Hemant Gupta, J.@mdashThe present appeal arises out of an order passed by the Haryana Tax Tribunal, Chandigarh, on September 10, 2012,
holding that the sale price is the aggregate of the monthly rentals payable under the lease agreement for the term of lease and the said aggregate will
form part of the turnover of sale for the month when the taxable event occurred, i.e., when delivery of the vehicles was taken by the lessee from the
supplier under the lease agreement. After hearing the learned counsel for the parties, we find that the following substantial question of law arises for
consideration:
Whether, in the facts and circumstances of the present case, the Haryana Tax Tribunal, Chandigarh, has correctly passed an order that the lease
rental for the entire lease period is a sale price when the appellant delivered the goods, therefore, the lease amount received or receivable would be
quantified as turnover?
2. The facts are not in dispute. The appellant entered into an agreement for lease of the vehicles. The Assessing Authority held vide order dated
March 24, 2008 that the amount to be paid for the entire term of lease shall be included as turnover for the month when the vehicle was delivered
to the lessee. The appeal against the said order was dismissed by the Joint Excise and Taxation Commissioner on August 25, 2009 and further
appeal by the Tribunal on September 10, 2012.
3. The learned counsel for the appellant has argued that the provisions of the Haryana Value Added Tax Act, 2003 (for short, ""the Act"") are in
terms of article 366(29A)(d) of the Constitution, which provides for tax on the transfer of the right to use any goods for any purposes. It is
contended that in 20th Century Finance Corpn. Ltd. and Another Vs. State of Maharashtra, interpreting the said provisions, the Supreme Court
held that the incidence of tax is not delivery of the goods, but on the transfer of right to use goods. It is contended that the transfer to use goods is
subject to condition of payment of monthly rentals, therefore, the rentals received or receivable during the year alone can be included in the gross
turnover.
4. The learned counsel for the appellant has referred to clause (4) of the lease agreement dated July 4, 2002. Some of the clauses from the
agreement read as under:
3.1 Subject to right of lessor to vary lease rentals as provided in clause 28 below, the lessee shall during the said term (in addition to other
consideration payable in respect of this lease) punctually pay to the lessor free of all taxes, cess, duties, octroi and any other deduction whatever as
lease rentals of the vehicle(s) the sum of money specified in the SCHEDULE(S) as lease rentals or any other payment whatsoever on the due dates
as specified in the SCHEDULE(S). All the lease rentals or any other payment whatsoever as required by this agreement shall be paid through at
par cheques at the address of the lessor mentioned in the SCHEDULE (S).
3.2 In respect of any vehicle(s), the lessee shall throughout the lease pay to the lessor, without demand, the lease rentals as set out in the applicable
SCHEDULE(S).
....
4. OWNERSHIP
4.1 In respect of any vehicle(s) to be registered under the Motor Vehicle(s) Act, 1988, it is the understanding of the parties that, notwithstanding
the fact that under the Motor Vehicles Act, 1988 the lessee is registered as the owner and lessor''s name is endorsed on the RC book, the lessor
shall continue to be the owner of each vehicle(s) for all intents and purposes. Subject to clause 14, each vehicle(s) shall, at all times, be the
property and belong to, the lessor and nothing in this agreement shall require, have effect, or be deemed to have effect, to pass title of any
vehicle(s) or any part thereof from the lessor. Subject as aforesaid, the lessee''s sole rights in relation to any vehicle(s) shall be the use and
possession thereof throughout the lease subject to and in accordance with the terms of this agreement.
5. Certain other statutory provisions to appreciate the arguments raised by the counsel for the parties need to be extracted:
The Haryana Value Added Tax Act, 2003
2. Definitions.
(a) to (c) ....
(d) ''assessee'' means any person who is required to pay any tax, interest, penalty, fee or any other sum under this Act or the Rules made
thereunder;
....
(r) ''goods'' means every kind of movable property, tangible or intangible, other than newspapers, actionable claims, money, stocks and shares or
securities but includes growing crops, grass, trees and things attached to or forming part of the land which are agreed to be severed before sale or
under the contract of sale.
....
(u) ''gross turnover'' when used in relation to any dealer means the aggregate of the sale prices received or receivable in respect of any goods sold,
whether as principal, agent or in any other capacity, by such dealer and includes the value of goods exported out of State or disposed of otherwise
than by sale;
Explanation.--(i) The aggregate of prices of goods in respect of transactions of forward contracts, in which goods are actually not delivered, shall
not be included in the gross turnover.
(ii) Any amount received or receivable or paid or payable on account of variation, escalation or de-escalation in the price of any goods sold
previously to any person, but not exactly determinable at that time, shall, subject to such conditions and restrictions, as may be prescribed, be
included in, or excluded from, the gross turnover, as the case may be, in the manner prescribed.
....
(v) ''import into State'' means bringing or receiving goods in the State from outside the State otherwise than by purchase of such goods in the
course of inter-State trade or commerce or import of goods into the territory of India;
....
(ze) ''sale'' means any transfer of property in goods for cash or deferred payment or other valuable consideration except a mortgage or
hypothecation of or a charge or pledge on goods; and includes-
(i) the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration;
....
(iv) 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;
....
(zg) ''sale price'' means the amount payable to a dealer as consideration for the sale of any goods, less any sum allowed at the time of sale as cash
or trade discount according to the practice, normally prevailing in the trade, but inclusive of any sum charged for anything done by the dealer in
respect of the goods at the time of or before the delivery thereof and the expression ''purchase price'' shall be construed accordingly;
3. Incident of tax.--(1) Every dealer who would have continued to be liable to pay tax under the Act of 1973 had this Act not come into force, and
every other dealer whose gross turnover during the year immediately preceding the appointed day exceeded the taxable quantum as defined or
specified in the Act of 1973, shall, subject to the provisions of sub-section (4), be liable to pay tax on and from the appointed day on the sale of
goods effected by him in the State.
(2) Every dealer to whom sub-section (1) does not apply and who is of the class or classes mentioned in column 2 of the table below and whose
gross turnover in any year first exceeds the taxable quantum specified in column 3 there against, shall, subject to the provisions of sub-section (4),
be liable to pay tax on and from the day mentioned in column 4 there against on the sale of goods effected by him in the State--
....
Provided that this sub-section shall not apply to a dealer who deals exclusively in exempted goods. Haryana Value Added Tax Rules, 2003
2. Definitions.-- (1)(a) to (ze) ....
(zf) ''tax period'' means a period of time usually a month, a quarter or a year for which tax payable by a dealer is quantified; and
(zg) ''turnover'' means aggregate of value of goods sold or purchased or exported out of State or imported into State or supplied or received, as
the case may be, by a dealer during a tax period.
6. In terms of article 366(29A)(d) of the Constitution, sale includes sale and purchase of goods including the transfer of the right to use in goods for
any purpose whether or not for a specific period for cash, deferred payment or other valuable consideration. The ""sale"", as defined under the Act
is in tune with the said provisions in the Constitution. In terms of the provisions of the Constitution and the Act, sale and purchase of the goods by
fiction of law would include right to transfer of goods in respect of any lending transaction. Thus the transaction of lease is a deemed sale, but
whether the gross turnover is to be quantified in respect of the lease rentals received or receivable during the year or the entire lease rentals to be
received during the entire period of lease would form part of gross turnover of the year is the question requires to be examined.
7. The honourable Supreme Court in 20th Century Finance Corpn. Ltd. and Another Vs. State of Maharashtra, , has held to the following effect
(pages 201 and 202 in 119 STC):
26. 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.
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
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.
8. As per section 2(ze)(iv) of the Act, ""sale"" means a transfer of property in goods when the transfer of the right to use any goods for any purpose
is made. Therefore, the transfer of the vehicle on rentals is a sale falling within section 2(ze) of the Act as held by the honourable Supreme Court in
20th Century Finance Corpn. Ltd.''s case 20th Century Finance Corpn. Ltd. and Another Vs. State of Maharashtra, . The Explanations appended
to section 2(zg) of the Act, do not deal with the sale price falling in clause (iv) of section 2(ze). Explanation (i) appended to section 2(zg) deals with
the transfer of property in goods involved in the execution of the works contract whereas Explanation (ii) deals with the delivery of goods on hire
purchase. The taxable turnover in terms of section 2(zn) of the Act is to be computed in terms of section 6 of the Act. Section 6 of the Act permits
the deductions, which are to be made from the gross turnover, but right to transfer goods for the purpose of use does not find mention in any of the
provisions of section 6 of the Act.
9. Faced with such a situation, the definition of tax period and turnover as defined in the Haryana Value Added Tax Rules, 2003 (for short, ""the
Rules"") becomes relevant. The tax period in terms of rule 2(zf) of the Rules means a period of time usually a month, a quarter or a year for which
tax payable by a dealer is quantified. In the present case, the return filed by dealer is on yearly basis. The turnover is aggregate of the goods sold
or purchased by a dealer during a tax period in terms of rule 2(zg) of the Rules. Since the transfer of the right of use in the vehicle is the sale falling
within the definition of section 2(zf), therefore, the rentals received or receivable during the tax period is the sale price received by the dealer,
exigible to tax in a financial year. The right to use vehicle is dependent upon the monthly payment of rentals and therefore, the monthly rentals
received or receivable by the dealer is a turnover and consequently the sale price.
10. In view of the said fact, we find that the orders passed by the authorities under the Act are not sustainable. The lease rental received or
receivable during the tax period only, as a right to use goods, is the turnover forming part of sale price. Consequently, we allow the present appeal
by setting aside the order dated September 10, 2012 passed by the Haryana Tax Tribunal, Chandigarh and by answering the question of law in
favour of the assessee and against the Revenue.
