Russell Credit Ltd. Vs. Commercial Tax Officer (Madras High Court)
The respondent bank entered into an agreement with Hindustan Power Plant Limited, Hosur, for importing and leasing of machinery on rental basis. The master lease agreement was entered into on April 17, 1998. There afterwards, the respondent bank ordered for machinery as per the specification of the company-Hindustan Power Plant Limited from the foreign manufacturer/supplier in Japan. While the goods were in transit, the assessee and the company-Hindustan Power Plant Limited entered into a supplementary lease agreement on July 31, 1998, which is stated to be part of the master lease agreement dated April 17, 1998. There, on behalf of the Commercial Tax Department, it was contended that the delivery taking place inside the State and therefore the question of the respondent having the benefit to deduction under Section 3A(2)(a) of the Tamil Nadu General Sales Tax Act, 1959 does not arise. It was concluded that under the supplementary lease agreement, a reference was made to invoice as well as a reference to the master lease agreement. The Court concluded that there was an inextricable link between the Master Agreement and the supplementary lease agreement on the one hand and the import of specific goods based on which the purchase order was placed. The various documents were placed by the Bank particularly the Bill indicating the name of the user as Hindustan Power Plant Ltd. which showed that the import was linked to the purchase order placed on behalf of the said company. It was held that thus, but for the purchase order placed by Hindustan Power Plant Ltd and latter approaching the respondent Bank for financing the import, the question of the bank ever placing any purchase order with the Japanese manufacturers to supply did not arise. The purchase order was placed by the bank with the foreign supplier who in turn showed that the purchase order of Hindustan Power Ltd. with the Japanese firm and import itself was in connection with the Master Agreement between the Bank and the lessee. There, it was concluded that the receipt of rental by the Bank was on account of the transaction in the course of import and was not liable to tax by the State.
Though the relief has been granted by the Court in the said case to Karnataka Bank Ltd, I am unable to apply the said ratio to the facts of the present cases. The facts of the present cases are clear. The imports were made by the petitioner itself in its own name. The Bills of Lading were in the name of the petitioner itself. The Bills of Entry for clearing the goods were also in the name of the petitioner. The only intervening event was the execution of four Operating Lease Agreements between the petitioner and the four lessees when the imported goods were allegedly in transit before being cleared from the customs barriers. As a concept, transfer of right to use during the course of import cannot be applied to the facts of the present case inasmuch as the petitioner not only continued to exercise both effective control but also possession over the imported machinery till they were actually delivered at a later point of time. The petitioner also continued to receive lease rental thereafter till the termination of lease period. Therefore, it cannot claim exemption under Section 5(2) of the Central Sales Tax Act, 1956.
The fact that the petitioner is stated to have acted as an agent of the lessee at the time of import under the respective Operating Lease Agreements is of no relevance as the petitioner neither transferred the possession nor effective control to the lessee till the actual delivery and also continued to receive lease rentals during the currency of the respective Operating Lease Agreements. Therefore, the petitioner cannot claim exemption under Section 5(2) of the Central Sales Tax Act, 1956 for the entire period.
Further, it should be noted that in the case of ordinary “sale”, the transaction between the seller and the buyer ends with a single transaction. However, in the caseof lease, where there is no transfer of ownership but only a transfer of possession and effective control. Tax is to be paid on the transaction for the period upto the period of lease under the Agreements. Each payment of lease rent would amount to extended definition of sale. Therefore, while the petitioner is entitled for deduction of lease rental received period upto the date of actual clearance of the imported goods from the customs barriers under Section 3-A of the Tamil Nadu General Sales Tax Act, 1959, for the period thereafter,e. after the effective possession and control were transferred to the respective lessees / actual users, the petitioner will be liable to pay tax under Section 3-A of the Tamil Nadu General Sales Tax Act, 1959.
Therefore, while upholding the impugned orders demanding sales tax for the period after delivery and transfer of effective control, I remit the cases back to the respondent to give the benefit of deduction to the petitioner upto the date of import to the petitioner for any lease rental which the petitioner may have received prior to the said date. This exercise shall be carried out by the respondent within a period of three months from the date of receipt of a copy of this Order.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
The petitioner has challenged the impugned orders both dated 30.10.2007 passed by the respondent for the Assessment Years 2004-2005 and 2005-2006. By the impugned orders, the respondent has levied tax on the petitioner under Section 3-A of the Tamil Nadu General Sales Tax Act, 1959 on the ground that “there was transfer of right to use goods” within the State of Tamil Nadu by the petitioner in favour of the following four persons:-
i. Sathia Match Works
ii. Suriya Match Industries
iii. The President Match Co.
iv. Vasan Industries
2. The impugned orders are sought to be challenged primarily on the ground that the petitioner, a non banking financial company engaged in financing and equipment leasing to industrial consumers and the users had transferred a right to use goods, i.e. imported machineries, in favour of the above four persons during the respective Assessment Years prior to clearance of the goods from the customs barriers. Therefore, the sale was in the course of import within the meaning of Section 5(2) of the Central Sales Tax Act, 1956 and these transactions were exempted from levying tax under Section 3-A(2)(a) of the Tamil Nadu General Sales Tax Act, 1959.
3. The other grievances of the petitioner against the impugned orders are that they have been passed in gross violation of Rule 15(6) of the Tamil Nadu General Sales Tax Rules, 1959. It is submitted that as per the said proviso, before making an order of assessment, the Assessing Authority was required to obtain the concurrence of the Deputy Commissioner having jurisdiction over the petitioner if the assessment results in imposition of tax of one lakh rupees or above or results in enhancement of tax over one lakh rupees.
4. It is the case of the petitioner that these transactions are not liable to tax. It is submitted that though there was sale within the meaning of the extended definition of “sale” in Section 2(g)(iv) of the Central Sales Tax Act, 1956 and Section 2(n) of the Tamil Nadu General Sales Tax Act, 1959, it was not liable to tax since the sale took place before the goods were cleared from the customs barriers. In this connection, the learned Senior Counsel for the petitioner placed reliance on the decision of the Hon’ble Supreme Court in J.V.Gokal and Co. (Private) Ltd. and Another Vs. The Assistant Collector Sales-Tax (Inspection) and Others, AIR 1960 SC 595, wherein, the Hon’ble Supreme Court has summarised the position as far as the import-sale. In this connection, a reference was made to Paragraph No.11 of the said decision which reads as under:-
11. The legal position vis-a-vis the import-sale can be summarised thus: (1) The course of import of goods starts at a point when the goods cross the customs barrier of the foreign country and ends at a point in the importing country after the goods cross the customs barrier; (2) the sale which occasions the import is a sale in the course of import; (3) a purchase by an importer of goods when they are on the high seas by payment against shipping documents is also a purchase in the course of import, and (4) a sale by an importer of goods, after the property in the goods passed to him either after the receipt of the documents of title against payment or otherwise, to a third party by a similar process is also a sale in the course of import.
5. The learned Senior Counsel for the petitioner further submitted that the test laid down in the context of transfer of right to use goods in decision of the Hon’ble SupremeCourt in 20th Centurary Finance Corporation Limited State of Maharashtra, (2000) 6 SCC 12 cannot be made applicable to the facts of the present case in as much as the nature of transaction involved “deemed sale” during the course of import.
7. It is submitted that the transactions involved payment of monthly lease rental for a period of 7 years and the ownership of the machinery continued to be with the petitioner and therefore, the Bills of Entry were filed by the petitioner. It is submitted that the transactions of “deemed sale” by virtue of the Agreement were prior to the goods crossing the customs barriers. The learned Senior Counsel for the petitioner also relied upon the decision of this Court in State Trading Corporation of India Limited State of Tamil Nadu and Another, (2003) 129 STC 294 (Mad), wherein, while considering the scope of Section 5(2) of Central Sales Tax Act, 1956 read with Section 2(ab) of the Customs Act, 1962, this Court held that for a sale to be one in the course of import it has to be either one which has occasioned the import or has been effected by a transfer of documents of title to the goods before the goods have crossed the customs frontiers of India. He further submits that in this case, before the goods were cleared, the respective operating lease agreements had been singed with the above four persons and therefore, there cannot be any levy of tax under the provisions of Tamil Nadu General Sales Tax Act, 1959.
7. The learned Senior Counsel for the petitioner also referred to the following decisions:-
i. State of A.P. National Thermal Power Corpn. Ltd., (2002) 5 SCC 203.
ii. State of Tamil Nadu Karnataka Bank Limited, (2012) 50 VST 93 (Mad).
iii. Tata Power Delhi Distribution Ltd. Commissioner of Sales Tax, Delhi and Others, (2016) 90 VST 1 (Del).
8. He specifically drew my attention to the decision of the Delhi High Court in Tata Power Delhi Distribution Ltd., referred to supra, wherein, the Court referred the above decision of the Hon’ble Supreme Court in 20th Century Finance Corporation Limited, referred to supra. In paragraph No.35, the Court held as follows:-
“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 course of import or
(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,e. where the written agreement transferring the right to use is executed.
(c) Where the good sare 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.”
9. The learned Senior Counsel for the petitioner submitted that in the decision of the Hon’ble Supreme CourtinState of A.P. Vs. National Thermal Power Corpn. Ltd., (2002) 5 SCC 203, the Court considered its earlier decision in 20th Century Finance Corpn. case referred to supra, and concluded that a situs of sale so as to create territorial nexus attracting applicability of tax legislation enacted by any State Legislature and tax an inter-sate sale in breach of Section 3 of the CST Act read with Articles 286(2) and 269(1) and (3) of the Constitution cannot be justified. He further submitted that the Hon’ble Supreme Court in the above case held as follows:-
29. In 20th Century Finance Corpn. Case [(2000) 6 SCC 12] the Constitution Bench by reference to the definition of “tax on the sale or purchase of goods” [which too has been inserted as clause (29-A) in Article 366 by the Sixth Amendment] opined that the situs of sale can be fixed either by the appropriate legislature or by Judge-made law and no settled principles for determining situs of sale can be laid down. Further, the State Legislature cannot by law, treat sales outside the State and sales in the course of import as “sales within the State” by fixing the situs of sales within its State in the definition of sale, as it is within the exclusive domain of the appropriate legislature i.e. Parliament to fix the location of sale by creating legal fiction or otherwise. The majority has clearly opined that the State where the goods are delivered in the transaction of inter-State sale, cannot levy a tax on the basis that one of the events in the chain has taken place within the State; so also where the goods are in existence and available for the transfer of right to use, there also that State cannot exercise power to tax merely because the goods are located in that State. Then it was observed that in case where goods are not in existence or where there is an oral or implied transfer of the right to use the goods, such transactions may be effected by the delivery of the goods in which case the taxable event would be on the delivery of goods. However, we are dealing with the case of electricity as goods, the property whereof, as we have already noted, is that the production (generation), transmission, delivery and consumption are simultaneous, almost instantaneous. Electricity as goods comes into existence and is consumed simultaneously; the event of sale in the sense of transferring property in the goods merely intervenes as a step between generation and consumption. In such a case when the generation takes place in one State wherefrom it is supplied and it is received in another State where it is consumed, the entire transaction is one and can be nothing else excepting an inter-State sale on account of instantaneous movement of goods from one State to another occasioned by the sale or purchase of goods, squarely covered by Section 3 of the CST Act.
10. The learned Special Government Pleader appearing for the respondent submitted that as far as the objection to the impugned proceedings under Rule 15(6) of the Tamil Nadu General Sales Tax Rules, 1959 is concerned, the issue is squarely covered against the petitioner in terms of the decision of this Court in M/s.Ultra Chem (P) Ltd. Vs. The Commercial Tax Officer and Another, in W.P.Nos.14817 to 14820 of 2007, order dated 13.12.2016.
11. The learned Special Government Pleader further submitted that whether the sale took place in the course of import or not within the meaning of Section 5(2) of the Central Sales Tax Act, 1956 is a mixed question of fact and law and therefore, this Writ Petition is liable to be dismissed in the light of the decision of the Hon’ble Supreme Court in Zunaid Enterprises and Others Vs. State of Chhattisgarh and Others, (2012) 4 SCC 211. In this connection, a reference was drawn to Paragraph No.7, wherein, in the context of inter-State sales, the Court observed as under:-
7. At the outset, we intend to note that in these types of cases, the High Court ought not to have entertained the writ petitions filed under Article 226 of the Constitution. We say so for the reason, that, whether a sale originating in a State is an inter-State sale or not is essentially a question of fact to be determined by the authorities under the Act, since it involves the application of the provisions of Sections 3, 5, 6 and 9(1) of the Act to the facts established and hence, it will be a mixed question of law and fact. The facts are required to be brought to the notice of the assessing authority by the appellants and it is for the assessing authority to come to a conclusion, based on those facts whether a particular transaction is intra-State sales which is exigible to the taxes under the VAT Act or inter-State sales, as envisaged under Section 3 of the Act read with Section 6 of the charging provisions therein. It is after such adjudication, the matter can travel from one stage to the other as provided under the Act.
12. The learned Special Government Pleader also submitted that there is no disputethat there is a transfer of right to use as explained by the Hon’ble Supreme Court in State of Andra Pradesh Rashtriya Ispat Nigam Ltd., (2002) 3 SCC 314, in Bharath Sanchar Nigam Ltd., and Another Vs. Union of India and Others, (2006) 3 SCC 1 and in Aggarwal Brothers Vs. State of Haryana, (1999) 9 SCC 182.
13. It is submitted that the only issue to see is whether the transfer took place in the course of It is submitted that there is no endorsement either in Bills of Lading or Bills of Entry in favour of the leasee. Therefore, it cannot be assumed that there was a sale in the course of import within the meaning of Section 5(2) of the Central Sales Tax Act, 1956. He further submitted that Bills of Entry were also filed by the petitioner themselves and the customs duty was also paid by the petitioner themselves and therefore cannot be held that there was a sale in the court of import within the meaning of the aforesaid Section. He further submitted that the operation agreements were signed in Chennai and therefore the sale would attract local sale tax under Section 3-A of the TNGST Act, 1959. The learned Special Government Pleader for the respondent therefore submits that this Writ Petition was misconceived and was liable to be dismissed.
14. By way of rejoinder, the learned Senior Counselfor the petitioner submitted that there are no disputed questions of fact and therefore, it would be unfair to relegate the petitioner at this distant point of time to work out the remedy either before the Appellate Assistant Commissioner or to remit the case back to the respondent. He further submits that the respondent has not questioned the date of the respective agreements with the leasee to whom there was a “transfer of the right to use” and therefore, the “sale” falls within the meaning of Section 5 of the Central Sales Tax Act, 1956 and consequently exempted from the tax under Section 3 of the Tamil Nadu General Sales Tax Act, 1959.
15. I have considered the arguments advanced by the learned Senior Counsel for the petitioner and the learned Special Government Pleader for the respondent.
16. Since the dispute pertains to the Assessment Years 2004-2005 and 2005-2006 and sincethese Writ Petitions are pending considerably for a long period of 13 years before this Court, the Court is inclined to exercise its jurisdiction under Article 226 of the Constitution of India and therefore takes up the case for a final disposal on merits even though the petitioner may have an alternate remedy before an Appellate Authority under the provisions of the Tamil Nadu General Sales Tax Act,
17. In thefacts of the present case, the respective Operating Lease Agreements with the respective buyers are on a stamp paper purchased in Chennai indicating that the agreements were signed at Chennai on the date specified therein.
18. The dates of the respective Agreements are after the imported goods sailed from South Korea as is evident from respective Bills of Entries. They were signed before the respective Bills of Entry were filed by the petitioner for clearing the imported goods. The details of the respective Bills of Entry and Bills of Lading are as follows:-
