*THE HON’BLE SRI JUSTICE V.V.S.RAO AND * THE HON’BLE SRI JUSTICE RAMESH RANGANATHAN + W.P.Nos.23811, 23810, 23816 and 23839 of 2009 W.P.No.23811 of 2009 % Dated 11-02-2011 # Ad Age Outdoor Advertising Private Limited Hyderabad …. Petitioner Vs. $ The Government of Andhra Pradesh, Rep. by the Secretary, Department of Commercial Taxes, Secretariat, Hyderabad and 3 others …. Respondent ! Counsel for the Petitioner: Sri Ch. Pushyam Kiran ^ Counsel for the Respondent: Sri A.V. Krishna Koundinya <GIST: > HEAD NOTE: 1) (2006) 3 SCC 1 2) (2008)2 SCC 614: (2008(18) VST 39 = 47 APSTJ 85 3) (2010) 5 SCC 122 4) (1989) 2 SCC 645 5) (2004) 137 STC 620 (SC – FIVE JUDGES 6) (2000) 7 SCC 29 7) (2004) 4 SCC 751 (DB) 8) (1983) 8 AC 195 (HL) 9) (1995)2 SCC 372 (DB) 10) (1997) 1 SCC 203 11) (1998) 1 SCC 400 (DB 12) (2007) 8 SCC 559 13) AIR 1959 SC 492 14) (2007) 1 SCC 732 THE HON'BLE SRI JUSTICE V.V.S.RAO AND THE HON'BLE SRI JUSTICE RAMESH RANGANATHAN W.P.Nos.23811, 23810, 23816 and 23839 of 2009 COMMON ORDER: (Per Hon’ble Sri Justice Ramesh Ranganathan) In this batch of writ petitions the assessment orders passed by the third respondent, for the assessment years 2005-06 to 2008-09, are under challenge. W.P.No.23839 of 2009 relates to the assessment year 2005-06, W.P.No.23811of 2009 relates to the assessment year 2006-07, W.P.No.23810 of 2009 relates to the assessment year 2007-08 and W.P.No.23816 of 2009 relates to the assessment year 2008-09. The petitioner, a private limited company, is an advertising agency. It obtains licence space, on top of existing buildings and other areas, and erects metal structures on which advertisements are displayed. It is the petitioner’s case that the advertisements originally used to be a painting on a metal sheet; at present it is done by printing on a vinyl sheet; the vinyl sheet is fixed to the steel structure; they pay licence fee for use of the space, and for erection of the steel structures, to the owners or other occupants of the building upon which the structure is erected; various persons including the Government of Andhra Pradesh, who intend displaying their hoardings at specified points, negotiate and enter into contracts with the petitioner for display of the hoardings; the rates are agreed upon based upon the location, size and duration, and a period hoarding fee is paid by the advertiser to the petitioner; in so far as the Government of Andhra Pradesh is concerned, the Special Commissioner, Information and Public Relations Department issues letters to the petitioner, in the form of orders, specifying the location and size of the hoarding, the rate per square feet and the total hoarding fee for a period of one month; the terms and conditions require the petitioner to ensure good quality error free vinyl display, to take photographs with landmark locations, and submit it to the Government; they have registered themselves with the fourth respondent under the Service Tax Code; and they are paying service tax regularly, on all the hoardings that they display, at the rates applicable on the revenues from the hoardings by way of fees from participating advertisers. The Deputy Commercial Tax Officer (Vigilance and Enforcement), vide letter dated 14.5.2009, called upon the petitioner to submit details with respect to their turnover for the years 2005-06 to 2008-09. The petitioner, in its reply dated 19.5.2009, furnished details of the turnover for each of the four financial years. Thereafter the 3rd respondent issued notice dated 22.7.2009, in Form VAT 305-A, proposing to tax the petitioner under Section 4(8) of the A.P. VAT Act, 2005, (hereinafter called the “Act”), on the ground that they were engaged in leasing of hoardings to various customers displaying their advertisements for a fixed period for a fixed amount as consideration, and the Act envisaged levy of VAT on letting out of advertisement boards and signage boards to different customers for display of advertisement of their products. The 3rd respondent proposed to levy tax at 12.5% on the revenue received by the petitioner, from the advertisement on the hoardings, treating it as lease of goods under the Act. The petitioner submitted their reply thereto on 30.7.2009. Thereafter a personal hearing was afforded to the petitioner on 8.9.2009 which they availed. The 3rd respondent passed the impugned orders of assessment holding that there was a transfer of the right to use goods. The entire revenue, for the said assessment years, was brought to tax at 12.5%. Sri S. Ravi, Learned Senior Counsel appearing on behalf of the petitioner, would submit that “advertising services” fall within the ambit of Section 65(105)(e) of the Finance Act, 1994 whereunder service provided to any person by an advertising agency, “in relation to” advertisement, is liable to be charged to service tax. Learned Senior Counsel would refer to Section 65(105)(zzzm) of the Finance Act to contend that advertisement services which the petitioner renders, in the form of making available space on their unipoles and steel structures for display of hoardings, would fall within the ambit of advertising services, and would not amount to a transfer of the right to use goods. According to the learned Senior Counsel the art work, on the vinyl sheets, is mostly provided by the customers, although in a few cases the art work is done by the petitioner; services of third parties are utilized for the purpose of getting the vinyl made for the customers at their specific request; the hoarding is not a movable property, and is a permanent steel structure which is erected with proper foundation; there is a civil structure at the footing either on the ground or on the top of the building where the hoarding is erected; once it is so attached, except by the process of destroying the hoarding itself and removing the signage material, it cannot be shifted from one place to another; the location of the hoarding is fixed; if it has to be moved from one place to another it has to be completely dismantled; the hoarding is also specifically designed for a particular space depending on the height at which it is erected, the vision clearance that is available etc; the hoarding is, therefore, not a moveable property; all that the customer is entitled is to have the vinyl display on the hoarding; merely because the contract contemplates exclusivity, for the period during which the contract is made, it does not amount to transfer of the right to use; while there was no dispute on the primary facts, the inference drawn therefrom by the 3rd respondent was erroneous and perverse; it is only when there is transfer of possession and control would it tantamount to a transfer of the right to use the goods amounting to a ‘deemed sale’ liable to VAT; supply of tangible goods for use, without transferring the right of possession and effective control, would amount to service; the 3rd respondent lacked jurisdiction to levy tax on services; such transgression is ab initio void and non est; sale and service are mutually exclusive domains; a transaction can suffer either VAT or service tax and not both; the third respondent had not stated, in the impugned order, that there was transfer of possession and control of goods; the charge to tax under Section 4(8) of the Act was applicable only where there was transfer of effective control and possession of goods; the unipole structure, on which the vinyl sheet is displayed, is “immovable property” as it is permanently fastened to the earth; the steel structure, on which the display hoarding in the form of vinyl sheets are affixed, is either embedded to the earth or to a building; in the absence of any contract to sever the unipole or the steel structure from the earth, neither is the unipole/steel structure nor the space thereon (whereupon a vinyl sheet is affixed) constitute “goods” under the Act; these hoardings displayed by the customers can, at best, constitute a right to use “immovable property”; the transfer of such a right is outside the purview of the Act; even to come within the purview of “deemed sale”, under Article 366(29-A)(d) of the Constitution, the goods must be movable property, or an immovable property where there is an agreement to sever; and the right to use “space” is not a right to use goods since “space” is not movable property falling within the definition of ‘goods’ under the Act. Learned counsel would rely on Bharat Sanchar Nigam Ltd. v. Union of India[1]; and Imagic Creative (P) Ltd v C.C.T.[2]. On the other hand, Sri A.V. Krishna Koundinya, Learned Standing Counsel for Commercial Taxes, would submit that the petitioner is a lessee of the land on which it has constructed its own hoardings which are required to be removed after expiry of the lease; the hoarding is “moveable property”; the transaction between the petitioner and the owner of the land, and the transaction with his customers now sought to be taxed, are different and distinct transactions; advertisement boards, signage boards, hoardings etc., let out by the petitioner are “goods”, and not “immovable property”, and hence are liable to tax under Section 4(8) of the Act; if something is annexed to a building or ground owned by another, the object of such annexation would be to enhance the value of the immovable property for its beneficial use; if, however, they are annexed to a third party’s property, and have to be removed after the lease ends, then such goods so annexed would become moveable property; in the present case the agreement entered into by the petitioner with the land or building owners also show that the structures and other accessories to be erected by the petitioner would be the property of the petitioner who is entitled to remove them on termination of the agency; customers, who possessed the hoardings on lease, were allowed to freely use them for the purpose of displaying their advertisements as per the terms of the contract; all the ingredients of transfer of the right to use were present; these hoardings were located in suitable sites advantageous to the advertisers to attract attention of the customers; any interference of the lessor, for altering or removing the advertisement, is totally prohibited as per the agreement; all the clauses establish that effective possession of the goods i.e., hoardings were transferred to the lessee for its use; payment of service tax is not a ground to avoid payment of VAT payable on lease contracts; service tax is paid not for lease of the property but for the advertising agency’s service; the petitioner had entered into contracts with its customers to hire hoardings for advertisements for specific periods for valuable consideration; during the contract period, the petitioner is prevented either from removing the hoarding, or replacing the sign boards, without the permission of the customer; during the contract period of lease, possession of the hoarding is with the clients of the petitioner, as it is the client who would decide what kind of display item would be placed on the hoarding; though custody of the goods remain with the petitioner, effective control over them, and the right to use or not to use them during the period such a hoarding is let out, is only with the client during the period of lease; the petitioner had transferred the right to use the hoarding space for a particular period during which the customer has a legal right to put up whatever display material he would like to display, and is responsible for all the legal actions against such display if it effects public decency or morality; the ingredients of Section 4(8) i.e., the transfer of the right to use are satisfied in the instant case; the hoardings, which are fastened to a steel structure attached to the earth, are to be treated as “goods” as defined in Section 2(16); the letting of such hoardings is a deemed sale in terms of Section 4(8) of the Act; the vinyl sheet is affixed on a hoarding which, in turn, is placed on the unipole or steel structure for display; such hoardings are “movable” and not “immovable property”; the “hoarding” is a frame or structure placed either on the unipole or the steel structure; the vinyl sheet, which is stuck to the hoarding, constitutes the display item; during the display period, other products of the advertising agency or other advertising agencies are not permitted use of the unipole or the steel structure; a licence is granted exclusively to one person for the period of contract; and this constitutes “transfer of the right to use goods” attracting Section 4(8) of the Act. In support of his submission that the hoarding space on the unipoles and steel structures, or for that matter the unipoles and the steel structures themselves, are not “immovable property”, but constitute “goods”, Learned Standing Counsel would rely on CCE v. Solid & Correct Engg. Works[3]. Under Article 246(3) of the Constitution of India, read with Entry 54 of List II of the VII Schedule thereto, the State Legislature has the power to make a law relating to the tax on the sale or purchase of goods. Article 366 (12) of the Constitution of India defines ‘goods’ to include all materials, commodities and articles. Under Article 366(29A)(d) “tax on the 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. The expression ‘goods’, as defined in clause (12) of Article 366 of the Constitution, is very wide and includes all types of movable properties, whether those properties be tangible or intangible. (Builders' Assn. of India v. Union of India[4]). The expression "includes" is an expression of wide amplitude and, when used in an interpretation clause, must be construed as comprehending not only such things as they signify according to their nature and import, but also those things which the interpretation clause declares that they shall include. (Tata Consultancy Services v. State of A.P[5]). By introducing separate categories of “deemed sales” in Clauses (a) to (f) of Article 366(29-A) the meaning of the word “goods” has not been altered by the Forty-Sixth Amendment. That ingredient of a sale i.e.,”goods” continues to have the same meaning. Section 2(16) of the Act defines ‘goods’ to mean all kinds of “movable property” other than newspapers, actionable claims, stocks, shares and securities, and to include all materials, articles, commodities including the goods as goods or in some other form involved in the execution of a works contract, or those goods used or to be used in the construction, fitting out, improvement or repair of movable or immovable property, and also includes all growing crops, grass and things attached to or for making part of the land which are agreed to be severed before sale or under the contract of sale. What are “goods”, in a sales transaction, remains primarily a matter of contract and intention. The seller and the purchaser would have to be ad idem as to the subject-matter of the sale or purchase. The Court would have to arrive at the conclusion as to what the parties had intended when they entered into a particular transaction of sale, as being the subject-matter of sale or purchase. In arriving at a conclusion the Court would have to approach the matter from the point of view of a reasonable person of average intelligence. (Bharat Sanchar Nigam Ltd.1). Section 2(34) (d) of the Act defines ‘tax’ to mean a tax on the sale or purchase of goods payable under the Act, and to include 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 4 of the Act relates to charge to tax and, under sub-section (8) thereof, every VAT dealer who transfers the right to use goods taxable under the Act for any purpose, whatsoever, whether or not for a specified period, to any lessee or licensee for cash, deferred payment or other valuable consideration, in the course of business shall, on the total amount realised or realisable by him by way of payment in cash or otherwise on such transfer of the right to use such goods from the lessee or licensee, pay a tax on such goods at the rates specified in the Schedules. Tax, under Section 4(8) of the Act, is to be charged on the transfer of the right to use “goods” taxable under the Act. Transfer of the right to use “immovable property” would not fall within the ambit of Section 4(8) of the Act in as much as “immovable property” would not constitute “goods” as defined in Section 2(16) of the Act. The transfer of the right to use “immovable property” cannot, therefore, be brought to tax under Section 4(8) of the Act. Section 3(26) of the General Clauses Act,1897 includes, within the definition of the term “immovable property”, things attached to the earth or permanently fastened to anything attached to the earth. The term “attached to the earth” has not been defined in the General Clauses Act. Section 3 of the Transfer of Property Act, however, gives the following meaning to the expression “attached to the earth”: (a) rooted in the earth, as in the case of trees and shrubs; (b) imbedded in the earth, as in the case of walls or buildings; or (c) attached to what is so imbedded for the permanent beneficial enjoyment of that to which it is attached. (Solid and Correct Engineering Works3). From a combined reading of the definition of “immovable property”, in Section 3 of the Transfer of Property Act and Section 3(26) of the General Clauses Act, it is evident that in an immovable property there is no mobility. Whether an article is permanently fastened to anything attached to the earth requires determination of both the intention as well as the factum of fastening to anything attached to the earth. This has to be ascertained from the facts and circumstances of each case. (Triveni Engineering & Industrial Ltd. v. Commissioner of Central Excise[6]; Solid and Correct Engineering Works3). The test of permanency is whether the chattel is movable to another place of use in the same position, or is liable to be dismantled and re-erected at the latter place? If the answer is yes to the former it must be a movable property and, thereby, it must be held that it is not attached to the earth. If the answer is yes to the latter, it is attached to the earth. (T.T.G. Industries Ltd. V. CCE[7]). The question whether a chattel is imbedded in the earth so as to become immovable property is to be decided on the principles of annexation to the land. The twin tests are the degree or mode of annexation, and the object of annexation. The degree and nature of the annexation is an important element for consideration for, where a chattel is so annexed that it cannot be removed without great damage to the land, it affords a strong ground for thinking that it was intended to be annexed in perpetuity to the land. The mode of annexation and the object of annexation are applicable as relevant tests. The test is whether the annexation is with the object of permanent beneficial enjoyment of the land or building. Attachment, in order to qualify for the expression “attached to the earth”, must be for the beneficial attachment of that to which it is attached. (Solid and Correct Engineering Works3; Wake v. Hall[8]). Where a plant has to be assembled, erected and attached to the earth by a foundation it is not capable of being sold as it is, without anything more, and does not constitute “goods”. (Quality Steel Tubes (P) Ltd. v. Collector of Central Excise, U.P[9]; Mittal Engineering Works (P) Ltd. v. Collector of Central Excise, Meerut[10]). It is, however, not necessary that whatever is embedded in the earth must be treated as immovable property. For example, a factory owner or a house-holder may purchase a water pump and fix it on a cement base for operational efficiency, and also for security. That will not make the water pump an item of immovable property. Some of the components of a water pump may even be assembled on site. That too will not make any difference to the principle. Just because a machine is fixed to the earth for better functioning does not automatically make it an “immovable property”. (Sirpur Paper Mills Ltd. v. Collector of Central Excise, Hyderabad[11]). Attachment of a plant, with the help of nuts and bolts, to a foundation not more than 1½ ft deep intended to provide stability to the working of the plant, and to prevent vibration/wobble free operation, does not qualify for being described as “attached to the earth”, as such attachment is not comparable or synonymous to trees and shrubs rooted in the earth. It is also not synonymous to imbedding in the earth of the plant, as in the case of walls and buildings, for the reason that a building imbedded in the earth is permanent and cannot be detached without demolition. Imbedding of a wall in the earth is also not comparable to attachment of a plant to a foundation meant only to provide stability to the plant especially because the attachment is not permanent, and what is attached can be easily detached from the foundation. So also the attachment of the plant to the foundation at which it rests does not fall in the category of attached to what is embedded for the permanent beneficial enjoyment of that to which it is attached. (Solid and Correct Engineering Works3; Mittal Engineering Works (P) Ltd.10). Once a machine is fixed, embedded or assimilated in a permanent structure, the movable character of the machine becomes extinct. The same cannot, thereafter, be treated as movable. (Solid and Correct Engineering Works3). I n T.T.G. Industries Ltd.7, a machine was erected at the site by the assessee on a specially made concrete platform at a level of 25 ft height. Considering the weight and volume of the machine, and the processes involved in its erection and installation, the Supreme Court held that it was immovable property which could not be shifted without dismantling, and then re-erecting it at another site. In the order of assessment dated 25.09.2009, the 3rd respondent observed that it was difficult to state with precision as to what constituted an annexation; it was a question which depended on the circumstances of each case and mainly on two circumstances as indicating the intention i.e., the degree of annexation and the object of annexation; the degree of annexation can be such that the hoardings or structures can be attachable or detachable; the hoardings and signage boards are attached to the steel structures and unipoles; in order to use the hoardings, and the signage boards, it has to be attached to the steel structure and unipoles; such attachment lasts only as long as the hoardings and signage boards are used and, when not used, it can be detached and shifted to some other place; such attachment does not make the hoardings, and signage boards, part of the permanent structure; hence it is movable property; if the object of annexation is to let out advertisement boards, signage boards and hoardings etc., to different persons, companies and departments for display of advertisements of their products, it should be construed that the annexation is made for that purpose, and not for the permanent enjoyment of the land and soil itself; and the hoardings are merchandise or chattel and, consequently, “goods”. On examining the facts of the case on hand, the 3rd respondent held that the hoardings and signage boards are attached to the steel structure and unipoles; the degree of attachment was