machinery having remained with the transferor, such transaction would not amount to transfer of the right to use goods. This decision of the Division Bench was upheld by the apex court in State of Andhra Pradesh v. Rashtriya Ispat Nigam Ltd. [2002] 126 STC 114; [2002] 3 SCC 314. In contrast, Aggarwal Brothers v. State of Haryana reported in [1999] 113 STC 317 (SC); [1999] 9 SCC 182, was a case, wherein assessee had hired shuttering in favour of the contractor for use of the latter in the course of construction of the building. The apex court opined that the possession of the shuttering materials had been transferred by the assessee to the contractor for their use and, therefore, the transaction was a deemed sale. What is immensely important to note is that in both the cases, namely, in Rashtriya Ispat Nigam Ltd. [2002] 126 STC 114 (SC); [2002] 3 SCC 314 as well as in Aggarwal Brothers [1999] 113 STC 317 (SC); [1999] 9 SCC 182, the goods were in existence and the same were delivered to the contractors for their use. However, while in one cas....
X X X X Extracts X X X X
X X X X Extracts X X X X
....han the form of it. The mere fact that the word 'agent' or 'agency' is used or the words 'buyer' and 'seller' are used to describe the status of the parties concerned is not sufficient to lead to the irresistible inferences that the parties did in fact intend that the said status would be conferred. Thus the mere formal description of a person as an agent or a buyer is not conclusive, unless the context shows that the parties clearly intended to treat a buyer as a buyer and not as an agent..." From the above discussion, what also clearly emerges is that the question as to whether, in a given case, there is or there is no transfer of the right to use goods becomes a question of fact and this fact can be determined on the basis of the terms of the contract, which may govern a given transaction. In fact, in North East Gases Pvt. Ltd. v. State of Assam reported in [2004] 134 STC 249, this court has held that the question relating to transfer of the right to use any goods is essentially a question of fact, which has to be determined, in each case, having regard to the terms of the contract, wherein the transfer is made. In view of the fact that the term....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hedule B and to put them into operation under the terms and conditions of these presents. Clause 2-The contractor/s shall get the said tank truck/s to conform to design and fittings as specified by the corporation as also will have the said tank trucks calibrated by weights and measures wherever applicable and will also allow the corporation to calibrate the same whenever found necessary. The contractor/s shall also immediately furnish to the corporation certificates in respect of calibration of weights and measures and have the same periodically checked and inspected by the concerned authorities and file such certificates with the corporation. The decision of the corporation regarding the correctness of the calibration and any allowance to be made therein shall be final and binding on the contractor/s. The contractor/s shall also obtain the counter-signature of the authorized representative of the corporation on the reverse of the calibration chart and if and when required by the corporation permit the said tank/trucks to be calibrated by weight/measures in the corporation's premises or in such manner in accordance with the directions that may be given by the corporation at t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the tank truck/s and will obtain certificate from the Chief Controller of Explosive or any appropriate Government Authority to the effect that the vehicle is fit for transporting the said products. The contractor shall also carry out, fulfil and implement all directions whether in writing or oral, that may be issued by the corporation or its authorized representative relating to loading, unloading, transport, operation and delivery of petroleum products in the tank/trucks and any violation, breach or default thereof will be construed and means a breach or default of this agreement entitling the corporation to terminate the same forthwith without prejudice to its other rights. Clause 11-That the contractor/s will make good to the corporation any loss arising from: (a) The confiscation by Government or local authorities of any quantities of the said products delivered to the contractor/s for transportation. (b) Loading, unloading, or in transit for reasons other than the acts of God, riots, or civil commotion, PROVIDED that the corporation shall be entitled to recover from the contractors and the contractor/s hereby agree to be bound to pay to the corporation as and by way....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 21-That in case the tank truck/s is/are found unserviceable for want of repairs servicing, the contactors will make arrangements to keep them serviceable immediately and if failed the contractor shall be bound to effect supplies to outstations in drums by stake trucks. The contractors will be paid for such other arrangement pro rata on the rates indicated in the Schedule A or any substituted Schedule as provided herein and computed on the actual quantity carried by the vehicles. In the event of the contractors' failure to provide alternative mode of transportation the contractor/s shall be liable to make good to the corporation the extra expenses that may be incurred by the corporation in making other arrangement for effecting supplies without prejudice to all other rights of the corporation. Clause 38-As per the requirement of the corporation if the contractor fails to place tank trucks with us at depots/installations, it will be the responsibility of the contractor to engage tank trucks from outside. In such cases bills are to be raised by regular contractor only. In case corporation is compelled to engage any tank truck from outside at a higher rate, the difference in ch....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s that the contractor shall carry the petroleum and petroleum products from one place to another and such carriage shall, ordinarily be, in those vehicles, which have been accepted by the petitioner-company, but, in unavoidable circumstances, the contractor may carry the petroleum and petroleum products in "drums" by "stake-trucks". Thus, when the custody and effective control of the vehicles remain with the contractor, it would be incorrect to contend that there is transfer of the right to use the vehicles. Clause 1 further makes it clear that if there be any lay off or lack of utilization of the tanker/trucks by accident or breakdown or for any other reason, which may affect the use thereof by the company, the contractor shall be liable to pay liquidated damages to the petitioner-company. This provision shows that the custody and control of the tanker/trucks, for all practical purposes, remain with the contractor. Had there been transfer of the right to use the tanker/trucks in favour of the petitioner-company, the effective control of the vehicles would have stood vested in the petitionercompany and the contractor, having transferred the right to use the vehicle to the petition....
X X X X Extracts X X X X
X X X X Extracts X X X X
....imum turnover is not guaranteed by the petitioner-company and when it is unknown as to whether a vehicle, during the subsistence of the contract agreement, will or will not be required to be operated by the contractor, it would not be possible to hold that there is transfer of the right to use the vehicle. Thus, when the transfer of the right to use the vehicles (which is sine qua non for the purpose of attracting imposition of sales tax), is lacking in the present case, the question of the present transaction being treated as a "deemed sale" cannot arise at all. We may, now, come to clause 5 of the agreement. This clause obliges the petitioner-company to make payment to the contractor for operation of the tanker/trucks at the rate as is specified in the Schedule A. This clause clearly demonstrates that there is no transfer of the right to use the tanker/ trucks inasmuch as a contractor would be entitled to receive payment provided that he "operates" the tankers/trucks in accordance with the requirement of the petitioner-company as stipulated in the agreement. Turning to clause 8 of the agreement, it may be noted that this clause provides that the contractor shall bear an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....into the contractor's vehicle, is carried by the contractor in accordance with the terms of the contract agreement and in accordance with law. Clause 12 of the contract agreement also proceeds in the same direction inasmuch as it makes it clear that the loading and unloading of the petroleum and petroleum products will not be the unilateral act of the petitioner-company; rather, the loading will be done by the personnel of the petitioner-company with the help of the driver and cleaner of the vehicle and, as far as unloading is concerned, the same will be exclusive responsibility of the contractor. This clause (clause 12), once again, shows that it is not the petitioner-company, which has exclusive right to load the petroleum products or unload the same. When considered in this light, it becomes clear that the right to use the vehicle is not really transferred to the petitioner-company under the contract agreement; rather, not only the possession, but also the control of the vehicle remains with the contractor and it is for this reason that from the very stage of loading of the petroleum and petroleum products into a vehicle, the contractor concerned remains involved. Clause 13....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to the contractor and also the manner of computation of the dues of the contractor. These clauses give no indication at all that there is any transfer of the right to use the vehicle in favour of the petitioner-company. As far as clause 38 is concerned, it puts an obligation on the contractor to engage tanker/trucks from outside if he fails to place his vehicle at the depot/installation. Clause 38, though relied upon by the respondents, really helps the case of the petitioner-company inasmuch as clause 38 belies the respondents' contention that there is transfer of the right to use the vehicle, for, clause 38 makes it possible for the contractor to put a vehicle other than the one which he had agreed to operate. When the contract agreement allows the contractor to place a vehicle other than the one, which he had agreed to operate, no transfer of right to use the vehicle can be said to have been taken place in the present case. Coming to clause 39, suffice it to mention here that this clause relates to validity of the contract agreement and does not, in any way, throw light on the nature of the contract agreement, namely, as to whether there is transfer of the right to use th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ransfer of a right to use goods implies that full liberty is vested in the transferee to have the right to use the goods to the exclusion of all others including the owner of the goods." I respectfully agree with the above observations made in Ahuja Goods Agency [1997] 106 STC 540 (All). There cannot be, therefore, any doubt that a contract agreement has to be read, as a whole, in order to determine the intention of the parties. Merely because of the fact that the vehicles stand identified under the contract agreement, it does not necessarily mean that the right to use the vehicles stands transferred in favour of the petitioner-company by the contractor; more so, when the contract agreement provides for substitution of the vehicles and also permits even carrying petroleum and petroleum products, in "drums", by "stake-trucks". Though the respondents have also relied on the decision of the Karnataka High Court, in Lakshmi Audio Visual Inc. v. Assistant Commissioner of Commercial Taxes reported in [2001] 124 STC 426, this case too does not help the respondents' case. Lakshmi Audio Visual [2001] 124 STC 426 (Karn) is a case regarding hiring of audiovisuals and multimedia e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r of the petitioner-company, whether it is possible for the petitioner-company to file a writ petition challenging the order(s), whereby the petitioner-company has been directed make deductions at source, and/or the notice, whereby the petitioner-company has been directed to show cause as to why penal action shall not be taken against the petitioner-company for its failure to make deductions of tax at source. In this regard, what needs to be pointed out is that in order to invoke a High Court's jurisdiction under article 226, it is not necessary that the right, which is alleged to have been infringed, is a fundamental right. High Court can exercise its extraordinary jurisdiction, under article 226, for any purpose. Hence it is possible to invoke article 226 if a person is compelled by the State to do an act, which the person, so ordered, is not obliged, under the law, to do, particularly, when the person, so directed by the State to do the act, is put by the State under threat of penal action if the direction is not carried out. Section 27 of the Act casts a liability on the person making payment, for the transfer of the right to use any goods, to deduct tax, at source.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ate to compel a person, situated as the petitioner-company is, to make deduction at source. Under article 265, no tax shall be levied or collected except by authority of law. The words "levy" and "collect" are words of wide amplitude so as to cover any process employed to collect any amount purporting to be a tax. If the procedure employed is unauthorized, the process of collection would render a levy or collection illegal and, hence, unconstitutional. In almost similar circumstances, the Delhi High Court, in S.R.F. Finance Ltd. v. Central Board of Direct Taxes reported in [1995] 211 ITR 861, observed and held as follows: (page 868) "It is unnecessary to burden this judgment with the precedents in support of a principle which seems to be too obvious. If the petitioner has to deduct and retain a part of the sum payable under a contract to another person and then hand over this retained sum to the State, necessarily he has to maintain a proper account of the payments with all its incidental nuisance, he may have to employ extra staff; he may have to pay more to his auditors; he may have to engage in paper work of many sorts, apart from being made the target of suspicion and investi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n the facts and attending circumstances of the present case, directed, much less compel, the petitioner-company to make deductions at source. The reference made, in this regard, by Dr. Saraf to the case of Steel Authority of India Ltd. v. State of Orissa reported in [2000] 118 STC 297 (SC); [2000] 3 SCC 200 is not misplaced, wherein the apex court has held as follows: (page 305 of STC) "It was contended on behalf of the State that the appellant, as owner, had no locus to challenge the validity of section 13AA. It was contended that the moneys that were deducted were moneys that belonged to the contractor and it was only the contractor who could successfully lay such a challenge. The contention ignores the fact that the appellant-owner is aggrieved and damnified by the penalties that has been imposed upon it under sub-section (5) for contravention of sub-section (1) of section 13AA. It has, therefore, the standing to contest the validity of section 13AA." Though it has been contended, on behalf of the respondents, that the impugned notices were issued on the basis of this High Court's decision in Mahabir Transport Agency v. Chairman, Food Corporation of India reported i....