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TMI Blog1998 (6) TMI 543X X X X Extracts X X X X X X X X Extracts X X X X ..... ub-section (1) or sub-section (3) of section 5, but subject to sub-sections (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." Section 2(t) of the Act deals with definition of "sale". By Act 27 of 1985 the scope of definition of "sale" was extended by including besides other transfer of property includes, a transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, or for deferred payment or other valuable consideration. The third explanation to the definition of "sale" is as under: "Explanation (3).-(a) The sale or purchase of goods other than in the course of inter-State trade or commerce or in the course of import or export shall be deemed for the purposes of this Act, to have taken place in the State wherever the contract of sale or purchase might have been made, if the goods are within the State,- ....................... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , delivery or supply is made." 5.. In the statement of objects and reasons it was mentioned that "Device by way of lease of films has also been resulting in avoidance of sales tax. The main right in regard to a film relates to its exploitation and after exploitation for a certain period of time, in most cases, the film ceases to have any value. It is, therefore, seen that instead of resorting to the outright sale of a film, only a lease or transfer of the right to exploitation is made." 6.. Article 269 of the Constitution of India deals with taxes levied and collected by the Union but assigned to the States and clause (g) "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" is one of the items. Under clause (3) of article 269, the Parliament is empowered to formulate principles for determining when a sale or purchase of goods takes place in the course of inter-State trade or commerce. Article 246 of the Constitution confers exclusive power to make laws with respect to any matter enumerated in List I in the Seventh Schedule. Entry 92-A is in respect of tax on the sale or purchase of g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9A) to article 366 extending the scope of sale, there was no consequential amendment in the Central Sales Tax Act. The definition of "sale" under the local Act have been brought in consonance with the Constitutional amendment. Before the amendment of the Constitution, transfer of right to use goods was not within the purview of the State Legislature to levy tax and it is by virtue of article 366(29A) the transfer of right to use is deemed to be a sale. Though in the Central Sales Tax Act, the definition of "sale" refer to transactions of hire-purchase, but not of these transactions. It was on the basis of the report of the Law Commission suggesting wider scope of transactions resembling sale within the ambit of entry 54 of List II the amendment in the Constitution was made. 8A. In State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. [1958] 9 STC 353 (SC), it was held as under: "In order to constitute a sale it is necessary that there should be an agreement between the parties for the purpose of transferring title to goods, which presupposes capacity to contract, that it must be supported by money consideration, and that as a result of the transaction property must actually pas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hows that in the main part the expression 'sale' has been defined and in the inclusive part of the said definition, sub-clauses (i) to (iv) reproduce sub-clauses (a) to (d) of clause (29-A) of article 366. Explanation (3) contains three clauses, whereby the situs of the sale is fixed. Clause (a) of Explanation (3) contains the words 'other than the sale in the course of inter-State trade or commerce or in the course of import or export' which means that a sale or purchase of goods in the course of inter-State trade or commerce or in the course of import or export is excluded. Moreover clause (a) of Explanation (3) merely reproduces the provisions contained in the main part of sub-section (2) of section 4 of the Central Sales Tax Act. Clause (b) of Explanation (3) contains the explanation in sub-section (2) of section 4 of the Central Sales Tax Act. Clause (c) of Explanation (3) relates to works contracts and fixes the situs of the deemed sales resulting from transfer of property in goods involved in execution of a works contract. It starts with a non obstante clause which refers to the Sale of Goods Act, 1930. This means that clause (c) has to be read with other provisions of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the State List, it is beyond the competence of the State Legislature to make a law imposing or authorising the imposition of a tax on transfer of property in goods involved in the execution of a works contract, with the aid of sub-clause (b) of clause (29A) of article 366, in respect of transactions which take place in the course of inter-State trade or commerce or transactions which constitute sales outside the State or sales in the course of import or export. Consequently, it is not permissible for a State to frame the legislative enactment in exercise of the legislative power conferred by entry 54 in State List in a manner as to assume the power to impose tax on such transactions and thereby transgress these constitutional limitations. Apart from the limitations referred to above which curtail the ambit of the legislative competence of the State Legislatures, there is clause (3) of article 286 which enables the Parliament to make a law placing restrictions and conditions on the exercise of the legislative power of the State under entry 54 in State List in regard to the system of levy, rates and other incidents of tax. Such a law may be in relation to (a) goods declared by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of sections 3, 4, 5 and sections 14 and 15 of the Central Sales Tax Act, 1956, are applicable to a transfer of property in goods involved in the execution of a works contract covered by article 366(29A)(b). (3) While defining the expression 'sale' in the sales tax legislation it is open to the State Legislature to fix the situs of a deemed sale resulting from a transfer falling within the ambit of article 366(29A)(b) but it is not permissible for the State Legislature to define the expression 'sale' in a way as to bring within the ambit of the taxing power a sale in the course of inter-State trade or commerce, or a sale outside the State or a sale in the course of import and export. (4) The tax on transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract falling within the ambit of article 366(29A)(b) is leviable on the goods involved in the execution of a works contract and the value of the goods which are involved in the execution of works contract would constitute the measure for imposition of the tax." 13.. In the case of Gannon Dunkerley & Co. [1993] 88 STC 204 (SC), the observations in Builders' Association o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... course of inter-State trade or commerce or in the course of export of the goods out of the territory of India or in the course of import of the goods into the territory of India. Section 5-C of the Act is subject to the definition which has been given in section 2(1)(u-1) of the Act as contemplated by section 5(6) of the Karnataka Sales Tax Act. 16.. In the case of Builders' Association of India [1993] 88 STC 248 (SC), the definition of "sale" was examined with reference to clause (t). The definition of "sale" as in the Karnataka Sales Tax Act was examined and it was observed that clause (a) of Explanation (3) contains the words "other than the sale in the course of inter-State trade or commerce or in the course of import or export" which means that the sale or purchase of goods in the course of inter-State trade or commerce or in the course of import or export is excluded. Though the said dispute in the matter was with regard to transfer of property in goods involved in the execution of a works contract, it was held that the State Legislature has excluded the sale in the course of inter-State trade or commerce or a sale outside the State or a sale in the course of import or expor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter-State sale must have a situs and the situs may be in one State or another. It does not involve any contradiction in saying that an inter-State sale or purchase is inside a State or outside it. A sale which is in the course of inter-State trade or commerce cannot be taxed by a State Legislature even if its situs is within the State, because the State Legislature has no legislative competence to impose tax on sale in the course of inter-State trade or commerce." 18.. The various provisions of law and the judgments referred to above makes it abundantly clear that sufficient safeguards have been made by the State Legislature in section 5-C and Explanation (3) of section 2(t) of the Karnataka Sales Tax Act by virtue of which the inter-State sales and export sales have been excluded. For the purpose of determining the transaction as to whether it an inter-State sale or sale in the course of export, the provisions of sections 3 and 5 of the Central Sales Tax Act have been interpreted by the apex Court in series of judgments and therefore, if a transaction of sale falls within the purview of the principles laid down under section 3 or 5 of the Central Sales Tax Act, no tax is levied b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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