M/S Ultratech Cement Limited vs State Of Chhattisgarh

The instant Review Petition has been filed by the Petitioner Company seeking review of the Order/Judgment dated 5.12.2017 passed by this Court in W.P.(T) No.128/2015.

Challenge in the aforesaid Writ Petition was to the Order dated 30.5.2015 whereby the Revisional Authority i.e. the Additional Commissioner, Commercial Tax, Raipur in a Revision Petition under Section 49(1) of the Chhattisgarh Value Added Tax Act, 2005 (for short, “the VAT Act”) had affirmed the Order dated 22.12.2014 passed by the Assessing Officer i.e. the Divisional Commissioner, Division-I, Raipur.

The whole issue was with regard to the levy of VAT (Value Added Tax) on the lease charges paid by the Railways Department to the Petitioner Company. The levy of tax was under Section 2(s)(vi) of the VAT Act for the assessment year 2009-10. The assessment for the year 2009-10 was completed on 22.12.2014. In the course of assessment, the Assessing Officer assessed an amount of Rs.29,20,347/- as lease rent obtained by the Assessee from the Railways Department under Section 2(s)(vi) of the VAT Act. According to the Assessing Officer, the said transaction amounted to deemed sale and accordingly the tax was assessed on the above mentioned amount at the rate of 18% which came to around Rs.4,08,849/-. It was this assessment which was under challenge in the aforesaid W.P.(T) No.128/2015. However, vide Order dated 5.12.2017 the said Writ Petition got dismissed, which led to the filing of the present Review Petition.

The present Review Petition has been filed seeking for recalling of the Order dated 5.12.2017 as the said decision of this Court was said to be clearly contrary to the legal principles settled by the Hon'ble Supreme Court in the case of “20th Century Finance Corpn. Ltd. & Anr. Vs. State of Maharashtra” [2000 (6) SCC 12] and was also in contravention to the decision rendered by the coordinate Bench of this Court in the case of “M/s Raymond Ltd. & Anr. Vs. The Additional Commissioner, Commercial Tax & Ors.” [W.P. No.283/2005 decided on 5.5.2011]. Similar views have also been taken by the Madhya Pradesh High Court which too was relied upon by this Court while deciding the case of “M/s Raymond Ltd.” (supra).

According to learned Counsel for Review Petitioner, it is a case where the transfer of right to use has taken place outside the State of Chhattisgarh and therefore the State of Chhattisgarh could not have imposed or levied the tax on the said transaction. Referring to the provisions of Section 2(s)(vi) of the VAT Act, learned Counsel submits that it is only the element of transfer of right to use which has to be looked into by this Court while deciding the veracity of the assessment and the levy of tax on the said transfer or right to use is not a relevant factor to be considered. It is strictly the element of transfer of right to use and the point at which the transfer of right to use has been made which is paramount while deciding the issue under Section 2(s)(vi) of the VAT Act. In view of the same, learned Counsel for Review Petitioner has sought for the review of the Order passed by this Court in W.P.(T) No.128/2015 on 5.12.2017.

It was the further contention of learned Counsel for Review Petitioner that certain sales which are not leviable to tax are provided under Section 38 of the VAT Act. In the instant case also since the sale has taken place outside the State of Chhattisgarh, the transactions would not be leviable to tax. Thus, the Orders of the Assessing Officer and the Revisional Authority both were erroneous and which has not been properly considered by this Court, particularly keeping in view the decision of the Hon'ble Supreme Court in the case of “20th Century Finance Corpn. Ltd.” (supra) and also in the case of “M/s Raymond Ltd.” (supra).

Learned State Counsel on the other hand submits that it is a case where this Court rightly or wrongly has taken a decision upholding the Orders of the Assessing Officer as also the Revisional Authority. This Court has also considered the Judgment of “20th Century Finance Corpn. Ltd.” (supra) in its Order while dismissing the Writ Petition. Thus, there is no scope of any review available for the Petitioner Company to approach this Court again. According to learned State Counsel, there is no error apparent on the face of record and since there is no error apparent on the face of record, the grounds raised by the Petitioner Company in the instant Review Petition would not be sustainable and the Review Petition accordingly deserves to be dismissed.

The definition of “tax on the sale or purchase of goods” is provided under clause (d) of Section 29A of Article 366 of the Constitution of India, which reads as under:-

“(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;”

The VAT Act is an enactment under the State Legislature under Entry 54 of List-II of Schedule 7 of the Constitution of India, which for ready reference is being reproduced herein below:-

“54. Taxes on the sale of petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas, aviation turbine fuel and alcoholic liquor for human consumption, but not including sale in the course of inter-state trade or commerce or sale in the course of international trade or commerce of such goods.”

There is yet another entry in the Constitution of India introduced by the Sixth Amendment in 1956 and wherein Entry 92A was inserted in List-1 of

Schedule 7, which also for ready reference is being reproduced as under:-

“92A. Taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-state trade or commerce.”

The aforesaid provisions of law came up for consideration before the Hon'ble Supreme Court in the matter of “20th Century Finance Corpn. Ltd.” (supra) and the Hon'ble Supreme Court in its Judgement in Paragraphs 24, 25, 26, 27 and 35 has held as under:-

“24. The aforesaid decisions unambiguously laid down that where situs of sale has not been fixed or covered by any legal fiction created by the appropriate legislature, the location of sale would be place where the property in goods passes. The Constitution Bench held, that it was the passing of the property within the State that was intended to be fastened on for the purpose of determining whether the sale was inside or outside the State.

It was then urged on behalf of respondents that, it is the location of goods where they are put to use would furnish the situs of sale. According to them, there would be no completed transfer of right to use goods until the goods are delivered. We have traced the legislative history of sales tax in this country only to show that, excepting where the appropriate legislature by creating legal fiction fixed the situs of sale on location or delivery of goods for consumption like omitted Explanation to Article 286(1)(a), there is no authority to show that mere location or delivery of goods would be the situs of sale. Here, we would like to cite an appropriate illustration given in the decision in Bengal Immunitys case (supra) only to resolve the controversy before us. The illustration given is as under:

“Take, for instance, a case where both the seller and the buyer reside and carry on business in Gurgaon in the State of Punjab. Let us say that the seller has a godown in the State of Delhi where his goods are stored and that the buyer has also a retail shop at Cannought Circus also in the State of Delhi. The buyer and the seller enter into a contract at Gurgaon for the sale of certain goods and a term of the contract is that the goods contracted to be sold will be actually delivered from the sellers godown to the buyers retail shop, both in the State of Delhi, for consumption in the State of Delhi. Pursuant to this contract made in Gurgaon in the State of Punjab, the buyer pays the full price of the goods at Gurgaon and the seller hands over to the buyer also at Gurgaon a delivery order addressed to the seller's godown-keeper in Delhi to deliver the goods to the buyers retail shop.

As a direct result of this sale the sellers godown-keeper, on the presentation of this delivery order, actually delivers the goods to the buyers retail shop at Connaught Circus for consumption in the State of Delhi. On one view of the law, the situs of such a sale would be Gurgaon. We need not decide that it is, because that type of case is not before us and there may be other views to consider, but it is certainly a possible view.

It is also possible to hold that this is not inter-State trade or commerce, because there is no movement of goods across a State boundary. Again, we need not decide that because that also may be controversial. But given these two postulates the transaction would fall squarely within the Explanation and yet it would not come within clause (2), for there is no movement of the goods across the border of any State and both the seller and the buyer are in the same place. Surely, the Explanation will, in presenti, govern such cases irrespective of whether Parliament has lifted the ban under clause (2).

If these postulates are accepted then by virtue of clause (1)(a) read with the Explanation the State of Delhi alone will be entitled to impose a tax on such a sale or purchase and the State of Punjab will be precluded from doing so by reason of the fictional situs assigned to such a sale or purchase by Explanation, although the contract was made, price was paid and symbolical or constructive delivery of the goods by the handing over of the delivery order took place in Gurgaon in the State of Punjab.”

We, therefore, find that the location or delivery of goods within the State cannot be made a basis for levy of tax on sales of goods. Under general law, merely because the goods are located or delivery of which has been effected for use within the State would not be the situs of deemed sale for levy of tax if the transfer of right to use has taken place in another State. Therefore, the contention, on behalf of the respondents that there would be no completed transfer of right to use goods till the goods are delivered is to prevail, then the respondents are further required to show that the contract of transfer of right to use goods is also entered into in the said State in which the goods are located or delivered for use. The State cannot levy a tax on the basis that one of the events in the chain of events has taken place within the State. The delivery of goods may be one of the elements of transfer of right to use, but the same would not be the condition precedent for a contract of transfer of right to use goods. Where a party has entered into a formal contract and the goods are available for delivery irrespective of the place where they are located, the situs of such sale would be where the property in goods passes, namely, where the contract is entered into.

Next question that arises for consideration is, where is the taxable event on the transfer of the right to use any goods. Article 366(29A)(d) empowers the State legislature to enact law imposing sales tax on the transfer of the right to use goods. The various sub-clauses of clause (29A) of Article 366 permit the imposition of tax thus: sub-clause (a) on transfer of property in goods; sub-clause (b) on transfer of property in goods; sub-clause (c) on delivery of goods; sub-clause (d) on transfer of the right to use goods; sub-clause (e) on supply of goods; and sub-clause (f) on supply of services. The words and such transfer, delivery or supply. In the latter portion of clause (29A), therefore, refer to the words transfer, delivery and supply, as applicable, used in the various sub-clauses. Thus, the transfer of goods will be a deemed sale in the cases of sub-clauses (a) and (b), the delivery of goods will be a deemed sale in case of sub-clause (c), the supply of goods and services respectively will be deemed sales in the cases of sub- clauses (e) and (f) and the transfer of the right to use any goods will be a deemed sale in the case of sub-clause (d). Clause (29A) cannot, in our view, be read as implying that the tax under sub-clause (d) is to be imposed not on the transfer of the right to use goods but on the delivery of the goods for use. Nor, in our view, can a transfer of the right to use goods in sub-clause (d) of clause (29A) be equated with the third sort of bailment referred to in Bailment by Palmer, 1979 edition, page 88. The third sort referred to there is when goods are left with the bailee to be used by him for hire, which implies the transfer of the goods to the bailee. In the case of sub-clause (d), the goods are not required to be left with the transferee. All that is required is that there is a transfer of the right to use the goods. In our view, therefore, on a plain construction of sub-clause (d) of Clause (29A), the taxable event is the transfer of the right to use the goods regardless of when or whether the goods are delivered for use. What is required is that the goods should be in existence so that they may be used. And further contract in respect thereof is also required to be executed. Given that, the locus of the deemed sale is the place where the right to use the goods is transferred. Where the goods are when the right to use them is transferred is of no relevance to the locus of the deemed sale. Also of no relevance to the deemed sale is where the goods are delivered for use pursuant to the transfer of the right to use them, though it may be that in the case of an oral or implied transfer of the right to use goods, it is effected by the delivery of the goods.

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 accrues only on account of the transfer of right. In other words, right to use arises only on the transfer of such a right and unless there is transfer of right, the right to use does not arise. Therefore, it is the transfer which is sine qua non for the right to use any goods. If the goods are available, the transfer of the right to use takes place when the contract in respect thereof is executed. As soon as the contract is executed, the right is vested in the lessee. Thus, the situs of taxable event of such a tax would be the transfer which legally transfers the right to use goods. In other words, 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 for the transfer of right to use goods. But in case of an oral or implied transfer of the right to use goods it may be effected by the delivery of the goods.

As a result of the aforesaid discussion our conclusions are these:

(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 course of import or export.

(b) The appropriate legislature by creating legal fiction can fix situs of sale. In the absence of any such legal fiction the situs of sale in case of the transaction of transfer of right to use any goods would be the place where the property in goods passes, i.e. where the written agreement transferring the right to use is executed.

(c) Where the goods are available for the transfer of right to use the taxable event on the transfer of right to use any goods is on the transfer which results in right to use and the situs of sale would be the place where the contract is executed and not where the goods are located for use.

(d) In cases where goods are not in existence or where there 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.

(e) The transaction of transfer of right to use goods cannot be termed as contract of bailment as it is deemed sale within the meaning of legal fiction engrafted in clause (29A) (d) of Article 366 of the Constitution wherein the location or delivery of goods to put to use is immaterial.”

From the aforesaid authoritative decision of the Hon'ble Supreme Court in “20th Century Finance Corpn. Ltd.” (supra), it is evidently clear that the Hon'ble Supreme Court had in its mandate held that in respect of transfer of right to use any goods, the situs of the sale would be placed where the written agreement transferring the right to use any goods was executed and it is only that State where the written agreement was executed which is empowered to levy tax.

The lease agreement in the instant case was signed in 1996 on 19.3.1996 to be precise. The agreement was signed in Calcutta (now Kolkata).

The Petitioner is a Company with its Registered Office at Mumbai. The High Court of Orrisa in “M/s Shrei International Finance Ltd. Vs. State of Orissa & Ors.” [2008 (Supp.-l) OLR-764] in somewhat identical set of facts has held that since the sale or purchase was in the course inter-state trade and commerce, the State of Orissa has no jurisdiction to levy tax on the lease rent received. The taxable event is the transfer of right to use goods and not the right to use goods or the use of goods. Therefore, the right to use goods or the use of goods is not the relevant factor to justify the levy of tax. Thus, the entire assessment made by the Assessing Officer and the acceptance of the same by the Revisional Authority is per se bad and illegal.

The High Court of Chhattisgarh also in “M/s Raymond Ltd.” (supra) relying upon the observations made by the Hon'ble Supreme Court in Paragraph-35 of its Judgment in the case of “20th Century Finance Corpn. Ltd.” (supra) had quashed the orders of the Assessing Officer as also the Revisional Authority. A similar view was taken by the Division Bench of the Madhya Pradesh High Court in L.P.A. No.317/1999 in the matter of “M/s Raymond Limited Vs. Commercial Tax Officer & Others” wherein again relying upon the decision rendered by the Hon'ble Supreme Court in “20th Century Finance Corpn. Ltd.” (supra), the Order of the learned Single Judge in W.P. No.757/1999 was set-aside along with L.P.A., quashing the assessment orders made.

After due appreciation of the contentions put forth on behalf of either side and in the light of the discussion made in the preceding paragraphs, this Court is of the firm view that the Order passed by this Court in W.P.(T) No.128/2015 on 5.12.2017 does not seem to be proper, legal and justified and a strong case for allowing the Review Petition accordingly has been made out.

Accordingly, the Review Petition is allowed. As a consequence, the Order/Judgment dated 5.12.2017 passed in W.P.(T) No.128/2015 stands recalled. W.P.(T) No.128/2015 is ordered to be listed for rehearing before this

Court in the week commencing 7th of November, 2022.