I.A. Ansari, J.@mdashThis writ petition, made under Article 226 of the Constitution of India, has put to challenge the constitutional validity of certain provisions of the Tripura Sales Tax Act, 1976, (in short, ''the TST Act, 1976'') to the extent that the same permits imposition of tax on the transfer of right to use goods. The prominent challenges, in the present writ petition, are to the constitutional validity of Section 2(b), which defines the term ''dealer'', Section 2(d), which defines the term ''sale'' and Section 3 of the TST Act, 1976, which contains the charging provisions.
Facts of WP(C) 127/2005
2. The material facts, which have led to the institution of the present writ petition, may, first, be noted. In response to the NIT, floated by preformed Respondent No. 4, namely, Oil & Natural Gas Corporation Ltd., AD Nagar, West Tripura, Agartala, (in short, ''the ONGC''), for the work well logging, perforating and other wire line services for its Oil & Natural Gas Exploration and Exploitation to be carried out On land in the States of Gujarat, Tamil Nadu, Andhra Pradesh, Pondicherry, Madhya Pradesh, Rajasthan, Assam, Nagaland, Tripura, etc, under the jurisdiction of the Union of India, the Petitioner submitted its tender for obtaining the work. In course of time, the contract was awarded and an agreement was entered into, in this regard, on 05.09.2003, the period of contract, in question, being for a period of three years from 28.01.2002 to27.01.2005 for the Central Region. The Petitioner raised his bills for payment from time to time. By letter, dated 18/20th December, 2004, Respondent No. 3, namely, Superintendent of Taxes, Government of Tripura, Charge No. V, Agartala, informed the Respondent No. 4 that Respondent No. 4, , namely, Oil & Natural Gas Corporation Ltd., AD Nagar, West Tripura, Agartala, ought to have realized by making deduction, at source, of sales tax @4% from the Petitioner''s bills as sales tax since August, 2001, treating the said contract as contract constituting transfer of rights to use goods, but no deduction, at source, from the bills of the Petitioner had been made by the Respondent No. 4. By its letter, dated 18/20th December, 2004, aforementioned, Respondent No. 3 further directed the Respondent No. 4 to recover the amount, which ought to have been deducted from the bills of the Petitioner. This communication was followed by another communication, dated 11/12/01/2005, to the Respondent No. 4 by Respondent No. 3. By yet another communication, dated 26.02.2005, Respondent No. 3 complained to the Deputy General Manager (Finance), ONGC, Tripura Asset, that no tax had been deposited by the ONGC by making deduction at source as was required under the law in respect of the Petitioner''s contract with the ONGC . Thereafter, the Petitioner made a representation to the Respondent No. 4 explaining that the contract, in question, did not amount to transfer of right to use goods and was, therefore, not eligible to sales tax under the TST Act, 1976, and no deduction, at source, could have been legally made. The Petitioner made a representation, dated 17.02.2005, in this regard, to the Respondent No. 3 too explaining the nature of contract claiming that the contract is a contract for service and not for transfer of right to use goods and was, therefore, not eligible to sales tax. As the demands for deduction, at source, raised by the Respondent No. 3 has not discontinued and the demand of the Respondent No. 3 has apparently support of the revenue, the Petitioner has filed this writ petition impugning the demands so made seeking to get set aside and quashed the impugned communications, dated 18/20th March, 2004, 11/12th January, 2005 whereby Respondent No. 3 directed the Respondent No. 4 to deduct sales tax @4% from the bills of the Petitioner.
3. Before we answer the questions, which have been raised in this writ petition, it is necessary to take note of the bare minimum facts, which led to the making of ''transfer of the right to use any goods'' a subject of the State''s power to impose sales tax. Before introduction of the 46th amendment of the Constitution of India, composite contracts, such as, ''works contract'', ''hire-purchase contract'' and ''catering contracts'', etc, were not assessable, as contracts, for ''sale'' of goods inasmuch as the contracts, which were indivisible, could not have become subject of levy.
4. Before the Constitution (46th Amendment) Act, 1982, the word ''sale'', which occurred in the expression ''sale of goods'', in the Seventh Schedule to the Constitution of India, had carried the same meaning as a ''sale'' defined in Section 4 of the Sale of Goods Act. 1930. Hence, prior to the 46th Amendment, ''sales tax'' could be imposed only upon transfer of property in goods from one person to the other. Thus, ''sales tax'' could not be imposed upon transactions, which might have resembled ''sale'', but did not involve transfer of property in goods.
5. Consequently, prior to the 46th amendment of the Constitution, because of various judicial decisions, States were losing revenue on account of ''sales tax'' in respect of transactions like transfer of the right to use goods, transfer of property in goods involved in execution of ''works contract'', supply of food by a hotelier, etc. As back as in the year 1967, the Madras High Court, in A. V. Meiyappan v. Commissioner of Commercial Tax (1967) 20 STC 115, turned down the contention of the sales tax authorities by holding that even if copy-right is regarded as a specie of movable property, the transaction did not connote a ''sale'' at all and it was, therefore, not eligible to ''sales tax''. In A. V. Meiyappan (supra), the Court was examining an agreement entered into by an Assessee, called lesser, with a limited company, called lessee, where under the Assessee had made over to the lessee the outright lease of the world negative rights of the film for a period of 49 years for a consideration. The sales tax authorities were of the view that though the transaction was termed and styled as lease for 49 years, the Assessee had affected a ''sale'' of the negative print of the picture for a consideration and, therefore, the transaction was liable to payment of sales tax under the Madras General Sales Tax Act, 1959. The decision, therefore, of the Madras High Court, in A. V. Meiyappan (supra), created immense difficulty for the States for quite a long time, because the novel device of leasing of films resulted into avoidance of huge amounts of sales tax. This apart, in State of Madras v. Gannon Dunkerley (1958) 9 STC 353, the Supreme Court gave a new approach to the definition of ''sale'' by prohibiting States from taxing transfer of property in goods involved in the execution of indivisible ''works contracts''. This decision also affected the revenue of the States. The State''s revenue was further reduced to a great extent, because of the decision in K. L. Johar and Co. v. Deputy Commercial Tax Officer (1965) 16 STC 213, wherein the Supreme Court decided that the State can tax only the depreciated value of the goods. Another decision of the Supreme Court, in State of Himachal Pradesh v. Associated Hotels of India (1972) 29 STC 474, closed the door of a big revenue earning area by the States, when the Court held that supply of food by the hotelier was essentially one of services by the hotelier and as a part of the amenities incidental to the service, the hotelier served meals at specified hours.
6. By the 46th Amendment Act of the Constitution, the definition of the word ''sale'', as given in Article 366, was widened by insertion of Clause (29A), where under various transactions, enumerated therein, which were, otherwise, not ''sales'', have to be deemed, by a legal fiction, as ''sales''. Such ''sales'' are commonly called ''deemed sale'' as against the traditional concept of ''sales'', which are popularly called ''actual sales''. Under Clause (29A) (d), a transfer of the right to use goods for any purpose and for any period, for cash, deferred payment or other valuable consideration, shall be deemed to be a sale of goods by the person making the transfer, delivery or supply, and a purchase of those goods by the person to whom transfer, delivery or supply is made. The Constitution (46th Amendment) Act, 1982, also added Sub-clause (b) to Clause (3) of Article 286. Consequent upon these amendments of the Constitution, almost all the States amended the definition of the word ''sale'' by incorporating, in their respective sales tax legislations, identical language used by the Constitution, for the purpose of defining ''sale''. Indisputably, the expression ''transfer of the right to use any goods'' cannot be equated with the expression ''transfer of property in goods'', because the transfer of the ''right to use any goods'' is not the same thing as the ''transfer of property in the goods''. But according to the definition of ''sale'', as amended by the State legislations, a ''sale'' means ''transfer of property in goods; and such a ''sale'' includes, inter alia, ''any transfer of the right to use any goods''.
7. The power of State Legislatures to enact law to levy tax on the ''transfer of right to use any goods'' under Entry 54 of List II of the Seventh Schedule has two limitations - one arising out of the entry itself, which is subject to Entry 92-A of List I, and the other flowing from the restrictions embodied in Article 286. By virtue of Entry 92-A of List I, Parliament has power to legislate with regard to tax on sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce. Article 269 provides for levy and collection of such taxes. Because of these restrictions, State Legislatures are not competent to enact laws imposing tax on the transactions of transfer of right to use any goods, which take place in the course of inter-State trade or commerce. Further, by virtue of Clause (1) of Article 286, the State Legislature is precluded from making law imposing tax on the transactions of ''transfer of right to use any goods'', where such ''deemed sales'' take place (a) outside the State; and (b) in the course of import of goods into, or export of goods out of, the territory of India. There are yet other limitations on the taxing power of the State Legislature by virtue of Clause (3) of Article 286, which lays down that any law of a State, which 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 (29A) of Article 366, namely, ''deemed sales'' arising out of execution of works contract, delivery of goods on hire-purchase and transfer of the right to use any goods for any purposes, respectively, shall be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of tax as Parliament may by law specify.
8. While examining the power of the State legislature under Entry 54 List II, as held by the Supreme Court in
9. The Constitution Bench of Supreme Court, in
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 sites of deemed sale for levy of tax if the transfer of right to use has taken place in another State.
10. The Supreme Court has also pointed out, in 20th Century Finance Corporation Ltd. (supra), that a State cannot levy tax on the basis that one of the events in the chain of events has taken place within the State and though the delivery of goods may be one of the elements of transfer of right to use, yet the delivery of goods cannot be the condition precedent for imposition of tax arising out of a contract of transfer of right to use goods. The Supreme Court, in 20th Century Finance Corporation Ltd. (supra), further pointed out that where a party has entered into a formal contract and the goods are available for delivery, then, irrespective of the place, where they are located, the sites of such a sale would be the place, where the property in goods passes, namely, where the contract is entered into. The relevant observations, made in this regard, in 20th Century Finance Corporation Ltd. (supra), read:
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 sites of such sale would be where the property in goods passes, namely, where the contract is entered into.
11. While examining the taxable events in the case of ''transfer of the right to use the goods'', the Supreme Court, in 20th Century Finance Corporation Ltd. (supra), held as under:
In our view, therefore, on a plain construction of Sub-clause (d) of Clause (29-A), 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.
12. What follows from the above observations made, and conclusions arrived at, in 20th Century Finance Corporation Ltd. (supra), is that the taxable event, in a contract of transfer of the right to use goods, arises, when the right to use goods stands transferred, no matter where the place of delivery is. To put it a little differently, it is the transfer, which is sine qua non for the taxable liability to arise out of a contract to transfer the right to use any goods. ''If the goods are available'', the transfer of the right to use the goods takes place, when the contract, in respect thereof, is executed. In such a case, as soon as a contract, in writing, is executed, the right vests in the lessee. Thus, the sites of taxable event of such a ''sale'' would be the transfer, which legally transfers the right to use goods irrespective of the place of delivery of the goods. In other words, irrespective of the fact as to where the goods are located, if the goods are available, and a written contract is entered into between the parties, the taxable event, on such a ''deemed sale'', would be the place of execution of the contract itself, for, the ''transfer'' of the right to use goods takes place as soon as the written contract is executed; but in the case of an oral or implied transfer of the right to use goods, it may be effected by the delivery of the goods.
13. The Supreme Court, in 20th Century Finance Corporation Ltd. (supra), summarized the law, relating to taxability of the ''transfer of right to use goods'', as under:
The States in exercise of power under Entry 54 of List II read with Article 366(29-A)(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 sites of `sale. In the absence of any such legal fiction the sites 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 sites 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 the legal fiction engrafted in Clause (29-A)(d) of Article 366 of the Constitution wherein the location or delivery of goods to put to use is immaterial.
14. In the backdrop of the above stated position of law, let us, now, examine the submissions made on behalf of the Petitioners. Relying on the definition of ''dealer'' as given in Section 2(b) of the Tripura Sales Tax Act, 1976 (hereinafter referred to as ''the TST Act'') and the definition of ''sale'' as given in Section 2(g) thereof, Mr. Somik Deb, learned Counsel, appearing for the Petitioners, contends that the Section 2(g) of the TST Act seeks to expand the horizon of ''sale'' without embracing such categories of persons, who deal in ''deemed sale'' of goods by way of hire purchase and ''deemed sale'' of goods by way of transfer of right to use any goods. It is also submitted by Mr. Deb that from a bare reading of Section 2(b) of the TST Act, it is crystal clear that no person, making delivery of goods on hire-purchase, or a person, making a transfer of right to use any goods, for any purpose, can be termed as ''dealer''. Mr. Deb has further submitted that since Section 3(1) of the TST Act provides that only a ''dealer'', dealing in taxable goods, is liable to pay tax, the definition of ''sale'', as given in Section 2(g) of the TST Act, is unconstitutional, for, the definition of ''sale'' seeks to embrace, within its ambit, the transactions, such as, transfer of right to use any goods for any purpose, though the definition of dealer, as given in Section 2(b), does not include a person, who transfers the right to use goods.
15. It is contended by Mr. Deb that Section 2(b) of the TST Act, which defines ''dealer'' to mean any person, who carries on the business of buying, selling, supplying for commission, remuneration or other valuable consideration, is relatable to natural sales without, however, identifying the sites of ''sale'', be the ''sale'' intra-State ''sale'' or inter-State ''sale'' and, hence, the definition of ''sale'', as given in Section 2(g) of the TST Act, 1976, offends the mandates of Article 286 of the Constitution of India.
16. It is contended by Mr. Deb that Section 2(25) of the TVAT Act, too, is volatile of Article 286 of the Constitution of India inasmuch as the definition of ''sale'' embodied therein gives an impression that even ''sales'', which take place outside the State or ''sales'', which takes place in the course of import of the goods into, or export the goods out of, the territory of India, covered by the Central Sales Tax Act, 1956, have been included within the definition of ''sale'' as given in Section 2(25).
17. Challenging the constitutionality of Section 2(26) of the TVAT Act, which defines ''sale price'', it is submitted by Mr. Deb that the definition of ''sale price'' has not limited itself to the ''sales'' made within the territory of Tripura and the same thereby seeks to levy tax even on goods on which tax under the Central sales Tax Act, 1956, may have already been paid, as it would be manifest from the expression, "but inclusive of any sum charged from anything done by the ''dealer'' in respect of the goods or services at the time of or before delivery thereof, excise duty, special excise duty or any other duty or taxes except the tax imposed under the Act", which appears in Section 2(26).
18. It is submitted by Mr. Deb that the definition of ''sale price'', as contained in the TVAT Act, does not provide for any deduction otherwise admissible under the Constitutional scheme. In support of his submissions, Mr. Deb relied on
19. Resisting the writ petitions, Mr. N. Adhikari, learned Advocate General, Tripura, has submitted that the definition of ''sale'', as given in the TST Act, 1976, as well as the TVAT Act, 2004, do not embrace, within its ambit, a ''sale'', actual or deemed, if the ''sale'' does not take place within the State of Tripura and the entire submissions, made, this regard, on behalf of the Petitioners, have no merit inasmuch as the assessing authorities, while making assessment, cannot include, under the provisions of the said two enactments, any transaction of ''sale'', actual or deemed,, which does not take place within the State of Tripura.
20. Before we deal with the rival contentions of the learned Counsel for the parties, it would be appropriate to have a look at the relevant provisions of the TST Act and the TVAT Act.
21. Section 2(b) of the TST Act, 1976, defines ''dealer'' as under:
''dealer'' means any person who sells taxable goods manufactured, made or processed by him in Tripura or brought by him into Tripura from any place outside Tripura for the purpose of sale in Tripura and includes government and any person making a sale u/s 3A.
22. Section 2(g) of the TST Act, 1976, defines ''sale'' as under:
2(g) - "sale" means any transfer of property in goods for cash or deferred payment or other valuable consideration, and includes - (i) any delivery of goods on hire-purchase or any system of payment in installments, (ii) any 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, and such delivery or transfer of any goods shall be deemed to be a sale of those goods by the person making the delivery or transfer and a purchase of those goods by the person to whom such delivery or transfer is made, but does not include a mortgage, hypothecation, charge or pledge;...
23. Section 3 of the TST Act, 1976, which is the charging section, reads as under:
3. Liability to tax and exemption from tax.
(1) Every ''dealer'' in taxable goods shall pay a tax on his turnover at the rate specified in column (3) of the schedule attached to this Act;
Provided that subject to the provisions of Sections 14 and 15 of the Central Sales Tax Act, 1956 the State Government may, from time to time by notification in the Official Gazette and subject to such conditions as it may impose fix a higher rate of tax not exceeding forty percent or any lower rate of tax payable under this Act on account of the sale of any taxable goods or class of taxable goods specified in such notification; and thereupon the Schedule shall be deemed to be amended accordingly;
Provided further that the rate of tax on any transfer of the right to use any goods for any purpose (whether or not for a specified period) shall be 4%.
(2) If the State Government is of opinion that it is necessary or expedient so to do for increasing the production of goods or for protection or encouragement of industry within the State, it may, by notification in the Official Gazette subject to such restrictions and conditions, exempt from payment of tax, either in whole or in part the sale of any taxable goods or class of taxable goods or any ''dealer'' or class of ''dealer''s for such period as may be specified therein.
(3) Subject to such restrictions and conditions as may be prescribed, the State Government may make an exemption, or reduction in rate, in respect of any tax payable under this Act on the sales of any taxable goods to such person or class of persons as may be prescribed.
(4) Where exemption from the levy of tax under this Act on any sale of taxable goods is claimed by a ''dealer'' under the provisions of this section the burden of proof shall lie on such ''dealer'' and the Commissioner may require the ''dealer'' to substantiate the claim in manner prescribed.
(5) If any dispute or question regarding payment of tax arises, the matter shall be referred to the Commissioner whose decision thereon shall be final.
24. From a bare reading of Section 3 of the TST Act, it becomes clear that the liability to pay tax is on the ''dealer'' dealing in taxable goods and he is liable to pay tax on the ''turnover'' at the rate specified in the third column of the Schedule attached to the Act. The term ''turnover'' has been defined by Section 2(m) to mean as under:
''turnover'' means the aggregate of the amount of sale price receivable or if a ''dealer'' so elects actually received by the ''dealer'' in respect of any sale of goods made during any prescribed period in any year after deducting -
(i) the amount of sale price, if any, refunded by the ''dealer'' to a purchaser in respect of any goods purchased and returned by the purchaser within the said period;
(ii) the amount arrived at by applying the following formula:
Rate of tax x aggregate of sale price
100 plus rate of tax
Provided that an election as aforesaid once made shall not be altered except with the permission of the Commissioner and on such terms and conditions as he may think fit to impose;
Provided further that in respect of a sale on hire-purchase or other system of payment in installments only such amounts shall be included in turnover as has actually been received by the ''dealer'' during that period.
25. It is also necessary to look at the definition of ''sale price'' as given in Section 2(h) of the TST Act. The term ''sale price'' is defined as under:
sale price" used in relation to a ''dealer'' means the amount of the money consideration for the sale on taxable goods manufactured, made or processed by him in Tripura, or brought by him into Tripura from any place outside Tripura for the purpose of sale in Tripura, less any sum allowed as cash discount according to the trade practice, but includes any sum charged for containers or other materials for the packing of such taxable goods; Provided that ''sale price'' as defined in this clause does not include the sale referred to in Section 3A.
26. From a conjoint reading of Sections 2(b), 2(g), 2(h), 2(m) and Section 3 of the TST Act, it becomes clear that every ''dealer'', dealing in taxable goods, is liable to pay tax on its ''turnover'', which is aggregate of the ''sale price'' of the goods. In order to attract the liability to pay sales tax under the TST Act, the following preconditions have to be fulfilled:
i) A person must be a ''dealer'' under the TST Act, 1976.
ii) There must be a ''sale'' of any taxable goods.
iii) Tax shall be payable on the ''turnover'' of the ''dealer'', which would mean the aggregate of the ''sale price'' of the goods.
27. From a careful reading of the definition of the word ''dealer'', as given in Section 2(b), what clearly emerges is that every person, who sells taxable goods in the State of Tripura, is not a ''dealer'', for, he becomes a ''dealer'' only when he sells taxable goods manufactured, made and processed by him in Tripura or brought by him into Tripura from any place outside Tripura for the purpose of sale in Tripura. This, in turn, shows that if a person purchases taxable goods in the State of Tripura and sells the same within the State of Tripura, he does not become a ''dealer'' and on such a ''sale'', no sales tax can be imposed by invoking the provisions of Section 3.
28. What is, now, necessary to note is that by amendment, which Tripura Sales Tax (Third Amendment) Act, 1984, has introduced, a person, making a sale u/s 3A, has been included within the meaning of the expression ''dealer''. Section 3A is meant for a person, who executes a ''works contract'', for, in the execution of ''works contract'', whatever goods are used by him either as goods or in some other form, such utilization of goods would, by legal fiction, be ''deemed'' to be a ''sale'' of those goods used in execution of the ''works contract''.
29. A minute scrutiny of the Clause ( b )of Section 2 of the TST Act, 1976, clearly reveals that by fiction of law, while a person, who executes a ''works contract'', has been made and shall be treated as a ''dealer'', a person, who makes ''transfer of the right to use any goods for any purpose as well as a person making delivery of the goods on hire- purchase'' have not been included within the definition of the term ''dealer''. Considered in this light, it becomes transparent that without broadening the definition of the term ''dealer'' and without including, within the expression ''dealer'', ''a person making transfer of the right to use any goods for any purpose'' or ''a person making delivery of any goods on hire purchase'' could not be subjected to levy under the Schedule to the TST Act. In short, thus, no tax is liable to be paid by a person, under the TST Act if he transfers the right to use any goods for any purpose. In fact, in
30. Having, thus, concluded that under the TST Act, no person, who is engaged in the business of transfer of right to use goods, for any purpose can be regarded as a ''dealer'' within the meaning of Section 2(b) thereof, and having also concluded that a person, if not a ''dealer'' cannot be made to pay tax under the TST Act, we, now, turn to the Tripura Value Added Tax Act, 2004, (in short, the TVAT Act'') and determine, for the purpose of sheer comparison, if the definition of ''dealer'', as given under the TVAT Act, includes (in contrast to what Section 2(b) of the TST Act embodies) a person, who transfers the right to use any goods for any purposes.
31. It is interesting to note, with regard to the above, that in contrast to the fact that the definition of the term ''dealer'' as given by Section 2(b) of the TST Act, 1976, does not include, within its ambit, a person, who makes transfer of the right to use any goods for any purpose, or a person, who makes delivery of any goods on hire-purchase, such persons are covered, within the meaning of the word ''dealer'', as given in the TVAT Act inasmuch as Section 2(8) of the TVAT Act defines a ''dealer'' to mean a person, who is engaged in the business of delivery of goods on hire-purchase or any other system of payment by installments as well as a person, who carries on the business of buying, selling, supplying for commission, remuneration or other valuable consideration, and includes-
(a) an industrial, commercial, banking, or trading undertaking whether or not of the Central Government or any of the State Governments or a local authority;
(b) an advertising concern or agency;
(c) a casual trader;
(d) a company, firm, club, association, society, trust, or cooperative society, whether incorporated or unincorporated, which carries on such business;
(e) a commission agent, a broker, a del cruder agent, any auctioneer or any other mercantile agent by whatever name called, who carries on the business of buying, selling, supplying or distributing goods on behalf of any principal;
(f) an agent of a non-resident ''dealer'' or a local branch of a firm or company or association situated outside the State;
(g) a person who sells goods produced by him by manufacture or agriculture or otherwise;
(h) a person engaged in the business of transfer otherwise than in pursuance of a contract of property in any goods for cash, deferred payment or other valuable consideration;
(i) a person engaged in the business of transfer of property in goods (whether as goods or in some other form) involved in the execution of a ''works contract'';
(j) a person engaged in the business of delivery of goods on hire purchase or any other system of payment by installments;
(k) a person engaged in the business of transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or commission or remuneration or any other valuable consideration;
(l) a department of the Central Government or any State Government or a Local Authority by name of any Panchayat, Municipality, Development Authority, Cantonment Board or any autonomous or statutory body including a Port Trust and the like, which, whether or not in the course of business, buys, sells, supplies or distributes goods, directly or otherwise, for cash, or for deferred payment, or for commission, remuneration, or other valuable consideration ;
(m) a Hindu Undivided Family or any other system of joint family which carries on business.
32. A microscopic reading of the definition of ''dealer'', as given in Section 2(8) of the TVAT Act, makes it more than abundantly clear that within the expression ''dealer'', as defined in the TVAT Act, a person, who is engaged in the business of transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or commission or remuneration or any other valuable consideration) is a ''dealer''. Thus, a comparative analysis of the definition of ''dealer'', as given in the TST Act vis-�-vis the TVAT Act, makes it abundantly clear that while the definition of ''dealer'', as given under the TST Act does not include a person, who is engaged in the business of transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or commission or remuneration or any other valuable consideration. The definition of ''dealer'' as given in the TVAT Act, does include, within Clause (k) of Section 2(8) of the TVAT Act, a person who is engaged in the business of transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or commission or remuneration or any other valuable consideration.
33. We may also pause here to point out that Mr. Deb, learned Counsel for the Petitioners, submits that since the TST Act, 1976, has not created any charge in so far as it relates to transfer of right to use any goods, the question of deduction of tax, at source, in respect of payment made for transfer of right to use any goods does not arise. It was submitted that the term ''dealer'', as defined in the Act, does not include a person carrying the business of transfer of right to use any goods. Even the definition of ''sale price'', given in Section 2(h), does not include the consideration for transfer of right to use any goods. It was further submitted that the subordinate legislation can be framed in conformity of the provisions contained in the parent Act and the same cannot supersede the mandate contained in the Act. No subordinate legislation can be framed, contended Mr. Deb, unless there is a provision enacted by the Legislature enabling making of subordinate legislation. No charge having been made on account of transfer of right to use any goods, submitted Mr. Deb, the provisions of Section 3A(2) of the Tripura Sales Tax Rules, 1976, providing for deduction of tax, at source, at the flat rate of 4% in respect of transfer of right to use any goods, is grossly illegal and ultra vires. In so far as Section 3AA of the TST Act, 1976, and Rule 3 A (1) of the Rules, while examining the legality and validity of the levy of tax on transfer of right to use any goods under the TST Act, 1976, we have already held that without broadening the definition of the term ''dealer'' and without including within the term ''dealer'', person making the transfer of right to use any goods, the transaction of the right to use any goods cannot be brought to tax. Although the term ''sale'' u/s 2(h) of the Act included transfer of right to use any goods but the term ''''sale price'''' has not included within its purview the consideration received for the transfer of right to use any goods . Furthermore, there is no substantive provision in the TST Act providing for deduction of tax, at source, in respect of the payment made for transfer of right to use any goods. In absence of any provision in the TST Act providing for deduction of tax, at source, in respect of the payment made for transfer of right to use any goods, the Rule making authority cannot frame Rules providing for such deduction inasmuch as Rules can be framed only to carry out the purpose of the Act. In absence of the substantive provisions for the deduction of tax at source from the payment made for transfer of right to use any goods, Rule 3A(2) of the TST Act, 1976, providing for such deduction is beyond the provision of the Act and, therefore, Rule 3A(2) of the TST Act, 1976, has already been held to be ultra vires in
(19) In the backdrop of the definition of ''dealer'' given in Section 2(b), when Section 3A and 3AA of the TST Act are carefully analyzed, it becomes abundantly clear that a person, who executes a works contract, shall, by a legal fiction, which Section 2(b) creates, be treated as a ''dealer'' and such a person, for being a ''dealer'', becomes, u/s 3A, liable to pay sales tax for transfer of property in goods involved in the execution of works contract, for, such transfer of property in goods would be deemed to be a ''sale'' of the goods by the person making the transfer. Section 3AA makes it obligatory for a person, responsible for making payment of any sum to any person, who is liable to pay sales tax u/s 3A, to deduct, at the time of credit of such sum, to the account of the person or at the time of payment thereof in cash or by issue of a cheque or draft or any other mode, such amount towards sales tax as may be prescribed.
(20) Thus, Section 3AA permits deduction, at source, only in respect of transfer of property in goods involved in the execution of works contract and not in respect of transfer of the right to use any goods for any purpose. This apart, from the fact that the TST Act does not create charge, on any person, who transfers his right to use any goods for any purpose, Section 3AA cannot be invoked for the purpose of deducting, at source, any amount as sales tax. Otherwise also, it would be impossible to hold that deduction, at source, as sales tax, is permissible out of the bills of a person, who gives, on hire, vehicle (s) for any purpose, when no liability to pay sales tax has been imposed on such a person by Section 3, which is, admittedly, the charging Section.
(21) We, now, turn to Rule 3A (2), which we find reads as under:
Section 3A(2). Every person responsible for making payment to any person for discharge of any liability on account of valuable consideration payable for any transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash or in any manner, shall at the time of making such payment, deduct an amount equal to four percent of such towards part or, as the case may be, full satisfaction of the tax payable under the Act, on account of such transfer of right: Provided no such deduction shall be made from the bill (s) or invoice (s) of the transferor.
(a) On account of such transfer where the transfer of right to use goods was agreed to before first day of January, 1989;
(b) The amounts received as penalty for defaults in payment or as damages for any loss or damage caused to the goods by the person to whom such transfer was made; and
(22) While considering the validity of Rule 3A (2), what needs to be noted is that when the statute itself, in the present case, has not imposed any liability to pay tax on a person, who transfers the right to use any goods for any purpose, the rulemaking authorities, by taking recourse to the rule-making power in the statute, could not have made such a rule.
(23) At the time of hearing of these appeals, a faint attempt was made to show that Sub-section (1) of Section 44 of the TST Act empowers the State Government to make rules for carrying out the purposes of the TST Act and Rule 3A (2) is within the ambit of Sub-section (1) of Section 44. Because of the submissions, so made, a careful analysis of Section 44 of the TST Act is imperative. Section 44 reads as follows:
44. Power to make rules:
(1) The State Government may, make rules for carrying out the purposes of this Act.
(2) Without prejudice to the generality of the foregoing power, such rules may, in particular, prescribe-
(a) all matters required by this Act to be prescribed
(b) the classes and duties of officers appointed for the purpose of enforcing the provisions of this Act.
(c) the procedure to be followed and the forms to be adopted in proceedings under this Act;
(d) the intervals at which, and the manner in which, the tax under this Act shall be payable;
(e) the dates by which and the authority to which returns shall be furnished;
(f) the manner in which refunds shall be made;
(g) the fees, if any, for petitions, certificates and other matters;
(h) the nature of accounts to be maintained by a dealer; and (i) for any other matter necessary for giving effect to the purpose of this Act.
(3) Every rule made by the State Government under this Act shall be laid as soon as may be after it is made, before the Legislative Assembly while it is in session for a total period of riot less than fourteen days which may be comprised in one session or in two or more successive sessions and if, before the expiry of the session in which it is so laid of the successive session aforesaid the Legislative Assembly agree in making any modification in the rule or the Legislative Assembly agree that the rule should not be made, the rule shall thereafter have effect only in such modified form or be of no effect as the case may be, so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule.
(24) It is, no doubt, true that Sub-section (1) of Section 44 gives a general power to the State Government to make rules for carrying out the purposes of the TST Act; but when the statute itself has not brought, within its net, anyone, making it mandatory for him to deduct sales tax, at source, general power of rule-making, contained in Sub-section (1) of Section 44, could not have been invoked to create such a legal obligation on a person, who was, otherwise, not liable under the statute, to make deductions as Rule 3A (2) mandates.
(25) In other words, in the present case, there is no provision in the statute making compulsory deduction at the time of making payment for transfer of the right to use goods. Hence, in such circumstances, the rule-making authority could not have, by taking recourse to Sub-section (1) of Section 44, enacted Rule 3A (2) and impose thereby an obligation to make deduction, at source, from the bill of the transferor of the right to use goods.
(26) Coupled with the above, it is of immense importance to note that under the TST Act and the TST Rules, a person, who makes deduction at source, has to maintain an account of such deduction and, if required by the Sales Tax authorities, such books of account would have to be produced for inspection in order to ascertain that the deductions, at source, as were required, have been made and also for the purpose of making assessment of the taxable liability of the person from whose bills, deductions have been made. Non-production of the accounts or omission to maintain the accounts would amount to contravention of the provisions of the statute, for, the rules, framed under a statute, are also law. In such circumstances, a person, who is directed to make deduction, would expose himself to criminal prosecution if he does not comply with these requirements. When the Statute itself has not made a person liable for making deduction, at source, in respect of transfer of the right to use goods, such a liability cannot be imposed by making rules or issuing executive instructions and thereby expose the person, who is so made liable to make deduction, to criminal prosecution for contravention of the provisions of law. Thus, the effect of making Rule 3A (2) would expose a person, who has not been made liable by the legislature, to criminal prosecution. Rule-making power cannot be exercised in a manner, which would bring, within the penal provisions of a statute, a person, who has not been brought within the scope of the statute by the legislature.
(27) It is very common for the legislature to provide for a general rule making power to carry out the purpose of an enactment. When such a power is given, it may be permissible to find out the object of an enactment and, then, ascertain, if the rules framed satisfy the test of having been so framed as to fall within the scope of such general power. In the present case, though the State Government has been vested with the general rule making power to carry out the purpose of the TST Act, the fact remains that such a piece of delegated power cannot be used to bring, within the tax-net, a subject, which the enactment has kept excluded, or to bring into existence any substantive obligation, which the provisions of the enactment do not contemplate. (See
as I understand the principle of all fiscal legislation it is this: if the person sought to be taxed comes within the letter of the law he must be taxed, however, great the hardship may appear to the judicial mind to be. On the other hand if the Crown, seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however, apparently within the spirit of the law the case might otherwise appear to be.
(29) The above view, with regard to fiscal legislation, received approval and support by the Privy Council in
(30) In
the rule of construction of a charging section is that before taxing any person, it must be shown that he falls within the ambit of the charging section by clear words used in the section. No one can be taxed implication. A charging section has to be construed strictly. If a person has not been brought within the ambit of the charging section by clear words, he cannot be taxed at all.
(31) Since the TST Act is a fiscal legislation, the general rule making authority, conferred on the State Government by Section 44(1), cannot be resorted to for the purpose of bringing in, within the scope of the definition of ''dealer'', a person, who transfers his right to use goods for valuable consideration, when the legislature has not brought, within the scope of the word ''dealer'', a transferor of the right to use goods. It is well settled that all financial enactments are to be construed strictly and no tax can be imposed by any law or rules or regulations unless the statute, where under the law is made, specifically authorizes such an authority. In fact, in the case of State of Kerala v. Madras Rubber Factory Ltd. reported in (1998) SCC 616, the Apex Court, while dealing with the question of payment of cess under the Kerala General Sales Tax Act, 1963, held that a charge under a taxing statute can only be under the statute and not even under the rules; hence, the deduction, at source, by executive instructions, such as, the impugned memorandum, cannot be treated as a valid piece of executive instruction.
(32) An attempt was also made by Mr. S. Deb, learned Senior counsel, to persuade the Court to hold Rule 3A (2) as intra vires by referring to the decision in
91 (1) The State Government may make rules for the purpose of carrying into effect the provisions of this Chapter. (2) Without prejudice to the generality of the foregoing power, such rules may provide for- (1) generally, the prevention of danger, injury or annoyance to the public or any person, or of danger or injury, to property or of obstruction to traffic;
(33) In view of the fact that Clause (i) did not refer to the driver of a motor cycle or a scooter, it was contended that the State Government could not have framed rules making compulsory wearing of crash helmet by drivers of two wheelers. In view, however, of the fact that the expression ''any person'', occurring in Clause (i), would have included even a driver of a two wheeler, Rule 498A, which had made the wearing of crash helmet compulsory, was held to be a valid piece of delegated legislation. It is in this backdrop that the Apex Court''s observations, which proceed as follows, need to be read:
the expression "any person" in Clause (i) also includes within it a driver of a two-wheeler vehicle. We are unable to accept the contention of the learned Counsel for the Petitioner that the words "any person" do not include the driver of a two-wheeler vehicle. In our view, Clause (i) is also intended for the prevention of danger, injury or annoyance to the public or any person including the driver of a two-wheeler vehicle. Rule 498- A is, therefore, quite legal and valid, in spite of the absence of any provision like Section 85A.
...it is well established proposition of law that where specific power is conferred without prejudice to the generality of the general power already specified, the particular power is only illustrative and does not in any way restrict the general power. In the instant case also, the general power is in Sub-section (1) and Sub-section (2) contains illustrations and does not in any way, restrict the general power under Sub-section (1 ). Thus, even assuming that Rule 498-A is not covered by Clause (i) of Sub-section (2), it is quite immaterial inasmuch as such a rule can be framed in exercise of the general power under Sub-section (1) for the purpose of carrying into effect Chapter VI relating to control of traffic. There is, therefore, no substance in the contention of the Petitioner that Rule 498-A is ultra vires the provisions of the Act.
(34) In the case at hand, the decision, in Ajay Canu''s case (supra), cannot be taken recourse to, when the transferor''s right to use goods has not been brought within the net of the sales tax by the charging Section, i. e. Section 3.
(35). What crystallizes from the above discussion is that unless the TST Act is suitably amended by either expanding the definition of dealer or by making appropriate changes in the provisions of Section 3, which is the charging section, no person, who transfers the right to use any goods for any purpose, can be held liable to pay sales tax under the TST Act. What also crystallizes from the above discussion is that Rule 3- A(2) is, in the light of the discussion held above, ultra vires the TST Act.
(36). In the result and for the reasons discussed above, while the appeals preferred by the State Government, fail and the same shall accordingly stand dismissed, the appeals, preferred by the writ Petitioners, are hereby allowed.
(37). In view of the fact that Rule 3-A(2) has been held to be ultra vires, no authority rests in the Department of Revenue, Government of Tripura, to either direct payment of, or deduction at source for the purpose of payment of, sales tax from the bills of any person, who transfers the right to use any goods for any purpose.
34. Before we proceed to answer the issue as to whether the contract of Well- Logging, Perforating and other Wireline services, to be carried out on land, in the State of Tripura, which has been entered into between the Petitioner and the ONGC, amounts to ''lease'' or not, it must be noted that in order to attract sales tax on such a type of transaction, there must be ''transfer of right to use any goods''. In other words, transfer of the right to use any goods, for any purpose, is a condition precedent for imposition of sales tax. This tax is not a tax on the right to use any goods or on the use of any goods; it is, rather, a tax on the ''transfer'' of the ''right'' to ''use'' any ''goods''. Thus, unless and until the incidence of ''transfer'' of the right to use goods, in a given case, is present, a transaction would not become a ''sale'' even under the expanded definition of ''sale''. Similarly, a transaction would not attract ''sales tax'' merely because the goods have been hired and the hiring charges have been paid to the person, who gives, on hire, the goods unless one can show that the transaction is not confined to ''use'' of the goods, but it is, in substance, a ''transfer'' of the ''right'' to ''use'' the ''goods''.
35. We may pause here to point out that in
36. The relevant observations made, on the above aspects of the law, in 20th Century Finance Corporation Ltd. (supra), read as under:
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 goes not arise. Therefore, it is the transfer which is since 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.
37. From the above observations made, in 20th Century Finance Corporation Ltd. (supra), what becomes abundantly clear, if we may reiterate, is that the delivery of goods cannot constitute a basis for levy of tax on the transfer of right to use any goods and where the goods are in existence, the taxable event, on the transfer of the right to use goods, occurs, when a contract is executed between the lesser and the lessee and the situs of sale of such a ''deemed sale'' would be the place, where the contract is executed. Thus, where goods, to be transferred, are available and a written contract is executed between the parties, it is at that point of time (i.e., at the time of execution of the written contract) that the situs of taxable event, on the transfer of right to use goods, would occur and the situs of sale of such a transaction would be the place, where the contract is executed. Relying upon the decision in 20th Century Finance Corporation Ltd. (supra), the Supreme Court held, in
38. However,
39. In Bharat Sanchar Nigam Ltd. (supra), the Supreme Court, however, clarified that delivery of goods, at some stage, is necessary in order to complete the transfer of the right to use the goods. To put it a little differently, though situs of a ''deemed sale'' does not depend on the place of delivery of goods, the taxable event is not complete, in the light of decision in Bharat Sanchar Nigam Ltd. (supra), until the time the delivery of the goods takes place, for, it is upon delivery of the goods that the transfer of the right to use the goods is completed. This delivery may, however, be actual or constructive. In other words, a ''deemed sale'' cannot be treated as complete until the time the contract is executed by delivery, actual or constructive, of the goods inasmuch as the transfer of the right to use goods does not take place until the time the transferor delivers, actually or constructively, the goods, which form the subject of contract, though, for the purpose of determining the situs of such a ''deemed sale'', it is the place, where the agreement is executed, which will be treated as the place of the ''deemed sale'' provided that the agreement is in writing; but in a case of oral agreement, it may be affected by the delivery of the goods. The relevant observations, made, in this regard, in Bharat Sanchar Nigam Ltd. (supra), read as under:
With respect, the decision in 20th Century Finance Corporation Ltd. v. State of Maharashtra cannot be cited as authority for the proposition that delivery of possession of the goods is not a necessary concomitant for completing a transaction of sale for the purposes of Article 366(2-A)(d) of the Constitution. In that decision the Court had to determine where the taxable event for the purpose of sales tax took place in the context of Sub-clause (d) of Article 366(29-A). Some States had levied tax on the transfer of the right to use goods on the location of goods at the time of their use irrespective of the place where the agreement for such transfer of right to use such goods was made. Other States levied tax upon delivery of the goods in the State pursuant to agreement of transfer while some other states levied tax on deemed sales on the premise that the agreement for transfer of the right to use had been executed within that State (vide para 2 of the judgment as reported ). This Court upheld the third view, namely, merely that the transfer of the right to use took place where the agreements were executed.
40. Explaining, in Bharat Sanchar Nigam Ltd. (supra), its earlier decision, in 20th Century Finance Corporation Ltd. (supra), the Supreme Court pointed out that while determining the situs of the transfer of the right to use the goods, the Court had not observed, in 20th Century Finance Corporation Ltd. (supra), that the delivery of goods was inessential for the purpose of completing the process of transfer of the right to use; rather, the Constitution Bench had held, in 20th Century Finance Corporation Ltd. (supra), points out the Supreme Court, in Bharat Sanchar Nigam Ltd. (supra), that the goods must be available, when the transfer of the right to use the goods takes place, and that the Constitution Bench, in 20th Century Finance Corporation Ltd. (supra), had further recognized that for oral contracts, the situs of the transfer may be the place, where the goods are delivered.
41. The Supreme Court, therefore, held, in Bharat Sanchar Nigam Ltd. (supra), that the delivery of the goods may not take place simultaneously with the transfer of the right to use the goods, but the goods must be in existence, ''deliverable'', when the right is sought to be transferred, and must, at some stage, be delivered.
42. It is, therefore, clear that in order to constitute a transfer of right to use goods, there must be, either actually or constructively, parting with the possession of the goods for the limited period of its use in favor of the lessee by the lesser. The effective control of the goods must not remain with the owner, but must stand transferred to the lessee for the use by the latter at his will and it is this transfer of the effective control of the goods, which attracts sales tax (See also Alpha Clays v. State of Kerala, reported in 135 STC 107 (Ker).
43. In
44. In contrast,
45. What is immensely important to note is that in both the cases, namely, in Rashtriya Ispat Nigam Ltd. (supra) as well as in Aggarwal Bros. (supra), the goods were in existence and the same were delivered to the contractors for their use. However, while in one case, namely, in Rashtriya Ispat Nigam Ltd. (supra), the transaction was not treated as sale, because there was no intention to transfer the right to use the goods and the effective custody and control of the machinery remained with the transferor, notwithstanding the delivery thereof, the other case, namely, Aggarwal Bros (supra), is one, wherein not only that the delivery of the shuttering materials took place, but even the right to use the shuttering materials, in any manner as the contractor wanted, stood permitted and it was for this reason that this transaction was held to be a transaction, which amounted to ''deemed sale''. The relevant observations made, in this regard, by the Supreme Court in Bharat Sanchar Nigam Ltd. (supra), read as under:
when the Assessee had hired shuttering in favor of the contractor to use it in the course of construction of the buildings it was found that possession of the shuttering materials was transferred by the Assessee to the customers for their use and therefore, there was deemed sale within the meaning of sub clause (d) of Clause (29-A) of Article 366. What is noteworthy is that in both the cases there was goods in existence which were delivered to the contractors for their use. In one case there was no intention to transfer the right to use while in the other there was.
46. Apart from the above, it is also necessary to note that all the sub-clauses of Article 366(29-A) serve to bring transactions, where one or more of the essential ingredients of a ''sale'' as defined in the Sale of Goods Act, 1930, are absent, within the ambit of purchase and sale for the purposes of levy of sales tax. To this extent only is the principle enunciated in Gannon Dunkerley Ltd.(supra). The amendment especially allows specific composite contracts, viz., ''works contract''s [sub-clause (b)]; hire-purchase contracts [sub clause (c)], catering contracts [sub-clause (e)] by legal fiction to be divisible contracts, where the sale element could be isolated and be subjected to sales tax. In Bharat Sanchar Nigam Ltd. (supra), the Supreme Court held that
Gannon Dunkerley Ltd.(supra) survived the Forty-sixth Constitutional Amendment in two respects. First with regard to the definition of "sale" for the purposes of the Constitution in general and for the purposes of Entry 54 of List II in particular except to the extent that the clauses in Article 366(29-A) operate.
47. Of all the different kinds of composite transactions, the drafters of the Forty-sixth Amendment chose three specific situations, a ''works contract'', a ''hire-purchase'' contract and a ''catering contract'' to bring them within the fiction of a ''deemed sale''. Of these three, the first and third, namely, ''works contract'' and ''catering contract'' involve a kind of ''service'' and ''sale'' at the same time. Apart from these two cases, covered by Sub-clauses (b) and (f) of Clause (29A) of Article 366, where splitting of the service and supply has been constitutionally permitted, there is no other service, which has been permitted to be so split. If there is an instrument of contract, which may be composite, in form, in any case other than the exceptions, which Article 366(29-A) makes, the State would have no power to separate the agreement to sell from the agreement to render service, and thereby impose tax on the component of ''sale'' unless the transaction, in truth, represents two distinct and separate contracts and is discernible as such.
48. In other words, if a contract is a composite contract for the sale of goods and services, it is not permissible for State Legislature to tax composite contracts comprising of both, ''sales'' and ''services''. Not only the contracts cannot be artificially split up so as to enable the sale element to be taxed, the State cannot treat the contract as only a contract of sale of goods and tax thereby the whole value of the transaction as a sale of goods. Thus, a composite contract of sale of goods and service, i.e., consisting of both transfer of right to use and of rendering of service, has to be treated as a contract of service and no sales tax can be imposed on such a type of contract. This takes us to the question as to whether the contract, in the present case, is a contract for transfer of right to use goods. The question whether there is transfer of the right to use any goods or not becomes, in every given case, a question of fact and this fact can be determined, on the basis of the terms of the contract, which may govern a given transaction. In fact, in North East Gases Pvt. Ltd. v. State of Assam, reported in (2004) 134 STC 249, this Court has held that the question relating to transfer of the right to use any goods is essentially a question of fact, which has to be determined, in each case, having regard to the terms of the contract, wherein the transfer is made.
49. In view of the fact that the terms of the contract really determine whether, in a given case, there is or there is no transfer of the right to use any goods, it is necessary, in the present case, to take note of the relevant clauses of the agreement, which govern the transaction, which is sought to be made eligible to sales tax. The relevant portions of the agreement, in question, are, therefore, reproduced herein below:
Whereas the Corporation is desirous of engaging a Contractor for providing Well-Logging, Perforating and other Wireline services for its Oil and Natural Gas Exploration and Exploitation to be carried out On land in the States of Gujarat, Tamil Nadu, Andhra Pradesh, Pondicherry, Madhya Pradesh, Rajasthan, Assam, Nagaland, Tripura etc. under the jurisdiction of Indian Govt. where hydrocarbon operation are carried out by ''corporation''.
1.8 "Areas of Operation" means such place (s) or location (s) on land in the States or Gujarat, Rajasthan, Tamil Nadu, Pondicherry, Andhra Pradesh, etc. (Pool-I) and Assam, Nagaland, Tripura etc. (Pool-2) under the jurisdiction of the Indian Govt., where hydrocarbon operations are carried out by the corporation. However, corporation shall have the right to divert/deploy any of the units anywhere on land in India.
1.19. "Equipment Rental" means rental charges payable to the contractor per month, pro-rated for part thereof, in respect of Equipment as mobilized by the contractor for exclusive services (s) to the corporation pursuant to the provisions under the contract, whether during the said month or part thereof, such Equipment has or has not performed operations.
The equipment on rental shall remain the exclusive property and in possession of the Contractor and the equipment is simply being used by the Contractor for providing the services under the contract.
1.20. "Data Processing Charges" means the charges computed on a monthly basis, payable to the Conrtractor for data processed pursuant to the provisions under this Conrtractor for data processed pursuant to the provisions under this Contract at the rates stipulated in this Contract.
1.21 "Performing Operating Charges" means the charges computed on a monthly basis, payable to the Contractor for services performed pursuant to the provisions under this contract based on the service order/Job order issued by the Corporation is representative at the rates stipulated in this contract.
1.22 "Personnel" means a group of the Contractor''s Personnel consisting of Engineer (s) and Operator (s) as may be necessary and required to conduct the operation satisfactorily on each Unit deployed under the Contract.
1.23. "Personnel Charges" means the charges computed on a monthly basis, and prorated for part thereof and payable to the Contractor is respect of its personnel deployed exclusively for performance of the operations under this Contract in accordance with the provision in the Price List.
1.25 "Special charges" means the charges computed on a monthly basis, payable to the Contractor for performing operations pursuant to the provisions under this Contract based on the service order/Job order issued by the Corporation''s representative at the rates stipulated in this Conrtract as per Price list.
1.26 "Special Operating Charges" means the charges computed on a monthly basis, payable to the Conrtractor for performing operations pursuant to the provisions under this Contract based on the service order/Job Order issued by the Corporation''s representative, at the rate stipulated in this Contract as per Price list.
4.1.1. Payment of the following charges will be made in accordance with the Price list attached herewith.
a) Mobilization charges
Mobilization charges for all essential logging equipments and tools at the time of initial mobilization of the project against the contract shall be equivalent to one and half month''s equipment rental charges as per section A-3 for each of the respective equipment and tool.
For any additional/optional equipment/tool required by Corporation after initial mobilization but during the currency of contract including any extension thereof, three months equipment rental charges as per Section A-2 of the price list will be charged as mobilization charges.
No mobilization charges are payable for the unit/equipment available in India with the Contractor.
b) Demolization charges per unit to place or deportation out of India.
NIL demobilization charges at the successful completion of first 36 months of the Contract for Nazira and Agaratala or if equipments/tools released is immediately (without any break) reassigned to nay active CNGC rig/location within India. Otherwise a flat demobilization charge equivalent to three months equipment rental charges for each equipment/tool as per Section A-2 of the price list shall apply. These demobilization charges shall also apply for all (Optional/additional) equipment/tools mobilized subsequent to initial mobilization of project, unless such (optional/additional) equipments/tools have been on rentals for a duration of at least 36 months.
l) Payment, if any, on account of Contractor''s equipment, accessories lost, destroyed of damaged during operation under the circumstances described in Article 15.1.1 will be made in accordance with the provisions under Article 15.0
m) Reimbursement of equipment transportation expenses will be made in accordance with the provision of Article 6.5.
5.2 Corporation''s Representative
The duties of the Corporation''s Representative are to act on behalf of the Corporation for overall coordination and Project Management at site. The Corporation''s Representative shall have the authority to change the orders in the scope of work to the extent so authorized and notified by the Corporation to the Contractor in writing. The Corporation''s Representative shall liaise with the Contractor; monitor the progress so as to ensure the timely completion of the works.
5.3 Engineer
he Engineer shall ensure that the works are carried out in accordance with the specifications, drawings and other terms & conditions of the Contrract. The Engineer shall have the right to inspect at all reasonable times any part of the works and necessary tests to be carried out to reject such works which is not in accordance with the Contract. The Engineer has the right to scrutinize the records for the work being done daily. In general, the Engineer shall have the authority to oversee the execution of the works by the Contractor and to ensure compliance by the Contractor of provisions of the Contract.
7.0. Breakdown
Contractor''s equipment shall be maintained by him in sound, safe and efficient operational condition throughout the duration of the Contract. For the first 120 (One hundred twenty) cumulative down time hours per year per unit (including assigned down hole tools) during which operations hereunder are suspended due to breakdown or of the need for repairs to the Contactor''s equipment or due to the failure of the Conrtractor to furnish any equipment etc. for operation such as, but not limited to materials, supplies, equipment or surveys, which the Contractor is obliged to furnish hereunder, if such failure results in the operations being materially affected, the Contractor shall be paid equipment rentals. Thereafter, no payment shall be made for the said equipment and/or tool till such time the same is made operational or such maintain such spare parts, tools, consumable etc. as are necessary for the maintenance and to keep the equipment in working condition after each operation at no extra cost to Corporation.
d) Conrtractor shall make arrangement at his own expenses for all necessary documents, invoices for passport and visas for any of the Contractor''s personnel. The Contractor shall pay all wages and salaries to the Contractor''s personnel deployed under the CONTRACT. Notwithstanding anything contained herein to the contrary Contractor agrees that the law and the ordinance of the country of origin and the country of the area of operation relating to the employment and welfare of its personnel and their entrance into and exit from the country shall apply.
e) Contfactor shall furnish to Corporation in area operation, the Contractor''s list of personnel who will perform the services under the Contract.
f) The Corporation shall have the full right for good cause to request the removal of any Contractor''s personnel, either for in competency, unreliability or misbehavior etc. on or off the job. Contractor shall observe any such request at its own cost and will forthwith replace such Contractor''s personnel at Contractor''s expenses. The Contractor will be allowed a maximum of 2 (two) days to conduct an investigation and correct any such limitation.
g) Contractor shall be responsible for and shall provide at its expenses unless otherwise provided in the CONTRACT, maintenance of equipment & spares etc. and handle fuel & lubricants for the equipment.
19.0 Insurance And Indemnity Insurance The Contractor shall arrange comprehensive insurance to cover all risks assumed by Contractor under this Contract, in respect of its personnel deputed to work under this Contract as well as the logging units, tools, equipments, materials and any other belongings of the Contractor or their personnel during the entire period of their engagement in connection with this Contract.
The Corporation shall have no liability in this regards whatsoever, except for the tools/equipment and other accessories lost/damaged inside the wells as mentioned in Clause 15.0.
22.1 Independent Contractor
Contractor is an independent Contractor performing services as requested by Corporation. Corporation is at all times in full care, custody and control of the well. Corporation shall have a responsible representative present to furnish full and adequate instructions relating to the service or services to be performed and Corporation''s representative shall have full responsibility for all decisions regarding whether to drill or abandon the well, for completion, well treatment and production procedures, and all other activities relating to the drilling or production operations, including the abandoned thereof.
22.7 Pollution or Contamination
Notwithstanding anything to the contrary contained herein, it is understood and agreed by and between the CONRTRACTOR and Corporation that the responsibility for pollution or contamination shall be as follows:
a. The Conrtractor shall assume all responsibility for cleaning up and controlling pollution or contamination, which or Ignites with Contractor''s equipments and facilities above the surface.
b. Corporation shall assume all responsibility for (including control and removal of the pollutant involved) and shall protect, defend and save the Contractor harmless from and against all claims, demands and causes of action of every kind and character arising from all pollution.
25.0 Accidents
All expenses incurred including, but not limited to procurement of spares down time etc. in respect of repairs arising out of damages caused by gross negligence of the Contractor shall be borne exclusively by the Conrtractor. No liability on this account shall accrue to the Corporation under any circumstances. However, any reimbursement provided by the insurance underwriters on the above account shall be to the benefit of the Contractor.
50. From a conjoint reading of the various clauses of the agreement, it appears that the agreement entered into by the Petitioner with ONGC is a contract for rendering of services and not a contract for transfer of the right to use any goods. In the performance of the contract, the Petitioner has to use, no doubt, the equipments necessary for the execution of works for which rental charges is payable to the Petitioner; but there is no transfer of right to use the said equipments from the Petitioner to contracted and this becomes clear from Clause 1.19 of the agreement, wherein it has been made clear that the equipments shall remain to be the exclusive property and in possession of the contractor and equipments would simply be used by the contractor for providing services under the contract. If the equipments remain ''the exclusive property and in possession of contractor'' and the same is used by the contractor for providing services, under the contract, to the Petitioner, the question of transfer of right to use the said equipments from contractor to ONGC does not arise. From a reading of Clause 1.20 and 1.21 too, it would emerge that the data processing charges and the perforating charges to be paid by the contractor are for data processing as per the provisions of the contract and the service performed is pursuant to the provisions of the contract based on service order/job order issued by the ONGC. Similarly, Clause 1.23, whereby personnel charges are to be paid to the contractor, is in respect of the personnel employed exclusively for the performance of the services under the contract. The special charges and special operating charges payable to the contractor, as defined in Clause 1.25 and 1.26, are charges for performing operations pursuant to the provisions of the contract based on service order/ job order issued by the ONGC.
51. The mobilization charges and demobilization charges payable to the contractor, under Clause 4.1.1, are also not for the transfer of right to use any goods. From a reading of Clause 5.2, it would further emerge that the contract is for execution of the works in accordance with the specification, drawing and others terms and conditions of the contract and the duty of the contractor''s representative is to act, on behalf of the corporation, for overall coordination and the project management at the site. Similarly, the duty of the engineer is to ensure that works of ''Well- Logging, Perforating and other Wireline services'' are in accordance with the specification, drawing and other terms & conditions of the contract. Clause 7.0 clearly provides that the contractor has to maintain its equipment in sound, safe and efficient condition throughout the duration of the contract. The contractor has to also pay all wages and salaries to the personnel deployed for the performance of the services under the contract and the ONGC shall have the full right, for good cause, to request the removal of any of the personnel of the contractor for in competency, unreliability, misbehavior, etc., ''on or off the job''. The contractor is also required to provide for the maintenance of equipments and spare parts and handling fuel and lubricants for the equipments. Clause 11.1 will clearly show that the contract is for the performance of the work and the actual performance and superintendence of all operations shall be by the contractor. As per Clause 11.2, the contractor has to comply with all safety and labor laws of the area of operation. From a reading of Clause 15, it will be clear that all rights to the equipments shall, at all times, remain with the contractor . Clause 18 provides that the contractor has to arrange comprehensive insurance to cover all risks assumed by the contractor under the contract. In Clause 22 of the agreement, it has been made clear that contractor has to perform service as requested by the ONGC. Clause 22.7 provides that the contractor shall assume all responsibility for cleaning up and controlling pollution or contamination, which originates with contractor''s equipments and facilities above the surface. Similarly, Clause 25 provides that all expenses incurred including, but not limited to procurement of spares, down time, etc., in respect of repairs arising out of damage caused by gross negligence of the contractor, shall be borne exclusively by the contractor.
52. Thus, from a combined reading of the various clauses of the agreement, in question, it is clear that the contract, in the case at hand, is for rendering services and not for transfer of right to use equipments. Not only the operational, but even control of equipments remains with the contractor and does not get transferred to the corporation. When the contract agreement is read clause by clause, it becomes abundantly clear that in the contract agreement, there is no transfer of right to use the equipments and the contract agreement is merely for rendering services.
53. The transfer of right to use goods would imply relinquishment of both possession and control of the goods by the transferor in favor of the transferee, where after, during the transaction, the former would have absolute dominion thereupon to the exclusion of the latter. In the concurring judgment, Dr. A.R. Lakshmanan, J, spelt out the essential attributes of a transaction to constitute transfer of right to use goods, in paragraph 97 of Bharat Sanchar Nigam Ltd. (supra), in the following words:
To constitute a transaction for the transfer of the right to use the goods, the transaction must have the following attributes:
(a) there must be goods available for delivery;
(b) there must be a consensus ad idem as to the identity of the goods;
(c) the transferee should have a legal right to use the goods- consequently all legal consequences of such use including any permissions or licenses required therefore should be available to the transferee;
(d) 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 license to use the goods;
(e) 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.
54. As has been envisioned in paragraph 97 of Bharat Sanchar Nigam Ltd. (supra), the essential feature of ''sale'' amongst others are (1) the legal right of the transferee to use the goods to the exclusion of the transferor during the period of the contract and not merely as a licensee therefore and (2) the legal right of the transferee to use the goods with all legal consequences thereof including permission or license to be available to permit the exercise thereof.
55. In the present case, the terms and conditions, embodied in the contract agreement, when read as whole, do not proclaim possession, custody and control of equipments to the total exclusion and estrangement of the contractor wholly alienating them from the assignment agreed to be undertaken. Continuous supervision of the contractors over the works to be executed, on instructions of the representatives and engineers of the ONGC, is only to affirm the unhindered execution of the corporation''s works so as to ensure quality service.
56. In the contract agreement itself, it has been made very clear that the equipments, on rental, shall remain the exclusive property and in possession of the contractor and the equipments are simply being used by the contractor for providing the services under the contract. This clearly shows the intention of the parties, while entering into the contract. In this context, it is appropriate to refer to a decision of the Allahabad High Court, in Ahuja Goods Agencies v. State of U. P. , reported in (1997) 106 STC 540. In this decision, a Division Bench of the Allahabad High Court observed as under:
the intention of the parties, mode of use and several other surrounding and relevant aspects have to be considered to come to the conclusion whether or not under a particular contract there is transfer of the right to use any goods. A mere contract of hiring without more, is a species of contract of bailment. Transfer of a right to use goods implies that full liberty is vested in the transferee to have the right to use the goods to the exclusion of all others including the owner of the goods.
57. We respectfully agree with the above observations made in Ahuja Goods Agencies (supra). There cannot be, therefore, any doubt that a contract agreement has to be read, as a whole, in order to determine the intention of the parties.
58. We also profitably take note of a decision of this Court in D.P. Agarwal V. ONGC and Ors. reported in (2010) 5 GLR 38 , wherein a learned Single Judge of this Court, while examining the issue as to whether the contract of hiring of cranes, amounts to a transfer of right to use the goods, held as under:
The various clauses referred to hereinabove if considered in conjunction along with the unqualified recital in the Scope of work, in the estimate of this Court do not comprehend a lease or transfer of right of use of the crane(s) and propel the transaction out of the purview of lease/ sale as contemplated by Article 366(29A)(d) of the Constitution of India or Section 2(27)/2(43) of the Act. A dominion of the Corporation over the manned crane(s) though perceptible for the operational needs the overwhelmingly emphatic covenants consciously incorporated by the contracting parties emphasize as well as singular responsibility and accountability of the contractors to unfailingly guarantee the timely placement, and availability of the manned crane(s) as well as the smooth and quality execution of the works. A few clauses of the contract though are suggestive of the Corporation''s prerogative to use the crane(s) as per its requirements, the same per se do not constitute cessation of the services expected of them. The terms and conditions of the contract agreements taken as a whole, do not proclaim Corporation''s possession, custody and control of the crane(s) to the total exclusion and estrangement of the contractors wholly alienating them from the assignment agreed to be undertaken . The parties seem to be ad-idem to accentuate upon continuous supervision and surveillance of the contractors not only to affirm unhindered execution of the Corporation''s works but also to ensure quality service. The residuary discretion and the power retained by the Corporation in the matter of derailment of the works and the prohibition against the withdrawal of the crane(s) approved by it do not ipso facto militate against the otherwise all pervasive service aura discernible in the contract agreements. Though the working hours of the crane(s) have been specified, the contract agreements do not ordain continuance of the location thereof at the site(s) even thereafter. Payments on hourly pro rata basis are also contemplated. Not only the opening recital portraying the transaction to be neither a lease nor a transfer of right to use the crane(s) consciously incorporated in the contract agreements ought not to be readily trivialized, the comprehension of service tax only being payable is also redolent of the predominant service feature thereof . The parties, in spite of contemplate transfer of right of use of the cranes by the contractors in favor of the Corporation divesting themselves of their authority and control over the same.
59. We respectfully agree with conclusion arrived at in D.P. Agarwal (supra).
60. What emerges from above discussion is that the contract agreement, in the present case, obliges the contractor to render the services of ''Well- Logging, Perforating and other Wireline services'' by using its own equipments and thereby no transfer of right to use equipments can be said to have taken place in the present case. Situated thus, it becomes clear, and we do hold, that the Petitioner is not liable to pay tax, under the TST Act, 1976, in respect of the consideration received for the execution of contract, in question; hence, the action of the revenue authority, in raising the demand for deduction of sales tax at source treating the contract, in question, as transfer of the rights to use goods is wholly without jurisdiction and liable to be set aside and quashed, which we hereby accordingly do. The impugned communications, dated 18/20th December, 2004, and 11/12/01/2005, aforementioned, shall stand set aside and quashed.
61. With the above observations and directions, this writ petition shall stand disposed of.
