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TMI Blog2008 (3) TMI 638X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted his liability on a wrong notion. Liability to pay tax has always to be imposed by law: it cannot be imposed on admission. Deemed sales including leases were to be treated exactly on the same footing as ordinary sales and were subjected to the same restrictions contained in article 286 of the Constitution of India. Neither ordinary sale nor deemed sale could be subjected to tax by a particular State if such sale or deemed sale was either in the course of inter-State trade or was effected outside the State. Therefore, the Explanation to section 2(g)(iv)(a)(i) of the Orissa Sales Tax Act which stipulated that the sale or purchase of goods shall be deemed to take place inside the State if the goods are within the State at the relevant time would have to be read down to the effect that it would not be applicable to a deemed sale which was an outside-State sale or an inter-State sale or a sale in course of import of the goods into or export of the goods outside India. For the reasons aforesaid, the order of assessment dated March 31, 2004 for the assessment year 2000-2001 challenged in W.P. (C) No. 9062 of 2004, order of assessment dated February 25, 2005 for the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l paid by IMFA to the petitioner on the ground that the said boiler is located in Orissa and was delivered in Orissa and was being used in Orissa. For the purpose of levying tax on the lease rental against the nil return filed by the petitioner, the assessing officer placed reliance on the Explanation to section 2(g)(iv)(a)(i) of the Orissa Sales Tax Act, 1947 (hereinafter, the OST Act ) which stipulates that the sale or purchase of goods shall be deemed to take place inside the State if the goods are within the State at the relevant time. Before the assessing officer the petitioner contended that the lease rentals were not exigible to Orissa sales tax as the lease rental was payable on account of an inter-State lease agreement and for which it disclosed the gross turnover under the Orissa Sales Tax Act as nil. In support of its contention the petitioner relied on the judgment of the honourable Supreme Court in the case of 20th Century Finance Corpn. Ltd. v. State of Maharashtra [2000] 119 STC 182. The petitioner further contended before the assessing officer that in terms of its lease agreement, payment of lease rental will arise only after erection and commissioning of boiler ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resemble the facts of the present case and the honourable Andhra Pradesh High Court, held that the lease transactions in question were clearly inter-State in nature as the movement of goods from Madras to Hyderabad was occasioned by a contract. It was also held that it was immaterial in which State the property of the goods passed. The learned counsel further submitted that section 5E of the Andhra Pradesh General Sales Tax Act, 1957 contains Explanation II, which is similarly worded with the Explanation to section 2(g) of the Orissa Sales Tax Act. The said Explanation also deemed a sale to take place within the State if the goods were within the State at the time the contract of sale is made. In ITC Classic [1995] 97 STC 330 (AP), it was held that it was not open to the State Legislature to frame its law so as to convert an outside sale or sale in course of inter-State trade into a sale which was deemed to take place within the State. The Constitution Bench of the honourable Supreme Court upheld and confirmed the said decision in ITC Classic's case [1995] 97 STC 330 and dismissed the appeal filed by the State of Andhra Pradesh(1). It was further submitted that two judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 119 STC 182 (SC). the goods (90 TPH) at Choudwar for which monthly rentals are received by the petitioner from IMFA (ICCL), the petitioner is trying to make out a case that the transaction was an inter-State lease. It was contended that there is no basis for the petitioner to urge that no State including the State of West Bengal, where the agreement to transfer the right to use was executed, had any jurisdiction to levy tax on lease rentals since the inter-State lease was executed prior to 2002, when section 2(g) of the Orissa Sales Tax Act was amended. It is further submitted that since the alternative remedy by way of filing an appeal from the assessment order before the appellate authority was available, the present writ petition is not maintainable. It was further urged that the sales under section 3(a) and 3(b) of the CST Act are mutually exclusive and one set of transaction cannot be treated as falling both under section 3(a) and 3(b) of the CST Act. As per section 3(a), a sale or purchase of goods shall be deemed to take place in course of inter-State trade or commerce if the sale or purchase occasions movement of goods from one State to another. The words a sale or purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arly laid down the law to that effect. Thus the taxable eevnt , i.e., transfer of right to use of 90 TPH boiler took place in Orissa on or after the delivery of goods. The petitioner, therefore, cannot take the stand that the deemed sale of hiring of boiler took place in West Bengal and not in Orissa. In the case of the petitioner the taxable event of transfer of right to use of the boiler with other equipments would be, on the delivery of the goods, which took place at Choudwar in Orissa. In support of his contention learned counsel also relied on the judgment of the honourable Kerala High Court in the case of First Leasing Company of India Ltd. v. State of Kerala [2007] 6 VST 805 and tried to distinguish the facts of ITC Classic Finance case [1995] 97 STC 330 (AP) from the facts of the petitioner's case. According to him, in the Classic Finance case [1995] 97 STC 330 (AP) the lease agreement was for hiring of complete manufacturing machines like photo copier and stabiliser which were capable of being used by the lessee, whereas, in the case of the petitioner, lease was in respect of boiler plant which was intended to be erected at Choudwar by IJT, as a works contract, by usi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying on the business of resale of plant and machinery . The aforesaid registration certificates were obtained only by showing the lease agreement and the tripartite agreement executed during 1995 with the clear intention to carry on the business of resale, i.e., by way of transfer of right to use the goods in Orissa after IJT carried on the works contract by use of the said materials purchased in course of inter-State sale. On July 22, 1996, the petitioner gave an undertaking before the C.T.O. to deduct four per cent tax from the bills of works contract payable by it to IJT. Way-bills were obtained by the petitioner from the Sales Tax Officer, Cuttack II Circle and the component parts of the boiler were transported to Choudwar. As per the stipulation and undertaking the petitioner deducted the tax at source from the bills paid to IJT for executing the works contracts and also paid CST at four per cent on the supply of equipments made by IJT against C forms. IJT had also registered itself as a dealer before the C.T.O., Cuttack II Circle for carrying on the business of works contract and was assessed as a work contractor. The registration certificate was kept valid from August ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son to lengthy proceedings and unnecessary harassment, the High Courts, it is well-settled, will issue appropriate orders or directions to prevent such consequences. It was also observed by their Lordships that the existence of an alternative remedy is not always a sufficient reason for refusing a party quick relief by a writ or order prohibiting an authority from acting without jurisdiction or from continuing such action. The honourable apex court in the case of Tata Engineering and Locomotive Company Ltd. v. Assistant Commissioner of Commercial Taxes reported in [1967] 19 STC 520 also held as under (at page 520): The jurisdiction of the High Court under article 226 of the Constitution is extraordinary and has to be used sparingly. It is not appellate and it cannot be a substitute for the ordinary remedies at law. Nor is its exercise desirable if facts have to be found on evidence. The High Court, therefore, leaves the party aggrieved to take recourse to the remedies available under the ordinary law if they are equally efficacious and declines to assume jurisdiction to enable such remedies to be by-passed. To these there are certain exceptions. One such exception i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levy. Those writ petitions were dismissed in view of alternative remedy in form of statutory appeal. In that context the honourable Supreme Court held that the High Courts should not have dismissed the writ petitions as the questions raised were purely questions of law which required determination whether the provision of telephone connections and instruments amounted to sale and even so why was the Union of India was not exempted from sales tax under the respective statues. The Supreme Court held that such questions should not be put through the mill of statutory appeals in the hierarchy . Saying so, the honourable Supreme Court set aside the orders passed by the respective High Courts and remanded the writ petitions to the High Court for decision on merit. In Bharat Sanchar Nigam Ltd. v. Union of India reported in [2006] 3 VST 95; [2006] 145 STC 91; AIR 2006 SC 1383, in paragraph 34 at pages 1393-94 (page 114 of VST; 111 of STC) the learned judges of the Supreme Court dealt with questions relating to the competence of the State to levy sales tax on tele-communication. The Supreme Court held that such questions cannot be decided by the assessing authorities. The Supreme Court al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever of goods being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other 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. Entry 92A of List I of the Seventh Schedule to the Constitution confers power on the Union to levy tax on sale and purchase of goods other than newspapers where such sale or purchase takes place in the course of interState trade or commerce. Entry 54 of List II of the Seventh Schedule confers powers on the State Legislature to levy tax on the sale or purchase of goods other than newspapers subject to the provisions of entry 92A of List I. Clause (1) of article 286 prohibits a State from making any law for the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said to take place outside a State: (1) Subject to the provisions contained in section 3, when a sale or purchase of goods is determined in accordance with sub-section (2) to take place inside a State, such sale or purchase shall be deemed to have taken place outside all other States. (2) A sale or purchase of goods shall be deemed to take place inside a State, if the goods are within the State, (a) in the case of specific or ascertained goods, at the time the contract of sale is made; and (b) in the case of unascertained or future goods, at the time of their appropriation to the contract of sale by the seller or by the buyer, whether assent of the other party is prior or subsequent to such appropriation. Explanation: Where there is a single contract of sale or purchase of goods situated at more places than one, the provisions of this subsection shall apply as if there were separate contracts in respect of the goods at each of such places. By virtue of the Constitution (Forty-sixth Amendment) Act, legislative power was conferred on State Legislatures to levy sales tax on transactions which are strictly not sales within the purview of the Sale of Goods Act, 1930 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s involved in the execution of works contracts referred to in subclause (b) of clause (29A) of article 366 of the Constitution, is subject to the restrictions contained in article 286 of the Constitution. Answering the question in the affirmative, it was held by the Constitution Bench of the Supreme Court as follows (page 396): . . . The object of the new definition introduced in clause (29A) of article 366 of the Constitution is, therefore, to enlarge the scope of 'tax on sale or purchase of goods' wherever it occurs in the Constitution 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) thereof wherever such transfer, delivery or supply becomes subject to levy of sales tax. So construed the expression tax on the sale or purchase of goods in entry 54 of the State List, therefore, includes a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract also. The honourable Supreme Court further held (page 398): . . . . We are of the view that all transfers, deliveries and suppl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 5E of the Andhra Pradesh General Sales Tax Act, 1957 on the transfer of right to use the goods. On these facts, the honourable Andhra Pradesh High Court held that the lease transaction in question was clearly an inter-State transaction because the movement of goods from the State of Madras to Hyderabad was the result of a contract. It was further held that it was immaterial in which State the property in the goods passed. In that case, the constitutional validity of section 5E of the Andhra Pradesh General Sales Tax Act came up for consideration. The Andhra Pradesh High Court held that it was not open to the State Legislature to frame its law in such a manner as to covert an outside sale or sale in course of interState into a sale which was deemed to take place within the State. The honourable Court further observed that the effect of accepting such an Explanation would be to bring goods which are the subject-matter of interState transaction within the tax net of the State sales laws of Andhra Pradesh. Such an interpretation was directly contrary to the settled law in Builders Association's case [1989] 73 STC 370 and Gannon Dunkerley's case [1993] 88 STC 204. In the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with such law. Thus, what we have stated above, are the limitation on the powers of State Legislatures on levy of sales tax on deemed sales envisaged under sub-clause (d) of clause (29A) of article 366 of the Constitution. These are the limitations on the power of the State Legislatures on the levy of sales tax, on deemed sales envisaged under sub-clause (d) of clause (29A) of article 366 of the Constitution. The State Legislature in exercise of its legislative power under entry 54 of List II read with article 366(29A)(d) is not competent to levy sales tax on the transfer of right to use goods, which is a deemed sale, if such sale takes place outside the State or is a sale in the course of inter-State trade or commerce or is a sale in the course of import or export. This is clear from the view expressed by the apex court and which are set out below (page 205): (a) The States in exercise of power under entry 54 of List II read with article 366(29A)(d) are not competent to levy sales tax on the transfer of right to use goods, which is a deemed sale, if such sale takes place outside the State or is a sale in the course of inter-State trade or commerce or is a sale in the cours ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is, therefore, not changed only by the reason of the fact that the goods leased out were not in existence at the time of execution of the lease agreement. A Division Bench of this court in the case of Sundaram Finance Ltd. [2002] 125 STC 565 held that inter-State lease could not be subjected to tax by the State of Orissa and accordingly the impugned assessment orders were quashed by the Division Bench. The foundation of all the activities carried on by the petitioner, IJT and IMFA stems from the tripartite agreement entered into amongst them on July 31, 1995 and the lease agreement entered into between the petitioner and the IMFA on the same day. The placing of the purchase order by the petitioner with IJT is because of the lease agreement entered into between the petitioner and IMFA. Both the agreements are inextricably connected and one cannot be separated from other. The activities of all these three parties are integrated. In the absence of the lease agreement the goods in question could not have moved from the State of Haryana to the State of Orissa. Thus, the source of movement of goods in question from Haryana to Orissa is the lease agreement dated July 31, 1995 enter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a particular State if such sale or deemed sale was either in the course of inter-State trade or was effected outside the State. Therefore, the Explanation to section 2(g)(iv)(a)(i) of the Orissa Sales Tax Act which stipulated that the sale or purchase of goods shall be deemed to take place inside the State if the goods are within the State at the relevant time would have to be read down to the effect that it would not be applicable to a deemed sale which was an outside-State sale or an inter-State sale or a sale in course of import of the goods into or export of the goods outside India. The contention of the Revenue is that since the petitioner has not paid any tax in the West Bengal, the State of Orissa acquires jurisdiction under the law to levy tax in the said transaction. It is not acceptable. Under the law, the State of West Bengal, where the lease agreement was executed, is competent to levy tax under the provisions of the CST Act. The transfer of right to use goods has become taxable by virtue of amendment brought to the CST Act, 2002. In the absence of any express provision for retrospective applicability of the said amendment, the same has only prospective effect and d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a completely different footing from a lease transaction, but the honourable Kerala High Court has not drawn any distinction between the hire-purchase transaction and a lease transaction. This judgment is based on and followed the earlier judgment of the Kerala High Court in the case of Madras Credit and Investments' case [2004] 134 STC 264. In view of the discussions above, these judgments are of no help to the Revenue. Further, in the First Leasing Company's case [2007] 6 VST 805 (Ker) the company procured goods to be leased either within the State of Kerala or from outside the State of Kerala and made those available to the customers. The honourable High Court treated the sale transactions and lease transactions as two distinct and separate transactions. Those facts are not present in this case in which the purchase transaction between the IJT and the petitioner and lease transaction between the petitioner and IMFA are inextricably interlinked and connected and the movement of goods from Haryana to Orissa was occasioned as a result of both the purchase transaction and also by the lease transaction. If one is separated from other, neither of the two could take place. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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