IN THE HIGH COURT OF UTTARAKHAND AT NAINITAL Commercial Tax Revision No. 9 of 2009 Telecommunication Consultants India Ltd. .……… Petitioner Versus Commissioner of Commercial Taxes, Uttarakhand. ……… Respondent Mr. Bharat Ji Agrawal, Senior Advocate with Mr. S.K. Posti, Advocate for the revisionist. Mr. Sudhir Kumar, Brief Holder for the respondent. Coram: Hon’ble J.S. Khehar, C.J. Hon’ble B.C. Kandpal, J. Dated: 19th February, 2010 J.S. KHEHAR, C. J. The revision petitioner, i.e. M/s Telecommunication Consultants India Ltd. (hereinafter referred to as “TCIL”), is a Government of India undertaking, which is controlled by the Ministry of Telecommunications. While the head office of the revision petitioner’s business is located in New Delhi, it has a branch office in Dehradun, presently in the State of Uttarakhand (earlier in the State of Uttar Pradesh). The revision petitioner is carrying on the business of providing and establishing telecommunication networks. TCIL is registered under the State Trade Tax Act and the Central Trade Tax Act with the Trade Tax Office, Dehradun. 2. On 01.11.1988, the revision petitioner entered into an agreement with the Oil and Natural Gas Corporation (hereinafter referred to as the “ONGC”) for installation of two EPABX systems along with allied accessories and spare parts, on rent and guarantee basis. The equipment contemplated under the said agreement was not available with the TCIL at the time of execution of the contract. Accordingly, TCIL placed a purchase order with M/s Northern Digital Exchange Ltd., New Delhi (hereinafter referred to as the “NDEL) on 27.12.1989. In furtherance of the said purchase order, NDEL supplied equipment, in furtherance of the aforesaid purchase order, from Mohali (in the State of Punjab) to Dehradun (in the State of Uttar Pradesh / Uttarakhand) on 2 08.01.1990. It is not a matter of dispute that the purchase order dated 27.12.1989 and the movement of goods based thereon, from Mohali to Dehradun, were in pursuance of the agreement entered into by the revision petitioner with the ONGC dated 01.11.1988. 3. The revision petitioner entered into another similar agreement (as it had earlier entered into with the ONGC) with M/s Bharat Heavy Electricals Ltd. (hereinafter referred to as the “BHEL”) for installation of Digital ISND- EPABX along with allied accessories and spare parts, on rent and guarantee basis on 24.02.2000. The equipment contemplated by the said agreement, was not available with the TCIL at the time of execution of the said contract. Accordingly, a purchase order was placed by TCIL with M/s Alcatel Business Systems (India) Ltd. (hereinafter referred to as the “ABSL) on 03.11.2000. ABSL supplied the equipment in furtherance of the aforesaid purchase order from Bangalore (in the State of Karnataka) to Haridwar (in the State of Uttar Pradesh / Uttarakhand) on 03.11.2000. In furtherance of the aforesaid, an invoice dated 24.01.2001 was issued from Bangalore. It is not a matter of dispute that the purchase order dated 03.11.2000 and the movement of goods based thereon, from Bangalore to Haridwar, were in pursuance of the agreement entered into by the revision petitioner with the BHEL dated 24.02.2000. 4. Yet another contract was entered into by the revision petitioner, i.e. TCIL, with the ONGC on 20.06.2001, again for the installation of EPABX facilities at Dehradun along with allied accessories and spare parts, on rent and guarantee basis. The equipment contemplated by the said agreement was not available with the TCIL at the time of execution of the said contract. Accordingly, another purchase order dated 06.07.2001 was placed by the TCIL with the ABSL on 06.07.2001 so as to be able to procure the equipment for the execution of the contract dated 20.06.2001. Yet again, in furtherance of the said purchase order dated 06.07.2001, ABSL supplied the equipment from Bangalore (in the State of Karnataka) to Dehradun (in the State of Uttar Pradesh / Uttarakhand). It is not a matter of dispute, that the purchase order dated 06.07.2001 and the movement of goods based thereon, from Bangalore 3 to Dehradun, were in pursuance of the agreement entered into by the revision petitioner with the ONGC dated 20.06.2001. 5. The revision petitioner, i.e. TCIL, received rent in respect of the concerned equipments. Since the period during which the aforesaid rent was received, relevant to the present controversy, is from 1997 to 2002 only, the aforesaid details are being furnished. For the period from 1997-1998, TCIL received total rent of Rs. 40,11,912/- (from the ONGC). For 1998-1999, TCIL received total rent of Rs. 28,38,000/- (from the ONGC). For the year 1999- 2000, TCIL received total rent of Rs. 28,38,000/- (from the ONGC). During the period 2000-2001, TCIL received total rent of Rs. 46,96,862/- (Rs. 25,54,200/- from the ONGC and Rs. 21,42,662/- from the BHEL). For the year 2001-2002, TCIL received total rent of Rs. 43,62,871/- (Rs. 29,14,999/- from the ONGC and Rs. 14,47,872/- from the BHEL). 6. The Assessing Authority under the Uttar Pradesh Trade Tax Act, 1948 (hereinafter referred to as the “Trade Tax Act, 1948”) passed an assessment order dated 28.02.2003 levying tax under Section 3-F of the Trade Tax Act, 1948, in respect of the amount of rent received by the revision petitioner, i.e. the TCIL, in lieu of the transfer of the right to use equipment, given by the TCIL to the ONGC, as well as, the BHEL. The Assessing Authority was of the view, that since both the lessor (ONGC / BHEL) and the lessee (TCIL) were registered with the Trade Tax Office, Dehradun (in the State of Uttar Pradesh / Uttarakhand) and the agreements executed by the lessor and the lessee were in respect of equipment supplied for use in the State of Uttar Pradesh / Uttarakhand, Section 3-F of the Trade Tax Act, 1948 was invokable, for levy of sales tax on the transfer of the right to use goods. Accordingly, the rent received by the TCIL from the ONGC, as well as, from the BHEL was subjected to the liability of sales tax under the Trade Tax Act, 1948. 7. Dissatisfied with the assessment order dated 28.02.2003, the revision petitioner, i.e. the TCIL, preferred an appeal under Section 9 of the Trade Tax Act, 1948 before the Joint Commissioner (Appeals), Dehradun. By an order dated 21.09.2005, the Appellate Authority dismissed the appeal preferred by 4 the TCIL, thereby confirming the order passed by the Assessing Authority dated 28.02.2003. 8. Dissatisfied with the assessment order dated 28.02.2003 as well as the appellate order dated 21.09.2005, the revision petitioner filed a further appeal under Section 10(2) of the Trade Tax Act, 1948, read with the Adoption and Modification Order, 2002, before the Commercial Tax Tribunal, Uttarakhand, Dehradun (hereinafter referred to as the “Tribunal”). The Tribunal, vide its order dated 29.12.2008, dismissed the appeal preferred by the revision petitioner. 9. The instant revision petition has therefore been filed, to assail all the orders referred to herein above, which culminated in the order passed by the Tribunal on 29.12.2008. 10. Before we venture to embark on the pointed controversy, which has been raised for determination at our hands, it would be essential to make a reference to certain constitutional provisions, which will have to be kept in mind while dealing with the controversy. Able assistance in this behalf has been rendered to us by the learned senior counsel representing the revision petitioner. In examining the historical perspective of the constitutional provisions, it would be essential, first and foremost, to make a reference to the judgment rendered by the Madras High Court in Gannon Dunkerley and Company (Madras) Ltd. Vs. State of Madras, AIR 1954 Madras 1130. The issue which arose for consideration in the aforesaid case was, whether payments made towards the execution of a building contract could be subjected to sales tax after excluding labour costs therefrom. The payments under reference, which were being subjected to sales tax, represented the value of goods used in the execution of the building contract. After debating the issue, the Court arrived at the conclusion, that the contract under reference was not for sale of goods, but a composite building contract, and as such, the payments received by the contractor in execution of the building contract, could not be divided into two components, one representing the goods used in the execution of the contract, and the other representing the labour costs. The 5 Madras High Court, accordingly, held, that tax could not be levied by splitting the total consideration into two components. On the same issue, the High Courts of Nagpur, Rajasthan, Mysore and Kerala had held otherwise. The Supreme Court in State of Madras Vs. Gannon Dunkerley & Co. (Madras) Ltd., (1958) 9 STC 353, upheld the view taken by the Madras High Court. Again in Northern India Caterers (India) Ltd. Vs. Lt. Governor of Delhi, (1978) 42 STC 386, the Apex Court held, that payments in lieu of food and drinks provided to guests staying in a hotel could not be divided into two components, one representing the value of food and drinks, and the other representing the charges for services rendered. The issue of avoidance of tax based on the aforesaid pronouncements, as well as, avoidance of central sales tax leviable on inter-State sale of goods, was examined by the Law Commission of India. In its Sixty First Report, the Law Commission of India suggested certain amendments to the provisions of the Constitution of India. By the Constitution (Forty Sixth Amendment) Act, 1982, the Parliament inserted clause (29-A) in Article 366 of the Constitution of India. Clause (29- A) (aforementioned) is being reproduced hereunder: “(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 hire-purchase 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.” 6 11. Besides the liberal definition of the term “sale” or “purchase” emerging out of the insertion of clause (29-A) in Article 366 of the Constitution of India, it is also essential for us in the determination of the present controversy, to make a reference to Article 286 of the Constitution of India. Article 286 of the Constitution of India is being extracted hereunder: “286. Restrictions as to imposition of tax on the sale or purchase of goods. – (1) No law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place – (a) outside the State; or (b) in the course of the import of the goods into, or export of the goods out of, the territory of India. (2) Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause (1). (3) Any law of a State shall, in so far as it imposes, or authorises 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, be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify.” 12. A perusal of clause (1) of Article 286 of the Constitution of India reveals, that it is not open to a State to frame law(s) for imposing or authorising the imposition of tax on the sale (or purchase) of goods from outside the State, i.e. on inter-State sale (or purchase) transactions. The other aspects of the aforesaid provision need not be deliberated here, as the same are irrelevant to the present controversy. 13. From a collective reading of clause (29-A) of Article 366 of the Constitution of India, and Article 286 of the Constitution of India, it emerges that sales tax is leviable even on transactions which do not fall strictly within the definition of the term “sale”, under the Sales of Goods Act, 1954 (as amended), in view of the liberal definition of the term “sale” in sub-clauses (a) to (f) of clause (29-A) of Article 366 of the Constitution of India. The aforesaid enlarged definition of the term “sale”, for the levy of sales tax, at the 7 hands of a State, would however be subjected to the embargo expressed in Article 286 of the Constitution of India, namely, that a State cannot levy tax on sale (or purchase) of goods from outside the State, i.e. on inter-State sale (or purchase) transactions. The conclusions drawn by us herein above are based on the legal position declared by the Supreme Court in Builders Association of India Vs. Union of India (1989) 73 STC 370, wherein it was inter alia held: “….. The object of the new definition introduced in clause (29 A) of article 366 of the Constitution is, therefore, to enlarge the scope of ‘tax on sale or purchase of goods’ wherever it occurs in the Constitution so that it may include within its scope the transfer, delivery or supply of goods that may take place under any of the transactions referred to in sub-clauses (a) to (f) thereof wherever such transfer, delivery or supply becomes subject to levy of sales tax. So construed the expression ‘tax on the sale or purchase of goods’ in entry 54 of the State List, therefore, includes 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 also.” The instant aspect of the matter was also dealt with in 20th Century Finance Corporation Ltd. and another Vs. State of Maharashtra, (2000) 6 SCC 12. The relevant conclusions recorded therein are reproduced hereunder: “19. Following the decisions referred to above, we are of the view that the power of States Legislatures to enact law to levy tax on the transfer of right to use any goods under Entry 54 of List-II of 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 in regard to taxes on sales 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, States Legislatures are not competent to enact law imposing impose 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 to make 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 the territory of India. Yet, there are other limitations on the taxing power of the State Legislature by virtue of Clause (3) of Article 286. Although Parliament has enacted law under Clause (3) (a) of Article 286 but no law so far has been enacted by Parliament under Clause (3) (b) of Article 286. When such law is enacted by Parliament, the State Legislature would be requirerd to exercise its legislative power in conformity with such law. Thus, what we have stated above, are the limitations on the powers of States Legislatures on levy of sales tax on deemed sales envisaged 8 under sub-clause (d) of Clause (29-A) of Article 366 of the Constitution.” 14. It would be further relevant to mention, that in Builders Association of India’s case (supra), the submission advanced on behalf of the State, that clause (29-A) of Article 366 of the Constitution of India, conferred power on State Legislatures to levy tax independently of the power emerging out of Entry 54 of the State List contained in the Seventh Schedule of the Constitution of India, was rejected. The Apex Court in Builders Association of India’s case (supra) also clarified, that the tax liability under sub-clauses (a) to (f) of clause (29A) of Article 366 of the Constitution of India, would be subject to the embargo expressed under Article 286(1) of the Constitution of India. 15. Besides the constitutional provisions, referred to herein above, another issue relevant for the determination of the present controversy is, whether situs of the sale (or purchase) is a relevant consideration for determining whether a contract had been executed within the State or was an inter-State transaction. Insofar as the instant issue is concerned, reference may be made to the judgment rendered by the Apex Court in 20th Century Finance Corporation Ltd. Vs. State of Maharashtra, (2000) 6 SCC 12, wherein the Court recorded the following observations on the issue (of situs of sale): “20. While examining the power of States Legislatures under Entry 54 of List-II in earlier part of this judgment, we have noticed that the situs of the sale or purchase is wholly immaterial as regards the inter-State trade or commerce, as held in Bengal Immunity Co. Ltd.’s case. Further, the State Legislature cannot by law, treat sales outside the State and sales in the course of import as ‘sales within the State’ by fixing the situs of sales within its State in the definition of sale as it is within the exclusive domain of the appropriate Legislature, i.e. Parliament to fix the location of sale by creating legal fiction or otherwise. 21. It may be noted that the transactions contemplated under sub-clauses (a) to (f) of clause (29-A) of Article 366 are not actual sales within the meaning of “sale” but are deemed sales by legal fiction created therein. The situs of sale can only be fixed either by the appropriate legislature or by judge-made law, and there are no settled principles for determining the situs of sale. There are conflicting views on this question. One of the principles providing situs of sale was engrafted in the explanation to clause (1)(a) of Article 286, as it existed prior to the Constitution (Sixth Amendment) Act, which provided that 9 the situs of sale would be where the goods are delivered for consumption. The second view is, situs of sale would be the place where the contract is concluded. The third view is that the place where the goods are sold or delivered would be the situs of sale. The fourth view is that where the essential ingredients, which complete a sale, are found in majority would be the situs of sale. There would be no difficulty in finding out situs of sale where it has been provided by legal fiction by the appropriate legislature. In the present case, we do not find that Parliament has, by creating any fiction, fixed the location of sale in case of the transfer of right to use goods. We, therefore, have to look into the decisional law.” 16. Having made reference to various judgments, the issue under reference was then concluded as under: “We, therefore, find that the location or delivery of goods within the State cannot be made a basis for levy of tax on sales of goods. Under general law, merely because the goods are located or delivery of which has been effected for use within the State would not be the situs of deemed sale for levy of tax if the transfer of right to use has taken place in another State. Therefore, the contention, on behalf of the respondents that there would be no completed transfer of right to use goods till the goods are delivered is to prevail, then the respondents are further required to show that the contract of transfer of right to use goods is also entered into in the said State in which the goods are located or delivered for use. The State cannot levy a tax on the basis that one of the events in the chain of events has taken place within the State. The delivery of goods may be one of the elements of transfer of right to use, but the same would not be condition precedent for a contract of transfer of right to use goods. Where a party has entered into a formal contract and the goods are available for delivery irrespective of the place where they are located, the situs of such sale would be where the property in goods passes, namely, where the contract is entered into.” It is apparent from the observations extracted above, that the situs of a deemed sale, would depend on a variety of facts peculiar to the facts and circumstances of the contractual transaction whereby the sale (or purchase) takes place. 17. During motion hearing, a Division Bench of this Court, vide an order dated 06.04.2009, noticed the submission advanced on behalf of the revision petitioner, and framed the questions of law arising for consideration. A relevant extract of the aforesaid order is being reproduced hereunder: “(3) Learned counsel for the revisionist argued that the revisionist / Assessee is a public sector undertaking. It is contended that the Tribunal has erred in law in following the minority view given by the apex court in 20th Century Finance Corpn. Ltd. & another Vs. 10 State of Maharashtra (2000) 6 Supreme Court Cases, 12, in holding that use of goods within the State (in pursuance of the lease agreement, where purchase has taken place outside the State), is taxable under the local Sales Tax Law. In this connection, it is further contended that situs of such sale would be treated in the State from where the goods were consigned and it shall be treated only Inter-State. (4) Admit the revision on following questions of law:- (i) Whether the lease agreement and purchase order were integrally connected with the movement of goods and ultimate delivery of the goods to the lessee at whose address the goods are consigned by Ex State Supplier, and was it an integral transfer under Section 3A of the Central Sales Tax Act, as held in the case of ITC Classic Finance Services Vs. Commercial Tax Officer, 97 STC, 330, and accepted by the apex court in 20th Century Finance Corpn. Ltd. & another Vs. State of Maharashtra (2000) 6 Supreme Court Cases, 12? (ii) Whether the Commercial Tax Tribunal has erred in law in relying the minority view given in the aforesaid 20th Century Financer Corpn. Ltd. case (supra) and not following the majority view given by the apex court on the point that the tax was leviable only under Central Sales Tax treating it as Inter-State transaction?”