THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE RAMESH RANGANATHAN TAX REVISION CASE Nos.154, 155, 156, 157, 160, 169, 170, 181, 205 and 243 of 2010 % 28.1.2011 # M/s.G.S.Lamba & Sons, represented by Mr.Gurusharan Singh Lamba And others ...Petitioners VERSUS $ State of Andhra Pradesh, represented by its State Representative before Sales Tax Appellate Tribunal, Hyderabad ...Respondent < GIST: > HEAD NOTE: !Counsel for Petitioners: M/s.Lakshmi Kumaran & Sridharan ^Counsel for Respondent: Sri P.Balaji Varma Special Standing Counsel for Commercial Taxes ? Cases referred 1. AIR 2000 SC 1855 : (2000) 243 ITR 83 (SC) 2. 259 ITR 502 (Guj) 3. (2009) 314 ITR 81 (SC) 4. (2006) 280 ITR 377 (MP) 5. (2001) 122 STC 236 (AP) 6. T.Rev.C.No.3 of 2010, dated 11.11.2010. 7. AIR 1980 SC 485 8. AIR 1994 SC 2393 : (1994) 94 STC 422 9. (2003) 8 SCC 414 : AIR 2003 SC 3397 10. (2003) 11 SC 699 : AIR 2003 SC 4156 11. (1958) 9 STC 353 : AIR 1958 SC 560 12. (1963) 14 STC 316 : AIR 1963 SC 1207 13. AIR 1965 SC 1082 14. (1967) 20 STC 115 (Madras) 15. (1970) 1 SCC 462 16. (1972) 29 STC 474 : (1972) 1 SCC 472 17. (1978) 4 SCC 36 18. (1989) 73 STC 370 : (1989) 2 SCC 645 (para 32) 19. (1987) 66 STC 26; (1987) 4 APSTJ 26 20. (1990) 77 STC 182 (AP) 21. (1995) 97 STC 330 (AP) : (1995) 20 APSTJ 150 22. (1989) 75 STC 217 23. (1993) 1 SCC 364 : (1993) 88 STC 204 24. (2000) 6 SCC 12 : (2000) 119 STC 182 (SC) 25. (2002) 3 SCC 314: AIR 2002 SC 1305 : (2002) 126 STC 114 (SC) 26. (2006) 145 STC 91 (SC) : (2006) 3 SCC 1 27. (2003) 3 SCC 239 28. (1866) L.R.2 QB. 86 29. (1877) 2 Company Pleas Division 464 30. (1892) 1 QB. 253 31. (1942) 2 KB 65 32. (1997) 106 STC 540 (All) 33. (2001) 124 STC 426 (Kar) 34. 2009-10 DST J-77 (Del) 35. 25 VST 522 (Ori) 36. 22 VST 70 (Gau) 37. (2010) 31 VST 337 38. (2008) 13 VST 403 (All) 39. (2009) 22 VST 136 40. Appeal Suit No.151 of 1991 and batch, dated 29.12.2010 41. (1999) 4 SCC 545 : AIR 1999 SC 2607 42. (2006) 8 SCC 726 THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE RAMESH RANGANATHAN TAX REVISION CASE Nos.154, 155, 156, 157, 160, 169, 170, 181, 205 and 243 of 2010 January 28, 2011 Between: M/s.G.S.Lamba & Sons, represented by Mr.Gurusharan Singh Lamba And others … Petitioners And State of Andhra Pradesh, represented by its State Representative before Sales Tax Appellate Tribunal, Hyderabad … Respondent THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE RAMESH RANGANATHAN TAX REVISION CASE Nos.154, 155, 156, 157, 160, 169, 170, 181, 205 and 243 of 2010 COMMON ORDER: (Per Hon’ble Sri Justice V.V.S.Rao) 1. These ten tax revision cases under Section 22(1) of the Andhra Pradesh General Sales Tax Act, 1956 (the Act) are filed by assessees against a common order dated 30.11.2009 of the Sales Tax Appellate Tribunal (the Tribunal) in Tax Appeal Nos.467 of 2009 and batch. The details of various appeals are admitted and hence narration of minute particulars is not necessary. Suffice to mention that the assessing authority passed orders for the assessment years 2001-02 to 2004-05, in all these cases in December, 2005, August and November 2006. The petitioners’ appeals were allowed on 08.5.2007. About two years thereafter, the Additional Commissioner (Legal) passed orders on 29.11.2008 under Section 20(1) of the Act which were preceded by the show cause notices dated 02.9.2008. All the tax appeals filed by the petitioners, being Tax Appeal No.467 of 2009 and batch, were dismissed on 30.11.2009. Facts 2. The undisputed factual matrix is in a narrow compass. The petitioners – M/s.G.S. Lamba & Company, G.S.Lamba & Sons, and G.S.L. Coal Sales Pvt. Ltd., – are dealers on the rolls of the Commercial Tax Officer (CTO), Begumpet Circle. In pursuance of the inspection and investigation by the Vigilance and Enforcement Wing, the CTO assessed tax for 2001-02 and 2002-03 under Section 5-E of the Act in respect of the taxable event, namely, the petitioners hiring their fleet of Transit Mixers to M/s.Grasim Industries Ltd., Secunderabad, a unit of M/s.Birla Ready Mix Concrete (hereafter, Grasim). The Appellate Deputy Commissioner agreed with assessees and treated the hiring of Transit Mixers as contract of transport service, and not the transfer of the right to use the goods. The Additional Commissioner (Legal), in exercise of the revisional jurisdiction, levied sales tax under Section 5-E of the Act. The petitioners then went in further appeals before the learned Tribunal, which were dismissed. 3. The case of the petitioners is that Grasim manufactures Ready Mix Concrete (RMC), according to the specifications depending on the site requirements of a customer, at its batching plants in Miyapur and Nacharam in Hyderabad. RMC is a homogenized and a precise mixture. Its use reduces work at the site, minimises space requirements and allows smooth progress of the construction. It has a very short shelf life of 3 to 4 hours from the time of its manufacture at the batching plant, and has to be used within that period. Keeping all these in view the petitioners entered into agreements with Grasim. These contracts are for providing transportation service for shipping RMC by hiring specially designed Transit Mixers. Under the contracts, the Transit Mixers are never transferred and the effective control over running and using of these vehicles, as well as the disciplinary control over the drivers, always remained with the petitioners. They point out that it is their responsibility to obtain route permits, to take the risk or loss of transportation, to decide shifts for drivers and vehicles, to maintain and upkeep the vehicles in good condition. It is also their plea that damages to the goods, during the period of transportation, and the risk of loss of the vehicles have to be incurred by the petitioners, and that registration of the vehicles is never transferred to Grasim. They further contend that, if on reading the contract, two views are possible, revision by the Additional Commissioner, under Section 20(2) of the Act, would not lie. Submissions 4. The petitioners’ counsel contends that five eventualities to infer the transfer of the right to use goods are not completely present in the transaction between the petitioners and Grasim. He would urge that the Tribunal was wrong in relying on clauses (A), (B) and (D) of the contract in concluding that the petitioners had transferred the right to use Transit Mixers to Grasim. According to him, these clauses would not lead to any such conclusion and that there was no intention to create exclusive right to use the vehicles by Grasim. The clause for providing dedicated fleet of vehicles with Grasim’s logo “Birla Concrete” being painted on them is no indication that the intention was to transfer the right to use Transit Mixers. The RMC is a product with short shelf life and its marketability depends on the quality. So as to assure the product quality to end-user, it was agreed to paint the brand name on the vehicles. The same, however, does not lead to an inference that there is consensus ad idem; and that the petitioners should keep ready the dedicated fleet of eight vehicles to be used by Grasim. In the absence of transfer of possession and effective control, Section 5-E of the Act is inapplicable. Lastly it is urged that the Tribunal was in error in not recording findings on all the issues raised by the petitioners. The Counsel relied on various precedents to which a reference would be made at the appropriate place. 5. The Special Counsel for Commercial Taxes points out that the agreement between the petitioners and Grasim is a post created document and no importance can be attached to the same. Alternatively he submits that the Tribunal has correctly appreciated questions of fact in the light of the agreement between the parties which clinchingly reveals the presence of the essential requirements of Section 5-E of the Act and, therefore, no interference is called for in these revision petitions under Section 22(1) of the Act. Points for consideration 6. The two issues that spring up from the background facts and the rival submissions are: Whether the petitioners’ contract is for transfer of the right to use Transit Mixers to M/s.Grasim Industries Limited for transporting the RMC? And whether the State Sales Tax Appellate Tribunal has committed any error warranting interference under Section 22(1) of the Andhra Pradesh General Sales Tax Act, 1957? Revisional jurisdiction under APGST Act 7. We will first deal with second issue. The petitioners would contend that the exercise of jurisdiction under Section 20(2) of the Act is barred when two views are equally possible and one of which is accepted by the original authority. This argument is sought to be sustained relying on Malabar Industrial Co. Ltd., v Commissioner of Income Tax[1], CIT v Arvind Jewellers[2], Commissioner of Income Tax v Greenworld Corporation[3] and Commissioner of Income Tax v Associated Food Products and Popular Bread Factory[4]. These judicial decisions were rendered in the context of Section 263(1) of the Income Tax Act, 1961, not with reference to the language of Section 20(1) of the APGST Act. The scope of revisional jurisdiction under these provisions is also different. Therefore we are afraid the decisions under Section 263(1) of the Income Tax Act would not be applicable here. For comparison, we may quote Sections 20(1) & (2) of the APGST Act and Section 263(1) of the Income Tax Act in the following table. Section 20 of the APGST Act Section 263 of the Income Tax Act 20. Revision by Commissioner of the Commercial Taxes and other prescribed authorities: (1) The Commissioner of Commercial Taxes may suo motu call for and examine the record of any order passed or proceeding recorded by any authority, officer or person subordinate to it, under the provisions of this Act, including sub-section (2) of this section and if such order or proceeding recorded is prejudicial to the interests of revenue, may make such enquiry, or cause such enquiry to be made and subject to the provisions of this Act, may initiate proceedings to revise, modify or set aside such order in reference thereto as it thinks fit. (2) Powers of the nature referred to in sub-section (1) may also be exercised by the Additional Commissioner, Joint Commissioner, Deputy Commissioner, Assistant Commissioner and the Commercial Tax Officer in the case of orders passed or proceedings recorded by authorities, officers or persons subordinate to them. (Sub-sections 2-A, 3, 5 and 6 are omitted.) 263. Revision of orders prejudicial to revenue (1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or canceling the assessment and directing a fresh assessment. (Explanation and sub-sections (2) and (3) are omitted.) (emphasis supplied) 8. The power under Section 263(1) of the Income Tax Act conferred on the Commissioner is exercisable only when an order passed by the assessing officer, “is erroneous insofar as it is prejudicial to the interest of the revenue”. I n Malabar Industrial Co., Ltd., the Supreme Court held that, “the Commissioner of Income Tax has to be satisfied of twin conditions, namely, (i) the order of the assessing officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the revenue (and) if one of them is absent – if the order of the Income Tax Officer is erroneous but is not prejudicial to the revenue or if it is not erroneous but is prejudicial to the revenue – recourse cannot be had to Section 263(1) of the Act”. On the other hand, Section 20(1) of the Act confers suo motu power on the Commissioner of Commercial Taxes and other prescribed authorities to call for the record and modify or set aside the order of any assessing authority, “if such order or proceeding recorded is prejudicial to the interests of revenue”. Thus, it would be enough to have recourse to Section 20(1) of the Act if any assessment order or proceeding is prejudicial to the revenue. This construction under the APGST Act may have certain exceptions with which we are not concerned here. We are well supported by two decisions of this Court in B.S.Parikh & Co. v Commr. of C.T.[5] and M/s.GMM Co. Ltd v State of A.P.[6]. 9. It is axiomatic that the machinery provisions of a taxing statute have to be interpreted in such a manner that they are workable (Commissioner of Income-tax, Central Calcutta v National Taj Traders[7] and J.K. Synthetics Limited v Commercial Taxes Officer[8]). It does not, however, mean that the interpreter can interpolate something not intended by the legislature, by supplying causus omissus (Illachi Devi v Jain Society, Protection of Orphans India[9] and Sankar Ram & Co., v Kasi Naicker[10]). If the plea of the petitioners is accepted, we have to read Section 20(1) of the APGST Act as empowering revision, only when an order of assessing officer/appellate authority is erroneous in so far as it is prejudicial to the interest of revenue. This is plainly not permissible. 10. The impugned order of the Tribunal is also attacked on the ground that the Tribunal erred in not recording a finding on the issue raised. This cannot be a ground for us to exercise revisional jurisdiction under Section 22(1) of the Act. As rightly pointed out by the Special Counsel for Commercial Taxes, the submissions were noted in the order. The learned Tribunal considered the core issue and, having found that the agreement is a contract for the transfer of the right to use Transit Mixers, dismissed the appeals. We fail to understand as to how the impugned order can be put to challenge only on the ground that a finding is not recorded on one of the issues raised by the assessee before the Tribunal. Transportation service or Transfer of the right to use Transit Mixers? 11. The petitioners allege that the contract with Grasim is for transportation service. They deny that it is for the transfer of the right to use the goods. Transit Mixers are indisputably goods as defined in Section 2(h) of the Act. Section 2(n) defines “sales” to mean transfer of the property in goods for cash in the course of trade or business and includes mortgage, hypothecation, pledge or charge on goods. This definition has eight Explanations. Fourth of them was inserted by Andhra Pradesh Act No.18 of 1985 with effect from 02.02.1983. It is to the effect that “a transfer of the right to use any goods for any purpose” shall be deemed to be sale. When is the right to use goods said to have been transferred? To appreciate this, a brief journey into the past relating to tax on sale of goods under Entry 54 of List II of the Seventh Schedule to the Constitution of India may be necessary. 12. The Sale of Goods Act, 1930 defined “sale” as a contract of sale of goods whereby the seller transfers or agrees to transfer the property in goods to a buyer for price. “Goods” means ‘every kind of movable property other than actionable claims and money and includes stock and shares, growing crops, grass and things attached or form part of the land which are agreed to be severed before sale or under the contract of sale’. In the pre-constitution era, for the purpose of sales tax law, the expression “sale of goods” was construed as having the same meaning as in the Sales of Goods Act. Firmly established in State of Madras v Gannon Dunkerley & Co (Madras) Limited[11], this view influenced the sales tax law enormously. In New India Sugar Mills Limited v CST[12], the Supreme Court held that the transfer of controlled commodities pursuant to a Central Government Order is not a sale as defined in the Sale of Goods Act. In K.L.Johar and Co., v CTO[13], it was held that the transfer of goods on hire purchase or any system of payment by instalments does not amount to sale, and in A.V.Meiyappan v CCT[14], the Madras High Court held that the lease of cinematograph films is not a sale. In CTO v Young Men’s Indian Association (Regd)[15], it was held that supply of goods by any incorporated association or a body of persons to a Member of the association is not sale and in State of Punjab v Associated Hotels of India Limited[16] and Northern India Caterers (India) Limited v Lt.Governor of Delhi[17], it was held that service of meals in a hotel or restaurant does not constitute sale of food for the purpose of levy of sales tax and must be regarded as rendering service in the satisfaction of human need. So as to tackle these issues, which effected the State’s revenue (by depriving tax on such type of sales), the matter was referred to the Law Commission of India. 13. In their Sixty First Report, the Law Commission of India dealt with specific transactions like transfer of control commodities, supply of food in hotels, transfer of goods on hire purchase and the works contracts. In Chapter 1-E the Law Commission made pertinent observations, which compel excerption. CHAPTER 1-E SOME GENERAL OBSERVATIONS AS TO TAXATION ON SALE I-E General observations as to “sale” (1) So far, we have dealt with specific transactions. A few general observations may now be made. A sale of goods requires an agreement to transfer title in goods for money, followed by the actual passing of such title as a result of the agreement. The broad concept, thus, requires (i) an agreement to transfer title, (ii) in goods, (iii) for money and (iv) passing of title as a result of the agreement. Most of the problems that have arisen as to the taxability of various transactions are due to the fact that one (or more) of the ingredients mentioned above are missing from the transaction. This will be clear if the ingredient and its antithesis are represented as in the following chart, which also mentions the situation where the antithesis exists. Ingredient Antithesis ( i ) A g r e e m e n t to transfer title Title passing without agreement, or no transfer of title. (ii) In goods Title passing under the agreement but not for goods. Illustrative situation – Works contracts (No agreement to transfer the very goods which come into existence). (iii) For money Title passing for value other than money. Illustrative situation – Barter. (iv) Passing of title as a result of the agreement Title does not pass because there is only an agreement (or some prior step), and no complete sale. Illustrative situations – (a) Hire-purchase (b) Consignment transfer. 2. The basic defect in the present scheme is that a very limited type of economic activity is taxable by the States,-– and other economic activities are not taxable, except by way of excise duties or indirectly by way of stamp duties. This leaves room for loopholes and gaps. It would appear that some day, it will be desirable to consider the possibility of devising a tax which will embrace all transactions which are regarded as adding value or which are entered into with that object. 14. The Law Commission of India submitted the report on 21.05.1974. Accepting its recommendations, the Government of India proposed to amend the Constitution to include in Article 366, a definition of ‘tax on the sale or purchase of goods’ by inserting a new Clause 29-A and to insert a new Entry 92-A in the Union List in the Seventh Schedule and to amend Article 269(1) and 286(3) of the Constitution of India to be in consonance with the other proposed amendments. As a result, the Constitution (Forty Sixth) Amendment Act, 1982 was enacted which was published in the Gazette on 02.02.1983. Consequently this led to States amending their sales tax laws to enlarge the ambit and width of “sale of goods” for levy of tax. Due to this, a wide variety of economic activities, which were hitherto not considered as sale of goods, came within the fold of State laws. Indeed, as observed by the Law Commission of India, the underlying theme was to devise a tax, which will embrace all transactions which are regarded as adding value or which is entered into with that object. This is reflected in the new definition in Article 366 (29-A), which reads as under. 366. Definitions (29A) “tax on the sale or purchase of goods” includes— (a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; (b) a tax on the transfer of property in goods whether as goods or in some other form involved in the execution of a works contract; (c) a tax on the delivery of goods on hirepurchase or any system of payment by instalments; (d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made. 15. The expression ‘tax on sale or purchase of goods’ is an inclusive definition. It must receive a wide and expansive meaning. The latter part of clause (29-A) contemplates that ‘such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods’. The sub-clauses (a) and (b) use “transfer”; Sub-clause (c) uses “delivery”; sub-clause (d) uses “transfer of the right to use goods”, and sub- clauses (e) and (f) use “supply” of goods while defining deemed sale. Thus under the sub-clause (d) there would be deemed sale if the right to use goods is transferred even though delivery is not an essential part of such transfer of the right to use goods. In other words, the moment the right to use goods is transferred, the taxable event happens. When would such transfer of the right to use goods de facto comes within the gravitational field of the species of deemed sale? A score of High Court decisions and half a dozen Supreme Court decisions, notwithstanding, this question remains an unavoidable vexed question. We may, therefore give a brief analysis of the judicial decisions on Article 366 (29-A)(d) of the Constitution which is the basis for Section 5-E of the APGST Act as well as similar provisions in other States’ laws. 16. In Builders Association of India v Union of India[18], the validity of the Constitution (Forty-sixth) Amendment Act was upheld. But the Apex Court ruled that