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Tata Power Delhi Distribution Ltd Vs. Commissioner Of Sales Tax, Delhi & Ors
April, 18th 2016
 $~
 *        IN THE HIGH COURT OF DELHI AT NEW DELHI
 11
 +                            ST.APPL. 16/2008

          TATA POWER DELHI DISTRIBUTION LTD          ..... Petitioner
                       Through: Mr. M.P. Devnath, Mr. Abhishek
                       Anand and Mr. Yogendra Aldak, Advocates.

                     versus

          COMMISSIONER OF SALES TAX, DELHI &
          ORS                                 ..... Respondents
                      Through: Mr. Siddharth Dutta, Advocate for R-
                      1/CST
                      Mr. Sudhir Kumar, Advocate for R-2/GNCTD.
                      Ms. Rama Ahluwalia, Advocate for R-3/State of
                      Maharashtra.

          CORAM:
          JUSTICE S.MURALIDHAR
          JUSTICE VIBHU BAKHRU

                              ORDER
 %                            11.03.2016
 Dr. S. Muralidhar, J:

 1. This appeal by the Tata Power Distribution Limited (`TPDL') [earlier
 known as North Delhi Power Limited (`NDPL') ] under Section 9 (2) of the
 Central Sales Tax Act, 1956 (`CST Act') read with Section 81 of the Delhi
 Value Added Tax Act, 2004 (`DVAT Act') is directed against the
 impugned order dated 14th July 2008 passed by the Appellate Tribunal
 (`AT') dismissing the appeal of the Appellant. The AT upheld the order
 dated 30th November 2006 of the Objection Hearing Authority (`OHA')
 which in turn upheld the order dated 7th July 2006 of the Sales Tax
 Officer/VAT Officer, (Ward 63) declining to issue `C' forms to the
 Appellant for the year (for Rs. 98,21,612), 2003-04 (for Rs. 1,33,96,344)


ST. APPL 16/2008                                                 Page 1 of 13
 and 2005-06 (for Rs. 1,01,53,180).

 2. TPDL is a registered dealer under the Delhi Sales Tax Act, 1975 (`DST
 Act') [now under the Delhi Value Added Tax Act, 2004] as well as the
 CST Act. It took some equipment viz., , an LT Load Management System,
 on lease basis from M/s. RMS Automation Systems Limited, Nasik
 (`RASL'), Respondent No. 2 herein under a lease agreement dated 25th
 May 2000. The said lease agreement was originally entered into between
 RASL [as Lessor] and the Delhi Vidyut Board (`DVB") [Lessee], the
 predecessor of the Appellant. After the restructuring of DVB, with the
 Appellant having succeeded the DVB, the latter's rights and liabilities
 under the aforementioned lease agreement vested in the Appellant. It is
 stated that in terms of the above agreement, the equipment in question was
 sent by RASL, the Lessor in Maharashtra to the Appellant, the Lessee in
 Delhi.

 3. By the 46th Constitutional Amendment, Article 366 of the Constitution
 was amended whereby clause (29A) was inserted to provide that 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, would
 be deemed to be 'sale'. RASL raised monthly invoices upon the Appellant
 for the lease charges after duly charging sales tax under the CST Act. For
 furnishing RASL with the `C' Forms, the Appellant applied to the Sales
 Tax Officer/VAT Officer (Ward 63) for the years 2002-03 and 2003-04.

 4. It may be mentioned here that the above application was also made for
 the year 2005-06 and `C' Form for the said year which was initially
 refused, was ultimately allowed in appeal. The Appellant further states that
 for the years 2004-05 and 2006-07, `C' Forms in relation to the


ST. APPL 16/2008                                                   Page 2 of 13
 aforementioned lessee for payment made pursuant to the very same lease
 agreement between RASL and the Appellant have been issued by the VAT
 Officer. Therefore, the present case only concerns the denial of `C' Forms
 for the years 2002-03 and 2003-04.




 5. The reasoning for the VAT Officer declining the request by the order
 dated 7th July 2006 was that there was no movement of goods from
 Maharashtra to Delhi during the relevant tax period, and that the ownership
 rights in the equipment still vested in RASL. As far as years 2002-03 and
 2003-04 were concerned, the appeal filed by the Appellant was rejected by
 the OHA i.e., the Deputy Commissioner on the same ground. The further
 appeal by the Assessee was dismissed by the AT by the impugned order
 primarily on the ground that the transaction was not an inter-state sale. In
 coming to the said conclusion the AT referred to the decisions of the
 Supreme Court in 20th Century Finance Corporation Limited v. State of
 Maharashtra (2000) 6 SCC 12 and Bharat Sanchar Nigam Limited v.
 Union of India (2006) 3 SCC 1. The AT came to the conclusion that since
 the situs of the sale was Delhi and the agreement transferring the right to
 use the equipment was executed at New Delhi on 25th May 2000 between
 RASL and DVB, the said transaction could not be said to be an inter-state
 sale. Consequently, the AT held that the Appellant could not seek for
 issuance of `C' Forms under the CST Act.

 6. This Court has heard the submissions of Mr. M.P. Devnath, learned
 counsel for the Appellant, Mr. Siddharth Dutta, learned counsel for
 Respondent No. 1 (the Commissioner), Mr. Sudhir Kumar, learned counsel
 for Respondent No. 2 (the GNCTD) and Ms. Rama Ahluwalia, learned
 counsel for Respondent No. 3 (State of Maharashtra).



ST. APPL 16/2008                                                   Page 3 of 13
 7. While admitting this appeal on 22nd October 2008, the following
 questions of law were framed for consideration:
          (1) Whether the AT was correct in law in holding that the
          transfer of right to use equipment under the impugned
          transaction was not an interstate sale even though the goods
          moved from Maharashtra to Delhi pursuant to the lease
          agreement dated 25th May 2000?

          (2) Whether the only pre-condition for issuance of C-Form
          is that the buyer is a registered dealer and the goods are
          mentioned in his registration certificate as required for use
          in electricity generation and distribution?

 8. To begin with a reference may be made to the definition of expression
 `tax on the sale or purchase of goods' under Article 366 (29-A) which was
 inserted by the 46th Amendment of the Constitution, published in the
 Official Gazette on 2nd February 1983. The relevant portion reads as under:
          "29A "tax on the sale or purchase of goods" includes-

          (a) to (b)......

          (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

          (e)......

          (f)......
          and such transfer, delivery or supply of any goods shall be deemed
          to be a sale of those goods by the person making the
          transfer, delivery or supply and a purchase of those goods by the
          person to whom such transfer, delivery or supply is made"

 9. This was simultaneous with the insertion of Entry 92-A in the Union
 List (List I) in the Seventh Schedule to the Constitution which reads thus:
          "92-A. Taxes on the sale or purchase of goods other than


ST. APPL 16/2008                                                          Page 4 of 13
          newspapers, where such sale or purchase takes place in the course
          of inter-state trade or commerce."

 10. This has to be read along with Entry 54 in the State List (List II) which
 reads as under:
          "54. Taxes on the sale or purchase of goods other than newspapers,
          subject to the provisions of Entry 92-A of List I."

 11. One of the transactions that is covered by the aforementioned amended
 definition of `sale' in terms of Article 366 (29-A) of the Constitution is a
 transaction of sale whereunder the right to use an equipment for valuable
 consideration is transferred to a lessee by a lessor. It is deemed to be a sale
 by the lessor in favour of the lessee. Where such sale partakes character of
 inter-state sale then it is the Parliament which alone has the competence to
 collect sales tax to the exclusion of the States. Section 2 (g) (iv) of the CST
 Act defines `sale' to include 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.

 12. Section 3 of the CST Act which defines 'inter-state sale' reads thus:
          "When is a sale or purchase of goods said to take place in the
          course of inter-State trade or commerce:-

          A sale or purchase of goods shall be deemed to take place in the
          course of inter-State or commerce if the sale or purchase ­
          (a) occasions the movement of goods from one State to another; or
          (b) is effected by a transfer of documents of title to the goods
          during their movement from one State to another.

          Explanation I ­ where goods are delivered to a carrier or other
          bailee for transmission, the movement of the goods shall, for the
          purposes of clause (b), be deemed to commence at the time of such
          delivery and terminate at the time when delivery is taken from such
          carrier or bailee.



ST. APPL 16/2008                                                      Page 5 of 13
          Explanation 2- Where the movement of goods commences and
          terminates in the same time it shall not be deemed to be a
          movement of goods from one State to another by reason merely of
          the fact that in the course of such movement the goods pass
          through the territory of any other State."

 13. Section 8 of the CST Act set outs the rates of tax on sales in the course
 of inter-State trade or commerce. Section 9 of the CST Act talks of levy
 and collection of tax and penalties. Section 9 (1) which is the charging
 section as far as inter-State sales is concerned, reads as under:
          "9. Levy and Collection of Tax and Penalties .--(1) The tax
          payable by any dealer under this Act on sales of goods
          effected by him in the course of inter-State trade or commerce,
          whether such sales fall within clause (a) or clause (b) of
          Section 3, shall be levied by the Government of India and the
          tax so levied shall be collected by the Government in
          accordance with the provisions of sub-section (2), in the State
          from which the movement of the goods commenced

          Provided that, in the case of sale of goods during their
          movement from one State to another, being a sale subsequent
          to the first sale in respect of the same goods and being also a
          sale which does not fall within sub-section (2) of Section 6,
          the tax shall be levied not collected---

                   (a) where such subsequent sale has been effected by a
                   registered dealer in the State from which the registered
                   dealer obtained or, as the case may be, could have
                   obtained, the form prescribed for the purposes 1 of
                   clause (a) of sub- section (4) of Section 8 in connection
                   with the purchase of such goods; and

                   (b) where such subsequent sale has been effected by an
                   unregistered dealer in the State from which such
                   subsequent sale has been effected.

 14. A collective reading of the aforementioned provisions reveals that three
 kinds of transactions are outside the purview of State Sales Tax, i.e., sale


ST. APPL 16/2008                                                       Page 6 of 13
 outside the State; sale in the course of import or export of goods; and a sale
 in the inter-State trade.

 15.1 The question as to whether a transaction of lease occasioning the
 movement of goods from one state to another, which was an inter-state
 'deemed' sale, could be declared to be an intra-state sale because of the
 location of the goods within the state at the time of the transfer of the right
 to use the goods was the subject matter of the decision of the Constitution
 Bench of the Supreme Court in 20th Century Finance Corporation
 Limited v. State of Maharashtra (supra). The question arose in the context
 of dealers registered under the various State Sales Tax Legislations, for
 e.g., Maharashtra, Uttar Pradesh, Rajasthan, Andhra Pradesh, Haryana,
 Karnataka and Tamil Nadu, who had entered into master lease agreements
 for leasing diverse machinery/equipment in terms of which, the dealers
 would place purchase orders on the suppliers or manufacturers for supply
 of individual items or equipment. The dealers disbursed the value of
 equipment to the suppliers, who at their instance, delivered the equipment
 to the lessees at specified locations for use. After the equipment was
 delivered and put to use, a supplementary lease schedule was executed by
 the lessee acknowledging due receipt of the lease equipment. Such
 supplementary lease deeds formed an integral part of the master lease
 agreement. Several States amended their respective sales tax legislation to
 levy tax on the transactions of transfer of the right to use goods on the
 basis that the goods were located at the time of their use within their States
 irrespective of the place where the lease agreement may have been
 executed. The question that arose was whether a State can levy sales tax on
 transfer of right to use goods merely on the basis that the goods put to use
 are located within its State irrespective of the fact that (a) the contract of



ST. APPL 16/2008                                                      Page 7 of 13
 transfer of right to use has been executed outside the State; (b) sale had
 taken place in the course of inter-State trade; and (c) sales are in the course
 of export or import into Indian territory. The case of the dealers was that
 the State Legislatures could not frame their respective laws so "as to
 convert an outside sale or a sale in the course of import or a sale in the
 course of inter-State trade or commerce into a sale inside the State."

 15.2 After referring to the case law, then the Constitution Bench of the
 Supreme Court in 20th Century Finance Corporation Limited v. State of
 Maharashtra (supra) held as under:
          "20. ......... the situs of the sale or purchase is wholly
          immaterial as regards the inter-State trade or commerce, as
          held in Bengali Immunity Co. Ltd v. State of Bihar AIR 1955
          SC 661. 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."

 15.3 The Constitution Bench further held as under:
          "24. ..... where situs of sale has not been fixed or covered by any
          legal fiction created by the appropriate legislature, the location of
          sale would be place where the property in goods passes. The
          Constitution Bench held, that it was the passing of the property
          within the State that was intended to be fastened on for the purpose
          of determining whether the sale was "inside" or "outside" the
          State."

 15.4 The Supreme Court further held as under:
          "...the location or delivery of goods within the State cannot be
          made a basis for levy of tax on sales of goods. Under general law,
          merely because the goods are located or delivery of which has been
          effected for use within the State would not be the situs of deemed
          sale for levy of tax if the transfer of right to use has taken place in
          another State. Therefore, the contention, on behalf of the


ST. APPL 16/2008                                                        Page 8 of 13
          respondents that there would be no completed transfer of right to
          use goods till the goods are delivered is to prevail, then the
          respondents are further required to show that the contract of
          transfer of right to use goods is also entered into in the said State in
          which the goods are located or delivered for use. The State cannot
          levy a tax on the basis that one of the events in the chain of events
          has taken place within the State. The delivery of goods may be one
          of the elements of transfer of right to use, but the same would not
          be the condition precedent for a contract of transfer of right to use
          goods. Where a party has entered into a formal contract and the
          goods are available for delivery irrespective of the place where
          they are located the situs of such sale would be where the property
          in goods passes, namely, where the contract is entered into."

 15.5 It further held as under:
          "28........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 written contract is executed
          between the parties, it is at that point situs of taxable event on
          the transfer of right to use goods would occur and situs of sale
          of such a transaction would be the place where the contract is
          executed."

 15.6 Of the conclusions arrived at by the Constitution Bench in 20th
 Century Finance Corporation Limited v. State of Maharashtra (supra),
 those in para 35 (a) to (e), which are relevant for the purposes read as
 under:
          "35. As a result of the aforesaid discussion our conclusions are
          these:
          (a) The State in exercise of power under Entry 54 of List II
          read with Article 366 (29A) (d) are not competent to levy sales
          tax on the transfer of right to use goods, which is a 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



ST. APPL 16/2008                                                         Page 9 of 13
          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
          executed.

          (c) 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.

          (d) In cases where goods are not in existence or where there is
          an oral or implied transfer of the right to use goods, such
          transactions may be effected by the delivery of the goods. In
          such cases the taxable event would be on the delivery of
          goods.

          (e) The transaction of transfer of right to use goods cannot be
          termed as contract of bailment as it is deemed sale within the
          meaning of legal fiction engrafted in Clause (29A) (d) of
          Article 366 of the Constitution wherein the location or
          delivery of goods to put to use is immaterial."

 16. A careful reading of the above decision of the Supreme Court in
 20th Century Finance Corporation Limited v. State of Maharashtra
 (supra) reveals that the Court categorically ruled that the mere
 location or delivery of the goods would not determine the situs of sale.
 Where the property in the goods passed from the seller to the
 purchaser would differ from case to case. Where the lease agreement
 occasioned the movement of goods from one State to another then,
 clearly it would partake of an inter-state sale within the meaning of
 Section 3 (a) of the CST Act. The observation in para 25 of 20th
 Century Finance Corporation Limited v. State of Maharashtra


ST. APPL 16/2008                                                      Page 10 of 13
 (supra) has to be read as a whole. It is only when the goods are
 available in the State and the agreement for transfer of the property in
 goods from the seller to the buyer is executed at that place it can be
 said that the situs of the sale is where the agreement is entered into.
 However, as far as the present case is concerned, there is a clear
 finding in the order of the AT itself that "there is also no doubt about
 the facts, the goods did move from Maharashtra to Delhi and were
 used in the distribution of electricity." The equipment was in fact sent
 from Maharashtra to Delhi for use by the Appellant (Lessee) in Delhi
 and this movement was occasioned by the lease agreement which was
 entered into in Delhi. Even going by the decision of the Supreme
 Court in 20th Century Finance Corporation Limited v. State of
 Maharashtra (supra) it cannot possibly be said that the situs of the
 sale was Delhi only because the agreement was entered into in Delhi.
 There can be no doubt that the lease agreement in the present case
 resulted in the movement of the goods from one State of another, and
 therefore, answers description of the inter-State trade under Section 3
 (a) of the CST Act.




 17. Learned counsel for the Respondents sought to place reliance on
 the decision of the Division Bench of the Andhra Pradesh High Court
 in G.S. Lamba and Sons v. State of Andhra Pradesh 2015 (324) ELT
 316 (AP) which in turn referred to 20th Century Finance Corporation
 Limited v. State of Maharashtra (supra) and the decision in Bharat
 Sanchar Nigam Limited v. Union of India (supra). In the first place,
 the Court notes that the facts of the case in G.S. Lamba and Sons v.
 State of Andhra Pradesh (supra) did not involve an inter-state sale at
 all. Para 3 of the said judgment states that the contracts in question



ST. APPL 16/2008                                                   Page 11 of 13
 were for providing transportation service for ready-mix concrete by
 hiring specially designed transit mixers. These transit mixers were
 "never transferred and the effective control over running and using of
 these vehicles, as well as the disciplinary control over the drivers,
 always remained with the Petitioners." Therefore, the decision in G.S.
 Lamba and Sons v. State of Andhra Pradesh (supra) is
 distinguishable on facts. Even the decision in Bharat Sanchar Nigam
 Limited v. Union of India (supra) was concerned with the question as
 to   whether      transferring   the   right   to   use   the   telephone
 instrument/apparatus fell within the description of sale under Section 2
 (h) of the Uttar Pradesh Trade Tax Act, 1948. It was held that while
 giving a telephone connection may result in the transfer of a right to
 use the goods, there was no such transfer of the right to use where
 what is provided is a telephone service. The Court is unable to
 appreciate how the decisions in Bharat Sanchar Nigam Limited v.
 Union of India (supra) or G.S. Lamba and Sons v. State of Andhra
 Pradesh (supra) is relevant to the issue on hand.

 18. Turning to the case on hand, the lease agreement entered into between
 RASL and DVB has occasioned the movement of goods from Maharashtra
 to Delhi. The said transaction is deemed to be an inter-state sale within the
 meaning of that expression in Section 3 (a) of the CST Act. Consequently,
 question No. 1 is answered in the negative, i.e., in favour of the Appellant
 and against the Department. It is held that the AT was not correct in law in
 holding to the contrary.

 19. As far as question No. 2 is concerned, it is not the case of the
 Department that the Appellant does not satisfy the pre-conditions for



ST. APPL 16/2008                                                    Page 12 of 13
 issuance of `C' Forms. The Appellant is a registered dealer and the goods
 in question find mention in the registration certificate as required for the
 use in the electricity generation and distribution. Consequently, there was
 no valid ground to deny the Appellant `C' Forms in relation to the lease
 transactions undertaken with RASL during the years 2002-03 and 2003-04.
 The order dated 30th November 2006 of the OHA and the order dated 14th
 July 2008 of the AT are hereby set aside. The VAT Officer is directed to
 issue `C' Forms as requested by the Appellant for the transactions of the
 years 2002-03 and 2003-04, not later than two weeks from today. The
 Appellant will in turn provide those C Forms to RASL forthwith without
 unnecessary delay. This takes care of the grievance of Respondent No. 2
 regarding not being issued `C' Forms.

 20. The appeal is disposed of in the above terms but, in the facts and
 circumstances of the case, with no orders as to costs.

 21. Order be given dasti.



                                                          S.MURALIDHAR, J



                                                          VIBHU BAKHRU, J
 MARCH 11, 2016
 Rk




ST. APPL 16/2008                                                  Page 13 of 13

 
 
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