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TMI Blog2000 (5) TMI 980X X X X Extracts X X X X X X X X Extracts X X X X ..... deemed sale under sub-clause (d) cannot be said to be complete on the execution of the contract of master lease. If that be so, the question of the deemed sale being an inter-State sale would not arise In the instant case, the purchase of the equipment was by the respondent, the fact that the hirer wanted to hire the equipment might have prompted the respondent to place an order for its purchase but that fact is irrelevant in arriving at the conclusion whether the lease in respect of non-existent unspecified equipment would be complete on the execution of the master lease. On this aspect, we have held that before an unspecified equipment reaches the hirer, the sale of the equipment by the respondent itself would not be complete. The deemed sale under sub-clause (d) is only a consequential transaction which follows the completion of the sale in favour of the respondent and cannot precede it. - Civil Appeal No. 4500 of 1989, 6218-6223 of 1995, W.P. (Civil) No. 671 of 1990, 638-642, 964, 965 of 1992, 3347, 3435-3438 of 1990, - - - Dated:- 9-5-2000 - BHARUCHA S.P., KIRPAL B.N., KHARE V.N., SYED SHAH MOHAMMED QUADRI AND MOHAPATRA D.P. JJ. C.S. Vaidyanathan, Additional Solici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade. The questions, therefore, that arise for consideration in these cases are, whether a State can levy sales tax on transfer of right to use goods merely on the basis that the goods put to use are located within its State irrespective of the facts that-(a) the contract of transfer of right to use has been executed outside the State; (b) sale has taken place in the course of an inter-State trade; and (c) sales are in the course of export or import into the territory of India. The appellants' case is that the State Legislature cannot so frame its law as to convert an outside sale or a sale in the course of import or a sale in the course of an inter-State trade or commerce into a sale inside the State. 2.. The appellants in the civil appeals and the petitioners in the writ petitions filed under article 32 of the Constitution and transferred petition, and respondent in Civil Appeals Nos. 6218 to 6223 of 1995 are companies incorporated under the Companies Act, 1956, and some have their registered offices at places outside the respondent-States and others have inside the States. They carry on business of leasing diverse equipments. According to them, they entered into Master Lease Ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been subjected to tax by more than one State. 3.. The petitioners by means of writ petitions under article 32 and transferred petition have challenged the validity of the provisions relating to imposition of tax on transfer of right to use goods contained in the sales tax laws of States of Maharashtra, Karnataka, Tamil Nadu, Haryana, Uttar Pradesh, Rajasthan and Andhra Pradesh. Civil Appeal Nos. 6218 to 6223 of 1995 are directed against the judgment of the Andhra Pradesh High Court allowing the writ petitions filed by the respondents therein. We will separately deal with the sales tax laws of other States. At present, we propose to consider the controversies involved in these cases with reference to the provisions contained in the Maharashtra Sales Tax on the Transfer of the Right to Use any Goods for any Purpose Act, 1985 (hereinafter referred to as "the Maharashtra Act"). The Maharashtra Act purports to levy and collect tax on the transfer of the right to use any goods for any purpose in the State of Maharashtra. Section 2(10) of the Maharashtra Act defines "sale" thus: " 'sale' means the transfer of the right to use any goods for any purpose (whether or not for a specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ature of contract of bailment, the transfer is completed only upon the delivery of the goods and, therefore, situs of sale created by the Explanation to section 2(10) of the Act is valid. Consequently, the writ petitions were dismissed. It is in this way the appellants are in appeal before this Court. Excepting two States the provisions of the Sales Tax Acts of all the other States are on line with that of the Maharashtra Act. Since the grounds of challenge to all the Acts are substantially the same, we, therefore, propose to decide these cases by a common judgment. 4.. Shri K. Parasaran, R.F. Nariman and Harish N. Salve, learned Senior Counsel, appearing for the appellants and the petitioners urged, that there are two independent limitations upon the taxing power of the State based on situs of the sale-one is engrafted in article 286 and the other where the sale occurs within the State, it cannot by virtue of entry 54 of List II read with entry 92A of List I levy a tax on a sale which is in the course of inter-State trade or commerce and, therefore, section 3 and Explanation to section 2(10) of the Maharashtra Act, which seeks to levy tax on mere location of goods at the time of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Constitution and, therefore, on the application of section 4 of the Central Sales Tax Act, the State Legislatures were fully competent to levy sales tax if the goods at the time of their use are located within their States. 5.. On the argument of learned counsel for the parties the questions that arise for consideration are (a) what are the limitations on the power of States to levy tax on the transactions of transfer of right to use any goods and (b) where is the situs of taxable event on the transfer of right to use goods under article 366(29A)(d) of the Constitution. Before we deal with the aforesaid questions, it would be helpful to look into the legislative history of levy of sales tax in this country and the decisional law in order to resolve the controversy before us. 6.. The power of the State Legislature to levy sales tax first time found place by virtue of entry 48 of List II of the Seventh Schedule to the Government of India Act, 1935. The entry was to the following effect: "taxes on sale of goods and on advertisement." In exercise of the aforesaid power, the then Provincial Legislatures levied sales tax on the sale and purchase of a number of commodities. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lature of a State imposing, or authorising the imposition of, a tax on the sale or purchase of any such goods as have been declared by Parliament by law to be essential for the life of the community shall have effect unless it has been reserved for the consideration of the President and has received his assent." 7.. Entry 54 of List II of the Seventh Schedule to the Constitution as it existed on the date of enforcement of the Constitution is extracted below: "54. Taxes on the sale or purchase of goods other than newspapers." 8.. After the commencement of the Constitution, two sets of controversies arose as regards the power of the State Legislatures to levy sales tax on transactions of sales-firstly, with reference to clauses (1) and (2) of article 286 as it existed prior to the Sixth Amendment of the Constitution and, secondly, with reference to the transactions of works contract. The Explanation to the definition of "sale" in the Bombay Sales Tax Act, 1952, gave rise to the first controversy. The said Explanation provided that sale of any goods which have actually been delivered in the State of Bombay as a direct result of such sale for the purposes of consumption in the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 53] SCR 1069 in so far as it decides to the contrary cannot be accepted as well founded on principle or authority." In a nutshell, it was held that situs of a sale, as engrafted in the Explanation to article 286(1), as it existed prior to the Sixth Amendment of the Constitution, cannot be applied to clause (2) of article 286, which related to inter-State trade or commerce and situs of sale is wholly immaterial as regards its inter-State character. 9.. After the decision in Bengal Immunity case [1955] 6 STC 446 (SC); [1955] 2 SCR 603, certain recommendations were made by the Tax Inquiry Commission, proposing certain amendments in the Constitution relating to levy of sales tax. The aforesaid recommendations were accepted and as a result of which the Parliament passed the Constitution (Sixth Amendment) Act, 1956 whereby, in List I of the Seventh Schedule entry 92-A was added, which runs as under: "92-A. Taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce." Entry 54 in List II was substituted which reads thus: "54. Taxes on the sale or purchase of goods other than newspapers, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the course of inter-State trade or commerce and to declare certain goods to be of special importance in inter-State trade or commerce and specify the restrictions and conditions to which State laws imposing taxes on the sale or purchase of such goods of special importance shall be subject. After the enactment of the Central Sales Tax Act by the Parliament, the first controversy stood resolved. 12.. Yet another controversy, as regards the power of the State Legislature to levy sales tax on transactions of works contract remained unresolved. In Gannon Dunkerley Co. v. State of Madras [1954] 5 STC 216; AIR 1954 Mad. 1130, the High Court of Madras was of the view that the transaction of works contract was not a contract for sale of goods as defined under the provisions of the Sale of Goods Act, 1930 and, therefore, sales tax is not leviable on the amount received by the contractors from the persons for whom they had constructed building during the relevant assessment year. However, the Kerala High Court, the then High Court of Mysore, the then High Court of Nagpur and the High Court of Rajasthan were of the view that, the State Legislatures were competent to pick out from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made." 14.. Simultaneously, a new entry 92B was inserted in List I of the Seventh Schedule to the Constitution, which is extracted as under: "92B. Taxes on the consignment of goods (whether the consignment is to the person making it or to any other person), where such consignment takes place in the course of inter-State trade or commerce." 15.. In clause (1) of article 269, a sub-clause (h) was also added and clause (3) of article 269 was also amended. The amended provisions of article 269 is extracted as under: "(h) taxes on the consignment of goods (whether the consignment is to the person making it or to any other person), where such consignment takes place in the course of inter-State trade or commerce......... (3) Parliament may by law formulate principles for determining when a sale or purchase of, or consignment of, goods takes place in the course of inter- State trade or commerce." 16.. By the Forty-si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wer of State Legislatures to levy sales tax only to find out as to whether the power of State Legislatures to levy sales tax under clause (29A)(d) of article 366 is subject to the same limitations, as noticed in the earlier decisions. 19.. Following the decisions referred to above, we are of the view that the power of State Legislatures to enact law to levy tax on the transfer of right to use any goods under entry 54 of List II of Seventh Schedule has two limitations-one arising out of the entry itself ; which is subject to entry 92-A of List I, and the other flowing from the restrictions embodied in article 286. By virtue of entry 92A of List I, Parliament has power to legislate in regard to taxes on sales or purchase of goods other than newspapers where such sale or purchase takes place in the course of inter-State trade or commerce. Article 269 provides for levy and collection of such taxes. Because of these restrictions, State Legislatures are not competent to enact law imposing tax on the transactions of transfer of right to use any goods which take place in the course of inter-State trade or commerce. Further, by virtue of clause (1) of article 286, the State Legislature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d would be the situs of sale. The fourth view is, that where the essential ingredients, which complete a sale, are found in majority would be the situs of sale. There would be no difficulty in finding out situs of sale where it has been provided by legal fiction by the appropriate Legislature. In the present case, we do not find Parliament has, by creating any fiction, fixed the location of sale in case of the transfer of right to use goods. We, therefore, have to look into the decisional law. 22.. In India Copper Corporation Ltd. v. State of Bihar [1961] 12 STC 56 (SC); [1961] 2 SCR 276, the question arose as to where would be the situs of sale in the case of a transaction which was not covered by the Explanation to clause (1)(a) of article 286, as it existed prior to the Constitution (Sixth Amendment) Act. In the said case, the sale transaction took place in the State of Bihar and the goods were sent to outside the State, but not for consumption in such State of first destination. The State of Bihar levied sales tax on such transaction. This Court, in the above case, held thus: "If a single State was designed to have the power to tax any particular transaction of sale, the qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... article 286(1)(a), unless the Explanation operates. We need also add that the power of the State to impose the tax might still not be available unless the transaction in question is unaffected by the other bans imposed under sub-clauses (1)(b), 2) and (3) of article 286. The submission therefore of learned counsel for the appellants, that in respect of non-explanation sales the State of Bihar has no power to levy a tax by reason of such sales being 'outside' the State within article 286(1)(a) must be rejected." In brief, it was held that, where a sale was not covered by Explanation to clause (1)(a) of article 86, the State in which property in goods passes would be the only State which would have the power to levy a tax on the sale. 23.. In A.V. Thomas Co. Ltd. v. Deputy Commissioner of Agricultural Income-tax and Sales Tax [1963] 14 STC 363 (SC); [1963] Supp 2 SCR 608, the goods (teas) were stored in the godowns at Willingdon Island which was in the State of Travancore-Cochin and from there samples of tea were taken to Fort Cochin which at the relevant time was in the State of Madras. There, at Fort Cochin, samples of tea were sold by public auction in lots. Some were purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il the goods are delivered. We have traced the legislative history of sales tax in this country only to show that, excepting where the appropriate Legislature by creating legal fiction fixed the situs of sale on location or delivery of goods for consumption like omitted Explanation to article 286(1)(a), there is no authority to show that mere location or delivery of goods would be the situs of sale. Here, we would like to cite an appropriate illustration given in the decision in Bengal Immunity's case [1955] 6 STC 446 (SC); [1955] 2 SCR 603 only to resolve the controversy before us. The illustration given is as under: "Take, for instance, a case where both the seller and the buyer reside and carry on business in Gurgaon in the State of Punjab. Let us say that the seller has a godown in the State of Delhi where his goods are stored and that the buyer has also a retail shop at Connaught Circus also in the State of Delhi. The buyer and the seller enter into a contract at Gurgaon for the sale of certain goods and a term of the contract is that the goods contracted to be sold will be actually delivered from the seller's godown to the buyer's retail shop, both in the State of Delhi, fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... livered is to prevail, then the respondents are further required to show that the contract of transfer of right to use goods is also entered into in the said State in which the goods are located or delivered for use. The State cannot levy a tax on the basis that one of the events in the chain of events has taken place within the State. The delivery of goods may be one of the elements of transfer of right to use, but the same would not be the condition precedent for a contract of transfer of right to use goods. Where a party has entered into a formal contract and the goods are available for delivery irrespective of the place where they are located, the situs of such would be where the property in goods passes, namely, where the contract is entered into. 26.. The next question that arises for consideration is, where is the taxable event on the transfer of the right to use any goods. Article 366(29A)(d) empowers the State Legislature to enact law imposing sales tax on the transfer of the right to use goods. The various sub-clauses of clause (29A) of article 366 permit the imposition of tax thus: sub-clause (a) on transfer of property in goods; sub-clause (b) on transfer of propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on the transfer of the right to use goods. The right to use goods accrues only on account of the transfer of right. In other words, right to use arises only on the transfer of such a right and unless there is transfer of right, the right to use does not arise. Therefore, it is the transfer which is sine qua non for the right to use any goods. If the goods are available, the transfer of the right to use takes place when the contract in respect thereof is executed. As soon as the contract is executed, the right is vested in the lessee. Thus, the situs of taxable event of such a tax would be the transfer which legally transfers the right to use goods. In other words, if the goods are available irrespective of the fact where the goods are located and a written contract is entered into between the parties, the taxable event on such a deemed sale would be the execution of the contract for the transfer of right to use goods. But in case of an oral or implied transfer of the right to use goods it may be effected by the delivery of the goods. 28.. No authority of this Court has been shown on behalf of respondents that there would be no completed transfer of right to use goods unless t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly of labour and services and as a result such a contract which was single and indivisible has been brought at par with a contract containing two separate agreements. Since tax was held as tax on sales of goods and, therefore, it was held that principles contained in section 4 of the Central Sales Tax Act would apply to transaction of works contract as envisaged in clause (29A)(b) of article 366. Moreover, the transactions contemplated under section 4 of the Central Sales Tax Act involve series of events and for that reason it has no application to the present case. 31.. It was then argued that if section 4 of the Central Sales Tax Act is not applicable to the transaction of deemed sale under article 366(29A)(d), the same may be applied by analogy for determining the situs of sale of the transfer of the right to use goods. We have already held that situs of sale can only be fixed by the appropriate Legislature by creating a legal fiction like omitted Explanation to article 286(1)(a) but situs of sale cannot be fixed by analogy of section 4 of the Central Sales Tax Act. 32.. Coming to the question that a transaction in question is in the nature of a contract of bailment, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods are located in that State for use. 33. During the course of argument an apprehension was expressed that, in case we take the view which have now taken in our judgment, many unscruPage No: 204 pulous companies would shift their head offices to neighbouring countries only to avoid sales tax. It is true that in such cases the State would not be competent to levy tax on the transfer of right to use any goods. Shri K. Parasaran, the learned Senior Counsel is right when he contends that such apprehension is not justified as the Parliament has ample power under article 246 of the Constitution to plug such loopholes. 34.. Shri Harish Salve, learned Senior Counsel raised an additional argument that section 3 of the Maharashtra Act levied tax on the transfer of right to use goods effected before the date of commencement of the Constitution Forty-sixth (Amendment) Act, 1982 which inserted clause (29A) in article 366 of the Constitution and, therefore, it is ultra vires. As the appellants are to succeed on the first ground, we are not disposed to go into the said question. 35.. As a result of the aforesaid discussion our conclusions are these: (a) The States in exercise of power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight to use any goods to have occurred in the State of Maharashtra if the goods are located within the State at the time of their use, irrespective of the place where agreement of such transfer of the right is made and therefore it widens the scope of the definition of "sale" so as to include deemed sales (i) which are in the course of inter-State trade and commerce and (ii) sales outside the State of Maharashtra and (iii) sales which occasioned import of goods into India. Section 3 of the Maharashtra Act provides incidence of tax. It lays down that subject to the provisions contained in the Act and Rules, tax shall be leviable on the turnover of sales and therefore turnover necessarily has to include outside sale and sale in the course of inter-State trade and commerce and sales which occasioned import of goods. Although section 8-A of the Act (as referred to in written notes), provides that nothing in this Act would be deemed to impose or authorise imposition of any tax on a sale outside the State or in the course of the import or export or inter-State trade or commerce but the Explanation has not been amended accordingly. There is a provision for exemption of turnover re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n place in the State, if such goods are for use within the State, irrespective of the place where the contract of transfer of the right to use the goods is made." The provisions of section 5(3) of the Act provide for a single point tax. Section 5C is a charging section for levy of tax on the transfer of right to use any goods. Section 5C is reproduced as under: "5-C. Levy of tax on the transfer of the right to use any goods.-Notwithstanding anything contained in sub-section (1) or sub-section (3) of section 5, but subject to sub-sections (4), (5) and (6) of the said section, every dealer shall pay for each year a tax under this Act on his taxable turnover in respect of the transfer of the right to use any goods mentioned in column (2) of the Seventh Schedule for any purpose (whether or not for a specified period) at the rates specified in the corresponding entries in column (3) of the said Schedule." 40.. A perusal of Explanation 3(d) to section 2(t) shows that the transfer of right to use any goods would be deemed to have taken place in the State of Karnataka if the goods are for use within the State irrespective of the place where the contract of transfer of right to use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted within the State. Although the explanation is general in character, the petitioners contended that the said Explanation is being applied in the case of transfer of right to use any goods which have taken place outside the State or an inter-State sale. During the course of argument, learned counsel appearing for the State of Tamil Nadu contended that the said Explanation is applicable in cases where the transfer of right to use goods takes place outside the State, and the State is empowered to levy tax on such transaction of deemed sale, if the goods are located within the State. Further, in section 3A, the rates of tax has not been specially prescribed. Following what we have stated earlier, we hold that the Explanation 3(a) to section 2(n) of the Act is in excess of power under entry 54 of List II of the Seventh Schedule so far as it relates to the transactions of transfer of right to use any goods are concerned. Since the said Explanation is in the general provisions of the Act, we direct that Explanation 3(a) to section 2(n) of the Act shall be read down to this effect that it would not be applicable to the transactions of transfer of right to use any goods if such transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t or other valuable consideration." 44.. Clause (ii) of Explanation I to section 2(h) runs as under: "in a case falling under sub-clause (iv), if the goods are used by the lessee within the State during any period, notwithstanding that agreement for the lease has been entered into outside the State or that the goods have been delivered to the lessee outside the State." 45.. Section 3F is a charging section which provides tax on transfer of right to use any goods and it is extracted as under: "(1) Notwithstanding anything contained in section 3A or section 3AAA or section 3D but subject to the provisions of sections 14 and 15 of the Central Sales Tax Act, 1956, every dealer shall, for each assessment year, pay a tax on the net turnover of- (a) transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; or ...................... at such rate not exceeding fifteen percentum as the State Government may, by notification, declare and different rates may be declared for different goods or different classes of dealers. (2) For the purposes of determining the net turnover referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(38) defines "sale" which runs as under: " 'sale' with all its grammatical variations and cognate expressions means every transfer of property in goods by one person to another for cash, deferred payment of other valuable consideration and includes- (1) a transfer, otherwise than in pursuance of a contract, of property in goods for cash, deferred payment or other valuable consideration; .................... (4) a transfer of the right to use goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration:". The said sub-sections have Explanations. Explanation II(b) runs as under: "in a case falling under sub-clause (4), if the goods are used by the lessee within the State, whether or not for a specified period, notwithstanding that the agreement for the lease has been made outside the State or that the goods have been moved from outside the State or the goods have been delivered to the lessee outside the State." 48.. The said Explanation is substantially on the pattern of Explanation to section 2(10) of the Maharashtra Act. By virtue of Explanation II(b) of section 2(38)(4), the definition of "sale" is enlar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valuable consideration, in the course of his business shall, on the total amount realised or realisable by him by way of payment in cash or otherwise on such transfer or transfers the right to use such goods from the lessee or licensee, pay a tax at the rate of five paise in every rupee of the aggregate of such amount realised or realisable by him during the year; (b) the transfer of right to use any such goods entered into by any dealer, shall be deemed to have taken place in this State whenever the goods are used within the State, irrespective of the place where the agreement whether written or oral for such transfer of right is made." Explanation IV to the definition of "sale" as contained in section 2(n) of the Act brings within its ambit tax on transfer of right to use any goods. Explanation II of section 2(n) which is a general provision, provides that irrespective of the place where the contract of sale or purchase might have taken place, if the goods are within the State, it will be included within the definition of "sale". 50.. Clause (b) of section 5E deems that any transfer of right to use of goods entered into by any dealer, is deemed to have taken pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce Services v. Commissioner of Commercial Taxes [1995] 97 STC 330 (under appeal). 54.. For the aforesaid reasons, all the civil appeals, writ petitions and the transferred case, excepting Civil Appeal Nos. 6218 to 6223 of 1995, deserve to be allowed and Civil Appeal Nos. 6218 to 6223 of 1995 deserve to be dismissed. Consequently, we set aside the judgments under appeal excepting in C.A. Nos. 6218 to 6223 of 1995. All the civil appeals excepting C.A. Nos. 6218 to 6223 of 1995, writ petitions under article 32, the transferred case and the writ petitions filed before the High Court are allowed to the extent what we have held in this judgment and directions issued hereinafter. Civil Appeal Nos. 6218 to 6223 of 1995 are dismissed. The relevant assessment orders if impugned in these cases are set aside. We direct the respondents to assess the appellants and the petitioners for the relevant years involved in these cases only in accordance with the principles of law laid down in this judgment. There shall be no order as to costs. SYED SHAN MOHAMMED QUADRI, J.- We have had the advantage of reading the judgment prepared by our learned brother V.N. Khare, J., and we regret not to be pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nciples laid down in clauses (a) and (d) of paragraph 35 of his judgment. 59.. The germane question is question No. 2 while question Nos. 3 and 4 are consequential. 60.. There is cleavage of opinion among the High Courts on question No. 2. The following reasons impelled us to record this note of discord on the interpretation of sub-clause (d) of clause (29A) of article 366 of the Constitution. 61.. The legislative competence of a State to tax sales or purchases of goods, is derived from entry 54 of List II of the Seventh Schedule to the Constitution. Before the Constitution (Forty-sixth Amendment) Act, 1982, the term "sale" or the expression "sale or purchase of goods" was not defined in the Constitution. The term sale was understood in the same meaning as in the Sale of Goods Act, 1930. Many transactions which resembled "sale" but did not satisfy the requirements of that term resulted in such transactions escaping sales tax liability. This Court in many cases did not approve the State legislations which extended the meaning of "sale". Parliament, therefore, inserted clause (29A), defining the expression "tax on the sale or purchase of goods" in expansive terms, in article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the right to use any goods for any purpose; the period of use may or may not be specified; the consideration whereof may be cash, deferred payment or any other valuable consideration (need not necessarily be cash consideration). As the tax is on the transfer of right to use any goods, we shall ascertain the meaning of the word "transfer". 65.. In "The New Shorter Oxford English Dictionary" 1993 Edition, Volume 2, Page 3367, its meaning is given, inter alia, as follows: "(Law) conveyance of property, especially of stock of shares, from one person to another". In Black s Law Dictionary Sixth Edition, page 1497., the word "transfer" is defined to mean, inter alia, "every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with property or with an interest in property............". In Corpus Juris Secundum Volume 87, page 892, it is defined to mean, "common use of the word "transfer" is, to denote the passing of title in property or an interest therein from one person to another and in that sense the term means that the owner of the property delivers it to another person with the intent of passing the rights which he had in it to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... possessed of the chattel hired, so that if it is lent for a time certain, even the true owner is debarred during that time from resuming possession against the hirer's will and, should he do so, becomes liable in damages for the wrongful seizure." 70.. We can with advantage refer to "Bailment by Palmer"Edition 1979, page 88. The learned author refers to the classification of bailment made by Holt, C.J., in Coggs v. Bernard 2 Raym. Ld. 909 into six categories of which the third is relevant on the facts in the case of the appellant. Here the equipment, on being received from the manufacturer/supplier, is left with the hirer for being used for hire. The material extract of that book reads thus: "And there are six sorts of bailments............ The third sort is, when goods are left with the bailee to be used by him for hire; this is called locatio et conductio, and the lender is called locator and the borrower conductor. " 71.. Be that as it may, what is the contractual nature of the transaction specified in sub-clause (d) of clause (29A)? Whether it is a specie of bailment or not ? These questions should not detain us because we are concerned here not with the contractual natu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the parties indicating the mode by which giving the control or domain of the goods to the hirer is contemplated or by an oral contract coupled with delivery of the goods to the hirer. There can be no oral contract with regard to unascertained goods because there can be no delivery of such goods. Where a written contract exists whether in regard to ascertained goods or unascertained goods, the intention of the parties, as evidenced by the terms of the contract, to "transfer of right to use the goods" is determinative of the fact as to when, how and where the right to use the goods is transferred. It is a well-settled principle of interpretation of contracts that the contract must be construed as a whole. When and where such a deemed sale, under sub- clause (d), takes place is a question of fact which has to be decided on the facts and circumstance of each case, including the terms and conditions of the contract evidencing the transaction. 74.. It may also be pointed out that though the ingredients of a sale of the goods as defined in the Sale of Goods Act and a deemed sale of goods as defined in clause (29A) of article 366 are different there can be no difference in the incidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be complete on execution of the master lease. It will be complete when the supplier delivers the equipment to the appellants or hands it over to a carrier or a bailee or as per the instructions in this case to the hirer, which is deemed unconditional appropriation of goods to the contract of sale and then only the transfer under clause (d) will take effect. In other words, in this case after execution of the master lease when the control of the equipment passes to the hirer that the transfer of right to use the goods will be complete. And it is at that stage that the liability of the appellants to pay sales tax will arise. 76. There is yet another aspect, which though not decisive, is of considerable practical significance and that is before the hirer is given the control/ domain of the equipment, his liability to pay consideration under the contract may not arise. But the consequence of acceptance of the contention that on execution of the master lease, the transfer under sub-clause (d) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29A). 81.. It will be apposite to note here the mandate contained in article 286(1) prohibiting the States from imposing or authorising the imposition of tax on the sale or purchase of goods where such sale or purchase takes place (a) outside the State or (b) in the course of the import of the goods into or the export of the goods out of the territory of India. Clause (2) of article 286 enables the Parliament to enact law and formulate principles for determining when a sale or purchase of goods takes place in any of the ways aforementioned. Clause (3) of article 269 of the Constitution also authorises the Parliament to formulate principles, by enacting law, for determining when a sale or purchase or consignment of goods takes place in the course of inter-State trade or commerce by law. Before the formulation of the principles by the Parliament, the question of sale "inside one State" and "outside other State" came up for consideration of this Court in A.V. Thomas Co. Ltd. v. Deputy Commissioner of Agricultural Income-tax and Sales tax [1963] 14 STC 363; [1963] 2 SCR 608. The question which arose for consideration of a Constitution Bench of this Court was whether the State o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ains the principles when a sale or purchase of goods is said to take place in the course of import or export. 83.. It may be pointed out here that after the insertion of clause (29A) in article 366 of the Constitution, the definition of "sale" in section 2(g) of the Central Sales Tax Act is not amended to conform to the definition of the expression "tax on the sale or purchase of the goods". In Gannon Dunkerley's case [1993] 88 STC 204; (1993) 1 SCC 364, a Constitution Bench of this Court while dealing with the case of works contract falling under sub-clause (b) of clause (29A) took the view: "It is, however, made clear that the absence of any amendment in the definition of 'sale' contained in section 2(g) of the Central Sales Tax Act, 1956, so as to include transfer of property in goods involved in execution of a 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 such transfers." We have no valid reason to think that the same position will not obtain in a case falling under sub-clause (d). Therefore, the contention that for determining the question as to whether a "sale" is inside one Stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale in sub-clause (d) will be an inter-State sale in respect of each of the said State and the transaction cannot be taxed under any of the States Acts. Let us take another example, where by the contract the transfer of right to use car "X" is executed in Delhi, the car "X" is in Gurgaon (Haryana), the hirer is handed over the key of the car "X" in Delhi; as both the execution of the contract as well as the act of passing of the control/domain of the car takes place in Delhi, the transfer is complete in Delhi, so the deemed sale is within Delhi State and outside all other States; the taxable event will, therefore, be in Delhi no matter where the situs of the car "X" is at the time of transfer and no matter where the car "X" will be used in or out of India. If the hirer takes the car "X" to Bombay, Tamil Nadu or any part of India, no State in which it is used will be entitled to levy tax for in none of the States the taxable event under sub-clause (d) arises. Regarding non-existent and unspecified goods, the following example will clarify the position. In the example referred to above, the contract of the right to transfer an unspecified equipment (which is not in existence or whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Pradesh Act and Rajasthan Act are not in haec verba, but they attempted to achieve the same result by differently worded legislations which are set out in the statement hereunder: 88. Since the subject-matter of the appeal under consideration is the impugned provisions of the Maharashtra Act which are similar to the provisions of the Acts of other States, noted in the statement, we shall examine the Explanation to section 2(10) of the Maharashtra Act. The impugned Explanation says that for purposes of sub-clause (d) the transfer of the right to use any goods shall be deemed to have taken place in the State of Maharashtra, if the goods are in the State of Maharashtra at the time of their use irrespective of the place where the agreement for such transfer of the right to use such goods is made and whether the assent of the party is prior or subsequent to such transfer. From the above provision, it is evident that the taxable event in respect of the deemed sale under sub-clause (d) is treated not at the place where the transfer of the right to use the goods is complete but is fixed by a deeming provision contained in the impugned Explanation in the State of Maharashtra. From t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above that a Constitution Bench of this Court in Gannon Dunkerley's case [1993] 88 STC 204; (1993) 1 SCC 364, took the view that sections 3 to 5, 14 and 15 of the Central Sales Tax Act will apply to a deemed sale even in the absence of the amendment of definition of the "sale" in section 2(g) of the Central Sales Tax Act and a State law can define a sale with reference to situs of a deemed sale. The observations of this Court in Gannon Dunkerley s case [1993] 88 STC 204; (1993) 1 SCC 364, appear to support this submission. But a definition of "sale" with reference to the situs of goods has to conform to the requirements of articles 286 and 269 of the Constitution as also to the provisions of sections 3 to 5 of the Central Sales Tax Act. The State Legislature cannot so frame its law as to convert an outside sale or a sale in the course of import or export into a sale inside the State. The question whether a sale is an outside sale or an inside sale with reference to a State or whether it is a sale in the course of import or export, will have to be determined on the facts of each case in accordance with the principles contained in sections 3 to 5 of the Central Sales Tax Act and a St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... du even though the transaction was completed in Delhi and the domain of the car by handing over the key or by doing some other overt act like delivery note was also complete in Delhi, the situs of the car having regard to the nature of the deemed sale, in sub-clause (d), will be immaterial and the transaction cannot be made taxable under the Tamil Nadu Act. To the same effect is the impugned provision of the Karnataka Act contained in clause (d) of Explanation 3. Therefore, we hold that the impugned provisions of the Tamil Nadu Act and Karnataka Act also cannot be sustained. They are declared illegal and unconstitutional for the abovementioned reasons. 93.. Inasmuch as the provisions of the Acts noted above are severable and do not affect the other provisions of the Act and if they are retained, they may cause confusion both in the minds of various authorities under the said Acts as well as the common citizens, in our view, it would be appropriate to strike down the said provisions. Accordingly, those impugned provisions of the said Acts are struck down. 94.. One aspect, however, remains to be considered and that arises in C.A. No. 6218 to 6223 of 1995 from the judgment of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the contract of master lease. If that be so, the question of the deemed sale being an inter-State sale would not arise. On this aspect, the Andhra Pradesh High Court has referred to the view of the Bombay High Court in 20th Century Finance Corporation [1989] 75 STC 217, and differed from the same. But the Andhra Pradesh High Court failed to take note of the fact that though the deemed sale is subject to the same limitations as the sale, in view of the provisions of article 286 of the Constitution and the provisions of sections 3 and 4 of the Central Sales Tax Act, and the State is denuded of the power to tax an inter-State transaction, yet in this case there has been no inter- State deemed sale. The fact that the master lease agreement refers to hiring of the equipment and the fact that at the instance of the hirer the appellant placed the order for purchase are immaterial. There is always a difference between purchasing any goods for the reason that hirer wanted to hire it and the hirer himself ordering purchase of the goods. In the instant case, the purchase of the equipment was by the respondent, the fact that the hirer wanted to hire the equipment might have prompted the res ..... X X X X Extracts X X X X X X X X Extracts X X X X
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