TaxTMI 
TaxTMI 
2026 (7) TMI 642
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....ar and the outcome either the claim involved by the petitioners being allowed or the issue stands in favour of Revenue, we proceed to decide these batch matters by this Common Order. 3. There are three writ petitions of the similar nature i.e. Writ Petition No. 9991 of 2009 being the lead one along with Writ Petition Nos.3865 and 3866 of 2009. Along with this there is a Tax Revision Case raising out of / if not identical issue i.e., Tax Revision Case No. 52 of 2008. 4. Writ Petition No. 9991 of 2009 has been filed seeking an appropriate relief to be issued holding the action of the respondent No. 1 in levying tax on the rental income received by the petitioners on immovable property along with facilities of generators, air conditioners, transformers, lifts and other amenities like furniture, fit outs to the lessees not being exigible to tax under Section 4(8) of the Andhra Pradesh Value Added Tax, 2005 (for short 'APVAT Act, 2005) and the demand raised being arbitrary and contrary to law and without jurisdiction and also in violation of principles of natural justice. 5. Similar was the relief sought for in Writ Petition No.3865 and 3866 of 2009. Similar again is the issue ....
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.... and immovable fixtures and furniture attached to the premises, and that the agreement bifurcated the consideration into two components - namely, rent for the building and rent towards the movable and immovable fixtures and furniture attached to the premises - held that the rent received towards such fixtures and furniture constituted a transfer of the right to use goods and was, therefore, amenable to tax under the APVAT Act and APGST Act. 10. In all these cases, the contention of the petitioners has also been that they have merely granted permission to the lessee to use these products and as such there is only delivery of goods for use in furtherance of the lease of immovable property, no right whatsoever stands transferred. It was also the contention of all the petitioners that there being no transfer of right created in favour of the lessee stands proved from the fact that the control and possession of these goods still remains with the petitioners and that the lessee only has a right to use the same. 11. It was the categorical contention of all the petitioners that even though the tenants who were using these common facilities, the same by no stretch of imagination can b....
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....0th Century Finance Corprn. Ltd. and Another vs. State of Maharashtra [2000] 119 STC 182 (SC) and subsequently in Bharat Sanchar Nigam Limited vs. Union of India 2006 (2) STR 161 (SC), the petitioners strongly contended that the nature of the contract itself establishes that no right whatsoever was transferred by the petitioners to the occupants. Since the arrangement was essentially a contract for services, the amenities and facilities provided thereunder merely conferred a right to use and did not amount to a transfer of the right to use goods. According to the petitioners, many of the facilities constituted common amenities enjoyed by more than one occupant at the same point in time. In several instances, such common facilities were made available on common floors having access to multiple companies. Having paid service tax on the entire consideration received, the bifurcation of the contract undertaken by the tax authorities is wholly impermissible. The findings of the tax authorities have been recorded without properly examining whether any transfer of the right to use had, in fact, taken place. There was also no cogent material placed on record by the Revenue authorities rega....
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....ment Pleader for State Tax further contended that there is a substantial distinction between movable and immovable properties. The dispute involved in the present batch of cases pertains only to movable properties, which are either movable in the ordinary sense or, though affixed to the premises for convenience, nevertheless retain their character as movable goods for all practical and legal purposes. 22. With regard to the contention concerning the bifurcation of rent and the allegation that the contract had been artificially dissected, the learned Special Government Pleader for State Tax, referring to the lease deeds and agreements entered into between the parties, submitted that the rent had been fixed item-wise and that the quantification was based upon the actual rent received in respect of each item, as reflected in the agreements and lease deeds themselves. 23. In support of his submissions, he placed strong reliance upon the judgments of the Hon'ble Supreme Court in Commr. of Service Tax vs. Quick Heal Technologies Limited (2023) 5 SCC 469, the decision of this Court in G.S. Lamba & Sons vs. State of Andhra Pradesh (2011) 43 VST 323. 24. Having heard the contention....
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....contract; (c) ............... (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;" 28. Likewise, the definition of 'sale' and 'tax' as defined under Section 2(n) and Section 2(q) of the APGST Act, also is reproduced hereunder: "2(n) "Sale" with all its grammatical variations and cognate expressions means every transfer of the property in goods whether as such goods or in any other form in pursuance of a contract or otherwise by one person to another in the course of trade or business, for cash, or for deferred payment, or for any other valuable consideration or in the supply or distribution of goods by a society (including a co operative society), club, firm or association to its members, but does not include a mortgage, hypothecation or pledge of, or a charge on goods." 2(q) "tax" means a tax on the sale or purchase of goods payable under this Act and includes,- i. 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; ....
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....t the mere fact that the Union was levying tax on certain taxable services could not be used to deny the State's powers to tax the objects/provisions in the service. Therefore, the State's powers must be read harmoniously with the Union's power and it is only when such reconciliation is impossible that the primacy should be given to the non obstante clause under Article 248(1). Alternatively it was submitted that the theory of aspect would apply so that what was service in one aspect was a sale in the other. It was also submitted that because in sub-clauses (b) and (f) of clause (29-A) of Article 366 the tax on a component in a transaction of works is permissible, it cannot be assumed that in sub-clause (d) tax could not be imposed on an element of the sale component of that transaction. The sub-clause has no words or limitations and must be read as broadly as the language permitted. It was submitted that the test of dominant object of a composite works contract was no longer relevant after the Forty-sixth Constitution Amendment. It was submitted that the service providers transfer the right to use radio frequency channel to a subscriber for a specific duration....
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....dance of tax in various ways. In the circumstances, it was considered desirable to put the matter beyond any doubt. Article 366 was therefore amended by inserting a definition of "tax on the sale or purchase of goods" in clause (29-A). The definition reads: "366. (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 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, ....
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....les tax. To this extent only is the principle enunciated in Gannon Dunkerley Ltd. [State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd., (1958) 9 STC 353 : AIR 1958 SC 560 : 1959 SCR 379] (sic modified). The amendment especially allows specific composite contracts viz. works contracts [sub-clause (b)]; hire-purchase contracts [sub-clause (c)], catering contracts [sub-clause (e)] by legal fiction to be divisible contracts where the sale element could be isolated and be subjected to sales tax. 43. Gannon Dunkerley [State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd., (1958) 9 STC 353 : AIR 1958 SC 560 : 1959 SCR 379] survived the Forty-sixth Constitutional Amendment in two respects. First with regard to the definition of "sale" for the purposes of the Constitution in general and for the purposes of Entry 54 of List II in particular except to the extent that the clauses in Article 366(29-A) operate. By introducing separate categories of "deemed sales", the meaning of the word "goods" was not altered. Thus the definitions of the composite elements of a sale such as intention of the parties, goods, delivery, etc. would continue to be defined according to known l....
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....er of possession of the goods, there must be a transfer of the property in goods to the buyer. However, sub-clause (d) of clause (29A) refers not to the transfer of property in the goods to the buyer but to the transfer of the right to use any goods for any purpose for consideration as mentioned in sub-clause (d) of clause (29A). The transfer of the right to use any goods can be for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration. Only because a person is allowed to use certain goods of the owner, per se, there is no transfer of the right to use any goods. The transaction can be either of transfer of right to use the goods or granting mere permission to use the goods without transfer of the right to use the goods. 29. This court has interpreted sub-clause (d) of clause (29A) in various decisions. The first important decision on this aspect is a decision of the Constitution Bench in the case of 20th Century Finance Corporation Limited [20th Century Finance Corporation Limited v. State of Maharashtra, (2000) 119 STC 182 (SC); (2000) 6 SCC 12.]. This was a case where the appellant had entered into a master-lease a....
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.... no written agreement but an oral or implied transfer of the right to use goods, it may be effected by the delivery of goods. Only in such cases the taxable event would be the delivery of goods. In this context, in paragraph 28, the Constitution Bench held that it cannot be said that there would be no complete transfer of the right to use goods unless the goods are delivered. When the goods are in existence, the taxable event for the transfer of the right to use goods occurs when a contract is executed between the lessor and the lessee, and the situs of sale of such a deemed sale would be where the agreement in respect thereof is executed. 30. There is another decision of this court in the case of BSNL [Bharat Sanchar Nigam Limited v. Union of India, (2006) 3 VST 95 (SC); (2006) 145 STC 91(SC); (2006) 282 ITR 273 (SC); (2006) 6 RC 276; (2006) 3 SCC 1.] . This case was decided by a Bench of three honourable Judges of this court. The question decided in this case was about the nature of the transaction by which mobile phone connections were provided. The question was whether it was a sale of goods that would attract sales tax or a service that would attract service tax under....
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....r article 366(29A)(d) is that it relates to user of goods. It may be that the actual delivery of the goods is not necessary for effecting the transfer of the right to use the goods but the goods must be available at the time of transfer, must be deliverable and delivered at some stage. It is assumed, at the time of execution of any agreement to transfer the right to use, that the goods are available and deliverable. If the goods, or what is claimed to be goods by the respondents, are not deliverable at all by the service providers to the subscribers, the question of the right to use those goods, would not arise." Thus, this court held that to attract sub-clause (d) of clause (29A) of article 366, the goods must be available at the time of transfer, must be deliverable and delivered at some stage. If the goods are not deliverable at all by the service provider to the subscriber, the question of the right to use those goods would not arise. 32. The view taken by Dr. AR Lakshmanan, J has been consistently followed thereafter by this court in various decisions. In the case of Great Eastern Shipping Co. Ltd. [Great Eastern Shipping Co. Ltd. v. State of Karnataka, (2020....
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....erred to the ultimate customer for use in their functions ; the petitioner had given the LCD projectors and audio/video multimedia equipment on hire to their customers without rendering any other service, i.e., they merely delivered the equipment to their customers on hire ; the customer could use the equipment in any manner he wanted, and had to return the equipment at the end of the event ; possession and effective control was transferred to the customer during the event, and the customer had the right to use the same ; in view of Explanation (iv) to section 2(28), the activity of renting of LCD projectors and audio and video equipments was "sale" attracting tax under section 4(8) of the Act ; and, in the judgments relied on by the petitioner possession vested with the service provider, whereas, in the present case, the petitioner had transferred possession and control of the equipment rented to their customers. 37. Admittedly, there is no privity of contract between the outsourcing agency and the petitioner's customers. It is the case of the petitioner that they hire audio-visual equipment from the outsourcing agency for consideration and, in turn, provide the facil....
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....herefore, justified in treating the said transaction as a transfer of the right to use goods, and levying tax thereupon under section 4(8) of the Act." 34. In the case of Aggarwal Bros. vs. State of Haryana (1999) 9 SCC 182 it was held as under: "3. The argument of learned counsel for the assessees goes thus: Entry 54 of Part II of Schedule VII of the Constitution enables the State to levy "taxes on the sale or purchase of goods other than newspapers ...". Article 366 sets down definitions for the purposes of the Constitution. Clause (29-A) thereof refers to "tax on the sale or purchase of goods" and it includes "(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". In the submission of learned counsel, having regard to Entry 54 of Part II of Schedule VII, the transfer contemplated by sub-clause (d) of clause (29-A) of Article 366 is a legal transfer of the right in the goods. It has to be a transfer of goods. It has to be permanent. It has to be something like a lease. The giving of goods on hire is not such a transfer and, therefore,....
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....ucceed in the light of the reasoning assigned by us while dismissing Civil Appeal (Diary No. 24399 of 2020), as above. 69. However, while allowing these appeals, we may only observe that in Infotech Software Dealers Assn. v. Union of India [Infotech Software Dealers Assn. v. Union of India, 2010 SCC OnLine Mad 4503 : (2010) 20 STR 289 (Mad)] the challenge was to the validity of Section 65(105)(zzzze) levying service tax on the information technology software service. The High Court held that the question whether the software is "goods" or not would depend on the facts and circumstances of individual case. It is evident on plain reading of the judgment rendered by the Madras High Court in Infotech Software Dealers Assn. [Infotech Software Dealers Assn. v. Union of India, 2010 SCC OnLine Mad 4503 : (2010) 20 STR 289 (Mad)] that it has not referred to the decision of this Court in Tata Consultancy Services [Tata Consultancy Services v. State of A.P., (2005) 1 SCC 308]. 70. We take notice of the fact that the appellant herein had also filed Review Petition No. 205 of 2021 against the order dated 5-8-2021 [K7 Computing (P) Ltd. v. Commr., 2021 SCC OnLine Mad 16525] in ....
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....gement thereof. The retention of physical possession thereof by the appellant-company cannot be decisive. The parties entered into the contract understanding the implications of each and every provision thereof, which according to us, demonstrate an obvious dominion and control of OIL over the equipment used by the appellant for the execution of the works during the period of the contract. We, thus, have no hesitation to hold that the transaction in question involved transfer of right to use the equipment, plants and machinery under the lease within the meaning of section 2(33)(iv) of the Act." 37. In the case of G. S. Lamba & Sons (supra) it was held as under: "2. The undisputed factual matrix is in a narrow compass. The petitioners M/s. G. S. Lamba & Company, G. S. Lamba & Sons, and G. S. L. Coal Sales Pvt. Ltd.,-are dealers on the rolls of the Commercial Tax Officer (CTO), Begumpet Circle. In pursuance of the inspection and investigation by the Vigilance and Enforcement Wing, the CTO assessed tax for 2001-02 and 2002-03 under section 5E of the Act in respect of the taxable event, namely, the petitioners hiring their fleet of transit mixers to M/s. Grasim Industries L....
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.... 2393). It does not, however, mean that the interpreter can interpolate something not intended by the Legislature, by supplying caususomissus (Illachi Devi (Dead) by Lrs. v. Jain Society, Protection of Orphans India (2003) 8 SCC 413 ; AIR 2003 SC 3397 and Sankar Ram & Co. v. Kasi Naicker (2003) 11 SCC 699 ; AIR 2003 SC 4156). If the plea of the petitioners is accepted, we have to read section 20(1) of the APGST Act as empowering revision, only when an order of assessing officer/appellate authority is erroneous in so far as it is prejudicial to the interest of revenue. This is plainly not permissible. 11. The petitioners allege that the contract with Grasim is for transportation service. They deny that it is for the transfer of the right to use the goods. Transit mixers are indisputably goods as defined in section 2(h) of the Act. Section 2(n) defines "sales" to mean transfer of the property in goods for cash in the course of trade or business and includes mortgage, hypothecation, pledge or charge on goods. This definition has eight Explanations. Fourth of them was inserted by Andhra Pradesh Act No. 18 of 1985 with effect from February 2, 1983. It is to the effect that "a t....
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....ance Corporation Limited [1989] 75STC 217 (Bom), proceeds on the footing that a transfer of the right to use is different from sale without considering the fiction introduced by clause (29A) of article 366 of the Constitution. The principle that where a State law while defining the expression 'sale' makes the situs a relevant consideration for the purpose of determining a deemed sale, the same cannot bring within its ambit inter-State sales or sales in the course of import and export was again emphasized by the Supreme Court in Builders' Association of India v. State of Karnataka [1993] 88 STC 248 (SC) ; AIR 1993 SC 991. 21. In order to get over the above dicta, by A. P. Act No. 22 of 1995, section 5E was substituted, which reads as under. 5E. Tax on the amount realised in respect of any right to use goods.-Notwithstanding anything contained in this Act,- (a) Every dealer who transfers the right to use any goods for any purpose, whatsoever, whether or not for a specified period, to any lessee or licencee for cash, deferred payment or other valuable consideration, in the course of his business shall, on the total amount realised or rea....
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....r article 366(29A)(d) is not on the use of goods. It is on the transfer of the right to use goods which accrues only on account of the transfer of the right. In other words, the right to use goods arises only on the transfer of such right to use goods. (g) The transfer of right is the sine qua non for the right to use any goods, and such transfer takes place when the contract is executed under which the right is vested in the lessee. (h) The agreement or the contract between the parties would determine the nature of the contract. Such agreement has to be read as a whole to determine the nature of the transaction. If the consensus ad idem as to identity of the goods is shown the transaction is exigible to tax. (i) The locus of the deemed sale, by transfer of the right to use goods, is the place where the relevant right to use goods is transferred. The place where the goods are situated or where the goods are delivered or used is not relevant. 40. There is no dispute that the agreement between the petitioners and Grasim satisfies all conditionalities except that it does not contain the date and place of execution. Does it render it ineffective and ....
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....ct important clauses from the agreement. A. That the second party will maintain and provide a dedicated fleet of five vehicles to transport the produce of the first party from their plant to the various customers in the cities of Hyderabad. The number of vehicles required to be dedicated for the use will be subject to change and the parties will mutually agree to the new fleet size. This number shall not change unless otherwise indicated by the first party and agreed to by the second party and the remaining terms and conditions of this agreement will remain unaffected by this change. B. That the second party will ensure that adequate number of vehicles are made available on a 24/7 basis, i.e., 24 hours and everyday of the weeks as per the instructions of the officials of the first party. If the second party fails to provide the vehicles as desired it shall attract penalties as prescribed later in this document. The first party agrees that the second party will require up to two days a month for the maintenance and upkeep of the vehicles and will, therefore, allow two days a month for this activity and will not demand any penalty for these days. C. That th....
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....ies on 28.10.2002 which sheds light on the nature of transaction of the contract between them. The relevant portions / paras of the lease deed for ready reference are reproduced hereunder: "SECTION 4. RENT Commencing on the Lease Commencement Date, Tenant covenants and agrees to pay to landlord a Monthly Rent of Rs. 694,666/-(Rupees Six Hundred Ninety Four Thousand Six Hundred and Sixty Six Only) as follows subject to the Rebates and Reductions described in Special Condition 2 of Exhibit "C". (a) Rs. 528,938/- (Rupees Five Hundred Twenty Eight Thousand Nine Hundred and Thirty Eight Only) for the demised premises (Hereinafter "Base Rent") based on the computations described in Exhibit 'D' and subject to the conditions described in GTC-13 of Exhibit 'B'. The base rent shall remain the same for the first twenty four (24) months after the lease Commencement Date and thereafter shall be increased by 10% at the beginning of the each year for the remaining period of the Term as described in Section 3(b) of the Lease. (b) Rs. 75,000/- (Rupees Seventy Five Thousand Only) for the use of the Cafeteria (hereinafter "Cafeteria Usage Charges") ....
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....Eight (8) numbers 13-passenger elevators (iv) Fire detection and Fire Fighting system (v) Building Management System (vii) Lift Walls cladding with granite and painting in other areas. (viii) Public Address System (ix) Internal Staircases (c) Other Utilities and amenities (i) Adequate potable drinking water (ii) 33 KV Electrical Sub-station with 2300 KVA connected load (iii) 100% power back-up with 3 x 750 KVA synchronized Diesel Generating Sets (iv) One emergency power pack for 1 KVA load (v) Sewerage Treatment plant with a treatment capacity of 100 cubic meters/day (vi) Complete Fire Fighting system with hydrants. Sprinklers in the stilt floor of Building "H" (vii) Parking for four-wheelers and two-wheelers (subject to the conditions described in GTC-9 of Exhibit 'B') (viii) Integrated Building Management System (ix) Fully equipped kitchen and cafeteria in two (2) levels to accommodate One thousand and One hundred (1,100) people at a time (subject to the conditions described in GTC-8 of Exhibit 'B'). GTC - 8 : CAFETERIA ....
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....or written notice, permit Landlord, its employees, agents, contractors, and representatives, to enter the Property, the Buildings, and the Demised Premises at reasonable times and in a reasonable manner to inspect and protect the same, and to make such alterations or repairs as Landlord may deem necessary, or to exhibit the same to prospective purchasers. In the event of an emergency, Landlord may enter the Property and any part thereof with a shorter notice and make whatever repairs are necessary to protect the same; provided, however, that Landlord is required and shall act carefully and reasonably when exercising any right of access to the Demised Property and ensure that any repairs or inspection undertaken by Landlord shall not interfere with the business of Tenant. Landlord shall use reasonable efforts to minimize interference to Tenant's business when making repairs, but Landlord shall not be required to perform such repairs at a time other than during normal working hours. There shall be no abatement of Rent and no liability by reason of any injury or inconvenience to or interference with Tenant's business arising from the making of any repairs, alterations or impro....
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....r the first Four (4) months Rs. 50,000/- (Rupees Fifty Thousand only) per month and Rs.75.000% (Rupees Seventy Five Thousand Only) per month thereafter for the use of the Cafeteria (hereinafter "Cafeteria Usage Charges") subject to the conditions described in GTC-13 (e) and (h) of Exhibit 'B'. The Cafeteria Usage Charges shall remain the same for the first twenty four (24) months of the Term and shall be increased by 10% thereafter at the beginning of the each year for the remaining period of the Term as described in Section 3(b) of the Lease. (c) Commencing on September 15th, 2003 Rs. 28,500/- (Rupees Twenty Eight Thousand and Five Hundred Only) per month for use of Parking Areas (hereinafter "Parking Charges") based on the computations described in Exhibit 'D' and subject to the conditions described in GTC-9 of Exhibit 'B' (d) Commencing on September 15th, 2003 for the first Four (4) months Rs. 40,264/- (Rupees Forty Thousand Two Hundred Sixty Four Only) per month and Rs. 60,396/- (Rupees Sixty Thousand Three Hundred and Ninety Six Only) per month thereafter for common area and equipment maintenance as described in GTC-3(a) of Exhibit ....
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....ot separately in respect of furniture and fixtures. Therefore, the revisional authority could not have, merely on the basis of presumption, bifurcated the composite lease rentals into components attributable to movable and immovable properties. 43. In Bharat Sanchar Nigam Limited (supra), while deciding the issues, the Hon'ble Supreme Court held that the goods involved in a transaction of transfer of the right to use must be in existence, deliverable, and actually delivered. However, a reading of the various clauses of the lease deeds in the present batch of matters shows that the facilities such as lifts, the sewage system, bathrooms, and the cafeteria are common facilities shared by more than one tenant. Consequently, they are incapable of being exclusively delivered or made deliverable to any particular tenant. 44. The authorities, particularly the STAT as well as the appellate authorities, failed to consider that the transfer of right to use goods is complete only when the assessee obtains effective control or exclusive domain over the goods that are the subject matter of the lease transaction. The aforesaid principle stands affirmed by the Andhra Pradesh High Court in th....
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....egal right to use the goods - consequently all legal consequences of such use including any permissions or licenses required therefore should be available to the transferee. Upon consideration of the covenants contained in the lease deeds governing the present batch of cases, this Bench is of the view that this ingredient also remains unfulfilled since: (a) There is no legal right to use goods, insofar as the agreement does not specifically prescribe the same. (b) Effective control and possession is with the landlord as per Exhibit B. GST 10 permits the landlord to suspend, delay or discontinue providing any facility. GTC 15 restricts the use of demised property and facility by tenant. GTC 17 precludes the tenant from further assigning, subleasing, transferring or encumbering the lease without prior permission of the landlord. GTC 19 prevents tenant from making any alterations. (c) The legal consequences of use are not transferred to the tenant: GTC 28(a) requires the landlord to indemnify the tenant against all legal consequences arising from use, occupation and possession of demised premises. GTC 28(g) provides that all legal problems from use of demise....