2006 (10) TMI 498 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Jurisdiction of the State of U.P. to levy tax on lease rent.
2. Applicability of Section 3-F of the U.P. Trade Tax Act.
3. Interpretation of the agreement and letter of intent.
4. Determination of inter-State sale under Section 3 of the Central Sales Tax Act.

Detailed Analysis:

1. Jurisdiction of the State of U.P. to Levy Tax on Lease Rent:
The applicant argued that the lease agreement was executed in Mumbai, and thus, the State of U.P. had no jurisdiction to levy tax. The court referenced the decision in 20th Century Finance Corporation Ltd. v. State of Maharashtra, which clarified that the situs of the sale for the transfer of the right to use goods is where the written agreement is executed. However, the court noted that under U.P. Trade Tax Act, the situs of the sale is where the goods are used, irrespective of where the agreement was executed. Therefore, the place of execution of the agreement in Mumbai was deemed irrelevant, and the State of U.P. had jurisdiction to levy the tax.

2. Applicability of Section 3-F of the U.P. Trade Tax Act:
Section 3-F of the Act imposes tax on the transfer of the right to use any goods. The court examined whether the lease rent received by the applicant was taxable under this provision. The court noted that the machinery was already in U.P. when the lease agreement was executed, and thus, the transaction did not qualify as an inter-State sale under Section 3 of the Central Sales Tax Act. Consequently, the lease rent was subject to tax under Section 3-F of the U.P. Trade Tax Act.

3. Interpretation of the Agreement and Letter of Intent:
The applicant contended that the letter of intent dated 29th October 1991 was part of the lease agreement dated 24th March 1992. The court found that the letter of intent was not referenced in the lease agreement and thus could not be considered part of it. The court also noted that the machinery was purchased and dispatched before the execution of the lease agreement, indicating that the letter of intent did not constitute a binding agreement for the transfer of the right to use the machinery.

4. Determination of Inter-State Sale under Section 3 of the Central Sales Tax Act:
The court examined whether the transaction qualified as an inter-State sale. It was determined that the machinery was not moved in pursuance of a prior contract of sale but was already in U.P. when the lease agreement was executed. Therefore, the transaction did not meet the criteria for an inter-State sale under Section 3 of the Central Sales Tax Act. The court concluded that the lease rent was not exempt from tax under Section 3-F(2)(a)(i) of the U.P. Trade Tax Act.

Conclusion:
The court dismissed the revisions, holding that the State of U.P. had jurisdiction to levy tax on the lease rent, and the transaction did not qualify as an inter-State sale. The lease rent was subject to tax under Section 3-F of the U.P. Trade Tax Act. The court upheld the assessments and orders of the lower authorities.