TaxTMI 
TaxTMI 
2006 (10) TMI 498
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....ck turbine inlet steam 21 KG/CM (g) with 'Kirloskar' make 1000 KW 1500 RPM, 415 volts alternator alongwith required accessories. On enquiry with M/S Kesar Enterprises Limited Mumbai, it was found that a sum of Rs. 52, 58, 528/-, Rs. 51, 59, 537/- and Rs. 51, 59, 537/- were paid towards rent to the applicant during the years under consideration 1994-95, 1995-96 and 1996-97 respectively. Assessing authority passed ex-parte assessment orders against the applicant and levied the tax on the aforesaid lease rent under Section 3-F of the Act. The Assessment orders have been confirmed in appeals by the Deputy Commissioner (Appeals), Trade Tax, Bareilly. Applicant filed appeals before the Tribunal. Before the Tribunal, it was contended that the agreement was executed at Mumbai and, therefore, in view of the decision of the Apex Court in the case of 20th Century Finance Corporation, Ltd. and Anr. v. State of Maharashtra reported in 2000 UPTC 593, State of U.P. has no jurisdiction to levy the Tax. It was further submitted that the machinery were purchased by the applicant from M/S Punjab Chemicals & Pharmaceuticals Ltd., and the same were dispatched directly from Punjab to Baheri at t....
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....also observed that in the bill dated 26th February. 1992, there is a reference of the order dated 28.11.1991. On these facts it has been held that it is not the case where, in pursuance of the order executed outside the State of U.P., machinery have been supplied and payments have been received. Assessing authority, however, observed that the agreement also reveals that before the agreement dated 24th March, 1992 one more agreement oral or written have been entered into and in pursuance thereof, the order was given on 28.11.1992 to M/S Punjab Chemicals & Pharmaceuticals Limited for the purchases of the alleged machinery. With regard to the letter of intent dated 29th October, 1991, the assessing authority observed that it is simply a letter and is being produced with the intend to twist the fact of the case in favour of the applicant. Assessing authority after rejecting the plea of the applicant, levied the tax on the entire lease rent under Section 3-F of the Act. 4. Being aggrieved by the assessment orders for the aforesaid assessment years, applicant filed appeals before the Joint Commissioner (Appeals), Trade Tax, Bareilly. Joint Commissioner (Appeals) , Trade Tax, Bareilly ....
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.... be finalized later on. In pursuance of the said letter of intent, the orders dated 28.11.1991 were placed to M/S Punjab Chemicals & Pharmaceuticals Limited for the purchase of machinery. Thereafter, Machinery were purchased against invoices Nos. E-99, E-99-A dated 26th February, 1992 and invoice No. E-100 dated 10th March, 1992. In two invoice Nos. E-99 and E-99A, there are reference of the order dated 28.11.1991 and in the invoice No. E-100 there is a reference of the order dated 28th January, 1992. Invoices were prepared in favour of the applicant in connection with M/S Kesar Enterprises Limited and such machinery were directly dispatched to M/S Kesar Enterprises Limited, therefore, movement of machinery were in pursuance of the agreement in the course of inter-State. He submitted that the letter of intent is a part of the agreement dated 24th March, 1992 and merely because there is no reference of the letter of intent in the agreement dated 24th March, 1992, it cannot be ignored. He submitted that the assessing authority on the basis of the invoices etc., has accepted that there was some agreement oral or written prior to the agreement dated 24th March, 1992 in pursuance of whi....
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.... leased out and in respect of which lease rent have been received are the same which have been described in Annexure-1 of the lease agreement dated 24th March, 1992. 11. Perusal of the record reveals that there was some understanding between the applicant and M/S Kesar Enterprises Limited prior to 24th March, 1992 to provide machinery on lease. In the purchase invoices of the machinery referred hereinabove, the name of M/S Kesar Enterprises Limited are mentioned and in the dispatch particulars, the dispatch of the machinery have been shown at the premises of M/S Kesar Enterprises Limited. Assessing authority has also accepted that before the agreement dated 24th March, 1992, there was some agreement oral or written between the parties for the purchases and providing machinery on lease. Thus, in my view even though, there is no reference of the letter of intent dated 29th October, 1991 in the agreement dated 24th March, 1992, which should be, but on the facts and circumstances of the case, its existence cannot be disputed. Thus, the facts of the case are that the applicant and M/S Kesar Enterprises Limited executed a letter of intent dated 29th October, 1991 for the purchase of m....
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.... execution of the works contract, notwithstanding that the agreement for the works contract has been wholly or in part entered into outside the State; (ii) in a case falling under Sub-clause (iv), if the goods are used by the lessee within the State during any period, notwithstanding that the agreement for the lease has been entered into outside the State or that the goods have been delivered to the lessee outside the State. Explanation-II- Notwithstanding anything contained in this Act, two independent sales or purchases shall, for the purposes of this Act, be deemed to have taken place- (a) when the goods or transferred from a principal to his selling agent and from the selling agent to his purchaser. (b) When the goods are transferred from the seller to a buying agent and from the buying agent to his principal, if the agent is found, in either of the cases aforesaid,- (i) to have sold the goods at one rate and passed on the sale proceeds to his principal at another rate; or (ii) to have purchased the goods at one rate and passed them on to his principal at another rate; or (iii) not to have accounted to his principal....
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.... (v) the amount representing the value of the goods supplied to the contractor by the contractee, provided that the ownership of such goods remains with the contractee under the terms of the contract; (vi) the amount representing the labour charges for the execution of the works contract; (vii) all amounts paid to the sub-contractors as the consideration for execution of the works contract, whether wholly or in part: Provided that no deduction under this sub-clause shall be allowed unless the dealer claiming deduction produces proof that the sub-contractor is a registered dealer liable to tax under this Act and that such amount is included in the return of turnover filed by such sub-contractor under the provisions of this Act; (viii) the amount representing the charges for planning, designing and architects fees; (ix) the amount representing the charges for obtaining on hire otherwise machinery and tools used for execution of the works contract; (x) the amount representing the cost of consumables used in the execution of the works contract, the property in which is not transferred in the execution of the works contract; ....
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....eed not be material. The transactions resemble sale in substance. Hence, power should be given to the States. If this alternative is adopted there are several drafting devices open, e.f. (a) amending State List, Entry 54, or (b) adding a fresh entry in the State List, or (c) inserting in Article 366 a wide definition of 'sale' so as to include works contracts. The commission prefers the last one, it would avoid multiple amendments. 18. Keeping in view the said recommendation of the Law Commission, the Constitution was amended by the Forty-sixth Amendment. By the said amendment Clause (29-A) was inserted in Article 366 and Clause (3) of Article 286 was substituted. The other amendments introduced by it are not relevant for this case. Clause (29-A) of Article 366 is in the following terms: (29-A) 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 the property in goods (whether as goods or in some other form) involved in the e....
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....645 (SC). Apex Court upheld the validity of amendment and further held that 'Sale Tax Laws' passed by the Legislatures of States levying taxes on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract are subject to the restrictions and conditions mentioned in each clause or sub-clause of Article 286 of the Constitution of India. 21. Matter relating to levy of tax on the value of the goods involved in the execution of the works contract further came up for consideration before the Constitution Bench of the Apex Court in the case of Gannon Dunkerley and Co. v. State of Rajasthan report in 1993 UPTC 416. Apex Court concluded as follows: In exercise of its legislative power to impose tax on sale or purchases of goods under entry 54 of the State List read with Article 366(29-A)(b), the State Legislature, while imposing 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 is not competent to impose a tax on such a transfer (deemed sale) which constitutes a sale in the course of inter-State trade or commerce or a sale outside t....
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....to supply of labour and services. To deal with the cases where the contractor does not maintain proper accounts or the account books produced by him are not found worthy of credence by the Assessing Authority the Legislature may prescribe a formula for deduction of cost of labour and services on the basis of a percentage of the value of the works contract but while doing so it has to be ensured that the amount deductible under such formula does not differ appreciably from the expenses for labour and services that would be incurred in normal circumstances in respect of that particular type of works contract. It would be permissible for the Legislature to prescribe varying scales for deduction on account of cost of labour and services for various types of works contract. While fixing the rate of tax, it is permissible to fix a uniform rate of tax for the various goods involved in the execution of a works contract which rate may be different from the rates of tax fixed in respect of sales or purchase of those goods as a separate article. 22. Apex Court further held as follows: On behalf of the State, it has been seriously contended that a deemed sale resu....
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.... inter-State trade or commerce under Section 3 of the Central Sales Tax Act or an outside sale under Section 4 of the Central Sales Tax Act or sale in the course of import or export under Section 5 of the Central Sales Tax Act. So also it is not permissible for the State Legislature to impose a tax on goods declared to be of special importance in inter-State trade or commerce under Section 14 of the Central Sales Tax Act except in accordance with the Section 14 of the Central Sales Tax Act except in accordance with the restrictions and conditions contained in Section 15 of the Central Sales Tax Act. It has been contended on behalf of the contractors that while it is permissible for the State Legislature to define the expression 'sale' in the sales tax legislation to include transfer of property in goods involved in the execution of a works contract, it is not permissible for the State Legislature to locate the situs of such sale in a manner as to treat a sale in the course of inter-State trade or commerce or a sale outside the State or a sale in the course of import and export, as a sale inside the State and thereby assume the power to impose a tax on sales which a....
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....g to Sections 3 4 and 5 of the Central Sales Tax Act have been excluded. Amended Section 3-F of U.P. Trade Tax Act has already been referred herein above. 24. Clause (d) of Article 366(29-A) which is Clause (a) of Section 3-F (1) of the Act came up for consideration before the Constitution Bench of the Apex Court in the case of 20th Century Finance Corporation Ltd. v. State of Maharashtra (Supra), the Apex Court held as follows: As a result of the aforesaid discussion our conclusions are these: (a) The States in exercise of power under Entry 54 of List II read with Article 366(29-A)(d) are not competent to levy sales tax on the transfer of right to use goods, which is deemed sale, if such sale takes place outside the State or is a sale in the course of inter-State trade or commerce or is a sale in the course of import or export. (b) The appropriate Legislature by creating legal fiction can fix situs of sale. In the absence of any such legal fiction the situs of sale in case of the transaction of transfer of right to use any goods would be the place where the property in goods passes, i.e. where the written agreement transferring the right to use is exe....
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....ort of the goods out of the territory of India and (iii) an inter State sale. 26. From the law laid down as above, it emerges that the State has no jurisdiction to levy the tax on such deemed sale if such sale take place outside the State or in the course of inter-State trade or commerce or in the case of import or export; the legislature by creating fiction can fix situs of sale in the absence of such legal fiction the situs would be a place where the written agreement transferring the right to use is executed ; where the goods are available for the transfer of right to use the taxable event on the transfer of right to use any goods is on the transfer which results in right to use and the situs of sale would be the place where the contract is executed and not where the goods are located for use; in case where the goods are not in existence or where there is an oral or implied transfer of right to use the goods, such transactions may be effected by the delivery of the goods and in such cases the taxable event would be on the delivery of the goods. 27. Clause (ii) of Explanation-I of Section 2 (h) of the Act is to be read down to the effect that it would not be applicable to t....
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.... 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 paragraph 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. In these circumstances the Court said that: No authority of this Court has been shown on behalf of respondents that there would be no completed transfer of right to use goods unless the goods are delivered. Thus, the delivery of goods cannot constitute a basis for levy of tax on the transfer of right to use any goods. We are, therefore, of the view that where the goods are in existence, the taxable event on the transfer of the right to use goods occurs when a contract is executed between the lessor and the lessee and situs of sale of such a deemed sale would be the place where the contract in respect thereof is executed. Thus, where goods to be transferred are available and a wri....
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.... was transferred by the assessee to the customers for their use and therefore, there was a deemed sale within the meaning of Sub-clause (d) of Clause 29-A of Article 366. What is noteworthy is that in both the cases there were goods in existence which were delivered to the contractors for their use. In one case there was no intention to transfer the right to use while in the other there was. But if there are no deliverable goods in existence as in this case, there is no transfer of user at all. Providing access or telephone connection does not put the subscriber in possession of the electromagnetic waves any more than a toll collector puts a road or bridge into the possession of the toll payer by lifting a toll gate. Of course the toll payer will use the road or bridge in one sense. But the distinction with a sale of goods is that the user would be of the thing or goods delivered. The delivery may not be simultaneous with the transfer of the right to use. But the goods must be in existence and deliverable when the right is sought to be transferred. Therefore whether goods are incorporeal or corporeal, tangible or intangible, they must be deliverable. To the extent....