1999 (12) TMI 834 - HC - VAT and Sales Tax

Summary

Issues:
1. Whether tax can be levied on the lease and licence agreement for the use of premises and machinery.
2. Interpretation of the definition of "goods" under the Karnataka Sales Tax Act, 1957.
3. Determining the liability of tax on the transfer of right to use goods.
4. Taxability when machinery is considered immovable property.
5. Tax treatment of composite agreements.
6. The applicability of precedents in determining tax liability.

Analysis:
1. The petition challenged the order of the Karnataka Appellate Tribunal regarding the levy of tax on a lease and licence agreement for the use of premises and machinery. The Tribunal considered it a composite contract, justifying the tax levied by the assessing authority. Reference was made to the case law of Growth Leasing & Finance Ltd. v. State of Gujarat [1992] 85 STC 25 (Guj).

2. The court analyzed the definition of "goods" under the Karnataka Sales Tax Act, 1957, which includes movable property but excludes immovable property. Section 5C of the Act provides for the levy of tax on the transfer of the right to use goods. The court emphasized that tax is applicable only when there is a transfer of the right to use goods, not the goods themselves.

3. In cases where machinery is considered immovable property due to its nature or installation, it falls outside the scope of goods as defined under the Act. Referring to the case law of State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. [1958] 9 STC 353 (SC), the court held that tax liability does not apply when the machinery is immovable property.

4. The court also addressed the tax treatment of composite agreements where a single amount is charged for multiple components. Citing the decision in State of Himachal Pradesh v. Associated Hotels of India Ltd. [1972] 29 STC 474, the court ruled that if an agreement is indivisible, it cannot be taxed in its entirety.

5. Considering the above analysis, the court allowed the revision, concluding that the levy of tax on the lease agreement for machinery and premises was not proper. The court held that the tax authorities' approach of taxing the entire amount without bifurcation was incorrect, and the agreement should not be taxed in its entirety if it is indivisible.

6. The judgment provides clarity on the taxability of lease agreements involving machinery and premises, emphasizing the distinction between movable and immovable property for tax purposes. It underscores the importance of considering the nature of the property and the indivisibility of agreements in determining tax liability, in line with relevant legal precedents.