2008 (2) TMI 603 - SC - VAT and Sales Tax

Whether the transaction of transfer of the right to use was a local sale under section 3F of the U.P. Trade Tax Act, 1948? - Held that - We are in agreement with the view expressed by the Tribunal that the entire arrangement was got up in order to project the impugned transaction as an outside sale so that the said transaction does not come within the ambit of section 3F of the 1948 Act. The High Court has given reasons with which we do not agree in entirety though we agree with the operative part of its judgment dismissing the appeal of the assessee. Thus we do not wish to interfere with the finding of fact recorded by the Tribunal in the present case.

Summary

Issues:
Interpretation of section 3F of the U.P. Trade Tax Act, 1948 regarding the transaction of transfer of the right to use as a local sale.

Analysis:
The Supreme Court addressed the issue of whether the transaction of transfer of the right to use goods by the assessee constituted a local sale under section 3F of the U.P. Trade Tax Act, 1948. The assessee, a company engaged in the business of leasing and financing plants and machinery, was involved in supplying machinery on lease to another company. The assessing authority levied tax on the lease rent received by the assessee, leading to a series of appeals and remands. The Tribunal held that the lease agreement was not executed pursuant to a prior letter of intent, dismissing the assessee's appeal. The High Court also dismissed the tax revisions filed by the assessee, prompting the civil appeal before the Supreme Court.

The Supreme Court referred to the judgment in the case of 20th Century Finance Corpn. Ltd., emphasizing that the subject of taxation under section 3F is the transfer of the right to use goods, not the delivery of possession. The Court highlighted that the place where the right to use is transferred is crucial in such cases, rather than the place of delivery. The Court noted that the letter of intent produced by the assessee after 12 years lacked credibility and was likely fabricated to evade tax, as it did not align with the commercial realities of the transaction. The Court distinguished the present case from the 20th Century Finance Corpn. Ltd. case, where clear master lease agreements existed, unlike in the current scenario where no such prior agreements were evident.

Based on the circumstances and lack of evidence supporting a genuine prior agreement, the Supreme Court concurred with the Tribunal's finding that the transaction was orchestrated to appear as an outside sale to avoid taxation under section 3F of the Act. While disagreeing with some reasons given by the High Court, the Supreme Court ultimately upheld the dismissal of the assessee's appeal, declining to interfere with the Tribunal's factual findings. Consequently, the civil appeal was dismissed without any order as to costs.