TaxTMI 
TaxTMI 
2026 (9) TMI 177
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....titions arising out of assessments made under the Delhi Sales Tax Act, 1975 [DST Act] for the Assessment Years 1987-88 to 1996-97. The Petitioner in all the Writ Petitions is the Ministry of Railways. The dispute concerns the levy of Sales Tax on rolling stock financed through the Indian Railway Finance Corporation Limited [IRFC]. 2. The Impugned assessments proceed on two distinct transactions. According to the Respondents, the rolling stock was first manufactured or procured by the Railways, which acquired ownership thereof. The Railways thereafter transferred the rolling stock to IRFC against the funds made available by IRFC. Upon acquiring ownership, IRFC leased the same rolling stock back to the Railways against lease rentals. 3. The Petitioner disputes the aforesaid characterisation. According to it, IRFC was constituted for raising resources for acquisition of rolling stock required by the Railways and the funds were made available by IRFC for the said purpose. The Railways asserts that, owing to its technical infrastructure and expertise, it undertook the manufacture or procurement of the rolling stock and performed the functions connected with its inspection, deliver....
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.... 4(a) The Lessor will be deemed to have acquired ownership of the Rolling Stock leased to the Lessee from the first day of the month in which the respective items of Rolling Stock were placed on line released to traffic. Provided that in case the payment towards the cost of the Rolling Stock so acquired by the Lessor has not been effected by the time the items of Rolling Stock were placed on line/released to traffic, interest at the rate of 12.5% p.a. shall be deducted from the lease rentals payable to the Lessor upto the time that the payment towards the cost of the Rolling Stock is finally effected. The months from which the respective items of Rolling Stock were placed on line/released to traffic will be obtained from the Statements furnished by the Ministry of Railways in this regard from time to time and the details there from will be transcribed into Schedule-I to this Agreement. LESSEE'S COVENANTS. 6(B) At all times, during the continuance of this Lease, the Lessee shall (i) Keep the Rolling Stock in its possession and under its control. (ii) Affix and keep affixed the letters IRFC and/or other mark(s) on the Rolling Stock in....
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....the alleged sale and its situs shall be considered at the appropriate stage. 10. The original Assessment Order dated 31.07.2000 for the Assessment Year 1994-95 recorded that a Lease Agreement dated 07.02.1996 is stated to have been filed before the Assessing Authority. A copy of the said lease agreement does not form part of the paper books before this Court. Consequently, the terms of the Lease Agreement dated 11.10.1996 cannot, without some supporting material, be assumed to have governed every transaction during all the Assessment Years in dispute. 11. For the Assessment Year 1994-95, the original Assessment Order dated 31.07.2000 was confined to 136 wagons purchased from M/s Hindustan General Industries, Nangloi, Delhi ("HGI") for an amount of Rs.16,18,40,000/-. Tax of Rs.1,13,28,800/- and penalty of Rs.1 crore were imposed, resulting in a demand of Rs.2,13,28,800/-. 12. The earlier assessments for the Assessment Years 1987-88 to 1996-97, as also the reassessments for the Assessment Years 1987-88 to 1989-90, were challenged before this Court. By judgment dated 05.04.2004 in W.P.(C) No. 3496/1993 and connected matters, captioned The Ministry of Railways vs. The Sales Ta....
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....d the reasoning adopted in the fresh Assessment Orders. 18. The Revisional Authority held, firstly, that the Ministry of Railways answered the statutory description of a "dealer", secondly, that transfer of rolling stock by the Railways to IRFC against funds advanced by IRFC constituted a "sale", and thirdly, that the transactions were liable to Sales Tax in Delhi. In reaching these conclusions, reliance was placed upon the Railway production units, statutory D Forms, the terms of the Lease Agreement, the funds advanced by IRFC, contemporaneous Government letters and the non-production of complete books of account by the Petitioner. 19. Aggrieved by the dismissal of its Revision Petition, the Ministry of Railways thereafter instituted the present Writ Petitions in 2006. By order dated 30.08.2006, the impugned demands were stayed. Rule D.B. was issued in 2008, and the interim protection was continued till the disposal of the Writ Petitions. 20. This Court has heard learned counsel representing the parties at length and perused the paper books as well as the written submissions and synopsis filed by them. SUBMISSIONS ON BEHALF OF THE PETITIONER 21. Ms. Rukhmini Bobde, ....
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....y the Respondents relate to the first transaction between the manufacturer and the Railways and do not, by themselves, establish the alleged subsequent sale by the Railways to IRFC. 26. On territorial taxability, learned counsel submits that the rolling stock was manufactured or procured at different places across the country and supplied for use at Railway destinations outside Delhi. Even assuming a sale between the Railways and IRFC, it is contended that the same could not be treated as a local sale in Delhi merely because the administrative offices of the two entities were situated at New Delhi. Reliance is placed upon Section 8 of the DST Act read with Sections 3 and 4 of the Central Sales Tax Act, 1956 (hereinafter referred to as the "CST Act"). 27. Learned counsel further points out that, for the lead Assessment Year, the original assessment was confined to 136 HGI wagons valued at approximately Rs.16.18 crores, whereas the fresh assessment after remand brought 2,960 wagons, valued at approximately Rs.352.33 crores, to tax. It is contended that the fresh assessment travelled beyond the scope of the Show Cause Notice. In any event, according to the Petitioner, such subst....
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.... have been issued in the name of the Railways as evidence that the Railways itself purchased the rolling stock from the manufacturers as further indication that it was acting as a registered dealer. Learned Senior Counsel also refers to the statement attributed in the fresh Assessment Order to the authorised representative of IRFC regarding transfer of rolling stock to IRFC and adjustment of consideration against the funds already advanced. The coeval Government letters, including communications in which the transaction was described as a sale and exemption from Sales Tax was considered or sought, is relied upon as corroborating the same understanding. 33. On territorial taxability, learned Senior Counsel submits that the sale was effected in Delhi. Reliance is placed upon the administrative offices of both the Railways and IRFC being situated at New Delhi and upon the communications quoted in the Revisional Order which refer to the proposed sale/transfer taking place at Delhi. The Respondents also rely upon Clause 15 of the Lease Agreement, which provides for deemed appropriation of the rolling stock at Delhi/New Delhi. Reliance is placed upon 20th Century Finance Corporation L....
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....al. Section 2(e)^2, while defining "dealer" as a person carrying on the business of selling goods in Delhi, also includes the Central Government when it carries on such business. 40. In District Controller of Stores, Northern Railway, Jodhpur v. Assistant Commercial Taxation Officer (1976) 1 SCC 660, the Supreme Court held that the sale of scrap and unserviceable material by the Railways was connected with or ancillary to its activity as a carrier. The Railways was consequently held to be a dealer for the purposes of the concerned sales-tax enactment. 41. The same principle was applied in Member, Board of Revenue, West Bengal v. Controller of Stores, Eastern Railway 1989 Supp (2) SCC 236. The disposal of unclaimed goods was held to be incidental to the Railways' business as a carrier, while the sale of scrap and unserviceable material was treated as covered by District Controller of Stores (supra). 42. These decisions answer the question of statutory capacity. They establish that the Railways is not immune from sales-tax legislation merely because transportation is its principal function or because it is a part of the Central Government. Equally, they do not establish that....
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....o both. 48. Where a private manufacturer supplied rolling stock to IRFC and the Railways acted on behalf of IRFC in procuring, inspecting, taking delivery or commissioning it, property passed from the manufacturer to IRFC. The intervention of the Railways in that process did not give rise to an intermediate sale by the Railways. 49. The position would be different if the Railways purchased rolling stock from a private manufacturer in its own right, acquired title to it and thereafter transferred that title to IRFC against the funds supplied by IRFC. In that event, the transaction between the Railways and IRFC would answer the definition of a sale. Private manufacture, alone, is therefore not conclusive. The capacity in which the Railways made the purchase is important. 50. Rolling stock manufactured in Railway production units stands on a clearer position. Where the Railways manufactured and owned identified rolling stock, adjusted its cost against the funds supplied by IRFC, and thereafter vested ownership in IRFC, the transaction contained the essential elements of a sale. The absence of a separately executed sale agreement or an invoice raised by the Railways would not ....
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....namely, a sale by the Railways to IRFC. For that conclusion to follow, the record must further show that the Railways acquired title in its own right and thereafter transferred that title to IRFC for consideration. 58. Clause 8.1 of the Lease Agreement has a limited but material bearing upon this enquiry. It appoints the Railways as IRFC's agent for inspection, taking delivery from manufacturers and commissioning the rolling stock. The clause does not establish that the Railways acted as IRFC's agent when entering every procurement contract. At the same time, it prevents physical receipt or possession of the stock from being treated as conclusive proof of ownership in the Railways. 59. The absence of an agency fee does not carry the matter further. Section 185 of the Indian Contract Act, 1872 expressly provides that consideration is not necessary for the creation of an agency. The Revisional Authority was therefore not justified in rejecting the plea of agency that the Petitioner raised merely because IRFC did not separately remunerate the Railways for performing the functions entrusted to it. 60. The communication dated 27.08.1992 describes rolling stock obtained from out....
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....ated as the owner of Railway-manufactured stock throughout the process of manufacture. The Railways held the stock before ownership vested in IRFC. When identified stock was thereafter adjusted against the funds supplied by IRFC and treated as the property of IRFC, property passed from the Railways to IRFC for consideration. 67. Such transaction would answer the definition of a sale under Section 2(l) of the DST Act. Its legal character would not depend upon the execution of a separate sale agreement or the raising of an invoice by the Railways. The arrangement, the adjustment of the consideration and the passage of title are sufficient. 68. IRFC's claim of depreciation and its receipt of lease rentals reinforce the conclusion that it became the owner of the stock and thereafter leased it to the Railways. Those circumstances do not independently prove the source of IRFC's title. In the case of Railway-manufactured stock, however, that source is supplied by the antecedent ownership of the Railways. 69. The same conclusion would apply to privately manufactured stock where the Railways is shown to have purchased as principal and thereafter transferred the stock to IRFC. It wo....
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....roving that, in respect of any sale effected by it, no tax is payable under the Act. The provision does not assist in proving the existence of a sale. It operates after that threshold has been crossed. 78. This sequence is consistent with the decision in Haleema Zubair, Tropical Traders v. State of Kerala Civil Appeal No. 6707/2008 decided on 19.11.2008, the Supreme Court while considering a reverse-burden provision under a sales-tax enactment, held that its operation presupposed, firstly, a transaction of sale and, secondly, a dealer as one of the parties to that transaction. Section 6 operates on the same sequence. The existence of the sale sought to be taxed must first be established, once that threshold is crossed, the burden of proving non-liability, including a claim falling under Section 8 of the DST Act, lies upon the dealer. 79. Section 8 of the DST Act^5 sets out the grounds upon which a sale is excluded from the levy. It declares that the Act shall not impose or authorise the imposition of tax upon a sale taking place in the course of inter-State trade or commerce, outside Delhi, or in the course of import or export. The Explanation requires those questions to be d....
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....r where future or unascertained goods were situated when appropriated. 87. The fact that production units or private manufacturers were situated outside Delhi did not, by itself, discharge that burden. Place of manufacture and place of sale are not necessarily the same. Nor does the subsequent use of the rolling stock outside Delhi establish where the sale took place. 88. The Revisional Authority relied upon the location of the Head Offices of the Railways and IRFC in New Delhi, the administrative and financial control exercised from Delhi, the coeval correspondence, Clause 15 of the Lease Agreement and the failure of the Petitioner to show that the transactions had been assessed in any other State. 89. Some qualification of that reasoning is necessary. The location of the parties' Head Offices does not, alone, determine whether a sale was inter-State or where the goods were situated for the purposes of Section 4 of the CST Act. Administrative control over a production unit situated outside Delhi cannot notionally bring the goods produced there into Delhi. 90. The absence of an assessment by another State is equally inconclusive. A sale does not become taxable in Delhi ....
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....-State sale into an intra-State sale. 97. That principle would apply if the Petitioner established that the sale by the Railways to IRFC occasioned inter-State movement. The present record does not establish that connection in respect of the transactions which otherwise answer the description of sales by the Railways. 98. The deficiencies in the reasoning of the Revisional Authority therefore do not, by themselves, establish the Petitioner's plea of non-liability. Once a sale by the Railways stood established, Section 6 of the DST Act required the Petitioner to prove that the transaction fell within Section 8 of the DST Act. A general reference to manufacture, dispatch or use outside Delhi was insufficient for that purpose. 99. This Court is consequently unable to accept the Petitioner's contention that the transactions established as sales must be excluded from the Delhi levy. The conclusion reached by the Revisional Authority on taxability does not call for interference in respect of that class of transactions, though the broader proposition that every item of rolling stock financed through IRFC constituted a local sale in Delhi cannot be sustained. 100. Territorial t....
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.... incidence of sales tax was considered by Committees of Secretaries in 1987 and 1989. During the pendency of these Petitions, this Court had made sincere efforts through its Orders dated 04.07.2007, 14.09.2007 and 05.03.2008 to enable the concerned authorities to resolve the matter at an appropriate level. Those efforts unfortunately did not bring the dispute to an end. 108. Liability to tax must, of course, be determined under the statute. It cannot be created, waived or compromised merely because the contesting parties are public authorities. Even so, continuation of this inter-governmental dispute through another unrestricted round of assessment and litigation would serve little public purpose when the governing legal principles have now been settled and the remaining exercise is principally one of identification and computation. 109. The Court therefore considers it appropriate to afford the concerned authorities one final, time-bound opportunity to place their records together, segregate the transactions in accordance with this judgment and resolve, to the extent permissible in law, the surviving questions of classification and computation. 110. Accordingly, the Asses....
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.... the status of the Railways as a dealer, the circumstances in which a transfer to IRFC constitutes a sale, or the burden of proving non-liability under Sections 6 and 8 of the DST Act. 116. The fresh determination shall also remain confined to the turnover forming the subject matter of the respective Assessment Orders set aside by this judgment. It shall not result in any further enlargement of the assessed turnover. 117. The Assessing Authority shall pass separate, reasoned orders for each Assessment Year within twelve weeks from the date on which the statement contemplated in paragraph 113 is placed before the Commissioner. The tax and other statutory consequences, if any, shall be determined in accordance with law and the findings recorded in this judgment. 118. The amounts deposited by the Petitioner and presently retained by the Respondents shall remain subject to the fresh assessment orders. Any liability determined thereunder may be adjusted against those deposits. Any amount found to be in excess shall be refunded to the Petitioner within eight weeks from the date of the respective fresh assessment order. 119. No recovery pursuant to the fresh assessment orders ....
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....ncluding a co-operative society), club, firm or any association to its members for cash or for deferred payment, or for commission, remuneration or other valuable consideration, whether or not in the course of business; and (iii) transfer of goods by an auctioneer referred to in sub-clause (iv) of clause (e); 4. Burden of proof.-The burden of proving that in respect of any sale effected by a dealer he is not liable to pay tax under this Act, shall lie on him. 5. 8. Certain sales and purchases not liable to tax.- Nothing in this Act or the rules made thereunder shall be deemed to impose, or authorise the imposition of a tax on any sale or purchase of any goods when such sale or purchase takes place- (i) in the course of inter-State trade or commerce; or (ii) outside Delhi; or (iii) in the course of the import of the goods into, or export of the goods out of, the territory of India. Explanation.- Sections 3, 4, and 5 of the Central Sales Tax Act, 1956 (74 of 1956) shall apply for determining whether or not a particular sale or purchase takes place in the manner indicated in clause (i), clause (ii) or clause (iii) of this section. 6. 4. ....