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TMI Blog2017 (7) TMI 727X X X X Extracts X X X X X X X X Extracts X X X X ..... out registration so long as he does not intend to use. If he intends to use it, the registration assumes significance. As we can see, the Motor Vehicles Act regulates the use of a motor vehicle, and the sale, predates the use. Not everyone who owns a motor vehicle uses it, possessing vintage or antique cars--wealth in itself--being a case in point - the sale of a motor vehicle is governed by the Sale of Good Act, and its use by the Motor Vehicles Act. It is now well settled that strong suspicion, strange coincidences and grave doubts cannot take the place of legal proof - the Commissioner observes that the dealer takes from the used-vehicle owner a "sale letter/sale deed." Incorrect. What the dealer obtains are Forms Nos.29 & 39, signed in blank, though. And neither of them is a sale letter or sale deed, nor does the statute compel the dealer, to be the owner, to obtain one. Appeal dismissed - decided against Revenue. - C. E. Appeal Nos. 14 & 15 of 2014 - - - Dated:- 7-7-2017 - Antony Dominic And Dama Seshadri Naidu, JJ. For the Petitioner : Sri John Varghese, SC, Sri. P. R. Srejith, SC For the Respondent : Smt. K. Latha JUDGMENT Dama Seshadri Naidu, J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holds Service Tax Registration Certificate, too, like Sai. 6. The appellant-Department issued two show-cause notices: one on 12.04.2012 demanding service tax of ₹ 98,66,785/- for the period from 01.10.2006 to 31.03.2011, and another on 15.04.2013 for ₹ 44,09,962/-, the period being 2011-2012. 7. After hearing Indus, the same adjudicating authority, through his order-in-original, dated 05.09.2013, confirmed the demand. Aggrieved, Indus filed an appeal before the CESTAT, Bangalore, which allowed it through its Order, dt.19.02.2014. So, the Commissioner of Central Excise is before this Court. The Commissioner's Findings: 8. The transaction of sale takes place only between the registered owner and the purchaser, for which Sai or Indus acts as a mediator/ intermediary by obtaining blank sale letters signed from the RC owner. So the services rendered by Sai or Indus by selling the vehicles provided by or belonging to their clients/ customers would fall under subordinators clause (i) Section 65 (19) of the Finance Act of 1994 (as amended). The Appellate Tribunal's Findings: 9. The owner of the vehicle delivers the property and receives the sale p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icle, contends the learned Standing Counsel, with a view to getting more margin, though the price of the used vehicle vis-`-vis its owner remains fixed. He has strenuously contended that unless the used vehicle is sold or transferred in the manner provided under the Motor Vehicles Act, it cannot be said that there is a valid sale. 15. The learned Standing Counsel has further submitted that the dealer, by performing various acts, contravenes, for instance, Sections 68, 69, and 70 of the Finance Act, 1994, read with Rules 4, 6, and 7 of the Service Tax Rules, 1994. It is with intent to evade the service tax. 16. Eventually, the learned Standing Counsel has contended that the Department has recorded the statements of the dealer's officers and a couple of its customers, all of whom have uniformly said that the dealer only renders service. The Dealer's Contentions: 17. Smt. K. Latha, the learned Counsel for Sai and Indus, has submitted that the dealer purchases the used vehicle from its owner, uses its expertise to refurbish the vehicle, makes it more marketable, and eventually sells for a margin. She has submitted that the original owner will have nothing to do with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e vehicles of their choice. Some people, however, prefer to exchange their old vehicle and take a new one after paying the balance sale price. 23. To caters to the needs of the second category, the dealer sells the used cars in two categories: Maruti True Value and Non- True Value vehicles. It collects 25% of the sale price as `Management Fee' for the sale of Maruti True Value Vehicles using (MSIL) logo. It pays that 25% `Management Fee' to MSIL. 24. On striking a deal with the owner, the dealer takes delivery of the used vehicle and issues a delivery receipt, specifically undertaking the responsibility of the vehicle till it is sold or transferred to a new buyer. But when it takes delivery, the dealer obtains the owner's signatures on blank Form-29 and Form-30 under the Motor Vehicles Act and Rules. It also issues a possession letter to the owner admitting that it has taken possession of the vehicle, RC book, Insurance documents, and other documents, in the original. 25. After taking possession, the dealer repairs and refurbishes the vehicle at its workshop, displays the vehicle at its used-car showroom until it finds a buyer. While selling the refurbished veh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ediments so that islands of isolation are not created leading to regional or local imbalances; (d) concern for road safety standards and pollution-control measures, standards for transportation of hazardous and explosive materials; and (e) need for effective ways of tracking down traffic offenders. 30. The legislation in its latest manifestation has aimed at taking care of, among other things, the following: (a) modification and amplification of certain definitions of new type of vehicles; (b) simplification of procedure for grant of driving licences; (c) putting restrictions on the alteration of vehicles; (d) certain exemptions for vehicles running on non-polluting fuels; (e) ceilings on individuals or company holdings removed to curb `benami' holdings; (f) States authorised to appoint one or more State Transport Appellate Tribunals; (g) punitive checks on such components as do not conform to the prescribed standards by manufacturers, and also stocking/sale by the traders; (h) increase in the compensation to the victims of hit and run cases; (i) removal of time limit for filing of application by road accident victims for compensation; (j) stringent punishment for certain of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of lease or an agreement of hypothecation, the person in possession of the vehicle under that agreement. 35. Initially we talked about the scope and ambit of the motor vehicles act: the motor vehicle's use or transportability on roads; in other words, its pliability. The definition of owner under the Act, too, connotes the authority of a person who can ply the vehicle. It does not, we reckon, deal with who possess the vehicle as an asset or as goods, for under this Act a motor vehicle is not goods at all. 36. The Act does not prescribe or regulate how a person can own a vehicle; the mercantile element of a vehicle as goods is blissfully absent. Its user, on the other hand, has been emphasized and regulated upon. No owner or person in charge of a motor vehicle, declares Section 5, shall cause or permit any person who does not satisfy Section 3 or Section 4 to drive the vehicle. Section 8 to 28 of the Act deal with driving licence; Sections 29 to 38 with licensing of conductors of the stage carriage. 37. The motor vehicle registration--not its buying, which is distinct and different--is dealt with in Chapter IV of the Act. We believe Section 39 of the Act puts paid to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained-- (I) the receipt obtained under sub-section (2) of Section 48; or (II) the postal acknowledgement received by the transferor if he has sent an application in this behalf by registered post acknowledgement due to the registering authority referred to in Section 48, together with a declaration that he has not received any communication from such authority refusing to grant such certificate or requiring him to comply with any direction subject to which such certificate may be granted; (b) . . . (2) Where-- (a) (b) (3) If the transferor or the transferee fails to report to the registering authority the fact of transfer within the period specified in clause (a) or clause (b) of sub-section (1), as the case may be, . . . the registering authority may, having regard to the circumstances of the case, require the transferor or the transferee, or the other person, as the case may be, to pay, in lieu of any action that may be taken against him under Section 177, such amount not exceeding one hundred rupees as may be prescribed under sub-section (5): Provided that action under Section 177 shall be taken against the transferor or the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be governed by the provisions of Section 19 of the Sale of Goods Act according to which property in the vehicle would pass to Defendant 1 at such time as the parties to the contract intend it to be transferred. Thus the passing of property in the goods would be dependent upon the intention of the parties, as evidenced from the contract. 43. Given the declaration of law in Vasantha Viswanthan, no more precedential prop do we need to hammer home the proposition that the sale or the ownership transfer of a motor vehicle is governed by the Sale of Goods Act, but not the Motor Vehicles Act. What Are Forms 29 30? 44. Rule 55 of the Central Motor Vehicle Rules provides for the procedural parameters to further statutory stipulation under Section 50 of the Act: transfer of ownership. As per sub-rule (1), if the ownership of a motor vehicle is transferred, the transferor shall report the fact of transfer in Form 29 to the registering authority concerned. So, contrary to the Department's contention, Form 29 is a letter of mere intimation, rather than a letter of ownership-transfer. Form 30, in fact, is the application under sub-rule (2) for transferring motor vehicle owner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in writing. This requirement was never applied to exchanges, though. Neither of the Acts, English and Indian, now seems to compel the parties to have the contract in writing. (c) Exchange: 51. In this case, true, we are dealing with an exchange in part. Professor Michael Furmston in his Sale and Supply of Goods ( Michael Furmston's Sale Supply of Goods, 3rd Ed. (Cavendish) ) deals with part-exchange. According to him, part-exchange is very common, particularly about motor cars. This raises the question of the correct classification of, for example, an agreement to exchange a new car for an old one plus a payment of ₹ 2 lakh. In practice, this is often solved by the way that the parties write up the contract. In many cases they will price each car so that the natural analysis is that there are two sales with an agreement to pay the balance in cash. This was how the transaction was approached in Aldridge v Johnson (1857). 52. Professor Michael Furmston further observes that many `new for old' car trades would be susceptible to this two-contract approach. An alternative approach would be to say that the new car was being sold but that the customer was given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th of Section 23 of the Contract Act and not otherwise. (e) Contract Intention: 56. The scheme of the Sale of Goods Act does not provide for any mandatory condition that a contract must be in writing. As to how the contract, be it oral or written, must be executed, Section 19 of the Act spells out: 19. Property passes when intended to pass.--(1) Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred. (2) For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case. (3) Unless a different intention appears, the rules contained in Sections 20 to 24 are rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer. 57. According to Section 20 of the Act, if there is an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passes to the buyer when the contract is made. It is immaterial, the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on reasonable margin. In some cases they may incur loss also. 63. The Department has placed much reliance on Section 65(19) of the Finance Act of 1994. It defines Business Auxiliary Service. As we shall see, Chapter V of the Finance Act of 1994 deals with the service tax. Section 65 is the lexical provision. Sub- section (19) defines business auxiliary service. It reads thus (as quoted in the Commissioner's order): Business auxiliary service means any service in relation to- (i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or (ii) promotion or marketing of service provided by the client; or (iii) any customer care service provided on behalf of the client; or (iv) any incidental or auxiliary support service such as billing, collection or recovery of cheques, accounts and remittance, evaluation of prospective customer and public relation services, and includes services as a commission agent, but does not include any information technology service. Explanation- For the removal of doubts, it is hereby declared that for the purposes of this clause, ''information technology service'&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of the Sale of Goods Act, not those of the Transfer of Property Act, apply. It has also held that that the certificate of registration is not a document of title but is an important piece of evidence to show the ostensible owner of the vehicle liable to pay taxes and to perform duties and obligations under the Motor Vehicles Act. But the endorsement of transfer on such certificate is not a condition precedent to the validity of the sale, and its absence does not render an otherwise valid sale as illegal or ineffective. 69. In the above factual context, the Delhi High Court has further observed: [However failure to do so cannot be deemed to militate against the validity and legality of the passing of the title in the vehicle so transferred or to expose the innocent seller who may have done his all to complete the transfer to legal liabilities for acts an omission in respect of the vehicle subsequent to the transfer. Moreover, the certificate of registration is not document of title it is issued other owner of the vehicle, that it the person by whom the vehicle is kept and used and although proviso is made for changes of ownership to be recorded in the book the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court has also affirmed that If the transferee fails to have the registration certificate in his name, he may liable for punishment in terms of Section 112 of the MV Act, 1939 or Section 177 of the MV Act, 1988. But the property in the vehicle will stand transferred in terms of Section 19 of the Goods Act, when it was intended it being movable property. 72. First we must acknowledge that the sale and the registration of the sale are two distinct acts. The sale of a motor vehicle, movable property, takes place under Section 19 of the Sale of Goods of Act. But if the transferee intends to get statutory protection as the owner of the transferred vehicle, he alone must invoke Section 31 of the Act to have the vehicle transferred on to this name. 73. Evidently, to sell an immovable property, we must register the transaction. The deed of sale may be executed one day and registered another day; they need not be contemporaneous. Then, when has the sale taken place--on the day the deed is executed or on the day it is registered? On the day the deed is executed. The sale relates back. 74. The registration serves a public purpose, letting the world know that the property belongs to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lements of price paying and possession delivering stand concluded at the beginning. 78. In para 31 of the order, the Commissioner observes that the dealer takes from the used-vehicle owner a sale letter/sale deed. Incorrect. What the dealer obtains are Forms Nos.29 39, signed in blank, though. And neither of them is a sale letter or sale deed, nor does the statute compel the dealer, to be the owner, to obtain one. 79. Indeed, it is poetic justice to invoke the legal proposition paraded by the Department in para 46 of the order: It is now well settled that strong suspicion, strange coincidences and grave doubts cannot take the place of legal proof ( State of Kerala v. M.K. Mathew, (1978) 42 STC 348 ). 80. The order heavily relies on CIT v. Ganga Property Ltd., (1970) 177 ITR 637(Cal) and CIT v. Zorostrian Building Society Ltd., (1976) 102 ITR 499 (Bom) to hold that a registered document is necessary to give effect to the sale. The order supplies double emphasis to this observation. But it fails to note the further observation in those judgments: In the case of a sale of immovable property a registered document is necessary to give effect to the sale. 81. In CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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