TaxTMI 
TaxTMI 
2010 (2) TMI 1057
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....right to use goods. Clause (29A) reads as under: "(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 a member thereof for cash, deferred payment or other valuable consideration; (f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, 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 goo....
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....s to whether the petitioner would be liable to pay tax under the Act 2002 in respect of the amount towards the instalments received after September 15, 2004 though the agreements were entered prior to September 15, 2004. The case of the petitioner is that prior to coming into force of this enactment, there was no law or any provision in the existing Sales Tax Act providing for a levy of tax on lease transactions and it was for the first time that law was made for levy of tax on lease transaction by the Legislating Act, 2002. However, section 3 of the Act 2002, which is the charging section and provides for incidence of tax, inter alia, lays down that the tax shall be leviable on the turnover of sale in respect of the transfer of the right to use goods accrued to before the appointed date but the right to use goods is exercised on or after the appointed date. The said section 3 reads as under: "3. Incidence of tax.-Subject to the provisions contained in this Act and the Rules made thereunder, a tax shall be leviable on the turnover of sales in respect of- (a) the transfer of the right to use any goods agreed to before the appointed day but the right to use the goods is exer....
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...., inasmuch as the sale under the enactment means transfer of the right to use the goods for a price. If there is a transfer of the right to use goods, i.e., if the right has been given to the user of the goods then on the day the right has been given it would deem to be a sale and would be liable to sales tax, irrespective of the fact that the goods are subsequently used during the tenure of the agreement and price thereof is received in instalments during the tenure of the agreement which may be even after coming into force of the new enactment. The user of the goods and the receipt of the price are not criteria for determining the situs of sale. Sale in law takes place only once when transfer of the right to use goods is effected. It is at that point of time that taxable event takes place which can be liable to tax. If on the date the transfer is effected there is no law for levy of tax on lease transactions then no tax can be imposed. Giving another twist to the same argument, he submitted that it is the settled principle of law that when a sale is effected then subject to other provisions of the law taxable event takes place which becomes liable to sales tax at the rate prev....
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.... The learned counsel also relied upon the judgment of the Supreme Court in 20th Century Finance Corpn. Ltd. v. State of Maharashtra [2000] 119 STC 182 wherein it has been held as under (at page 202 of STC): "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 tran....
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.... submission of the learned Additional SolicitorGeneral. Examining in this backdrop, rentals paid were not to be treated as "deferred payment" but it amounted to "sale" every month when rental was paid, inasmuch as the right to use the equipment leased would arise only on payment of the lease rentals every month. It is on the payment of lease rentals every month that the right to use is perfected, for failure to pay lease rentals in a particular month, the lessor (petitioner in the instant case), had right to recover back the leased article. The submission, thus, was that taxability is on the event of payment as the Legislature was not taxing "sale" but payment received in case of right to use. In this scenario, the principle of "sale" as applicable in case of goods had no relevance, relating to the leased transactions. He argued that the structure of a lease agreement/contract was different from that of "contract of sale". When the sale of goods is effected, the property passed on to the purchaser immediately and even if there is default in making the payment, the seller cannot recover back the goods but is entitled to the price of the goods or damages. On the contrary, in the case....
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....entity of the goods; (c) The transferee should have a legal right to use the goods- consequently all legal consequences of such use including any permissions or licences required therefore should be available to the transferee; (d) For the period during which the transferee has such legal right, it has to be the exclusion to the transferor-this is the necessary concomitant of the plain language of the statute-viz., a 'transfer of the right to use', and not merely a licence to use the goods; (e) Having transferred the right to use the goods during the period for which it is to be transferred, the owner cannot again transfer the same rights to others." He specifically pointed to attribute at (c) where the court emphasized that the transferee should have a legal right to use the goods and submitted that such legal right to use the goods arises only when the payment of instalment is made regularly. Further submission of the learned Additional Solicitor General was that the petitioner had not challenged the legislative competence in enacting the provisions like section 3(b) of the Act which was a charging section. Therefore, no case was made out for declaring the ....
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.... as to include works contract. The Law Commission preferred the last alternative and, therefore, the Constitution came to be amended by the Forty-sixth Amendment Act, 1982 to add sub-article (29A), which included six sub-clauses. Each of the sub-clauses served to bring transactions where one or more essential ingredients of sale were absent so that it fell within the ambit of sale and purchase for the purpose of levy of sales tax. We have already reproduced these sub-clauses reading thereof indicates that the traditional concept of levy of tax only on the "sale" of goods has been totally transformed and by fiction of law even transfer of right to use goods is treated as "sale". Thus, where there is no actual sale, but only right to use the goods is transferred, that is also treated as "sale" and tax can be imposed thereupon. In the present case, there is no dispute that right to use goods has been transferred in the leasing transaction even when no ownership of goods passed from the seller to the buyer. Up to this stage, there is no quarrel between the parties. However, submission of the petitioner is that on the day when lease agreement is entered into, there is a transfe....
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....ires to a pre-existing higher legal authority. The submission that section 3(b) of the Delhi Sales Tax on Right to Use Goods Act, 2002 is ultra vires to section 2(n) of the same Act indirectly means that section 3(b) of the Act could not have been enacted as that was beyond the power of the Legislature because of the operational effect of the pre-existing section 2(n). This line of reasoning leads to legally absurd conclusions. Therefore, having been enacted and came into effect at the same time and by a single transaction, the doctrine of ultra vires cannot be resorted to press the petition. At max, what the petitioner can plead is that there is inconsistency between section 3(b) and section 2(n) of the Delhi Sales Tax on Right to Use Goods Act, 2002. What would be the position when there appears to be some contradiction of the two provisions of the same Act? As per the settled law of interpretation, courts have to make an attempt to reconcile both the provisions, viz., they are to be interpreted in a manner that they are harmoniously construed. This cardinal rule of construction was incorporated by the Supreme Court in its judgment in the case of Bengal Immunity Comp....
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....ngla v. Government of N.C.T. of Delhi AIR 2005 Delhi 258). In the present case, section 2(n) defines "sale" means any transfer of the right to use any goods for any purpose. No doubt, it would be treated as "sale" even if "deferred payment" is made. Likewise, section 2(s) which defines "turnover of sales" to mean the aggregate amounts of sale price received or receivable during a year. On the other hand, section 3 of the Act, 2002 makes tax payable as and when the price is received, i.e., deferred payment received. If we accept the contention raised by the learned counsel for the petitioner, section 3(b) would be rendered nugatory and otiose. On the other hand, we can harmonise the two sections, viz., section 3(b) of section 2(n) by reading down section 2(n) in the following manner: "Sale" as defined in section 2(n) means any transfer of rights to use any goods to any purpose, consideration therefor has to be deferred payment or any other valuable consideration. Deferred payment here would mean that the consideration for transfer of right to use goods has been be fixed, but down-payment has not been made which is allowed to be staggered. Once this restricted meaning is given ....