TaxTMI 
TaxTMI 
2021 (4) TMI 499
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing and equipment leasing to industrial consumers and the users had transferred a right to use goods, i.e. imported machineries, in favour of the above four persons during the respective Assessment Years prior to clearance of the goods from the customs barriers. Therefore, the sale was in the course of import within the meaning of Section 5(2) of the Central Sales Tax Act, 1956 and these transactions were exempted from levying tax under Section 3-A(2)(a) of the Tamil Nadu General Sales Tax Act, 1959. 3. The other grievances of the petitioner against the impugned orders are that they have been passed in gross violation of Rule 15(6) of the Tamil Nadu General Sales Tax Rules, 1959. It is submitted that as per the said proviso, before making an order of assessment, the Assessing Authority was required to obtain the concurrence of the Deputy Commissioner having jurisdiction over the petitioner if the assessment results in imposition of tax of one lakh rupees or above or results in enhancement of tax over one lakh rupees. 4. It is the case of the petitioner that these transactions are not liable to tax. It is submitted that though there was sale within the meaning of the extended defi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of Tamil Nadu and Another, (2003) 129 STC 294 (Mad), wherein, while considering the scope of Section 5(2) of Central Sales Tax Act, 1956 read with Section 2(ab) of the Customs Act, 1962, this Court held that for a sale to be one in the course of import it has to be either one which has occasioned the import or has been effected by a transfer of documents of title to the goods before the goods have crossed the customs frontiers of India. He further submits that in this case, before the goods were cleared, the respective operating lease agreements had been singed with the above four persons and therefore, there cannot be any levy of tax under the provisions of Tamil Nadu General Sales Tax Act, 1959. 7. The learned Senior Counsel for the petitioner also referred to the following decisions:- i. State of A.P. Vs. National Thermal Power Corpn. Ltd., (2002) 5 SCC 203. ii. State of Tamil Nadu Vs. Karnataka Bank Limited, (2012) 50 VST 93 (Mad). iii. Tata Power Delhi Distribution Ltd. Vs. Commissioner of Sales Tax, Delhi and Others, (2016) 90 VST 1 (Del). 8. He specifically drew my attention to the decision of the Delhi High Court in Tata Power Delhi Distribution Ltd., referred to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that the Hon'ble Supreme Court in the above case held as follows:- 29. In 20th Century Finance Corpn. Case [(2000) 6 SCC 12] the Constitution Bench by reference to the definition of "tax on the sale or purchase of goods" [which too has been inserted as clause (29-A) in Article 366 by the Sixth Amendment] opined that the situs of sale can be fixed either by the appropriate legislature or by Judge-made law and no settled principles for determining situs of sale can be laid down. Further, the State Legislature cannot by law, treat sales outside the State and sales in the course of import as "sales within the State" by fixing the situs of sales within its State in the definition of sale, as it is within the exclusive domain of the appropriate legislature i.e. Parliament to fix the location of sale by creating legal fiction or otherwise. The majority has clearly opined that the State where the goods are delivered in the transaction of inter-State sale, cannot levy a tax on the basis that one of the events in the chain has taken place within the State; so also where the goods are in existence and available for the transfer of right to use, there also that State cannot exercise powe....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... a sale originating in a State is an inter-State sale or not is essentially a question of fact to be determined by the authorities under the Act, since it involves the application of the provisions of Sections 3, 5, 6 and 9(1) of the Act to the facts established and hence, it will be a mixed question of law and fact. The facts are required to be brought to the notice of the assessing authority by the appellants and it is for the assessing authority to come to a conclusion, based on those facts whether a particular transaction is intra-State sales which is exigible to the taxes under the VAT Act or inter-State sales, as envisaged under Section 3 of the Act read with Section 6 of the charging provisions therein. It is after such adjudication, the matter can travel from one stage to the other as provided under the Act. 12. The learned Special Government Pleader also submitted that there is no dispute that there is a transfer of right to use as explained by the Hon'ble Supreme Court in State of Andra Pradesh Vs. Rashtriya Ispat Nigam Ltd., (2002) 3 SCC 314, in Bharath Sanchar Nigam Ltd., and Another Vs. Union of India and Others, (2006) 3 SCC 1 and in Aggarwal Brothers Vs. State o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....perating Lease Agreements with the respective buyers are on a stamp paper purchased in Chennai indicating that the agreements were signed at Chennai on the date specified therein. 18. The dates of the respective Agreements are after the imported goods sailed from South Korea as is evident from respective Bills of Entries. They were signed before the respective Bills of Entry were filed by the petitioner for clearing the imported goods. The details of the respective Bills of Entry and Bills of Lading are as follows:- Sl. No. Bill(s) Lading date Agreement(s) date Bill(s) of Entry date 1 27.06.2003 23.07.2003 28.07.2003 2 23.07.2003 3 14.02.2004 20.02.2004 23.03.2004 4 23.02.2004 19. In this case, it is not the case of the petitioner that the sale occasioned during import of goods. On the other hand, it is the case of the petitioner that the sales were effected before the goods crossed the customs barriers and therefore not taxable in terms of Section 5(2) of the Central Sales Tax Act, 1956. 20. According to the petitioner, before the goods covered by the respective Bills of Entry were filed for their clearance and were cleared for Home Consumption, the petitione....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the sale or purchase of goods declared by Parliament by law to be of special importance in inter-state trade or commerce; or (b)a tax on the sale or purchase of goods, being a tax of the nature referred to in sub-clause (b), sub- clause (c) or sub- clause (d) of clause (29-A) of article 366 be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as the Parliament may by law specify. 27. Simultaneously, various State Enactments were also enacted their laws to implement the above restrictions in the Constitution of India. Thus, State had to give way to the law of the Parliament. In Tamil Nadu, while a new definition of sale in 2(n) of the Tamil Nadu General Sales Tax Act, 1959 was introduced and a new charging provision in the form of Section 3-A was also introduced. Section 3-A of the Tamil Nadu Sales Tax Act, 1959 incorporated the restriction contained in Article 286(3) as substituted by the 46th Amendment to the Constitution of India. To give effect to the restriction under Article 286(3)(b), Sub-Section 2(a) to Section 3-A was incorporated. These provisions read as under:- Section 3-A Section 2(n) Levy of tax....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ods out of the territory of India; or b) incurred in the course of import of the goods into the territory of India; or c) incurred in the course of inter-state trade or commerce 30. Likewise, an exporter also cannot be asked to pay tax on the expenses incurred in the transaction involving "transfer of right to use" of goods where such goods are exported to a user situated outside the country. An importer who imports goods and effects transfer of right to use or effects such transaction in the course of inter-state trade or commerce is also given abatement. 31. Though the 46th Amendment to the Constitution of India was of the year 1982, the Central Sales Tax Act, 1956 was amended only in the year 2002 with effect from 11.05.2002. It was synced with the expansion introduced by the 46th Amendment to the Constitution of India under Clause (29-A) to Article 366 of the Constitution of India. However, no corresponding amendment to Section 5(2) of the Central Sales Tax Act, 1956 was made. The mode for claiming exemption under Section 5(2) of the Central Sales Tax Act, 1956 continues to be same. It is by way of "documents of transfer title of the goods" before the goods cross the cust....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntioned in Clause (1), Clause (2) and Sub-Clause (a) of Clause (3) of Article 286 of the Constitution of India. The Court specifically considered "work contract" while making the above referred observations. 35. It further held that the transfer and deliveries that take place under Sub-Clauses (b), ( c) and (d) of Clause (29-A) of Article 366 of the Constitution are subject to an additional restriction mentioned in subclause (b) of Article 286 (3) of the Constitution of India. 36. However, it must be remembered that in the case of "works contract" the goods actually gets amalgamated with the work being executed and therefore such deemed sale as was considered in Paragraph No.30 in Builders Association of India case referred to supra can be understood. 37. Where however like in the present case there is neither a transfer of possession nor ownership or effective contract before the clearance from the customs barrier, difficulty arises as to whether in a transaction there can be a "deemed sale". 38. In 20th Century Finance Corpn. Ltd. Vs. State of Maharashtra, (2000) 6 SCC 12, the Court held as follows:- "28. No authority of this Court has been shown on behalf of the respondent....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t to such appropriation. Explanation.--Where there is a single contract of sale or purchase of goods situated at more places than one, the provisions of this sub-section shall apply as if there were separate contracts in respect of the goods at each of such places. 41. Under section 2(4) of the Sale of Goods Act, 1930, "documents of title to goods" includes a bill of lading, dock warrant, warehouse keeper's certificate, wharfingers' certificate, railway receipt, multimodal transport document, warrant or order for delivery of the goods and any other document used in the ordinary course of business as proof of the 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 or receive goods thereby represented. 42. 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 wit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....inued till the imported goods reach the local users only if the import has commenced through the agreement between foreign exporter and an intermediary who does not act on his own in the transaction with the foreign exporter and who in his turn does not sell as principal the imported goods to the local users. (6) There must be either a single sale which itself causes the import or is in the progress or process of import or though there may appear to be two sale transactions they are so integrally interconnected that they almost resemble one transaction so that the movement of goods from a foreign country to India can be ascribed to such a composite well-integrated transaction consisting of two transactions dovetailing into each other. (7) A sale or purchase can be treated to be in the course of import if there is a direct privity of contract between the Indian importer and the foreign exporter and the intermediary through which such import is effected merely acts as an agent or a contractor for and on behalf of the Indian importer. (8) The transaction in substance must be such that the canalising agency or the intermediary agency through which the imports are effected into In....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t can be said to have occasioned a particular export. 52. There, the court held that the first sale was by Coffee Board as seller to the export promoter. Thereafter, a separate sale by the export promoter to an overseas buyers. It observed that the Coffee Board did not have any inkling about the 2nd sale when the 1st sale took place. The Coffee Board Sale was a having no connection with the second sale which was in the course of export. 53. The Hon'ble Supreme Court in State of Maharashtra Vs. Embee Corporation Bombay, (1997) 7 SCC190, the Court held that, "It is almost settled by numerous decisions of the Supreme Court that the expression "sale occasions import" is to be interpreted in the same manner in which the expression "occasions the movement of goods" occurring in Section 3(a) of the Act has received interpretation. In other words, the expression "sale occasions import" has to be given the same meaning which the expression "occasions the movement of goods" has received by the courts. 54. If the test in 20th Century Finance Corpn. Ltd. Vs. State of Maharashtra, (2000) 6 SCC 12 is applied, there is no difficulty in concluding that the deemed sale had taken place at Chennai....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vailable at the time of transfer and must be deliverable and delivered at some stage. 58. If the above principles in BSNL Vs. Union of India, (2006) 3 SCC 1 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. 59. It is assumed, at the time of execution of any agreement to transfer the right to use, that the goods are available and deliverable. Thus, in case of transfer of the right to use, as in this case, irrespective of the actual delivery, at a later point, the "deemed sale" had taken place at Chennai outside the customs barriers. 60. It should be remembered that the "transfer of the right to use" implies transfer of the possession and effective control from the owner to the user. That would determine whether there was any "deemed sale" within the extended definition of sale. On the date of import, admittedly, there was not transfer possession or effective ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pendently of the contract of sale and necessarily by or on behalf of the purchaser alone and, therefore the transaction would not be having an inter-state element. Commenting on the decision of the Hon'ble Supreme Court in 20th century Finance Corporation Ltd case referred to supra, it was reiterated that the "situs" of the sale or purchase is wholly immaterial as regards the inter-state trade or commerce. In view of Section 3 of the Central Sales Tax Act, 1956, all that have to be seen are whether the sale or purchase (a) occasions the moment of the good from one state to another; or (b) is affected by transfer of documents of title to the goods during their movement from one state to another. If the transaction of sale satisfies any one of the two requirements, it shall be deemed to be a sale or purchase of the goods in the course of inter-state trade or commerce by virtue of Article 269 and 286 of the Constitution of India and shall be beyond the legislative competence of the State to tax without regard to the fact whether such a provision is paid out by the description of legislative entry in the Seventh Schedule or not. 66. The Court in State of A.P. Vs. National Power Co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sumption or distribution for consumption within the State. Without such reading down, the definition of "consumer" would be rendered ultra vires of Articles 286 and 269 of the Constitution read with Section 3 of the Central Sales Tax Act, 1956. 68. While making the above observations, it has perhaps not taken note of the views expressed. In Mafatlal Industries Ltd. and Others v. Union of India and Others, 1997 (89) E.L.T. 247 (S.C.) : (1997) 5 SCC 536, it has been held as under:- "....In the matter of taxation laws, the court permits a great latitude to the discretion of the legislature. The State is allowed to pick and choose districts, objects, persons, methods and even rates for taxation, if it does so reasonably. The courts view the laws relating to economic activities with greater latitude than other matters. 69. The Hon'ble Supreme Court while giving the above view followed a well settled principle of law. 70. The Hon'ble Supreme Court in Tamil Nadu Kalyana Mandapam Assn. Vs. Union of India, 2004 (167) E.L.T. 3 (S.C.) has held that levy of service tax on a particular kind of service could not be struck down on the ground that it does not confirm to a common understanding....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ehalf of the said company. It was held that thus, but for the purchase order placed by Hindustan Power Plant Ltd and latter approaching the respondent Bank for financing the import, the question of the bank ever placing any purchase order with the Japanese manufacturers to supply did not arise. The purchase order was placed by the bank with the foreign supplier who in turn showed that the purchase order of Hindustan Power Ltd. with the Japanese firm and import itself was in connection with the Master Agreement between the Bank and the lessee. There, it was concluded that the receipt of rental by the Bank was on account of the transaction in the course of import and was not liable to tax by the State. 73. Though the relief has been granted by the Court in the said case to Karnataka Bank Ltd, I am unable to apply the said ratio to the facts of the present cases. The facts of the present cases are clear. The imports were made by the petitioner itself in its own name. The Bills of Lading were in the name of the petitioner itself. The Bills of Entry for clearing the goods were also in the name of the petitioner. The only intervening event was the execution of four Operating Lease Agre....