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TMI Blog2011 (1) TMI 1196X X X X Extracts X X X X X X X X Extracts X X X X ..... operty in goods is to be exclusively utilised for a period of 42 months by Grasim. The existence of goods is identified and the transit mixers operate and are used for the business of Grasim. Therefore, conclusively it leads to the only conclusion that the petitioners had transferred the right to use goods to Grasim, revision cases fail and dismissed X X X X Extracts X X X X X X X X Extracts X X X X ..... r drivers and vehicles, to maintain and upkeep the vehicles in good condition. It is also their plea that damages to the goods, during the period of transportation, and the risk of loss of the vehicles have to be incurred by the petitioners, and that registration of the vehicles is never transferred to Grasim. They further contend that, if on reading the contract, two views are possible, revision by the Additional Commissioner, under section 20(2) of the Act, would not lie. Submissions:- The petitioners' counsel contends that five eventualities to infer the transfer of the right to use goods are not completely present in the transaction between the petitioners and Grasim. He would urge that the Tribunal was wrong in relying on clauses (A), (B) and (D) of the contract in concluding that the petitioners had transferred the right to use transit mixers to Grasim. According to him, these clauses would not lead to any such conclusion and that there was no intention to create exclusive right to use the vehicles by Grasim. The clause for providing dedicated fleet of vehicles with Grasim's logo "birla concrete" being painted on them is no indication that the intention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al decisions were rendered in the context of section 263(1) of the Income-tax Act, 1961, not with reference to the language of section 20(1) of the APGST Act. The scope of revisional jurisdiction under these provisions is also different. Therefore we are afraid the decisions under section 263(1) of the Income-tax Act would not be applicable here. For comparison, we may quote sections 20(1) and (2) of the APGST Act and section 263(1) of the Income-tax Act in the following table:- Section 20 of the APGST Act Section 263 of the Income-tax Act 20. Revision by Commissioner of Commercial Taxes and other prescribed authorities:- (1) The Commissioner of Commercial Taxes may suo motu call for and examine the record of any order passed or proceeding recorded by any authority, officer or person subordinate to it, under the provisions of this Act, including sub-section (2) of this section and if such order or proceeding recorded is prejudicial to the interests of revenue, may make such enquiry, or cause such enquiry to be made and subject to the provisions of this Act, may initiate proceedings to revise, modify or set aside such order or proceeding and may pass such order in reference ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons with which we are not concerned here. We are well supported by two decisions of this court in Bankatlal Satyanarayana Parikh and Co. v. Commissioner of Commercial Taxes, A. P. [2001] 122 STC 236 (AP) and GMMCO Limited v. State of Andhra Pradesh [2011] 43 VST 312 (AP) (T. Rev. C. No. 3 of 2010, dated November 11, 2010.). It is axiomatic that the machinery provisions of a taxing statute have to be interpreted in such a manner that they are workable (Commissioner of Income-tax, Central, Calcutta v. National Taj Traders [1980] 121 ITR 535 (SC) ; AIR 1980 SC 485 and J. K. Synthetics Ltd. v. Commercial Taxes Officer [1994] 94 STC 422 (SC) ; AIR 1994 SC 2393). It does not, however, mean that the interpreter can interpolate something not intended by the Legislature, by supplying causus omissus (Illachi Devi (Dead) by Lrs. v. Jain Society, Protection of Orphans India [2003] 8 SCC 413 ; AIR 2003 SC 3397 and Sankar Ram and Co. v. Kasi Naicker [2003] 11 SCC 699 ; AIR 2003 SC 4156). If the plea of the petitioners is accepted, we have to read section 20(1) of the APGST Act as empowering revision, only when an order of assessing officer/appellate authority is erroneous in so far as it is pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Goods Act. Firmly established in State of Madras v. Gannon Dunkerley and Co. (Madras) Ltd. [1958] 9 STC 353 (SC) ; AIR 1958 SC 560, this view influenced the sales tax law enormously. In New India Sugar Mills Ltd. v. Commissioner of Sales Tax [1963] 14 STC 316 (SC) ; AIR 1963 SC 1207, the Supreme Court held that the transfer of controlled commodities, pursuant to a Central Government Order is not a sale as defined in the Sale of Goods Act. In K. L. Johar and Co. v. Deputy Commercial Tax Officer [1965] 16 STC 213 (SC) ; AIR 1965 SC 1082, it was held that the transfer of goods on hire purchase or any system of payment by instalments does not amount to sale, and in A. V. Meiyappan v. Commissioner of Commercial Taxes [1967] 20 STC 115 (Mad), the Madras High Court held that the lease of cinematograph films is not a sale. In Joint Commercial Tax Officer, Harbour Division II, Madras v. Young Men's Indian Association [1970] 26 STC 241 (SC) ; [1970] 1 SCC 462, it was held that supply of goods by any incorporated association or a body of persons to a member of the association is not sale and in State of Punjab v. Associated Hotels of India Ltd. [1972] 29 STC 474 (SC) ; [1972] 1 SCC 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es,--and other economic activities are not taxable, except by way of excise duties or indirectly by way of stamp duties. This leaves room for loopholes and gaps. It would appear that some day, it will be desirable to consider the possibility of devising a tax which will embrace all transactions which are regarded as adding value or which are entered into with that object." The Law Commission of India submitted the report on May 21, 1974. Accepting its recommendations, the Government of India proposed to amend the Constitution to include in article 366, a definition of "tax on the sale or purchase of goods" by inserting a new clause (29A) and to insert a new entry 92A in the Union List in the Seventh Schedule and to amend articles 269(1) and 286(3) of the Constitution of India to be in consonance with the other proposed amendments. As a result, the Constitution (Forty-sixth) Amendment Act, 1982 was enacted which was published in the Gazette on February 2, 1983. Consequently this led to States amending their sales tax laws to enlarge the ambit and width of "sale of goods" for levy of tax. Due to this, a wide variety of economic activities, which were hither ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essential part of such transfer of the right to use goods. In other words, the moment the right to use goods is transferred, the taxable event happens. When would such transfer of the right to use goods de facto comes within the gravitational field of the species of deemed sale? A score of High Court decisions and half a dozen Supreme Court decisions, notwithstanding, this question remains an unavoidable vexed question. We may, therefore give a brief analysis of the judicial decisions on article 366(29A)(d) of the Constitution which is the basis for section 5E of the APGST Act as well as similar provisions in other States' laws. In Builders Association of India v. Union of India [1989] 73 STC 370 (SC) ; [1989] 2 SCC 645 (para 32), the validity of the Constitution (Forty-sixth) Amendment Act was upheld. But the apex court ruled that the States' power to levy tax on the goods involved in a works contract is subject to the restrictions in article 286. Article 366(29A) was elucidated by the Constitution Bench as below (page 396 in 73 STC):- " ...It refers to a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ispat Nigam Ltd. v. Commercial Tax Officer, (RINL-I) [1990] 77 STC 182 (AP) comprising Jeevan Reddy and Syed Shah Mohammad Quadri, JJ (as they then were). In certain civil works by contractors, RINL provided special machinery like cranes, docers, dumpers, road rollers, compressors, etc., for hire charges. The plea was that there was no transfer of the right to use in favour of the contractor. Reliance was placed on the agreement between RINL and the contractor. Whether the transaction amounts to transfer of the right or not cannot be determined with reference to a particular word or clause in the agreement. The agreement has to be read as a whole to determine the nature of transaction. This court noticed that the contract did not create exclusivity of use, and the contractor was entitled to use the machinery only for executing the work entrusted. Therefore, it was held that the fundamental requirements of section 5E are not satisfied. In I. T. C. Classic Finance and Services v. Commissioner of Commercial Taxes [1995] 97 STC 330 (AP) ; [1995] 20 APSTJ 150, the assessee, a finance company, was in the business of hiring out machinery, plant and equipment for rent. After purchasing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Karnataka [1993] 88 STC 248 (SC) ; AIR 1993 SC 991." In order to get over the above dicta, by A.P. Act No. 22 of 1995, section 5E was substituted, which reads as under:- 5E. Tax on the amount realised in respect of any right to use goods:- Notwithstanding anything contained in this Act,- (a) Every dealer who transfers the right to use any goods for any purpose, whatsoever, whether or hot for a specified period, to any lessee or licencee for cash, deferred payment or other 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 of the right to use such goods from the lessee or licencee, 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:- Provided that no such tax shall be levied if the total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not, in our view, be read as implying that the tax under sub-clause (d) is to be imposed not on the transfer of the right to use goods but on the delivery of the goods for use. Nor, in our view, can a transfer of the right to use goods in sub-clause (d) of clause (29A) be equated with the third sort of bailment referred to in 'Bailment' by Palmer, 1979 Edition, page 88. The third sort referred to there is when goods are left with the bailee to be used by him for hire, which implies the transfer of the goods to the bailee. In the case of sub-clause (d), the goods are not required to be left with the transferee. All that is required is that there is a transfer of the right to use the goods. In our view, therefore, on a plain construction of sub-clause (d) of clause (29A), the taxable event is the transfer of the right to use the goods regardless of when or whether the goods are delivered for use. What is required is that the goods should be in existence so that they may be used. and further contract in respect thereof is also required to be executed. Given that, the locus of the deemed sale is the place where the right to use the goods is transferred, where the goods are when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a whole, in order to determine the nature of the transaction, concluded that the transactions between the respondent and contractors did not involve transfer of right to use the machinery in favour of the contractors and in the absence of satisfying the essential requirement of section 5E of the Act, i.e., transfer of right to use machinery, the hire charges collected by the respondent from the contractors were not exigible to sales tax. On a careful reading and analysis of the various clauses contained in the agreement and, in particular, looking to clauses 1, 5, 7, 13 and 14, it becomes clear that the transaction did not involve transfer of right to use the machinery in favour of contractors. The High Court was right in arriving at such a conclusion. In the impugned order, it is stated and rightly so in our opinion, that the effective control of the machinery even while the machinery was in use of the contractor was that of the respondent-company, the contractor was not free to make use of the machinery for the works other than the project work of the respondent or move it out during the period the machinery was in his use ; the condition that the contractor would be responsibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extent relevant may be summed up:- (a) The Constitution (Forty-sixth) Amendment Act intends to rope in various economic activities by enlarging the scope of "tax on sale or purchase of goods" so that it may include within its scope, the transfer, delivery or supply of goods that may take place under any of the transactions referred to in sub-clauses (a) to (f) of clause (29A) of article 366. The works contracts, hire-purchase contracts, supply of food for human consumption, supply of goods by association and clubs, contract for transfer of the right to use any goods are some such economic activities. (b) The transfer of the right to use goods, as distinct from the transfer of goods, is yet another economic activity intended to be exigible to State tax. (c) There are clear distinguishing features between ordinary sales and deemed sales. (d) article 366(29A)(d) of the Constitution implies tax not on the delivery of the goods for use, but implies tax on the transfer of the right to use goods. The transfer of the right to use goods contemplated in sub-clause (d) of clause (29A) cannot be equated with that category of bailment where goods are left with the bailee to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issioner, VAT, Trade and Taxes Department v. International Travel House Ltd, [2009] 25 VST 653 (Delhi) ; [2009-10] DST J-77 (Del), State of Orissa v. Dredging Corporation of India Ltd. [2009] 25 VST 522 (Orissa) and Indian Oil Corporation Ltd. v. Commissioner of Taxes [2009] 22 VST 70 (Gauhati). The Special Counsel for Commercial Taxes relies on the contract between the petitioners and Grasim, and the observations made by this court in Rashtriya Ispat Nigam Ltd. [1990] 77 STC 182 (AP) as well as Bharat Sanchar Nigam Ltd. [2006] 3 VST 95 (SC) ; [2006] 145 STC 91 (SC) ; [2006] 3 SCC 1, to refute the petitioners' case. He also brought to our notice an unreported judgment of this Division Bench in Jasper Aqua Export Private Limited v. State of Andhra Pradesh [2011] 37 VST 481 (T. R. C. No. 270 of 2010, dated November 3, 2010). He also pointed out that the judgment of the learned single judge in Indian Oil Corporation Ltd. v. Commissioner of Taxes [2009] 22 VST 70 (Gauhati) was expressly disapproved in Dipak Nath v. Oil and Natural Gas Corporation Ltd. [2010] 31 VST 337 (Gauhati). We have culled out the principles to be applied to determine the nature of the transaction which, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ship, and to this extent, that he has given to the charterer a power and right independent of him, and without reference to him to do what he pleases with regard to the captain, the crew, and the management and employment of the ship. That has been called a letting or demise of the ship. The right expression is that it is a parting with the whole possession and control of the ship. Time charters almost always contain expression such as 'letting', 'hiring', 'hire', 'delivery' and 'redelivery', which are really apt only in charters by demise. These expressions serve to distinguish such charters from voyage charters, but they do not in themselves characterize such charters as charters by demise. Indeed many time charters expressly provide that the charter should not be construed as a demise of the vessel. (emphasis supplied) We may now tabulate various precedents in the following statement:- Statement of judicial decisions Sl. No. Citation Goods and nature of transaction Finding of the court 1. Bank of India v. Commercial Tax Officer [1987] 67 STC 199 (Cal) Bank lockers-hiring of bank lockers fixed and/ or attached to the walls an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... STC 357 (P and H) Tents, kanats, crockery, utensils, furniture, shuttering material, gas cylinders and buses - These are given on hire to third parties. The authorities levied the sales tax on the hire amount under Haryana Act. The terms of the contract determine whether or not there is transfer of right to use goods. Delivery of possession of goods is essential ingredient. If erected tents are given to customers, it will not be "goods" and any transfer of right to use shall be exercisable to sales tax. The transfer of chairs, tables, crockery would be deemed sale. Hiring of shuttering material to builders/contractors amounts to transfer of the right to use goods. The supplying of purified acetylene gas cylinders to customers is transfer of the right to use goods. The hiring of buses for transportation of personnel of the company with effective or general control with the transferee amounts to transfer of the right to use goods. 7. Aggarwal Brothers v. State of Haryana [1999] 113 STC 317 (SC) ; [1999] 9 SCC 317 ; AIR 1999 SC 2868 Shuttering material-business is to hire of shuttering to builders and contractors who use in the construction of building. Rejecting the ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e providers - Telephone service connections. The infrastructure/appliances exchanges through which electro magnetic/ radio waves carrying signals are controlled by the service provider. Goods do not include electro magnetic waves or radio frequencies for the purpose of article 366(29A) (d). The goods in telecommunications are limited to the handsets supplied by mobile service provider. In composite contract of service and sale, the sale element is liable to the State tax. The attributes that qualify transaction for the transfer of right to use the goods are availability of goods for delivery, consensus ad idem about identity of goods. Legal right of transferee to use goods along with permissions or licences for such use, exclusive use by the transferee and owners disentitlement to transfer again to others during the period of contract. 11. Indian Oil Corporation Ltd. v. Commissioner of Taxes, Assam [2009] 22 VST 70 (Gauhati) Petroleum trucks/tankers - IOC hires these for delivering petroleum products to dealers paying hire charges - the insurance, fuel, maintenance and expenses for drivers and cleaners have to be borne by owner of the tankers. The learned single Judge held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht to our notice the decisions in Ahuja Goods Agency [1997] 106 STG 540 (All), Commissioner, Trade Tax, U. P., Lucknow v. Jamuna Prosad Jaiswal [2008] 13 VST 403 (All), R. P. Kakoti v. Oil and Natural Gas Commission [2009] 22 VST 136 (Gauhati) and International Travel House Ltd. [2009] 25 VST 653 (Delhi) ; [2009-10] DST J-77 (Del). We, however, do not feel it necessary to refer to these as they involve similar questions. As has been held in a number of precedents, the nature of transaction and the issue whether the contract is for the transfer of the right to use the goods or for providing service depends on the intention of the parties to be determined on a construction of the contract. At this stage, we need to visit the principles of interpretation of contracts. In Dr. K. Subbaiah v. C. N. Krishnamacharyulu, one of us (VVSR,J) after referring to the seven rules of interpretation of deeds from ODGERS' 'Construction of Deeds and Statutes' (1967 5th Edition, by Gerals Dworkin-1st Indian Reprint 1996), and seventeen rules of interpretation treatised in Herbert Broom's Legal Maxims, (1939, 10th Edition by R. H. Kersley), deduced four principles of interpretation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , "the intention would prevail over the words used". The intention of the parties has to be determined from the attending circumstances leading to the transaction. This principle is an exception to the first three principles. If the language used in the document is very clear, while determining the nature of the document, nature of rights and obligations flowing from the document cannot be inferred by resorting to the fourth principle. In Delta International Ltd v. Shyam Sundar Ganeriwalla [1999] 4 SCC 545 ; AIR 1999 SC 2607 and Ramdev Food Products (P) Ltd v. Arvindbhai Rambhai Patel [2006] 8 SCC 726, the Supreme Court quoted with approval the following principles of construction of contracts from "interpretation of contracts" by Kim Lewison, Q.C. as follows:- "1.03 For the purpose of the construction of contracts, the intention of the parties is the meaning of the words they have used. There is no intention independent of that meaning. 6.09 Where the words of a contract are capable of two meanings, one of which is lawful and the other unlawful, the former construction should be preferred. Sir Edward Coke (Co. Litt. 42a) expressed the proposition th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment between the petitioners and Grasim satisfies all conditionalities except that it does not contain the date and place of execution. Does it render it ineffective and unenforceable? We are afraid the answer cannot be in abstract or simplistic. If the agreement contains sufficient indication with regard to the grant and creation of rights and obligations with reference to such grant for the specified period therein, it would be sufficient to bind the parties to the agreement. The mere absence of date and place does not militate against the parties nor can they escape regulation by the applicable statute. It is also a well-settled rule of interpretation that even in the absence of a formal agreement, a contract can be inferred from the pre and post contract correspondence between the parties. In this case, clause (L) gives sufficient indication when it says that, "the agreement will come into force from October 1, 2002 and remain in effect till March 31, 2006, with liberty to parties to terminate the contract by giving three months notice in writing to the other party". The reading of the agreement does not anywhere indicate that it was entered into between the parties e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vailable the vehicles throughout the day or painting them with brand name of Grasim is required keeping in view the possible hurdles in logistics, and to ensure customer satisfaction of getting the required branded RMC. According to him, these clauses by themselves do not warrant an inference of transfer of the right to use transit mixers. As mentioned supra, whether the transaction amounts to transfer of right or not cannot be determined with reference to a particular word or clause in the agreement. The agreement has to be read as a whole to determine the nature of the transaction (Rashtriya Ispat Nigam Ltd. [1990] 77 STC 182 (AP)). We may, for ready reference extract important clauses from the agreement. A. That the second party will maintain and provide a dedicated fleet of five vehicles to transport the produce of the first party from their plant to the various customers in the cities of Hyderabad. The number of vehicles required to be dedicated for the use will be subject to change and the parties will mutually agree to the new fleet size. This number shall not change unless otherwise indicated by the first party and agreed to by the second party and the remaining terms a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other party. The first party will be at liberty to terminate this agreement at any time if the second party violates any of the terms of the agreement or if the quality of the services provided it not to its satisfaction. The decision of the first party as to the quality will be final. M. That the second party will indemnify the first party against statutory claim being made by any authority on the first party for an act of omission or commission by the second party. (emphasis supplied) In addition to the above clauses, we have thoroughly perused and analysed the agreement between the petitioners and Grasim. With reference to the intention, the purpose and the rights/obligations created under the said agreement, we may divide the same into three parts. The recitals form the first part, which deals with the intention. Admitting that the petitioners are in possession of a fleet of transit mixers used for carrying RMC, and further admitting that Grasim was looking for a transporter of RMC, the recitals reveal that both the parties entered into an agreement for transporting RMC by using the vehicles owned by the petitioners. Though the phrase "offer services to take care of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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