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TMI Blog2021 (4) TMI 499X X X X Extracts X X X X X X X X Extracts X X X X ..... to the respective factories of the respective user with whom it had entered to operative lease agreement - Though under the Sale of Goods Act 1930, the definition of sale is restricted, it nevertheless recognizes any other document used in the ordinary course of business as a proof of possession or control of the goods or authorising or purporting to authorise, either by endorsement or by delivery, the processor of the document to transfer to receive the goods thereby represented. The expression crossing of the customs frontiers of India has been defined in Section 2(ab) of the Customs Act, 1962. As per the decision of the Hon ble Supreme Court in BSNL Vs. Union of India , [ 2006 (3) TMI 1 - SUPREME COURT] , actual delivery of the goods may not be necessary for effecting the transfer of the right to use the goods but the goods must be available at the time of transfer and must be deliverable and delivered at some stage - If the above principles in BSNL Vs. Union of India , are applied to the facts of the present case, the petitioner may contending that the extended definition of sale, viz. transfer of the right to use goods took place before actual clearance and there c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder Section 3-A of the Tamil Nadu General Sales Tax Act, 1959 on the ground that there was transfer of right to use goods within the State of Tamil Nadu by the petitioner in favour of the following four persons:- i. Sathia Match Works ii. Suriya Match Industries iii. The President Match Co. iv. Vasan Industries 2. The impugned orders are sought to be challenged primarily on the ground that the petitioner, a non banking financial company engaged in financing and equipment leasing to industrial consumers and the users had transferred a right to use goods, i.e. imported machineries, in favour of the above four persons during the respective Assessment Years prior to clearance of the goods from the customs barriers. Therefore, the sale was in the course of import within the meaning of Section 5(2) of the Central Sales Tax Act, 1956 and these transactions were exempted from levying tax under Section 3-A(2)(a) of the Tamil Nadu General Sales Tax Act, 1959. 3. The other grievances of the petitioner against the impugned orders are that they have been passed in gross violation of Rule 15(6) of the Tamil Nadu General Sales Tax Rules, 1959. It is submitted that as per the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the transactions involved payment of monthly lease rental for a period of 7 years and the ownership of the machinery continued to be with the petitioner and therefore, the Bills of Entry were filed by the petitioner. It is submitted that the transactions of deemed sale by virtue of the Agreement were prior to the goods crossing the customs barriers. The learned Senior Counsel for the petitioner also relied upon the decision of this Court in State Trading Corporation of India Limited Vs. State of Tamil Nadu and Another , (2003) 129 STC 294 (Mad), wherein, while considering the scope of Section 5(2) of Central Sales Tax Act, 1956 read with Section 2(ab) of the Customs Act, 1962, this Court held that for a sale to be one in the course of import it has to be either one which has occasioned the import or has been effected by a transfer of documents of title to the goods before the goods have crossed the customs frontiers of India. He further submits that in this case, before the goods were cleared, the respective operating lease agreements had been singed with the above four persons and therefore, there cannot be any levy of tax under the provisions of Tamil Nadu General Sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted that in the decision of the Hon'ble Supreme Court in State of A.P. Vs. National Thermal Power Corpn. Ltd. , (2002) 5 SCC 203, the Court considered its earlier decision in 20th Century Finance Corpn. case referred to supra , and concluded that a situs of sale so as to create territorial nexus attracting applicability of tax legislation enacted by any State Legislature and tax an inter-sate sale in breach of Section 3 of the CST Act read with Articles 286(2) and 269(1) and (3) of the Constitution cannot be justified. He further submitted that the Hon'ble Supreme Court in the above case held as follows:- 29. In 20th Century Finance Corpn. Case [(2000) 6 SCC 12] the Constitution Bench by reference to the definition of tax on the sale or purchase of goods [which too has been inserted as clause (29-A) in Article 366 by the Sixth Amendment] opined that the situs of sale can be fixed either by the appropriate legislature or by Judge-made law and no settled principles for determining situs of sale can be laid down. Further, the State Legislature cannot by law, treat sales outside the State and sales in the course of import as sales within the State by fixing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d law and therefore, this Writ Petition is liable to be dismissed in the light of the decision of the Hon'ble Supreme Court in Zunaid Enterprises and Others Vs. State of Chhattisgarh and Others , (2012) 4 SCC 211. In this connection, a reference was drawn to Paragraph No.7, wherein, in the context of inter-State sales, the Court observed as under:- 7. At the outset, we intend to note that in these types of cases, the High Court ought not to have entertained the writ petitions filed under Article 226 of the Constitution. We say so for the reason, that, whether a sale originating in a State is an inter-State sale or not is essentially a question of fact to be determined by the authorities under the Act, since it involves the application of the provisions of Sections 3, 5, 6 and 9(1) of the Act to the facts established and hence, it will be a mixed question of law and fact. The facts are required to be brought to the notice of the assessing authority by the appellants and it is for the assessing authority to come to a conclusion, based on those facts whether a particular transaction is intra-State sales which is exigible to the taxes under the VAT Act or inter-State sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Special Government Pleader for the respondent. 16. Since the dispute pertains to the Assessment Years 2004-2005 and 2005-2006 and since these Writ Petitions are pending considerably for a long period of 13 years before this Court, the Court is inclined to exercise its jurisdiction under Article 226 of the Constitution of India and therefore takes up the case for a final disposal on merits even though the petitioner may have an alternate remedy before an Appellate Authority under the provisions of the Tamil Nadu General Sales Tax Act, 1959. 17. In the facts of the present case, the respective Operating Lease Agreements with the respective buyers are on a stamp paper purchased in Chennai indicating that the agreements were signed at Chennai on the date specified therein. 18. The dates of the respective Agreements are after the imported goods sailed from South Korea as is evident from respective Bills of Entries. They were signed before the respective Bills of Entry were filed by the petitioner for clearing the imported goods. The details of the respective Bills of Entry and Bills of Lading are as follows:- Sl. No. Bill(s) Lading date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a sale or purchase of goods takes place in any of the ways mentioned in Clause (1) to Article 286 of the Constitution of India. Thus, Sections 3, 4 5 of the Central Sales Tax Act, 1956 were devised to satisfy the above requirements of Article 286(2) of the Constitution of India. 25. The 46th Amendment to the Constitution however expanded the definition of tax on sale and purchase by inserting Clause (29A) to Article 366 of the Constitution of India. Tax on the transfer of the right to use of any goods for any purpose (whether or not for a specified period) for cash, differed payment or other valuable consideration was made liable to tax. Concept of deemed sale was thus introduced under the Act. 26. As a sequitur, Article 286(3) of the Constitution was also amended to read as follows:- (3) Any law of the State shall, insofar as it imposes or authorizes the imposition of,- (a) a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-state trade or commerce; or (b)a tax on the sale or purchase of goods, being a tax of the nature referred to in sub-clause (b), sub- clause (c) or sub- clause (d) of clause (29- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ludes (i) .. (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 ; . 28. As per Sub-Section (2)(a) to Section 3-A of the Tamil Nadu General Sales Tax Act, 1959, taxable turnover of a dealer who has transferred the right to use any goods for any purpose, shall, on and from the first day of April 1986, be arrived after deducting all amounts involved in respect of goods involved in the business of transfer of the right to use any goods for any purpose, in respect of export of the goods out of the territory of India or in the course of import of goods into territory of India or in the course of inter-State trade or commerce. 29. Thus, by a statutory design, a deduction for determining the taxable turnover in the case of transfer of the right to use goods has been provided to exclude all expenses:- a) incurred in the course of export of the goods out of the territory of India; or b) incurred in the course of import of the goods into the territory of India; or c) incurred in the course of inter-state trad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x on a sale in the course of import. Therefore, if in the process of executing a works contract, a transfer of property in goods takes place in the course of import, the State would have no power to levy sales tax on such transfer. The price of goods supplied by a person who has assigned the contract for the purpose of executing a works contract cannot be treated as a part of the taxable turnover. 33. The Court further held that It may be that by virtue of subclause 3 of Article 286, it is open for the Parliament to impose some kind of restrictions or conditions which are not generally applicable to all kinds of sale . That, however cannot make other parts of Article 286 inapplicable to the transaction which was deemed to be sales under Article 366 (29-A) of the Constitution. 34. In Paragraph No.32, the Court categorically took a view that all transfers, deliveries and supplies of goods referred in Sub-Clause (a) to Sub-Clause (f) of Clause (29-A) of Article 366 of the Constitution are subject to the restrictions and conditions mentioned in Clause (1), Clause (2) and Sub-Clause (a) of Clause (3) of Article 286 of the Constitution of India. The Court specifically cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. 40. Though, not stated the observation in Paragraph No.35 extracted above is based on the language in Section 4 of the Central Sales Tax Act, 1956, which reads as under:- Section 4: When is a sale or purchase of goods 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. 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 contrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tory of India only if the sale or purchase either occasions such import or is effected by a transfer of documents of title to the goods before the goods have crossed the customs frontiers of India. 45. In K.Gopinathan Nair and Others Vs. State of Kerala , (1997) 10 SCC 1, the Hon ble Supreme Court held as under:- 14. In the light of the aforesaid settled legal position emerging from the Constitution Bench decisions of this Court the following propositions clearly get projected for deciding whether the concerned sale or purchase of goods can be deemed to take place in the course of import as laid down by Section 5(2) of the Central Sales Tax Act: (1) The sale or the purchase, as the case may be, must actually take place. (2) Such sale or purchase in India must itself occasion such import, and not vice versa i.e. import should not occasion such sale. (3) The goods must have entered the import stream when they are subjected to sale or purchase. (4) The import of the goods concerned must be effected as a direct result of the sale or purchase transaction concerned. (5) The course of import can be taken to have continued till the imported goods reach the local u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of the goods into the territory of India only if the sale or purchase either occasions the import of the goods or is affected by a transfer of the documents of title to the goods before the goods have crossed the customs frontiers of India. 49. Only such sales are exempted from the sales levy under Central Sales Tax Act, 1956 in view of the restriction contained in Article 286(1) of the Constitution of India and outside the purview of Tamil Nadu General Sales Tax Act, 1959. 50. In Coffee Board, Bangalore Versus Joint Commercial Tax Officer, Madras 1969 (3) SCC 349, the Hon'ble Supreme Court upheld the decision of this High Court and held that unless the transaction are inextricably bound up with the particular export, it cannot be said to be sale in the course of export. If no particular export was in sight, the sale by the Coffee Board cannot go beyond the description of sale for export. 51. The Court there held that the sale in the course of export comprises of (a) sale; (b) the goods must be exported; and (c) the sale must be a part and parcel of the export. It held that the sale must be integral part of the export transaction before it can be said to have oc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must be a consensus ad idem as to the identity of the goods; the transferee should have a legal right to use the goods-consequently all legal consequences of such use including any permissions or licences required therefor should be available to the transferee; for the period during which the transferee has such legal right, it has to be the exclusion to the transferor -this is the necessary concomitant of the plain language of the statute viz. a transfer of the right to use and not merely a licence to use the goods; having transferred the right to use the goods during the period for which it is to be transferred, the owner cannot again transfer the same rights to others. 56. In case of regular sale other than those involving deemed sale under the extended definition of sale in Section 2(g) of the Central Sales Tax Act, 1956 and 2(n) of the Tamil Nadu General Sales Tax Act, 1959 there is no difficulty in applying Section 5(2) of the Central Sales Tax Act, 1956. 57. As per the decision of the Hon ble Supreme Court in BSNL Vs. Union of India , (2006) 3 SCC 1, actual delivery of the goods may not be necessary for effecting the transfer of the right to use the goods bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctments. If argument of the petitioner is accepted, even though the transfer of the right to use continues after the actual import and lease rents are paid in pursuance of the agreements in State, no tax is payable though the taxable event recur during the period of lease. 64. The three citations given by the learned Senior Counsel for the petitioner was based on decision of the Hon'ble Supreme Court in 20th Century Finance Corporation Ltd case referred to supra. In State of AP Vs. National Power Corporation Ltd and others , (2002) 5 SCC 203, the Hon ble Supreme Court was concerned with inter-state sale of electricity between national thermal Power Corporation Ltd. and Electricity Boards of different States like State of Tamil Nadu, State of Kerala, State of Karnataka and State of Goa. 65. The Hon'ble Supreme Court in State of A.P. Vs. National Power Corporation Ltd. and others , (2002) 5 SCC 203, merely reiterated the principle that if there is no contract of sale preceding the movement of goods, obviously the movement cannot be attributed to the contract of sale. Similarly, if the transaction of sales stands completed within the state and the movement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itorial nexus attracting applicability of tax legislation enacted by any State Legislature and tax an inter-State sale in breach of Section 3 of the CST Act read with Articles 286(2) and 269(1) and (3) of the Constitution. No State legislation, nor any stipulation in any contract, can fix the situs of sale within the State or artificially define the completion of sale in such a way as to convert an inter-State sale into an intra-State sale or create a territorial nexus to tax an inter-State sale unless permitted by an appropriate Central legislation. But this is exactly what the definition of consumer in Section 2(a) of the M.P. Electricity Duty Act, 1949 has done. The definition of consumer has been artificially extended to include any person who receives electrical energy (without regard to its consumption) and also to include a person who, receiving the electrical energy in bulk, forwards it onwards for distribution, (without regard to the fact whether it is transmitted outside the State and whether the electricity is or is not consumed within the State). The same definition has been adopted in the M.P. UpkarAdhiniyam, 1981. This definition of consumer shall have to be read do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r lease agreement was entered into on April 17, 1998. There afterwards, the respondent bank ordered for machinery as per the specification of the company-Hindustan Power Plant Limited from the foreign manufacturer/supplier in Japan. While the goods were in transit, the assessee and the company-Hindustan Power Plant Limited entered into a supplementary lease agreement on July 31, 1998, which is stated to be part of the master lease agreement dated April 17, 1998. There, on behalf of the Commercial Tax Department, it was contended that the delivery taking place inside the State and therefore the question of the respondent having the benefit to deduction under Section 3A(2)(a) of the Tamil Nadu General Sales Tax Act, 1959 does not arise. It was concluded that under the supplementary lease agreement, a reference was made to invoice as well as a reference to the master lease agreement. The Court concluded that there was an inextricable link between the Master Agreement and the supplementary lease agreement on the one hand and the import of specific goods based on which the purchase order was placed. The various documents were placed by the Bank particularly the Bill indicating the name ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t claim exemption under Section 5(2) of the Central Sales Tax Act, 1956 for the entire period. 75. Further, it should be noted that in the case of ordinary sale , the transaction between the seller and the buyer ends with a single transaction. However, in the case of lease, where there is no transfer of ownership but only a transfer of possession and effective control. Tax is to be paid on the transaction for the period upto the period of lease under the Agreements. Each payment of lease rent would amount to extended definition of sale. Therefore, while the petitioner is entitled for deduction of lease rental received period upto the date of actual clearance of the imported goods from the customs barriers under Section 3-A of the Tamil Nadu General Sales Tax Act, 1959, for the period thereafter, i.e. after the effective possession and control were transferred to the respective lessees / actual users, the petitioner will be liable to pay tax under Section 3-A of the Tamil Nadu General Sales Tax Act, 1959. 76. Therefore, while upholding the impugned orders demanding sales tax for the period after delivery and transfer of effective control, I remit the cases back to the respond ..... X X X X Extracts X X X X X X X X Extracts X X X X
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