2014 (12) TMI 998 - HC - VAT and Sales Tax

Whether there is a sale under the contract - purchase value of bamboo cut bundles - Section 22(1) of Andhra Pradesh General Sales Tax Act, 1957 - Relevant clauses of the agreement between the Government of Andhra Pradesh and the respondent- company for grant of long term leases of forest land for making bamboo available, for the consumption of the respondent, at their paper mills - Held that - Whether the subject transactions concern goods or moveable property or immovable property - Are the bamboos delivered to the respondent-company, from the departmentally extracted coupes, exigible to tax under the APGST Act Held that - While several of the terms and conditions of the agreement are common, both to the bomboo industrial cuts delivered from the departmentally worked coupes and the bomboo extracted, from the allotted coupes, by the company themselves, additional terms and conditions, with regards the supply of departmentally extracted bamboos, were specified in the annexure to the agreement - These conditions related mainly to the mode of delivery, the sale price and the mode of payment - In addition, 7% of the sale price was payable by the respondent-company to compensate the Government for loss of moisture in the bamboos (condition No.6) - In view of Condition 7(ii) of the Annexure to the Agreement, the terms and conditions, as applicable for the bamboo extracted by the respondent-company, were applicable to the bamboo industrial cuts delivered to the respondent-company from the departmentally worked coupes regarding payment of the selling price for the departmentally extracted bamboo industrial cuts - Extraction and supervision charges were also payable by the respondent-company. The bamboos were not removable even after they were cut unless they were weighed and permits were granted. Severance of bamboo, even in the departmentally extracted coupes, was not under the contract of sale, but was prior thereto - The bamboos, liable to be cut each year, were not in a deliverable state on the date of the agreement - The various clauses in the contract show that there is no sale , on the contract date, of bamboos as the goods were not in a deliverable state - As the bamboo cannot be cut or removed except as provided therein, the contract is not an agreement to sell bamboos standing in the contract areas, with an accessory licence to enter upon such areas for the purpose of felling and removing the bamboos - Nor is it only in respect of a particular felling season - It embraces not only bamboos which are in existence on the date of the contract, but also bamboos which are to grow and come into existence thereafter. Is the subject contract a grant of a profit a prendre Held that - The subject contract is not, and cannot be, a contract of sale of goods - It confers upon the respondent Company a benefit to arise out of land, namely, the right over the bamboos which grow from the soil coupled with several ancillary rights and is thus a grant of a profit a prendre - It is equally not possible to view it as a composite contract one - an agreement relating to standing bamboos agreed to be severed and the other - an agreement relating to bamboos to come into existence in the future - The terms of the Contract make it clear that it is one, integral and indivisible contract which is not capable of being severed - The terms and conditions of the contract confers upon the respondent-company a benefit to arise out of land, and it would thus be an interest in immovable property - It is a grant by the government of an interest in land - The grant of such right, not being for the beneficial enjoyment of any land of the respondent- company, would not be an easement - As the respondent-company was entitled, under the agreement, to take away the bamboos grown even in the departmentally extracted coupes, the agreement, in its entirety (including the part relating to the departmentally extracted bamboos), is a grant of a profit a prendre and is not a sale or purchase of goods exigible to tax under the APGST Act - Being a profit a prendre, or a benefit to arise out of land, any attempt on the part of the State government to tax the amounts, payable under the subject Contract, would not only be ultra vires the APGST Act but also unconstitutional as being beyond the State s taxing power under Entry 54 in List II of the Seventh Schedule to the Constitution of India. Applicability of decision of Supreme Court in the case of Titaghur Paper Mills Co. Ltd 1985 (3) TMI 226 - SUPREME COURT OF INDIA after the amendment - Held that - the ratio is applicable to the present case as the relevant parts of the definition of goods continued to remain a part thereof even after its amendment - Decided against the revenue.

Summary

Issues Involved:
1. Whether the bamboos delivered to the respondent-company from the departmentally extracted coupes are exigible to tax under the APGST Act.
2. Whether the subject contract is a grant of a profit a prendre.

Issue-wise Detailed Analysis:

I. Relevant Clauses of the Agreement:
The agreement between the respondent-company and the Governor of Andhra Pradesh allowed the company to fell, collect, store, and remove bamboos from leased forest areas, subject to conditions and restrictions. The lease was valid for six years, with an annual allocation of approximately 60,000 MTs of bamboo. The company was required to carry out silviculture operations, including soil work and fire protection, and adhere to specific felling rules. The agreement also stipulated the payment of extraction charges and selling prices for departmentally extracted bamboos, with additional conditions for delivery, penalties for delayed removal, and compensation for loss of moisture.

II. Relevant Provisions of the APGST Act:
Section 2(h) of the APGST Act defines 'Goods' to include all kinds of movable property, including things attached to or forming part of the land agreed to be severed before sale. Section 2(n) defines 'Sale' as the transfer of property in goods for valuable consideration. Section 6-A imposes tax on the turnover relating to the purchase of certain goods, including those consumed in manufacturing or disposed of otherwise than by sale in the State.

III. Are the Bamboos Delivered to the Respondent-Company from the Departmentally Extracted Coupes Exigible to Tax Under the APGST Act?
The court examined whether the transactions involved 'goods' or 'immovable property.' Bamboos rooted in the earth are immovable property, but if agreed to be severed before sale, they become movable property and goods. The agreement allowed the respondent-company to fell and remove bamboos, but the bamboos were not in a deliverable state at the contract date. Severance of bamboos was not under the contract of sale but prior thereto, meaning there was no sale of goods as defined under the APGST Act. The court concluded that the transactions did not constitute a sale within the purview of Section 2(n) of the Act.

IV. Is the Subject Contract a Grant of a Profit a Prendre?
A profit a prendre is a right to take something off another's land, considered an interest in land and immovable property. The court found that the contract conferred upon the respondent-company a benefit to arise out of the land, including the right over bamboos and ancillary rights, making it a grant of a profit a prendre. The contract was not severable into separate agreements for standing and future bamboos, and the entire agreement was a grant of a profit a prendre, not a sale of goods. Consequently, any attempt to tax the amounts payable under the contract would be ultra vires the APGST Act and unconstitutional under Entry 54 in List II of the Seventh Schedule to the Constitution of India.

V. Conclusion:
The court dismissed the Tax Revision Cases, finding no reason to differ from the earlier judgment in Andhra Pradesh Paper Mills Ltd. The court held that the transactions did not constitute a sale of goods exigible to tax under the APGST Act, and the contract was a grant of a profit a prendre. The miscellaneous petitions pending were also dismissed, without costs.