THE HON’BLE SRI JUSTICE BILAL NAZKI AND THE HON’BLE SRI JUSTICE D. APPA RAO T.R.E.V.C.Nos. 213 and 214 of 2004 AND WRIT PETITION Nos. 21313, 21314, 21315, 21316, 21317, 21318, 21319, 26921, 26988, 26989, 26990, 26991, 27538 and 27542 of 2005 Date: 30-06-2006. Between : M/s.Ushakiron Movies, Begumpet, Hyderabad, rep. by its Manager-Accounts & Authorised Signatory. …..Petitioner And State of Andhra Pradesh, rep. by its State Representative before the Sales Tax Appellate Tribunal, Nampally, Hyderabad. …..Respondent For the petitioner : SRI C.NATARAJAN For the Respondent : SRI K.RAJI REDDY (Spl. Standing Counsel for Commercial Taxes) < Gist: > Head Note: ? CITATIONS: 1. AIR 1989 SC 1834 2. AIR 1959 SC 24 3. (1922) 1 AC 256 4. AIR 1960 SC 1172 5. AIR 1973 SC 2369 6. 77 STC 182 7. 126 STC 114 (SC) 8. 119 STC 182 (SC) 9. 25 STC 60 (SC) 10. 35 STC 445 (SC) 11. 25 STC 26 (SC) 12. 27 STC 127 (SC) 13. 60 STC 213 (SC) 14. 86 STC 539 15. 130 STC 1 (SC) 16. 145 STC 91 (SC) C/15 THE HON’BLE SRI JUSTICE BILAL NAZKI AND THE HON’BLE SRI JUSTICE D. APPA RAO T.R.E.V.C.Nos. 213 and 214 of 2004 AND WRIT PETITION Nos. 21313, 21314, 21315, 21316, 21317, 21318, 21319, 26921, 26988, 26989, 26990, 26991, 27538 and 27542 of 2005 Date: 30-06-2006. Between : M/s.Ushakiron Movies, Begumpet, Hyderabad, rep. by its Manager-Accounts & Authorised Signatory. …..Petitioner And State of Andhra Pradesh, rep. by its State Representative before the Sales Tax Appellate Tribunal, Nampally, Hyderabad. …..Respondent THE HON’BLE SRI JUSTICE BILAL NAZKI AND THE HON’BLE SRI JUSTICE D. APPA RAO T.R.E.V.C.Nos. 213 and 214 of 2004 AND WRIT PETITION Nos. 21313, 21314, 21315, 21316, 21317, 21318, 21319, 26921, 26988, 26989, 26990, 26991, 27538 and 27542 of 2005 COMMON JUDGMENT : (Per Hon’ble Sri Justice Bilal Nazki) TREVC.Nos.213 and 214 of 2004 In these revisions, the orders passed by the Andhra Pradesh Sales Tax Appellate Tribunal (hereinafter referred to as ‘the Tribunal’), dated 03.09.2004 in T.A.Nos.975 and 976 of 2002 have been challenged. It appears that the Tribunal passed common order in T.A.Nos.575-A/01, 576/01, 975/02 and 976/02. Two revisions have been filed, being T.R.E.V.C. Nos.213 of 2004 and 214 of 2004. T.R.E.V.C.No.213 of 2004 has been filed against the order passed in T.A.No.976 of 2002 and T.R.E.V.C.No.214 of 2004 has been filed against the order passed in T.A.No.975 of 2002. With regard to the other T.As., there are no revisions filed. The facts, which led to this litigation, are that the petitioner claimed that it was a member of Hindu Undivided Family and was a registered dealer under the Andhra Pradesh General Sales Tax Act, 1957 (hereinafter referred to as ‘the Act’). For the assessment years 1995-96 and 1996-97, the petitioner’s assessments were completed by the Assistant Commercial Tax Officer by his orders dated 27.03.1996 and 09.06.1997. The petitioner claimed that it was engaged in the business of production of movies, acquisition of satellite rights of feature films produced by the other film producers. Petitioner was also engaged in production of tele-serials and film based programmes. The films produced/acquired or programmes produced were exploited by the petitioner to earn income by telecasting. Depending on the popularity of the programmes, sponsors and advertisers would pay for telecasting them. The programmes are telecast along with advertisement material of sponsors and advertisers. During the relevant years, the petitioner did not have a satellite telecast facility. ‘Eenadu Television’ (hereinafter referred to as ‘ETV’), a division of ‘Ushodaya Enterprises Limited’ (UEL) had booked transponder of satellite with ‘Videsh Sanchar Nigam Limited’ (hereinafter referred to as ‘VSNL’) and entered into an agreement dated 07.07.1995 with ‘Srilanka Telecom’ for up-linking video signals from their Earth Station at ‘Padukka’ in Srilanka to the designated satellite. ETV also entered into similar agreement on 26.06.1996 with ‘ST Teleport Private Limited’, a Company incorporated in Singapore, having teleport facility at Singapore, to provide up-link facility to the satellite. ETV paid necessary license fee to VSNL for the transponder and fees for up-link facility provided by ‘Srilanka Telecom’ from its Earth Station at ‘Padukka’ in Srilanka and by ‘ST Teleport Private Limited’ from their teleport facility at Singapore. The petitioner entered into a Memorandum of Understanding (hereinafter referred to as ‘MOU’) on 01.08.1995 and 01.04.1996 with ETV for telecasting the films or programmes produced or acquired by it. ETV had infrastructure and satellite time and the parties were desirous of exploiting the programmes produced by the Petitioner for mutual commercial benefit by telecasting, and earn the advertisement revenue. By this MOU, ETV was required to pay certain minimum guaranteed fee per episode per telecast or re-telecast and 50% as share of advertisement revenue over and above such minimum guaranteed fee. Such minimum guaranteed fee ranged from Rs.13,000/- to Rs.80,000/- for first telecast and Rs.4,000/- to Rs.25,000/- for re-telecast for other than cinemas and Rs.60,000/- to Rs.90,000/- for first telecast and Rs.10,000/- to Rs.30,000/- for re-telecast for cinema. This arrangement was made under MOU signed on 01.08.1995. Under the arrangement made under MOU dated 01.04.1996, the amounts ranged from Rs.5,000/- to Rs.75,000/- per telecast and Rs.2,500/- to Rs.37,500/- for re-telecast of programmes other than cinema and for cinema, it was from Rs.60,000/- to Rs.90,000/-. It was the case of petitioner that the MOU was entered into to earn income out of its production activity of films and tele-serials and it had made the arrangement with ETV, which had necessary satellite infrastructure, to telecast programmes during the relevant years. ETV had telecasting facility only at Sri Lanka/Singapore. Therefore, the programmes produced had to be moved to Sri Lanka o r Singapore in the form of software copied on discs or other media. As per the terms of MOU, the rights in the programmes always vested in the petitioner. ETV was entrusted with the responsibility of telecasting. The revenue received by ETV was to be shared and ETV had to pay a minimum guaranteed fee per telecast and re- telecast. The petitioner had to incur all the expenditure in procurement and production of films, and the ETV had to do canvassing and telecasting of the programmes. The petitioner would raise bills every month for the program software telecast by ETV, and ETV would pay share of advertisement revenue on or before 15th of following month. The case of the petitioner had been that its entire activity of producing and telecasting the films was with an intention to earn income from advertisements and sponsors. As it had no satellite facility, it associated with ETV who had the satellite time and infrastructure. The programmes were accordingly entrusted to ETV who copied them with their own equipment and carried them to Sri Lanka/Singapore via Chennai and telecast the programmes. In this transaction, there was no transfer of right to use goods affected by the petitioner in favour of ETV and such a transaction would not attract provisions of the Act. The Commercial Tax Officer visited the business premises of the petitioner on 17.12.1996. He inspected the documents, referred to the terms of MOU and issued show cause notices dated 30.06.1997. He proposed to levy tax of Rs.31,52,990/- for the year 1995-96 and Rs.99,77,044/- for 1996-97. The petitioner filed objections on 08.07.1997. Besides raising some defences, the petitioner also questioned the jurisdiction of Commercial Tax Officer. The Commercial Tax Officer, by separate orders on 23.10.1997, rejected the contentions of petitioner and levied tax as proposed for both the assessment years. Aggrieved by the orders, the petitioner filed appeals before the Appellate Deputy Commissioner. The Appellate Deputy Commissioner, on 17.03.1998, remitted the matter back to the assessing authority and set aside the order of the assessing authority. However, the Appellate Deputy Commissioner rejected the contention raised by the petitioner on the question of jurisdiction of Commercial Tax Officer. The petitioner filed appeals before the Tribunal in T.A.Nos.575- A and 576/2001, contending that the Appellate Deputy Commissioner ought to have upheld the petitioner’s contention with regard to the jurisdiction of the Commercial Tax Officer. The petitioner contended that the Appellate Deputy Commissioner should have allowed the appeals on merits instead of remanding them. While the matters were pending, the Additional Commissioner of Commercial Taxes issued show cause notice on 29.04.2000 proposing to revise the order of the Appellate Deputy Commissioner, observing that the Appellate Deputy Commissioner could have decided the matters instead of remanding them. The petitioner filed objections on 06.07.2001. The Additional Commissioner, by order dated 02.03.2002, rejected all the contentions of the petitioner and restored the order of Commercial Tax Officer, dated 23.10.1997. Aggrieved by the order of Additional Commissioner, the petitioner filed T.A.Nos.975 and 976 of 2002 in the Tribunal. The petitioner also filed an application for stay of collection of disputed tax. The Full Bench of the Tribunal heard the matter and reserved the judgment on appeals on 25.03.2004. By order dated 26.03.2004, the Tribunal disposed of the TMPs, directing the petitioner to pay 1/4th of the disputed tax. The petitioner thereafter filed Writ Petition No.6135 of 2004, which was disposed of on 01.04.2004, directing the Tribunal to dispose of the appeals at an early date and it was directed that the conditional order passed by the Tribunal should not be given effect to. It is submitted that the matter had been heard by a Full Bench of the Tribunal, but the judgment was pronounced only by two members of the Tribunal, as one of the members who belonged to the Income-Tax Department, in the meantime, had gone back to his Department. The judgment was delivered on 03.09.2004 dismissing the appeals filed by the petitioner. Therefore, these revisions were filed. The question which needs an answer from this Court is, whether within Article 366 (29A) (d) of the Constitution of India read with explanation IV to Section 2(n) of the Andhra Pradesh General Sales Tax Act, the petitioner and ETV were involved in transfer of right of use of goods. We have heard learned counsel for the parties. The learned senior counsel appearing for the petitioner submits that there was no transfer as the petitioner and ETV were a Hindu Undivided Family and two concerns were created and as a matter of fact, they were running a joint venture and therefore, there was no transfer. It was a case where ‘A’ was transferring to ‘A’ in terms of a mutual agreement. A plea was also taken that what were transferred, were not goods. But the learned senior counsel fairly gave up this contention. On the other hand, the learned Advocate-General appearing for the respondent, submits that the MOU itself envisages a transfer, and transfer of right of use of goods is inherent in the agreement itself. These are the broad contentions of the learned counsel for the parties. In the light of these contentions, it will be necessary to have a look at the MOU. This MOU was arrived into between M/s.Eenadu Television and M/s.Ushakiron Movies. On behalf of Eenadu television, the agreement was executed by Sri Ch.Suman and on behalf of Ushakiron Movies, it was executed by Sri Ramoji Rao as Kartha of HUF. The object of entering into the MOU is given in the preamble of the MOU and it states – “WHEREAS THE FIRST PARTY has infrastructure and satellite time to telecast programmes through its T.V. Channel - EENADU TELEVISION and the SECOND PARTY produces various programmes and also has right relating to telecast of feature films/songs for the channel, and the parties hereto are desirous of exploiting the said programmes for mutual commercial benefit by `telecasting and earning advertisement revenue. AND WHEREAS both the parties have agreed to the various terms and conditions mentioned below relating to their respective obligations. 1. The SECOND PARTY shall provide to the FIRST PARTY software, for telecast on its Television Channel, consisting of Telugu feature films, Telugu dubbed versions of programmes produced in other languages. 2. a) The SECOND PARTY shall also produce and provide quality programme software to the FIRST PARTY for telecast on its T.V.Channel. b) The FIRST PARTY will canvas for advertisements insertion during the programme and insert such advertisements in the programme capasule sent for telecast. The canvassing for advertisements and recovery of advertisement revenue will be done by FIRST PARTY with its efforts and responsibility. 3. The SECOND PARTY shall held in itself all the rights in the feature films, Telugu dubbed programmes and other software provided to the FIRST PARTY for telecasting. 4. The FIRST PARTY shall be entitled to telecast the feature films and the programme software provided by the SECOND PARTY during the pendency of this agreement or the period extended by any renewed agreement. 5. All the advertisement revenues concerning the programmes shall be received by FIRST PARTY. The FIRST PARTY shall pay the SECOND PARTY a minimum guarantee fee for the programme software provided by it. Since the SECOND PARTY incurs all expenditure in the procurement/production of films/programmes and entirely depends on canvassing and telecasting of the programmes by the FIRST PARTY, a share of advertisement revenues at the rates indicated in the Schedule annexed to this Memorandum of Understanding, shall be paid by the FIRST PARTY to the SECOND PARTY provided always the said rates may be reviewed and revised from time to time. The payment by the FIRST PARTY for telecasting other programmes will be as mutually agreed. PROVIDED that the SECOND PARTY shall be entitled to receive the minimum guarantee fee and share of advertisement revenue at the rates in vogue on the date of telecast/retelecast. Further provided that wherever the FIRST PARTY desires to telecast programmes involving higher cost of production, the minimum guarantee or the share of advertisement revenue for such programmes may be determined separately by mutual consent. 6. The SECOND PARTY shall raise bills every month for the programme software telecast by the FIRST PARTY for the Minimum Guarantee Fee agreed herein and the FIRST PARTY shall pay the share of the SECOND PARTY in advertisement revenue on or before 15th of following month. 7. The programme software will be copied by the FIRST PARTY with their equipment from time to time from the programme master available with the SECOND PARTY.” Under Article 366 (29A) (d), tax on sale or purchase of goods includes 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. Section 2(n) of the Act gives definition of ‘sale’ as under – “ “Sale” with all its grammatical variations and cognate expressions means every transfer of the property in goods [whether as such goods or in any other form in pursuance of a contract or otherwise’] by one person to another in the course of trade or business, for cash, or for deferred payment, or for any other valuable consideration or in the supply or distribution of goods by a society (including a co-operative society), club, firm or association to its members, but does not include a mortgage, hypothecation or pledge of, or a charge on goods.” Explanation IV to Section 2(n) lays down – “A transfer of right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration shall be deemed to be a sale” Explanation IV to Section 2(n) of the Act is similar to Article 366 (29A) (d) of the Constitution. The learned senior counsel for the petitioner contended that the Tribunal failed to appreciate that the programmes were entrusted to ETV only for limited purpose of telecasting and there was no transfer of right to use, to the exclusion of the petitioner. He also contended that the right of exploitation of the programmes to ETV had not, in fact, been transferred and the MOU dated 01.04.1996 was a joint enterprise in which the petitioner had to contribute the software and ETV had to contribute their rights over transponder for up-linking facility, therefore, it would not attract the provisions of Section 5-E of the Act. On the other hand, the learned Advocate- General submits that if we go by the terms of MOU, the transfer of right to use goods was inherent in its terms and the transfer was complete and irrevocable, and as such, it would attract the provisions of Section 5-E of the Act. If we analyze various terms of the MOU, it can be found that in the preamble it was stated that the First Party was desirous of exploiting the programmes, which it was producing, for mutual commercial benefit. The first Clause of the agreement declares that the Second Party shall provide software to the First Party for telecast on its Television Channel, consisting of Telugu feature films, Telugu dubbed versions of programmes produced in other languages. Clause 2(a) declares that the Second Party should produce and provide quality programme software to the First Party for telecast on its T.V. Channel, which would mean that after the Second Party produced the programmes, it had to transfer them to the First Party for being telecast. Whether it was done in Hyderabad, Sri Lanka or in any other country was immaterial for the purposes of this MOU. The First Party was only allowed to canvass for advertisement insertion programmes and it could insert advertisements in the programme capsule sent for telecast by the Second Party. The MOU also discloses that the Second Party would hold itself all the rights in the feature films, telugu dubbed programmes and other software provided to the First Party for telecasting, but at the same time, First Party was entitled to use and telecast the feature films and the programme software provided by the Second Party. There was a minimum guaranteed amount which had to be paid by the First Party to the Second Party even if the first party, after using the programmes, did not receive this money. Therefore, the transfer of right to use from Second Party to First Party was absolute, and even a minimum guaranteed amount had to be paid. In addition to minimum guaranteed fee, amounts had to be paid depending on the earnings by the First Party. The contention raised by the learned counsel for the petitioner that there was no facility of satellite available to the Second Party, therefore, it entered into an agreement with the First Party, is not reflected in the MOU. MOU merely says that First Party has T.V. Channel being ETV and the Second Party was producer of films and programmes, therefore, the Second Party wanted to use for its profits, the T.V. channel i.e. ETV, which was owned by the First Party. Whether the First Party was using a satellite which was in Singapore or in Srilanka, that was immaterial for the purposes of the MOU and the Tribunal also considered these contentions. In sub-para 2 of para 25, the Tribunal found – “We are also unable to accept the contention of the appellant that there is only joint exploitation of the software produced by the appellant. The software programmes copied from programme master by the ETV are not being given to other telecasting parties like Gemini, MAA, Star TV etc. The appellant produces the software programmes and the ETV telecasts the same. The monies generated in these activities of telecasting are shared by both of them in the agreed manner. The assessee only holds title to the software programmes and the exploitation rights there of are with the ETV by means of telecasting. There is nothing on record to show that the appellant can give these software programmes to any other party for telecasting already when they are given to ETV. Hence, the term No.3 in MOU shall be read in that manner. That term shall be read along with term No.4 for proper appreciation of the intention of the parties.” In sub-para 5.1 of para 25, the Tribunal found – “Appellant further contended that if there is no telecast of any software programme, the appellant will not get even minimum guarantee fees. But there is no supporting authority in MOU to support this contention. The information furnished by the assessee which is available in reassessment file at pages 137 to 139 do not indicate the same. Even the sale bills copies raised by the appellant also indicate the same that for no telecasting of software programmes no consideration is agreed. The said sale bills are available in the assessment file. Besides a concession given to the transferee of right in the case of non- telecasting of programme in the form of waiver of minimum guarantee fees cannot alter the true nature of transaction. The taxable event is the transfer of right to use the goods. Whether the transferee actually uses the goods under transfer of right to use after the taxable event and pays the money cannot alter the true nature of the transaction. Actual exercise of right to use the goods and waiver of minimum guarantee fees is not the ingredients of section 5E and is irrelevant as held in the dissenting judgment, which is not in clash with majority judgment reported in 119 STC 182 at 224 Para 86. The waiver of minimum guarantee fees in the event of non-telecasting of programme would amount to one of the deemed sale non- decisive condition. The only legal implication of non-telecasting of the software programme is that the appellant will not get the agreed fees. Besides the non-telecasting of software programme which is under transfer of right to use is only a very remote possibility. Hence we are unable to accept this contention of the appellant also.” Again in para 31, the Tribunal observed – “……Here, in the instant case, admittedly the contract was entered into between the appellant and the ETV at Hyderabad. It is already held supra that the said contract was for transfer of right to use the goods from the appellant to ETV. It is also not disputed that ETV in pursuance of the said contract copied the programmes from the master cassette for the purpose of telecast. Therefore, the moment the programme is copied it amounts to delivery of the goods. Therefore, in either event the taxable event on the deemed sale viz., transfer of right to use goods occurred within the State of Andhra Pradesh. Merely, because ETV took the copy outside the State for telecast, it cannot be said that the transfer of right to use goods was in the course of inter- state trade and commerce. As seen from the terms of the MOU, it is nowhere stated that ETV has to take the goods outside the State for purpose of telecast. So far as the appellant is concerned, it is immaterial as to from where the programmes would be telecast. Therefore, it cannot be said that the deemed sale in the instant cases attracts Sec.3(a) of the CST Act.” In the light of what has been stated by us hereinabove, and the findings of the Tribunal, let us examine the judgments which have been referred to by the learned counsel for the parties. On the question of purport, scope and intent of effect of MOU, the learned senior counsel for petitioner has referred to Odgers’ Construction of Deeds and Statutes. At page 150 of the First Indian Reprint of 1996, it has been stated that where operative part was unambiguous, the recitals have no effect, and it is further stated that the reason of the rule is because it is impossible by a recital to cut down the plain effect of the operative part of a deed. This principle had been taken from Holiday v. Overton (1852) Beav, 467 at p.470 per Romilly M.R. The learned senior counsel for petitioner has specifically drawn the attention of the Court to the observations of Lord Davey, which are also quoted in the book. His Lordship said – “I take it to be a settled principle of law that the operative words of a