9911796707
TMI Blog2002 (12) TMI 586X X X X Extracts X X X X X X X X Extracts X X X X ..... uram. The assessment years concerned are 1984-85, 1985-86, 1988-89, 1989-90 and 1990-91. According to the petitioner, it entered into agreements with two customers, viz., M/s. H.M.T. Ltd., Kalamassery and LIC of India, Trivandrum, in Kerala for transferring the right to use computer equipments on monthly rental basis in the year 1983, that pursuant to the said agreement the computer equipments moved from its factory at Pune in Maharashtra State to the State of Kerala and the computer equipments were installed in the premises of the customers. During the assessment years 1984-85 and 1985-86 the petitioner received sums of Rs. 18,69,930 and Rs. 20,59,704 respectively as rental income from the said two customers. Similarly during the years 1988-89, 1989-90, 1990-91 also the petitioner received from the said two customers sums of Rs. 16,65,873, Rs. 37,89,209 and Rs. 37,48,075 respectively as rental income from the transfer of right to use computer equipments. The petitioner contended that the said income are not liable to be assessed under the Act for three reasons: (1) the agreement between the assessee and the customers in Kerala were executed prior to 1984 and therefore the said i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luded agreement entered into by the appellant with the customers in Kerala and hence the deemed sale by transfer of right to use goods has taken place within the State of Maharashtra and therefore at best it can be treated only as a transaction in the course of inter-State trade and commerce and the impugned transactions are not liable to tax under the Kerala General Sales Tax Act. (iii) When the question regarding the assessability of rental income received by the appellant came up for consideration before this Tribunal in the appellant's cases for the earlier years 1984-85 and 1985-86, this Tribunal was guided by the decision of the honourable High Court of Kerala reported in [1991] 83 STC 276 [Deputy Commissioner of Agricultural Income-tax and Sales Tax (Law), Ernakulam v. P.K. Biriyumma]. The principles laid down by the honourable High Court of Kerala in the decision reported in [1991] 83 STC 276 [Deputy Commissioner of Agricultural Income-tax and Sales Tax (Law), Ernakulam v. P.K. Biriyumma] is no longer good in law in the light of the recent decision of the honourable Supreme Court in Gannon Dunkerley and Co. v. State of Rajasthan reported in [1993] 88 STC 204. In the light ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appeals. The copy of the agreement and order placed in pursuance of such agreement between the appellantcompany and H.M.T., Kalamassery, are available at pages 172 to 184 of the assessment records for 1984-85. We find that the agreement is seen executed on July 8, 1983 and as order is placed by H.M.T. as per order dated June 6, 1983 which is even earlier than the execution of the agreement, any way the agreement is before April 1, 1984 which is the date of coming into force of the amended provisions in the KGST Act in respect of deemed sales of leasing of goods, etc., effected in pursuance of the 46th Amendment of the Constitution. As has been rightly pointed out by the State representative we find that the agreements contain two parts namely, installation of computer machinery in the business place of the customers in Kerala, i.e., at Kalamasserry, and Thiruvananthapuram and (2) hiring of such installed machinery to the customers on running contract basis in consideration of monthly payment of rent. In the case of H.M.T on a monthly rental amount of Rs. 1,16,428 and the second part of the contract is for a minimum period of seven years. The following classes in the agreement a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in pursuance of a contract for sale in this case, nor the same is established before us. On the other hand as has been rightly pointed out by the learned State representative, the machineries moved from Maharashtra to Kerala as the properties of the assesseecompany for the purpose of installation of the same in the business places of the customers and even after the installation, the machineries remain as the properties of the appellant-company. The relevant clause 41 of the agreement already extracted above strongly supports this view. Further even otherwise the deemed sales provisions in pursuance of the extended definition of sale covered by 46th Amendment of the Constitution is not applicable under the CST Act. The said definition is brought under the KGST Act only. This position is upheld by the honourable High Court of Kerala in the case of Deputy Commissioner of Agricultural Income-tax and Sales Tax (Law) v. P.K. Biriyumma reported in [1991] 83 STC 276." In the above view of the matter, the Tribunal held that hire charges received by the appellant-company after April 1, 1984 is rightly assessed under the KGST Act for the years 1984-85 and 1985-86. In the appeals for the y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght to tax under the KGST Act the rental income received by the appellant from leasing out of computer systems in Kerala. Following our earlier decision in the appellant's case on this point, we confirm the findings of the authorities below in this regard." 6.. Sri Jose Joseph, learned counsel appearing for the assessee has placed before us the copies of the agreement entered into between the petitioner and one of its customers. With reference to the said agreement the counsel submitted that the agreement for the transfer of the right to use the computer system by the customers is entered into in the State of Maharashtra in the year 1983 prior to the introduction of the explanation (3B) to sub-section (xxi) to section 2 of the Act. He further submitted that the movement of the goods from Pune in the Maharashtra State to the customer's premises at Ernakulam/Thiruvananthapuram in the State of Kerala was in pursuance of the said agreement and therefore it is a deemed sale in the course of inter-State transaction which is not liable to be assessed under the Act. The counsel further submitted that the right to use the computer system was transferred to the customer's in the State of M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respective 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 assessees contended before the Supreme Court 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 interState trade or commerce, into a sale inside the State. 9.. The facts of the Supreme Court case in brief are as follows: The assessees carry on business of leasing diverse equipments. According to them, they entered into Master Lease Agreements with the lessee, i.e., the party who desired to take equipment for use on hire. The assessees agree to give on lease diverse machinery/equipments listed in the lease summary Schedule, subject to terms and conditions stipulated in the Master Lease Agreements. The lease summary Schedule only mentions the broad category of equipment proposed to be leased and the correct value thereof. The Master Lease Agreement provides that orders for individual equipment will be placed by the assessees a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le. In the absence of any such legal fiction the situs of sale in case of the transaction of transfer of right to use any goods would be the place where the property in goods passes, i.e., where the written agreement transferring the right to use is executed. (c) Where the goods are available for the transfer of right to use the taxable event on the transfer of right to use any goods is on the transfer which results in right to use and the situs of sale would be the place where the contract is executed and not where the goods are located for use. (d) In cases where goods are not in existence or where there is an oral or implied transfer of the right to use goods, such transactions may be effected by the delivery of the goods. In such cases the taxable event would be on the delivery of goods. (e) The transaction of transfer of right to use goods cannot be termed as contract of bailment as it is deemed sale within the meaning of legal fiction engrafted in clause (29A)(d) of article 366 of the Constitution wherein the location or delivery of goods to put to use is immaterial." 11.. The Supreme Court thereafter examined the provisions of the various State enactments in the ligh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt or an inter-State sale. 13.. This counsel for the petitioner has supplied photo copies of the agreements entered into between the petitioner and the two customers which are identical. We have perused the computer hire contract in the case of H.M.T. Ltd. handed over to us, a photo copy of the said contract is appended. This appears to be a standard form of contract where the quantity, type No., description, monthly rental of each item, installation charges, etc., are mentioned. Total monthly rental and installation charges are specified. Installation charges in full to be paid along with the order. The equipment has to be installed in the premises of the customer in the State of Kerala. The customer requests the petitioner to supply the equipments specified in the contract in accordance with and subject to the terms and conditions therein and overleaf. The customer puts his signature and date. The petitioner agrees to supply the equipment specified in this contract in accordance with law and subject to the terms and conditions therein and overleaf. The signature of the company secretary and the date is given. This only shows that the customer wanted to install the equipments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of ICIM and if the delay continues for more than seven days after the date when ICIM notifies the customer in writing that ICIM is ready to install or test. Installation date shall be the date of such notification. 11.. Unless accepted earlier, the equipment is deemed accepted on installation date. 13.. Rental charges and installation charges: Rental commences on the installation date or thirty days after the delivery of the equipment to the customer's premises whichever is earlier and is payable in advance on the first of each calendar month. With the first payment shall also be paid the appropriate rental for the part month from and including the date on which the rental commences. 14.. The installation charge shall be paid by the customer in the manner shown on the face of the contract. 15.. Cost and charges: Costs and charges for packing and cases (at prevailing prices), transport and insurance, octroi duty and all other duties, taxes, levies and imposts, present or future, together with charges for clearance and forwarding done by or on behalf of ICIM or otherwise in respect of the supply of equipment and parts thereof from factory or from other premises in India a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts) requisite for its planned production schedule. This would clearly show two aspects: (1) that the contract is one in respect of non-existing goods In other words the equipments are to be manufactured and supplied and (2) there is no absolute obligation to supply the goods. If for any reason they are not able to manufacture the set and deliver the same they are not liable for any consequences. 17.. Thus though there is a contract between the petitioner and its customers for delivery of equipments at the customer's premises and for transferring the right to use the said equipments there was no transfer of the goods nor transfer of the right to use the goods by the said contract. It is only an agreement for sale and not a contract of sale. Further the contract was only a contingent one depending upon various factors. The customer has to place the order pursuant to the contract: the petitioner has either to manufacture the equipment or procure the equipment from wherever in India and deliver the same at the customer's premises. Then only the transfer of the right to use the equipment takes place. This means that the transfer of the right to use the equipment is dependant on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioner's registered office is situated. There is no indication in the agreement to support the said contention of the petitioner. (2) For the very same reason the transaction cannot be treated as an outside State deemed sale which took place in the State of Maharashtra. (3) The agreement as a whole evidences only an agreement for sale and not a contract of sale. At any rate the contract was a contingent one and no property in the goods passes as a result of the contract. 21.. Now considering the issue in the light of the principles laid down by the Supreme Court in the 20th Century case [2000] 119 STC 182 in the absence of a binding contract of an inter-State transaction propositions (a) to (c) laid down by the Supreme Court have no relevance in this case. 22.. If at all, proposition (d) alone can have application. Even this proposition will not help the petitioner since the contract was in respect of goods not in existence and the transfer of right to use is effected only by the delivery of the goods. Hence the taxable event would be only on the delivery of the goods. This is the true position of the transaction in this case. 23.. Admittedly the turnover which is as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directed the assessing authority to ascertain whether the petitioner had received any amount towards maintenance of computer equipments leased out to the customers in Kerala and deduct if any amount so received. Regarding the contention of the appellant that the materials used for the maintenance work in respect of the computer systems sold in Kerala have moved from Maharashtra to Kerala in pursuance of the maintenance contract and since there is a deemed sale of the materials in the course of inter-State trade and commerce the sales tax authorities are prohibited from imposing tax on maintenance charges received by the petitioner the Tribunal felt that the said issue requires to be re-examined by the assessing authority. Necessary directions were issued in that regard. It was also observed that if the assessee is maintaining proper books of accounts and supporting documents which discloses the labour and service charges there is no question of making any percentage deduction. The assessing authority was directed to consider this. The Tribunal had only remitted the question for consideration by the assessing authority. We do not find any illegality in the said direction. However, w ..... 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