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TMI Blog2009 (2) TMI 749X X X X Extracts X X X X X X X X Extracts X X X X ..... trucks/tankers specified in the Schedule attached to the respective agreements. As per the agreements, the contractors are liable to bear and pay the entire cost of the trucks/tankers, given on hire to the petitioner-company, including maintenance, repairing, insurance, fuel and salaries to the drivers, cleaners, etc. The petitioner-company does not guarantee the minimum mileage for each vehicle, which it obtains on hire, and it does not guarantee the minimum number of vehicles, which it may utilize per month. There is, thus, according to the petitioner-company, no transfer of the right to use vehicles from the contractors to the petitioner-company inasmuch as possession and custody of the vehicles remain, for all practical purposes, with the contractors and the petitioner-company pays only the hire charges to the contractors for the vehicles hired from them. (ii) However, the Senior Superintendent of Taxes, Bongaigaon, issued a notice, dated May 16, 1998, addressed to the petitioner-company's plant manager, who is in-charge of the LPG bottling plant, directing him to deduct tax under section 27(a) of the Assam General Sales Tax Act, 1993, (in short, "the Act") on pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icularly, clauses 1, 2, 3, 4, 5, 8, 15, 17, 18, 21, 23, 26, 28, 38 and 39 of the contract agreement on the basis of which the petitioner-company hires the vehicles. The respondents also rely, in this regard, on the Schedules A and B to the contract agreement. Countering the contentions of the respondents that the contract between the parties is nothing but a transfer of the right to use the vehicles, in question, the petitioner-company refers to, and relies upon, clauses 1, 4, 5, 8, 9, 11, 12, 13, 15, 17, 19, 21 and 38 of the contract agreement. I have heard Dr. A.K. Saraf, learned senior counsel for the petitionercompany, and Mr. D. Saikia, learned counsel, appearing on behalf of the respondents. There is no dispute that the power of the State Legislature to impose tax on sale and purchase of goods emanates from entry 54 of List II of the Seventh Schedule to the Constitution of India nor is there any dispute that 46th Amendment of the Constitution, which inserted clause (29A) in article 366 of the Constitution of India, has expanded the definition of "tax on sale or purchase of goods" inasmuch as it has included, within the definition of "sale", the transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th a limited company, called lessee, whereunder the assessee had made over to the lessee the outright lease of the world negative rights of the film, for a period of 49 years, for a consideration. The sales tax authorities were of the view that though the transaction was termed as "lease" for 49 years, the assessee had actually effected a "sale" of the negative print of the picture for a consideration and, therefore, the transaction was liable to sales tax under the Madras General Sales Tax Act, 1959. The Madras High Court, however, turned down the imposition of the sales tax by holding that even if a copyright is regarded as species of movable property, the transaction did not connote a "sale" at all inasmuch as there was no transfer of property in the goods in such a case and the transaction was, therefore, not liable to payment of sales tax. The decision of the Madras High Court, in A.V. Meiyappan [1967] 20 STC 115, created immense difficulty for the States for quite a long time, because novel device of leasing of films resulted into avoidance of huge amounts of sales tax. This apart, in State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. repor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in goods (whether as goods or in some other form) involved in the execution of a works contract; (c) a tax on the delivery of goods on hire-purchase or any system of payment by instalments; (d) a tax on the 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; (e) a tax on the supply of goods by 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;" The effect of the amendment, which has been introduced to article 366, by inserting clause (29A), is that a State Legisl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 2(25), to mean a lease other than a financial lease. Thus, any lease, other than a financial lease, is an "operating lease" within the sales tax laws in Assam. The term "lease" has been defined under section 2(19) of the Act as follows: "2(19) 'lease' means any agreement or arrangement whereby the right to use any goods for any purpose is transferred by one person to another whether or not for a specified purpose for cash or deferred payment or other valuable consideration without the transfer of ownership and includes a sub-lease but does not include any transfer on hire purchase or any system of payment by instalments." Section 2(20) of the Act defines "lessee" to mean a person to whom the right to use any goods for any purpose is transferred under a lease. Section 2(21) of the Act defines "lessor" to mean a person by whom any right to use any goods for any purpose is transferred under a lease. From a combined reading of the various provisions of law, which have been pointed out above, what clearly transpires is that there must be "a transfer of the right to use any goods" in order to attract levy o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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; but in the case of an oral or implied transfer of the right to use goods, such transfer may be effected by the delivery of the goods. Having so observed, the Supreme Court, in 20th Century Finance Corpn. Ltd. [2000] 119 STC 182; [2000] 6 SCC 12, pointed out that no authority could be shown to support the view that there would be no completed transfer of right to use goods unless the goods are delivered. The Supreme Court, therefore, concluded, in 20th Century Finance Corpn. Ltd. [2000] 119 STC 182; [2000] 6 SCC 12, that delivery of goods cannot constitute a basis for levy of tax on the transfer of the right to use any goods. The relevant observations made, on the above aspects of the law, by the apex court in 20th Century Finance Corpn. Ltd. [2000] 119 STC 182; [2000] 6 SCC 12, read as under: "27. Article 366(29A)(d) further shows that levy of tax is not on use of goods but on the transfer of the right to use goods. The right to use goods accr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsider the question as to whether delivery of goods is at all necessary for the purpose of effecting the transfer of the right to use the goods. To the question, so put, the Supreme Court responded by holding that the essence of the right, under article 366(29A)(d), is that it relates to user of goods and though, in a given case, actual delivery of the goods may not be necessary for effecting transfer of the right to use the goods, yet the goods must be available at the time of the transfer, must be deliverable and delivered at some stage. The apex court pointed out, in Bharat Sanchar Nigam Ltd. [2006] 3 VST 95; [2006] 145 STC 91; [2006] 282 ITR 273; [2006] 3 SCC 1, that the decision, in 20th Century Finance Corpn. Ltd. [2000] 119 STC 182 (SC); [2000] 6 SCC 12, cannot be cited as an authority for the proposition that delivery of possession of goods is not a necessary concomitant for completing a transaction of sale for the purpose of bringing such a transaction within the ambit of article 366(29A)(d). The apex court also pointed out, in Bharat Sanchar Nigam Ltd. [2006] 3 VST 95; [2006] 145 STC 91; [2006] 282 ITR 273; [2006] 3 SCC 1 that in 20th Century Finance Corpn. Ltd. [2000] 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... constructive. In other words, a "deemed sale" cannot be treated as complete until the time the contract is executed by delivery of the goods inasmuch as the transfer of the right to use goods does not take place until the time the transferor delivers the goods, which is the subject of contract, though, for the purpose of determining the "situs" of such a "deemed sale", it is the place, where the agreement is executed, which will be treated as the place of the "deemed sale" provided that the agreement is in writing; but in a case of oral agreement, it may be affected by the delivery of the goods. The relevant observations made, in this regard, in Bharat Sanchar Nigam Ltd. [2006] 3 VST 95 (SC); [2006] 145 STC 91 (SC); [2006] 282 ITR 273 (SC); [2006] 3 SCC 1, read as under: "73 See para 72 of 3 VST. With respect, the decision in 20th Century Finance Corpn. Ltd. v. State of Maharshtra [2000] 119 STC 182 (SC); [2000] 6 SCC 12 cannot be cited as authority for the proposition that delivery of possession of the goods is not a necessary concomitant for completing a transaction of sale for the purposes of article 366(29A)(d) of the Constitution. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l of the goods must not remain with the owner, but must stand transferred to the lessee for the use by the latter at his will and it is this transfer of the effective control of the goods, which attracts sales tax (See Alpha Clays v. State of Kerala reported in [2004] 135 STC 107 (Ker)). In Rashtriya Ispat Nigam Ltd. reported in [2002] 126 STC 114 (SC); [2002] 3 SCC 314, it was claimed by the sales tax authorities that the transaction, whereby the owner of certain machinery had made available, his machinery to the contractor, amounted to sale. Dealing with this contention of the sales tax authorities, a Division Bench of the Andhra Pradesh High Court held that the transfer of the right to use goods necessarily involves delivery of possession by the transferor to the transferee; but the delivery of possession must be distinct from its custody and that mere transfer of possession does not amount to delivery in the context of the transfer of the right to use goods. In the facts of the case in Rashtriya Ispat Nigam Ltd., it was held by the Division Bench See [1990] 77 STC 182 (AP). that although the possession of the machinery was given to the transferee, yet the effective custody and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e were goods in existence which were delivered to the contractors for their use. In one case there was no intention to transfer the right to use while in the other there was." In Bhopal Sugar Industries Ltd. v. Sales Tax Officer, Bhopal reported in [1977] 40 STC 42, the apex court has pointed out that mere use of the words such as "agent" or "agency", "buyer" or "seller" cannot be sufficient to lead to an irresistible inference that the parties concerned did, in fact, intend that the status, so described in an agreement, shall stand conferred on the party concerned. The apex court has further pointed out, in Bhopal Sugar Industries Ltd. [1977] 40 STC 42, that unless the context shows that the parties to an agreement clearly intended to treat a buyer as buyer and not as an agent, the mere formal description of a person as an agent or buyer is not conclusive. The observations made, in this regard, in Bhopal Sugar Industries Ltd. [1977] 40 STC 42 (SC), read as under: (page 48) "...While interpreting the terms of the agreement, the court has to look to the substance rather than the form of it. The mere fact that the word 'agent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umber and all the other particulars of the ownership or otherwise in respect of the tank trucks to the corporation which will be operated by contractors for the purpose of the corporation under this agreement and shall not undertake any change in respect thereof without obtaining the prior written consent of the corporation. Contractor/s further agrees that in the event of there being any laying off or lack of utilization of the tank trucks by accident or breakdown or any other reason which may affect the use thereof by the corporation, the corporation shall be entitled to claim such amount as is specified in Schedule A attached hereto as and by way of liquidated damages which the parties hereto estimate as fair and reasonable and/or to rescind the contract as being discharged by non-performance and/or abandoned by the Contractor/s and claim such damages, loss and expenses and other amounts as the corporation may have suffered or may suffer on account or by reason of the contractor/s aforesaid delay or default. 1(a) The corporation shall be entitled to requisition further number of tank-trucks in addition to the list given under Schedule B and to put them into operation under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as also necessary reliefs including their salary and other emoluments. (b) Cost of fuel and lubricating oil necessary. (c) Maintenance and repairs of the tank truck/s (d) Road tax, route permit fees, vehicle tax and other taxes in relation to the said truck/s (e) Insurance (f) All other charges not specified herein relating to the operation and or maintenance of the said tank truck/s and/or any other items incidental thereto and/or connected/therewith. (g) All idling charges, loss by delay in transport/transit, road stoppage delay in final consuming, loading or unloading of products or otherwise howsoever on account of operation thereunder: Clause 9--That compliance of all enactment and/or all Government Rules and Regulations regarding transportation of petroleum products and route permits, etc., will be the responsibility of contractor/s and any fines for non-compliance of any such rules will be borne by the contractor/s. The contractor/s will also comply with the provision of the new Petroleum Rule 1979 or any amendment made thereto from time to time and any Rules made thereunder affecting the construction and operation of the tank truck/s and will obtain certificate from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the event of any loss or product recorded as the destination, as reflected by fall in dips, the cost of such shortage would be debited either to the contractor's bills if any with us or will be made good directly by the contractor or will be adjusted against any deposit or other amounts payable to the contractor. Clause 15--The contractor agrees to make delivery in all instances within a reasonable time and will not permit their trucks to be off the road for any unreasonable period, and will not hold up deliveries for any cause whatsoever. Clause 17--The contractor/s shall not have exclusive right to operate tank truck/s at the depot/installation and the corporation will be at liberty to appoint one or more additional contractors either to run concurrently with the contractor/s or separately and to enter into a parallel contract with them. Clause 19--That the corporation do not guarantee a minimum mileage for each and/or any vehicle per month, do not even guarantee the minimum number of vehicles that will be utilized per month, and no liability whatsoever shall be attached to the corporation on account thereof. Clause 21--That in case the tank truck/s is/are found unservi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vehicles, whose particulars have been furnished by the contractor to the petitioner-company, is not indispensable and may not be insisted upon by the petitioner-company is evident from clause 21 of the agreement. This clause, therefore, needs careful consideration. With regard to the above, what needs to be noted is that clause 21 provides that in case the vehicle is found to be unserviceable for want of repairs and/or servicing, the contractor will make the necessary arrangements to make them serviceable and, if the contractor fails in this regard, the contractor shall be bound to effect supply in "drums" by "staketrucks". These provisions make it crystal clear that the contract, in question, does not "transfer" the "right to use the vehicle" "in favour of the petitioner-company". Had the transaction amounted to transfer of the right to use the vehicle, whose particulars the contractor was required to furnish to the petitioner-company, the contractor would not have been obliged to carry the petroleum and petroleum products in drums if his vehicle is not in serviceable state. Thus, clause 21, once again, demonstrates that the inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner-company. Though the respondents have relied on clause 4 of the agreement in order to sustain their contention that the transaction, in question, amounts to transfer of the right to use the vehicles in favour of the petitioner-company by the contractor, it may be pointed out that when clause 4 is read in the light of the other clauses of the agreement, in question, what clearly transpires is that the contract, in question, is for carriage of the petroleum and petroleum products and the vehicles are to be operated by the contractor himself. Any and every vehicle cannot be used by the contractor for the purpose of carrying petroleum and petroleum products. Far from this, the vehicles must conform to the design and fittings as may be specified by the petitioner-company, because of the fact that petroleum and petroleum products, being highly inflammable substances, can be carried safely and securely only in vehicles with specified designs and fittings. Clause 4 cannot be held to support the case of the respondents inasmuch as the petitioner-company does not guarantee any minimum use of the vehicle, which the contractor may have agreed to operate for the purpose of carrying petro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and all the rules and regulations, which may be framed by the company for transportation of petroleum and petroleum products. In fact, clause 9 further states that it will be the responsibility of the contractor to pay such fines, as may be imposed for non-compliance of any of the rules, which may be applicable to the carriage of petroleum and petroleum products by the vehicle of the contractor. The impression that there is no transfer of the right to use the vehicle and that the vehicle remains under the effective custody and control of the contractor gets further strengthened, when one reads clause 11 of the agreement, which provides that any loss, which may be incurred by the petitioner-company due to confiscation of the petroleum and petroleum products delivered to the contractor for transportation, shall be made good by the contractor. Had the transfer of the right to use the vehicle stood transferred to the petitioner-company, the contractor could not have been made liable for confiscation of the petroleum and petroleum products carried in the vehicle of the contractor. This provision has been, admittedly, made in order to ensure that the petroleum and petroleum products, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake good the loss, which the petitioner-company may sustain. This clause too clearly reflects that the right to use the vehicle remains with the contractor and it does not stand transferred to the petitioner-company and it is for this reason that it is the contractor, who is held responsible if there is short-delivery of the substance at the destination. The respondents have heavily relied on clause 15. In this regard, it is noteworthy that the contract agreement, when read as a whole, clearly reflects that the contract is for carriage of petroleum and petroleum products and the right to use the vehicle does not stand transferred to the petitioner-company and since it is the responsibility of the contractor to carry the petroleum and petroleum products, clause 15 of the contract agreement puts an obligation, on the contractor, to deliver the petroleum and petroleum products, at its destination, within a reasonable time and not to permit the vehicle to be off the roads for unreasonable period. This clause can, by no means, be stretched to hold that there is a transfer of the right to use the vehicle in favour of the petitioner-company by the contractor. As far as clauses 23, 26 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y may sustain due to short-delivery of its products or due to confiscation thereof during the course of carriage. These provisions are demonstrative of the fact that the contractor retains the possession and effective control of his vehicle; but, while carrying the petitionercompany's petroleum and petroleum products, he remains a trustee so far as the petroleum and petroleum products are concerned. Thus, when the contract agreement is read clause-by-clause, it becomes abundantly clear that there is no transfer of the right to use the vehicles involved in the contract agreement and that the contract agreement is merely for carriage of the petroleum and petroleum products and nothing more. The respondents have referred to, and relied upon, the decision of the Allahabad High Court, in Ahuja Goods Agency v. State of Uttar Pradesh reported in [1997] 106 STC 540. In this decision, a Division Bench of the Allahabad High Court observed as under: (page 540) "The intention of the parties, mode of use and several other surrounding and relevant aspects have to be considered to come to the conclusion whether or not under a particular contract there is transfer of the right to use a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... customer engages the petitioner for providing audio-visual services for any programme or event and the petitioner does not deliver any equipment to the customer, but takes the equipment to the site of the programme, installs them, operates them and then dismantles them and brings them back after the period of hiring, in such an event the possession and effective control never leaves the petitioner and the customer never gets the right to the use of equipment. In such an event there is no deemed sale attracting tax under section 5C. The undisputed facts in this case disclose that the transaction of the petitioners falls under the second category and therefore, the transactions are not transfer of use of goods amounting to deemed sales exigible to tax under section 5C of the Act." In the case at hand too, the transactions do not amount to transfer of the right to use the goods inasmuch as the contractor, as a trustee of the petroleum and petroleum products, carries the same in the identified vehicles or, in exceptional circumstances, in such a manner as have been agreed to by the parties concerned. Let me, now, turn to the momentous question and the question is: In the face o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so provides. It may be pointed out that a person, who makes deduction, at source, has to maintain an account of such deduction and, if required, such books of account would have to be produced for inspection in order to ascertain as to whether the deduction at source, as were required, have or have not been made and also for the purpose of making assessment of the taxable liability of the person from whose bills, such deductions have been made. Non-production of the accounts or omission to maintain the accounts would amount to contravention of the provisions of the statute. In such circumstances, a person, who is directed to make deductions, would expose himself to criminal prosecution if he does not comply with these requirements. When the statute itself has not made a person liable for making deduction, at source, in respect of transfer of the right to use goods, such a liability cannot be imposed by making rules or issuing executive instructions and thereby expose the person, who is so made liable to make deductions, to criminal prosecution for contravention of the provisions of law. Thus, the effect of directing the petitioner-company to make deduction would expose the petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nalties provided for in section 6 of the Act. In these circumstances, we cannot hold that the appellants before us are not entitled to maintain the present application as they are directly concerned with the operation of the Act and may be prejudicially affected if there is any failure on their part as contemplated by the Act. The foundation for exercising jurisdiction under article 32 or 226 of the Constitution is ordinarily the personal or individual rights of the petitioner himself, though in the case of some of the rights like habeas corpus, quo-warranto, this rule may have to be relaxed or modified. But a personal right need not be in respect of a proprietary interest; it can also relate to interest of a trustee. That apart, in exceptional cases, as the expression "ordinarily" indicates, a person who has been prejudicially affected by an act or omission of authority can avail of a writ even though he has no proprietary or even fiduciary interest in the subject-matter thereof.' The preliminary objections are, accordingly rejected." I am wholly in respectful agreement with the views expressed by the Delhi High Court in S.R.F. Finance Ltd. [1995] 211 ITR 861 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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