2000 (9) TMI 1025 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Taxability of the amount received for the delay in returning cylinders under section 2(g)(iv) of the Orissa Sales Tax Act, 1947.
2. Interpretation of the contract between the petitioner and its customers regarding the over-detention of cylinders.
3. Legal precedents and their applicability to the present case.

Issue-wise Detailed Analysis:

1. Taxability of the Amount Received for Delay in Returning Cylinders:
The primary legal question was whether the amount received by the petitioner for the delay in returning cylinders by its purchasers is taxable under section 2(g)(iv) of the Orissa Sales Tax Act, 1947. The assessing officer, Assistant Commissioner, and the Tribunal had previously held that the charges for over-detention of cylinders constituted consideration for the transfer of the right to use the cylinders, thus making it taxable.

2. Interpretation of the Contract:
The contract between the petitioner and its customers was scrutinized. Key clauses included:
- Clause 3: Manufacturers deliver full cylinders and collect empty ones, with buyers paying delivery charges.
- Clause 4: Buyers must deposit a security deposit for returnable cylinders, refundable upon contract termination.
- Clause 5: Cylinders are loaned free for 14 days, with charges applied for over-detention beyond this period.
- Clause 6: The petitioner can take civil or criminal steps to reclaim cylinders if they believe the cylinders are in danger of being lost.
- Clause 7: Buyers bear the risk of the cylinders until their return to the manufacturer.

The court noted that the possession and custody of the cylinders remained with the buyers beyond the 14-day free loan period, and any charges for over-detention were considered a penalty rather than rental for the transfer of the right to use.

3. Legal Precedents:
The court reviewed several precedents:
- Bank of India v. Commercial Tax Officer: Held that rental received from lockers is not taxable as there is no transfer of right to use.
- State Bank of India v. State of Andhra Pradesh: Similar conclusion where rental for lockers did not constitute a transfer of right to use.
- Rashtriya Ispat Nigam Ltd. v. Commercial Tax Officer: Held that effective control of machinery remained with the petitioner, thus no transfer of right to use.
- Krushna Chandra Behera v. State of Orissa: Distinguished between the transfer of possession and custody, concluding that the effective control of vehicles rested with the hirer.
- Industrial Oxygen Company Pvt. Ltd. v. State of Andhra Pradesh: Held that the physical possession of cylinders by customers indicated a transfer of the right to use.
- Harbans Lal v. State of Haryana: Concluded that charges for non-return of cylinders constituted a continuation of sale and were taxable.

The court distinguished the present case from the above precedents, emphasizing that the over-detention charges were penalties due to unauthorized possession beyond the agreed period, not rental for the transfer of the right to use.

Conclusion:
The court concluded that the amount received for the delay in returning cylinders is a penalty and not consideration for the transfer of the right to use. Therefore, it is not taxable under section 2(g)(iv) of the Orissa Sales Tax Act, 1947. The reference application was allowed, and the question was answered in favor of the dealer, overturning the decisions of the assessing officer, Assistant Commissioner, and the Tribunal.