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TMI Blog2016 (2) TMI 988X X X X Extracts X X X X X X X X Extracts X X X X ..... favour of the revenue. - STRP Nos. 339-411/2015 C/W STRP No. 412/2015 - - - Dated:- 19-2-2016 - MR. JAYANT PATEL AND MRS. S SUJATHA JJ. PETITIONER: (BY SRI.K P KUMAR, SENIOR COUNSEL A/W SRI:VIKRAM HUILGOL FOR M/S KING PARTRIDGE, ADVOCATES) RESPONDENTS: (BY SRI.T K VEDAMURTHY, HCGP) JAYANT PATEL J., COMMON ORDER As in all the matters, since common question arises for consideration and the matters also arise from the common judgment and order passed by the Tribunal, they are being considered simultaneously. 2. The present petitions are directed against the order passed by the Tribunal in respect of the period of assessment from April, 2006 to March, 2011, whereby the Tribunal by its order dated 25.06.2015, recorded the reasons and has dismissed the appeals by holding that the petitioner is not entitled for the exemption by virtue of Section 5(2) of the Central Sales Tax Act, 1956 (hereinafter referred to as CST Act for short) in the transaction of lease effected during the periods of 2006-07 to 2010-11 and other consequential directions were also issued. 3. The short cut of the case appears to be that as per the petitioner during the periods of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so issued. The petitioner herein carried the matter before the Joint Commissioner of Commercial Taxes against the aforesaid re-assessment orders being the First Appellate Authority and the said First Appellate Authority vide order dated 28.02.2013 dismissed the appeals and confirmed the orders passed for re-assessment in respect of tax period of 2006-07 to 2007-2008. In the same manner, the other appeals were also preferred by the petitioner, ultimately, which came to be dismissed by the First Appellate Authority in respect of other assessment period of 2008-09 to 2010-11. The matters were further carried before the Tribunal by the petitioner against the aforesaid orders passed by the first Appellate Authority and the Tribunal vide order dated 25.06.2015, dismissed the appeal holding that the petitioner is liable to pay tax and no exemption is available under Section 5(2) of the CST Act. It is in these circumstances, the present petitions before this court. 5. As said, common questions arise for consideration and as the period relates to the year 2006-07 to 2010-11, the same are separately numbered as per their respective span of tax period. 6. We have heard Mr.K P Kumar, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FAA, it is suffice for us to consider one representative paper book for the purpose of analyzing the transactions to come to conclusion whether the leasing transactions effected by the appellant is in the course of import falling u/s.5(2) of the CST Act. The assessing authority has taken the stand after due analysis of MLA, PO, Bill of entry, Shipping authorization letter, Lease schedule, Acceptance Certificate and the invoice raised by the foreign vendor and the invoice by the HPFS that the appellant is the owner of the leased equipments and the leasing has taken place only after the end customer has issued the acceptance certificate. As per the AA, MLA governs all the financing/leasing transactions and all other documentations are ancillary to the Master Lease Agreement. While coming to this conclusion, the MLA has been analyzed and reliance is placed on Accounting Standard (AS)-19 and based on the fact that the transaction is in the nature of financial lease and the depreciation not being claimed by the appellant on the leased equipments. Per contra, the appellant has submitted that it is an integrated transaction and not two independent transactions to fasten the tax liab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ognate expressions, means any transfer of property in goods by one person to another for cash or deferred payment or for any other valuable consideration, and includes,- (i) a transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; (ii) a transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; (iii) a delivery of goods on hire- purchase or any system of payment by instalments; (iv) a 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; (i). xxx xxx xxx; (ii). Xxx xxx xxx. 10. From the reading of the Clause (iv) of Section 2(g) of the Act under definition of sale above clearly confirms the fact that the sale has wider connotation and meaning which includes even the leasing transactions. This has come into effect subsequent to the amendment of the Article 366 (29-A) of the Constitution of India. This fact is not being disputed either by the appellant or the respondent. The respondent views the transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bihar vs. Tata Engineering Locomotive Co. Ltd. [1971] 27 STC 127 (SC) constitution bench; 7. Deputy Commissioner of Agricultural Income Tax Service Tax vs. Kotak Co. [1973] 32 STC 6 (SC) constitution bench; 8. Binani Brothers Pvt. Ltd. Vs. Union of India [1975] 33 STC 254 (SC) constitution bench; 9. Mohammed Serajuddin vs. State of Orissa [1975] 35 STC 136 (SC) constitution bench; 10. Deputy Commissioner of Agricultural Income Tax Sales Tax vs. Indian Explosives Ltd. [1985] 60 STC 30 (SC) three members bench; 11. State of Maharashtra vs. Embee Corporation [1997] 107 STC 196 (SC) two members bench; 12. Minerals Metals Trading Corporation of India Ltd., vs. Sales Tax Officer [1998] 111 STC 434 (SC) two members bench; 1. The Indure Ltd. Another vs. Commercial Tax Officer 2010 (69) Kar.L.J. 369A (SC) two members bench; 2. K.Gopinathan Nair vs. State of Kerala/Cashew Corporation of India vs. State of Karnataka reported together in [1997] 105 STC 580 (SC) three members bench; 12. In the above decisions Ben Gorim Nilgiri Plantations Co. and Mohammed Serajuddin cases are related to the interpretation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oes not sell as principal the imported goods to the local users. (6) There must be either a single sale which itself causes the import or is in the progress or process of import or though there may appear to be two sale transactions they are so integrally inter-connected that they almost resemble one transaction so that the movement of goods from a foreign country to India can be ascribed to such a composite well integrated transaction consisting of two transactions dovetailing into each other. (7) A sale or purchase can be treated to be in the course of import if there is a direct privity of contract between the Indian importer and the foreign exporter and the intermediary through which such import is effected merely acts as an agent or a contractor for an on behalf of Indian importer. (8) The transaction in substance must be such that the canalizing agency or the intermediary agency through which the imports are effected into India so as to reach the ultimate local users appears only a as mere name lender through whom it is local import- cum-local user who masquerades. 13. The concept of integrated transactions is prominent in case of imports and exports, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sary to analyze the Master Lease Agreement (MLA), Purchase order placed by the end customer on the foreign vendor, Lease Schedule and the Acceptance Certificate and so also the Shipping Authorization letter. As stated above, the MLAs are common in all the cases and so also the purchase order, Lease Schedule and the acceptance certificate. Therefore, one representative MLA is taken for consideration for the analysis. The learned counsel has relied on the MLA entered with Mphasis during the arguments and after going through all the MLAs which have been submitted, the MLA entered with M/s. Logica CMG Private Limited with Registration number: JTA/PS/23830/CN21/2003 of Divyasree Technopolls, 124-125 Yemlur P.O. Off Airport Road, Blore 37 is taken for analysis reproduced hereunder:- xxx xxx xxx 15. It is pertinent to note that under Clause 2 of the MLA with a caption rental procedure , envisages the provisions of the schedule namely the leasing schedule will prevail over the provisions of the MLA to the extent of any inconsistency between them. It is also to be noted that the description of the equipment and financed items in a schedule differs from the descriptio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o billing. It is the end customer who clears the customs formalities and takes physical delivery of the goods and transports the same to his location. After due inspection of the goods and after due testing of the equipments imported on the strength of the purchase order placed by him i.e. the end customer, the acceptance certificate is issued in the form of Exhibit-B as envisaged under Clause 3.1 of the MLA. Only after the issuance of the acceptance certificate, the Lease Schedule is entered into as Master Rental and Financing Agreement (MR FA). Before inking the Lease Schedule, the end customer is bound to novate by transfer or assignment of the purchase documents in favour of the appellant. For this purpose, it is essential to look into the Acceptance Certificate and Novation Notice . The specimen copies of the same in respect to the above mentioned agreement is reproduced hereunder:- xxx xxx xxx 16. It is pertinent to note that only after issuance of acceptance certificate, lease acceptance and financing acceptance, Master Rental and Financing Agreement (MR FA) as supplementary agreement to the MLA comes into existence. This fact is evident from the definiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny equipment or financed items and the appellant in noway responsible for any of the equipments imported by the end customer except for financing and the appellant appears in the leasing scenario only after the execution of the supplementary agreement namely the lease schedule. Thus the factual matrix present in the present case clearly proves that there are two independent transactions even thought the contract is back to back contract which cannot be considered as an integrated transaction in the course of import and hence the transaction does not fall under the purview of Section 5(2) of the CST Act. 17. The appellant submits that the transactions effected by him squarely fits into the factual matrix prevailing in the Karnataka Bank Limited case cited supra decided by the Hon ble Madras High Court by its judgment dated 30th September 2011. The factual matrix available has been narrated by her lordship at paragraphs Nos. 10 and 11 of the said decision. The comparative matrix is distinct from the present case. In order to illustrate the same, the chronological events vis- -vis prevailing in the present case is analyzed hereunder:- (A). Karnataka Bank Limited c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment for exemption u/s. 5(2) of the CST Act. In the same manner, Embee Corporation case cited supra is also not applicable for the same reason that the occasioning of import does not result in the purchase of goods/equipments by the appellant. Further, the advance rulings relied upon by the appellant is not applicable in the present case since the factual matrix is distinct. Hence, the transactions effected by the appellant are not covered by the exemption clause as envisaged u/s. 5(2) of the Act. 19. Even by following the minority opinion of K.Gopinathan Nair vs. State of Kerala/Cashew Corporation of India vs. State of Karnataka reported together in [1997] 105 STC 580 (SC) (three members bench), the transactions effected by the appellant can not be construed as an integrated transaction. The dissenting opinion was given by her lordship Ms.Sujata V.Manohar (J.) who emphasized that: this seldom happens in the case of imports whenever the local seller imports the goods as per the specification of a specific local buyer and on the mutual understanding between the local buyer and the local seller that the goods so imported by the local seller will be purchased by the local ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hus there does not exist any inseverable link in the transactions effected by the appellant. 20. Thus following the ratio laid down by the Hon ble Apex Court in Cashew Corporation of India / K.Gopinathan Nair case cited supra, the leasing transactions effected by the appellant is not in the course of import as there is no occasioning the movement of goods from the foreign vendor at the instance of the appellant and thereby leasing the same to end customer does not fall under the purview of 5(2) of the CST Act. Once it falls outside the purview of Section 5(2) of the CST Act, the concerned transactions are nothing but sale falling under Section 2(29) of the KVAT Act 2003 and the turnovers qualifies as taxable turnover as per Section 2(34) of the KVAT Act and thus chargeable for VAT in the State. 21. Coming to the issue of levy of penalty and interest, it is observed that the appellant infact had not declared taxable sales at all during the impugned tax periods of April 2005 to March 2013. This fact has been admitted under the sequence of the events available on STA No.2063/2014. The relevant paragraph is reproduced hereunder: The appellant, during a periodic revie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case, it is strange to note that the lower authorities have not taken cognizance of such omissions and have not given any definite finding on the admission of interest paid voluntarily by the appellant. In these circumstances, it is not possible to accept the version of the appellant that the mistakes are inadvertent and the interest as per Section 36 of the KVAT Act, 2003 is mandatory and the imposition of interest is valid. So far as penalty is concerned as there is under statement of tax liability by not admitting the tax at all on the disputed transactions claiming that the same are liable for exemption is not acceptable proposition. Even the tax avoidance is also to be penalized on equal footing as tax evasion or suppression. As the question of mens-rea is not requisite condition for the imposition of penalty u/s. 72(2) of the Act, the penalty imposed has to be upheld. In this regard, the reliance is placed on the decisions of the Hon ble Supreme Court rendered in the cases of Guljag Industries vs. Commercial Tax Officer reported in (2007) 09 VST 1 (SC) and Assistant Commercial Tax Office vs. Bajaj Electricals Limited reported in (2008) 18 VST 436 (SC). Infact, the Hon bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw and fact. Therefore, the judicial scrutiny may be available even in the present petition. It was also submitted by the learned counsel for the appellant that if the finding recorded by the Tribunal is perverse to the record of the case, such would also fall under the judicial scrutiny of this Court in the present petition. He submitted that, the purchase order which was already produced is not considered and the Tribunal has recorded a finding on the premise that the appellant has not placed any purchase order on the oversees supplier. It was also submitted that all documents produced pertaining to the transactions right from MLA till rental agreement is entered into between the petitioner and the lessee were produced. The Tribunal failed to consider the same and has recorded a finding which is not supported by the document or has recorded finding ignoring the documents produced on record and therefore, the learned counsel submitted that such being the situation, the judicial scrutiny would be available to this Court in the present petition. 15. He submitted, under these circumstances, this Court may further examine and thereafter, if the only one view is available or only on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ogy Park Scheme, the Export Promotion Capital Goods Scheme or a similar scheme instituted by the Indian Government (or any state government) under which you afforded concessional customs and/or excise treatment (hereinafter referred to as a Scheme ), and (ii) you are consequently authorized (under the EXIM Policy, the Customs Act, 1962, the terms of the applicable Scheme and any other applicable law), to import equipment (including the Equipment leased under this Schedule) into India at a nil rate of duty or of a concessional rate of duty (as determined by the rules applying to the applicable Scheme). (b) You represent and warrant that you have complied and will continue to comply with all of the requirements of the EXIM Policy, the requirements of the applicable customs authorities, the requirements of any other authorities, the rules of the applicable Scheme and all applicable laws in India that apply in respect of the import of the Equipment as describedin paragraph (a) above. You acknowledge and agree that you will have sole responsibility to administer the import of the Equipment into India and shall comply with all applicable laws in the course of such imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the Customs Act. If the contention raised by the petitioner that it is the petitioner who has imported the goods in capacity as the owner of the goods and the contention is tested up to its logical end, it may dis-entitle the petitioner to claim any benefit of the duty under the Customs Act since it is not going to use those goods for itself in export oriented unit scheme and at the same time, the customer may not be entitled for the benefit of the scheme because customer is not the owner of the goods as per the say of the petitioner and it is the petitioner who is the owner of the goods. It is hardly required to be stated that if the importer is importing the goods on behalf of somebody, naturally, the principal shall be entitled to the benefit. Further, the customer has not acted as a clearing agent at the customs but the customer in the present case themselves have imported the goods. We may not be understood to mean that we have expressed any view on the aspects of liability to pay any customs duty for the entitlement of exemption of the duty as the case may be. But in order to test the submission as to whether indivisible link of the transaction is broken or divided or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment of the ownership and the entering of the lease agreement after the products are on Indian territory both can be said as substantial novation of the first agreement because after the so called MLA agreement is entered into, the relationship as that of the leassor and the lessee is severed and is shown as that the customer being the owner and the petitioner being rendering only finance. Thereafter, on account of the again novation of the contract, the ownership is entrusted by the customer to the petitioner and then the rental lease agreement is entered into. 24. If the aforesaid is considered with the broad reasons recorded by the Tribunal, it is not possible to accept the contention of the learned counsel for the appellant that the finding recorded by the Tribunal for division of the link and non-satisfying of both the conditions is the only view which could be possible. As such, as observed by us hereinabove, if we consider the material produced taking a lenient view that it was mixed question of law and fact, therefore, wider scrutiny, then also in our view it can be said to be a finding of fact by the Tribunal which cannot be said to be impermissible view but rather can ..... X X X X Extracts X X X X X X X X Extracts X X X X
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