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* 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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