1992 (2) TMI 321 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Constitutional validity of sub-clause (iv) of section 2(j) and (1) of the Haryana General Sales Tax Act, 1973.
2. Applicability of sales tax on "transfer of the right to use any goods for any purpose".
3. Interpretation of "transfer of the right to use" as a form of sale.
4. Specific cases involving tents, shuttering, gas cylinders, and buses.

Summary:

1. Constitutional Validity of Sub-clause (iv) of Section 2(j) and (1) of the HGST Act, 1973:
The petitioners challenged the constitutional validity of sub-clause (iv) of section 2(j) and (1) of the Haryana General Sales Tax Act, 1973 (as amended by Haryana Act 11 of 1984), which levies sales tax on "transfer of the right to use any goods for any purpose". The court upheld the validity of the Forty-sixth Amendment to the Constitution, which was aimed at augmenting State revenues and reducing tax avoidance. The challenge to the validity of the 46th Amendment was negatived based on the Supreme Court's decision in Builders Association of India v. Union of India [1989] 73 STC 370; AIR 1989 SC 1371.

2. Applicability of Sales Tax on "Transfer of the Right to Use Any Goods for Any Purpose":
The court examined whether the transactions in question involved "transfer of the right to use any goods" under clause (29A) of article 366 and entry 54 of List II of the Seventh Schedule. It was established that the distinction between a contract of sale and a transfer of the right to use lies in the retention of proprietary rights by the owner in the latter. The court held that delivery of possession and effective control of the goods to the transferee is essential for such transactions to be taxable.

3. Interpretation of "Transfer of the Right to Use" as a Form of Sale:
The court discussed various case laws to elucidate the concept of "transfer of the right to use". It was noted that delivery of possession and effective control of goods to the transferee is crucial. Examples from case law, such as Rashtriya Ispat Nigam Ltd. v. Commercial Tax Officer [1990] 77 STC 182 and Modern Decorators v. Commercial Tax Officer [1990] 77 STC 470 (WBTT), were cited to illustrate situations where such transfers were considered taxable.

4. Specific Cases:
- C.W.P. Nos. 148, 14340, and 15523 of 1989 (Tents and Crockery): The court held that if tents, kanats, and furniture are given to customers who erect and use them, it amounts to a transfer of the right to use and is taxable. The same applies to crockery and furniture provided for functions.
- C.W.P. Nos. 11860 and 11861 of 1988 (Shuttering): The court found that the transfer of shuttering to builders/contractors for use in construction, where the contractors have effective control, constitutes a taxable transfer of the right to use.
- C.W.P. No. 12953 of 1989 (Gas Cylinders): The court ruled that the supply of gas in cylinders, with conditions for their return and charges for detention, involves the transfer of the right to use the cylinders, making it taxable.
- C.W.P. No. 13401 of 1989 (Buses): The court concluded that the agreement for hiring buses, where effective control rests with the hirer, constitutes a transfer of the right to use and is taxable.

The court dismissed the writ petitions but allowed petitioners who had not filed appeals against assessment orders to do so within one month.