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2014 (5) TMI 496 - HC - VAT and Sales TaxLiability to Tax - Agreement for importing and leasing of machinery Deemed Transfer - Transaction in the course of import - Held that - Once the arrangement between the assessee and the lessee as regards lease agreement got finalised for the purpose of import of machinery, the subsequent documentation is merely a follow up action and it is difficult to read each one of the documents in isolation - When the first of the documents viz., master lease agreement got dovetailed into the purchase order placed by the assessee with the foreign manufacturer/supplier, the subsequent documentation completes the balance of the transaction that the assessee had with the lessee - Relying upon 20TH CENTURY FINANCE CORPORATION LTD. v. STATE OF MAHARASHTRA 2000 (5) TMI 980 - SUPREME COURT OF INDIA wherein SC rejected the claim of Revenue holding that accepting Revenue s contention that on execution of the master lease, the transfer under Sub-clause(d) of Clause (29A) of Constitution is complete, will be to give the revenue the legitimacy to tax the consideration mentioned in the master lease even before the appellants acquire a right to receive the same - This will be not only an unintended consequence of enacting Sub-clause(d), but also an improper and unjust action having approval of the Court - Referring decision in GANNON DUNKERLEY & CO., v. STATE OF RAJASTHAN 1992 (11) TMI 254 - SUPREME COURT OF INDIA , Apex Court pointed out that in taxing the deemed sale, the restrictions that are available in the case of normal sale also would have relevance. Expression of the words In the course of import - Held That - The absence of an amendment to the definition of sale contained in Section 2(g) of the Central Sales Tax Act, so as to include transfer of property in goods involved in execution of works contract, does not, in any way, affect the applicability of Sections 3, 4 and 5 and Sections 14 and 15 of the Central Sales Tax Act to sales under the Local Act - Relying upon INDURE LIMITED v. CTO. 2010 (9) TMI 883 - SUPREME COURT OF INDIA - In order that the sale should be one in the course of import, it must occasion the import and to occasion the import there must be integral connection or inextricable link between the first sale following the import and the actual import provided by an obligation to import arising from statute, contract or mutual understanding or nature of the transaction which links the sale to import. The various documents placed by assessee, in particular the Bill of Lading, indicating the name of Hindustan Power Plant Limited show that the import is linked to the purchase order placed on behalf of Hindustan Power Plant Limited - Thus, but for the purchase order placed by Hindustan Power Plant Limited and later thereon approaching the assessee for financial arrangement, the question of the assessee ever placing any purchase order with the Japanese manufacturer/supplier would not have arisen - The purchase order placed by the assessee with the foreign supplier in turn clearly refers to the purchase order of Hindustan Power Plant Limited with the Japanese firm and the import itself was in connection with the master agreement between the assessee and the lessee - On the arrival of the goods, the clearing agent cleared the goods and delivered it to Hindustan Power Plant Limited - Thus, these facts clearly establish that the receipt of rental by the assessee was on account of the transaction in the course of import, which is not liable to be taxed by the State Revision is rejected Decided in favour of assessee
Issues Involved:
1. Whether the supplementary lease agreement is independent of the master lease agreement. 2. Whether the transaction qualifies for exemption under Section 5(2) of the Central Sales Tax Act. 3. Whether the import of machinery was for and on behalf of the actual user. 4. Applicability of the precedent set by the Apex Court in 20TH CENTURY FINANCE CORPORATION LTD. v. STATE OF MAHARASHTRA. Issue-wise Detailed Analysis: 1. Independence of the Supplementary Lease Agreement: The Revenue argued that the supplementary lease agreement, dated 31.07.1998, was not connected to the master lease agreement dated 17.04.1998, as the master lease agreement did not reference the purchase order placed with the foreign manufacturer. The Assessing Authority viewed that the master lease agreement contained only general terms of lease without specific details about the machinery. However, the Tribunal accepted the assessee's argument that both agreements should be read together as part of a single transaction. The Tribunal noted that the original Bill of Lading indicated the import was for the actual user, supporting the assessee's claim that the agreements were interconnected. 2. Exemption under Section 5(2) of the Central Sales Tax Act: The Assessing Authority rejected the assessee's claim for exemption under Section 5(2) of the Central Sales Tax Act, arguing that the master lease agreement did not specify the machinery to be imported. The Tribunal, however, found that the transaction was in the course of import and thus not liable to tax. The Tribunal relied on the Apex Court's decision in 20TH CENTURY FINANCE CORPORATION LTD. v. STATE OF MAHARASHTRA, which held that transactions in the course of import are not taxable. 3. Import for and on Behalf of the Actual User: The Revenue contended that the import and the transfer of the right to use the goods were separate transactions. However, the Tribunal found an inextricable link between the import and the lease agreements. The documents, including the purchase order, master lease agreement, and Bill of Lading, indicated that the import was for the actual user, Hindustan Power Plus Limited. The Tribunal concluded that the transactions were part of a single, continuous process, starting from the purchase order placed by the actual user and culminating in the lease agreement. 4. Applicability of Precedent: The Tribunal and the High Court placed significant reliance on the Apex Court's decision in 20TH CENTURY FINANCE CORPORATION LTD. v. STATE OF MAHARASHTRA. The Apex Court had held that for a sale to be considered in the course of import, there must be an integral connection or inextricable link between the sale and the import. The High Court found that this precedent applied to the present case, as the import was directly linked to the lease agreement. The High Court also noted that the decisions of the Orissa and Uttarakhand High Courts supported this view, distinguishing the case from the Kerala High Court's decisions cited by the Revenue. Conclusion: The High Court concluded that there was an inextricable link between the master lease agreement, the supplementary lease agreement, and the import of machinery. The transaction qualified as being in the course of import, and thus, the assessee was entitled to exemption under Section 5(2) of the Central Sales Tax Act. The High Court dismissed the Revenue's revision, upholding the Tribunal's decision in favor of the assessee.
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