2007 (5) TMI 322 - SC - VAT and Sales Tax

SALES TAX SALE OF GOODS EXTENDED DEFINITION MEDICAL OXYGEN AND INDUSTRIAL GASES SOLD IN CYLINDERS CHARGES RECOVERED FROM CUSTOMERS FOR RETENTION OF CYLINDERS BEYOND SPECIFIED PERIOD

Summary

Issues:
1. Interpretation of "sale price" under the Orissa Sales Tax Act, 1947.
2. Determination of whether there was a transfer of the right to use goods for consideration.
3. Application of section 2(g)(iv) of the 1947 Act and article 366(29A)(d) of the Constitution.
4. Comparison with the judgment in Aggarwal Brothers v. State of Haryana regarding the concept of "transfer of the right to use goods."

Analysis:
The Supreme Court addressed the issue of the definition of "sale price" under the Orissa Sales Tax Act, 1947, in a case involving the over-retention of gas cylinders by a manufacturer. The Orissa High Court had held that the consideration received for over-retention did not constitute sale price as per the Act, as there was no transfer of the right to use the cylinders and the charges were deemed as a penalty. The Court examined the contract between the manufacturer and customers, noting clauses related to cylinder ownership, security deposits, and charges for over-retention.

The central question was whether the over-retention charges constituted a transfer of the right to use goods under section 2(g)(iv) of the 1947 Act, which incorporates the concept from article 366(29A)(d) of the Constitution. The Court emphasized that the containers were essential for selling medical oxygen/industrial gases, forming an integral part of the goods. It highlighted the composite personality of goods and the transfer of the right to use goods when loaned to customers, even if initially provided free of charge.

Referring to the judgment in Aggarwal Brothers v. State of Haryana, the Court clarified that the levy of tax was on the transfer of the right to use goods for consideration, not on the transfer of goods themselves. Applying this reasoning to the present case, where cylinders were loaned initially without charges, the subsequent over-retention charges were deemed as consideration for the right to use the goods. The Court overturned the impugned judgment, allowing the appeal filed by the department with no costs.

In conclusion, the Supreme Court's decision established that the over-retention charges for gas cylinders constituted a transfer of the right to use goods for consideration, falling within the definition of "sale" under the Orissa Sales Tax Act, 1947. The judgment provided clarity on the interpretation of sale price and the concept of transfer of the right to use goods, aligning with previous legal precedents and constitutional provisions.