JUDGMENT Rajes Kumar, J.
1. Present three revisions under Section 11 of U.P. Trade Tax Act (hereinafter referred to as "Act") are directed against the order of Tribunal dated 6th May, 2006 relating to the assessment years, 1994-95, 1995-96 and 1996-97.
2. The applicant is a Company incorporated under the Indian Companies Act, 1956 having its registered office at Damgo House, Campal, Panjim, Goa. The applicant entered into a lease agreement No. GCL/Kesar/102 with M/S Kesar Enterprises Limited Mumbai for using certain machinery. The said agreement was executed on 24th March, 1991 at Mumbai. Copy of the agreement is Annexure-1 to the revision petition. In Annexure-1, the description of the machinery are mentioned which are, one number 15T/HR capacity Fluidised Bed boiler model MTFH-200 and one number APE belliss make MS-26 multistage back turbine inlet steam 21 KG/CM (g) with 'Kirloskar' make 1000 KW 1500 RPM, 415 volts alternator alongwith required accessories. On enquiry with M/S Kesar Enterprises Limited Mumbai, it was found that a sum of Rs. 52, 58, 528/-, Rs. 51, 59, 537/- and Rs. 51, 59, 537/- were paid towards rent to the applicant during the years under consideration 1994-95, 1995-96 and 1996-97 respectively. Assessing authority passed ex-parte assessment orders against the applicant and levied the tax on the aforesaid lease rent under Section 3-F of the Act. The Assessment orders have been confirmed in appeals by the Deputy Commissioner (Appeals), Trade Tax, Bareilly. Applicant filed appeals before the Tribunal. Before the Tribunal, it was contended that the agreement was executed at Mumbai and, therefore, in view of the decision of the Apex Court in the case of 20th Century Finance Corporation, Ltd. and Anr. v. State of Maharashtra reported in 2000 UPTC, 593, State of U.P. has no jurisdiction to levy the Tax. It was further submitted that the machinery were purchased by the applicant from M/S Punjab Chemicals & Pharmaceuticals Ltd., and the same were dispatched directly from Punjab to Baheri at the premises of M/S Kesar Enterprises Limited and, thus, rent If receipt was not liable to tax the movement of goods being inter-State. Tribunal by the impugned order dated 28th January, 2004 remanded back the matter to the assessing officer to examine the case in the light of the decision of the Apex Court in the case of 20th Century Finance Corporation, Ltd. and Anr. v. State of Maharashtra (supra) and to also examine that in pursuance of which order the machinery have been imported.
3. In pursuance of the order of the Tribunal, assessment proceedings were initiated. The applicant was asked to give the reply. In the reply, which is referred in the assessment order, the applicant submitted that the machinery have been purchased from M/S Punjab Chemicals & Pharmaceuticals Ltd. for Rs. 1,37, 84. 646/- in connection with the agreement dated 24th March, 1992 and the same have been dispatched to M/S Kesar Knterprises Limited. Copies of the purchase bills etc have been furnished before the assessing authority, which are also annexed as Annexure 3 to the revision petition. It has also been submitted that between the parties, letter of intent has also been executed on 29th October, 1991 in which it has been agreed to purchase the impugned machinery and to provide the same on lease to M/S Kesar Enterprises Limited. It has also been mentioned in the letter of intent that the detailed agreement to be finalized later on. The applicant submitted that the State of U.P. had no jurisdiction to levy the tax under Section 3-F of the Act; firstly because agreement has been executed at Mumbai and secondly, the impugned machinery, which have been given on lease have been purchased in the course of inter State. Assessing authority rejected the plea of the applicant on the ground that the warranty Clause etc of the agreement dated 24th March, 1992 reveals that the machinery have been purchased as per the choice of M/S Kesar Enterprises Limited, which shows that after purchasing the machinery as per the choice of M/S Kesar Enterprises Limited, the agreement dated 24th March, 1992 was executed, which is also established from the fact that the purchase bills are dated 26th February, 1992. Assessing authority observed that the applicant was not able to establish that the alleged machinery have been purchased in pursuance of the agreement dated 24th March, 1992. Assessing authority also observed that in the bill dated 26th February. 1992, there is a reference of the order dated 28.11.1991. On these facts it has been held that it is not the case where, in pursuance of the order executed outside the State of U.P., machinery have been supplied and payments have been received. Assessing authority, however, observed that the agreement also reveals that before the agreement dated 24th March, 1992 one more agreement oral or written have been entered into and in pursuance thereof, the order was given on 28.11.1992 to M/S Punjab Chemicals & Pharmaceuticals Limited for the purchases of the alleged machinery. With regard to the letter of intent dated 29th October, 1991, the assessing authority observed that it is simply a letter and is being produced with the intend to twist the fact of the case in favour of the applicant. Assessing authority after rejecting the plea of the applicant, levied the tax on the entire lease rent under Section 3-F of the Act.
4. Being aggrieved by the assessment orders for the aforesaid assessment years, applicant filed appeals before the Joint Commissioner (Appeals), Trade Tax, Bareilly. Joint Commissioner (Appeals) , Trade Tax, Bareilly vide order dated 25th January, 2006 rejected all the three appeals. Appellate authority held that the alleged letter of intent dated 29th October, 1991 has not been made part of the agreement dated 24th March, 1992 and the alleged machinery have been purchased on 26th February, 1992, thus, it cannot be said that they were purchased in pursuance of the agreement dated 24th March, 1992.
5. Being aggrieved by the order of the Joint Commissioner (Appeals), Trade Tax, Bareilly, applicant filed appeals before the Tribunal. Tribunal by the impugned order rejected all the three appeals. Before the Tribunal, applicant contended that the applicant is dealer at Goa and the lease agreement with M/S Kesar Enterprises Limited was executed at Mumbai. The machinery were purchased at Punjab and have been directly dispatched to M/S Kesar Enterprises Limited Baheri, district Bareilly. It was submitted that the letter of intent dated 29.10.1991 is part of the agreement dated 24th March, 1992. Tribunal held that the letter of intent dated 29.10.1991 is not a part of the agreement. It is held that it is in the form of letter and there is no reference of such letter in the agreement dated 24.03. 1992. Tribunal held that if the letter of intent would be a part of the agreement dated 24th March, 1992, the same would have been mentioned in the agreement. Tribunal further held that the agreement dated 24th March, 1992 is not a registered document and, therefore, it cannot be recognized legally. Tribunal held that the letter of intent dated 29.10.1991 cannot be treated as part of the agreement dated 24th March, 1992. Hence, the first appellate authority has not committed any mistake in coming to the conclusion that the impugned machinery which were arrived from the Punjab to U.P. were not in pursuance of the alleged agreement and, accordingly, upheld the levy of tax on the lease rent received in respect of alleged machinery.
6. Heard Sri Bharat Ji Agrawal, learned Senior Advocate assisted by Sri Sri Piyush Agrawal, learned Counsel for the applicant and Sri B.K. Pandey, learned Standing Counsel.
7. Learned Counsel for the applicant submitted that the applicant and M/S Kesar Enterprises Limited executed a letter of intent dated 29.10.1991 in which it was mentioned that applicant would purchase machinery and provide on lease to M/S Kesar Enterprises Limited, detailed agreement to be finalized later on. In pursuance of the said letter of intent, the orders dated 28.11.1991 were placed to M/S Punjab Chemicals & Pharmaceuticals Limited for the purchase of machinery. Thereafter, Machinery were purchased against invoices Nos. E-99, E-99-A dated 26th February, 1992 and invoice No. E-100 dated 10th March, 1992. In two invoice Nos. E-99 and E-99A, there are reference of the order dated 28.11.1991 and in the invoice No. E-100 there is a reference of the order dated 28th January, 1992. Invoices were prepared in favour of the applicant in connection with M/S Kesar Enterprises Limited and such machinery were directly dispatched to M/S Kesar Enterprises Limited, therefore, movement of machinery were in pursuance of the agreement in the course of inter-State. He submitted that the letter of intent is a part of the agreement dated 24th March, 1992 and merely because there is no reference of the letter of intent in the agreement dated 24th March, 1992, it cannot be ignored. He submitted that the assessing authority on the basis of the invoices etc., has accepted that there was some agreement oral or written prior to the agreement dated 24th March, 1992 in pursuance of which the machinery have been purchased and dispatched. He submitted that letter of intent is such agreement on the basis of which machinery were purchased; therefore, letter of intent cannot be ignored. He further submitted that there is no provision under any of the Act, which requires registration of the lease deed for the immovable property. He submitted that the lease deed was executed at Mumbai, therefore, State of U.P. has no jurisdiction to levy the tax inasmuch as the machinery have been brought in the course of inter-State transactions and covered by Section 3 of the Central Sales Tax Act, therefore, the lease rent arising from such machinery is outside the purview of Section 3-F of the Act. In support of his contention, he relied upon the decision of the Andhra Pradesh High Court in the case of I.T.C. Classic Finance and Services v. Commissioner of Commercial Taxes reported in 1997 STC 330, which according to him was confirmed by the Apex Court in the case of 20th Century Finance Corporation, Ltd. and Anr. v. State of Maharashtra (supra).
8. Learned Standing Counsel submitted that there is no mention of letter of intent dated 29th October, 1991 in the agreement dated 24.03.1992, therefore, it cannot be looked into. He submitted that the right to use the machinery had been transferred by the applicant to M/S Kesar Enterprises Limited only by virtue of the agreement dated 24th March, 1992 and when the agreement was executed, the machines were already available at Baheri within the State of U.P. and, therefore, it cannot be said that impugned machinery have been imported in the course of inter-State in pursuance of the agreement dated 24th March, 1992.
9. Having heard the learned Counsel for the parties, I have perused the order of the Tribunal and the authorities below.
10. There is no dispute in the present case that the machinery have been leased out by the applicant to M/S Kesar Enterprises Limited and in respect thereof, M/S Kesar Enterprises Limited had paid the lease rent to the applicant which is subject to the assessment. Lease agreement, which has been brought on record, is the agreement dated 24th March, 1992. In my opinion, there is no reason to disbelieve the said agreement in pursuance of which right to use has been transferred by the applicant to M/S Kesar Enterprises Limited. There is no dispute that the machinery which have been leased out and in respect of which lease rent have been received are the same which have been described in Annexure-1 of the lease agreement dated 24th March, 1992.
11. Perusal of the record reveals that there was some understanding between the applicant and M/S Kesar Enterprises Limited prior to 24th March, 1992 to provide machinery on lease. In the purchase invoices of the machinery referred hereinabove, the name of M/S Kesar Enterprises Limited are mentioned and in the dispatch particulars, the dispatch of the machinery have been shown at the premises of M/S Kesar Enterprises Limited. Assessing authority has also accepted that before the agreement dated 24th March, 1992, there was some agreement oral or written between the parties for the purchases and providing machinery on lease. Thus, in my view even though, there is no reference of the letter of intent dated 29th October, 1991 in the agreement dated 24th March, 1992, which should be, but on the facts and circumstances of the case, its existence cannot be disputed. Thus, the facts of the case are that the applicant and M/S Kesar Enterprises Limited executed a letter of intent dated 29th October, 1991 for the purchase of machinery and providing the same on lease with a mention that detailed agreement to be finalized later on. In pursuance thereof machinery have been purchased from M/S Punjab Chemicals & Pharmaceuticals Limited against the invoice Nos. E-99, E-99-A dated 26th February, 1992 and invoice No. E-100 dated 10th March, 1992 and the machinery were dispatched at the premises of M/S Kesar Enterprises Limited Baheri and thereafter, lease agreement has been executed on 20th March, 1992 at Mumbai.
12. Now the question for consideration is whether on the aforesaid facts the levy of tax under Section 3-F of the Act on the rent received by the applicant is justified.
13. To adjudicate the issue, it is necessary to refer the relevant provisions of the Act. Section 2(h) and Section 3-F of the Act reads as follows:
Section 2(h) "sale", with its grammatical variations and cogate expressions, means any transfer of property in goods (otherwise than by way of a mortgage, hypothecation, charge or pledge) for cash or deferred payment or other valuable consideration, and include-
(i) a transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration;
(ii) a transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;
(iii) the delivery of goods on hire purchase or any system of payment by instalments;
(iv) a 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;
(v) the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; and
(vi) 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) Explanation-I- a sale or purchase shall be deemed to have taken place in the State,-
(i) in a case falling under Sub-clause (ii), if the goods are in the State at the time of transfer of property in such goods (whether as goods or in some other form) ' involved in for the execution of the works contract, notwithstanding that the agreement for the works contract has been wholly or in part entered into outside the State;
(ii) in a case falling under Sub-clause (iv), if the goods are used by the lessee within the State during any period, notwithstanding that the agreement for the lease has been entered into outside the State or that the goods have been delivered to the lessee outside the State.
Explanation-II- Notwithstanding anything contained in this Act, two independent sales or purchases shall, for the purposes of this Act, be deemed to have taken place-
(a) when the goods or transferred from a principal to his selling agent and from the selling agent to his purchaser.
(b) When the goods are transferred from the seller to a buying agent and from the buying agent to his principal, if the agent is found, in either of the cases aforesaid,-
(i) to have sold the goods at one rate and passed on the sale proceeds to his principal at another rate; or
(ii) to have purchased the goods at one rate and passed them on to his principal at another rate; or
(iii) not to have accounted to his principal for the entire collection or deductions made by him, in the sales or purchases effected by him on behalf of his principal; or
(iv) to have acted for a fictitious or non-existent principal.
Section 3-F. Tax on the right to use any goods or goods involved in the execution of a works contract.
(1) Notwithstanding anything contained in Section 3-A, or Section 3-AAA or Section 3-D but subject to the provisions of Sections 14 and 15 of the Central Sales Tax Act, 1956, every dealer shall, for each assessment year, pay a tax on the net turnover of-
(a) transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment of other valuable consideration; or
(b) transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract, at such rate not exceeding twenty percentum as the State Government may, by notification, declare and different rates may be declared for different goods or different classes of dealers.
(2) For the purposes of determining the net turnover referred to in Sub-section (1), the following amounts shall be deducted from the total amount received or receivable by a dealer in respect of a-(a)transfer referred to in Clause (a) of Sub-section (1) whether such transfer was agreed to during that assessment year or earlier-
(i) the amount representing the sales value of the goods covered by sections 3, 4 and 5 of the Central Sales Tax Act, 1956;
(ii) the amount representing the value of the goods exempted under Section 4;
(iii) the amount received as penalty for default in payment or as damages for any loss or damage caused to the goods by the person to whom such transfer was made,-
(b) transfer referred to in Clause (b) of Sub-section (1),-
(i) the amount representing the sales value of the goods covered by sections 3, 4 and 5 of the Central Sales Tax Act, 1956;
(ii) the amount representing the value of the goods exempted under section 4;
(iii) the amount representing the value of the goods on the sale or purchase whereof tax has been levied or is leviable under this Act at some earlier stage;
(iv) the amount representing the value of the goods manufactured in a new unit exempted under Section 4-A or Section 4-AAA;
(v) the amount representing the value of the goods supplied to the contractor by the contractee, provided that the ownership of such goods remains with the contractee under the terms of the contract;
(vi) the amount representing the labour charges for the execution of the works contract;
(vii) all amounts paid to the sub-contractors as the consideration for execution of the works contract, whether wholly or in part:
Provided that no deduction under this sub-clause shall be allowed unless the dealer claiming deduction produces proof that the sub-contractor is a registered dealer liable to tax under this Act and that such amount is included in the return of turnover filed by such sub-contractor under the provisions of this Act;
(viii) the amount representing the charges for planning, designing and architects fees;
(ix) the amount representing the charges for obtaining on hire otherwise machinery and tools used for execution of the works contract;
(x) the amount representing the cost of consumables used in the execution of the works contract, the property in which is not transferred in the execution of the works contract;
(xi) the amount representing the cost of establishment and other similar expenses of the contractor to the extent it is relatable to supply of labour and services;
(xii) the amount representing the profit earned by the contractor to the extent it is relatable to the supply of labour and services.
(3) Where in respect of a transfer referred to in Clause (b) of Sub-section (1), the contractor does not maintain proper accounts or the accounts maintained by him are not found by the assessing authority to be worthy of credence and the amount actually incurred towards charges for labour and other services and profit relating to supply of labour and services are not ascertainable, such charges for labour and other services and such profit may, for the purposes of deductions under Clause (b) of Sub-section (2), be determined on the basis of such percentage of the value of the works contract as may be prescribed and different percentages may be prescribed for different types of works contract.
14. The brief history of the above two provisions are as follows.
15. In the case of State of Madras v. Gannon Dunkerley & Company and Ors. (Madras) reported in 9 STC 353, Apex Court had a occasion to consider whether in the building contract which was in the nature of composite and indivisible works contract, there was a sale of goods. Apex Court held that there was no sale of goods.
16. Likewise, the goods provided on lease for use was not liable to tax because it was not sale within the definition of Section 4 of the Sale of Goods Act.
17. After the decision of Gannon Dunkerley & Company case, referred hereinabove, the matter with regard to taxability of goods involved in the execution of works contract, was examined by the Law Commission, in its 61st Report. The Law Commission, after considering the legal position including the decision in Gannon Dunkerley & Company case, expressed following view:
Before the Judgment of Supreme Court, however, sale was usually regarded as including a works contract. The question is ultimately one of policy, but the Commission would prefer restoration of the power to the States.
Narrow interpretation of the expression 'sale' was not the practice before the Hon'ble Supreme Court judgment. Entries in the legislative list, should receive a broad interpretation. Fine nuances need not be material. The transactions resemble sale in substance. Hence, power should be given to the States.
If this alternative is adopted there are several drafting devices open, e.f.
(a) amending State List, Entry 54, or
(b) adding a fresh entry in the State List, or
(c) inserting in Article 366 a wide definition of 'sale' so as to include works contracts.
The commission prefers the last one, it would avoid multiple amendments.
18. Keeping in view the said recommendation of the Law Commission, the Constitution was amended by the Forty-sixth Amendment. By the said amendment Clause (29-A) was inserted in Article 366 and Clause (3) of Article 286 was substituted. The other amendments introduced by it are not relevant for this case. Clause (29-A) of Article 366 is in the following terms:
(29-A) 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 the 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 the hire purchase or any system of payment by installments;
(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.
19. Clause (3) of Article 286 provides as under:
(3) Any law of a State shall, in so far as it imposes, or authorities 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 (29-A) of Article 366, be subject to such restrictions and conditions in regard to the system of levy, rate and other incidents of the tax as parliament may by law specify.
20. After the Forty-sixth Amendment various State Legislature amended their sales tax legislation to make provision for imposition of sales tax in relation to works contracts and transfer of right to use the goods. State of U.P. has made the amendments in the U.P. Trade Tax Act and has amended the definition of sale provided in Section 2 (h) and introduced Section 3-F to levy tax on the value of goods, involved in the execution of works contract and transfer of right to use the goods. Constitutional validity of Forty-Sixth amendments as well as amendment made in the State Legislation were challenged before the Apex Court in the Case of Builders Association of India v. Union of India reported in 1989 UPTC 645 (SC). Apex Court upheld the validity of amendment and further held that 'Sale Tax Laws' passed by the Legislatures of States levying taxes on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract are subject to the restrictions and conditions mentioned in each clause or sub-clause of Article 286 of the Constitution of India.
21. Matter relating to levy of tax on the value of the goods involved in the execution of the works contract further came up for consideration before the Constitution Bench of the Apex Court in the case of Gannon Dunkerley and Co. v. State of Rajasthan report in 1993 UPTC 416. Apex Court concluded as follows:
In exercise of its legislative power to impose tax on sale or purchases of goods under entry 54 of the State List read with Article 366(29-A)(b), the State Legislature, while imposing 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 is not competent to impose a tax on such a transfer (deemed sale) which constitutes a sale in the course of inter-State trade or commerce or a sale outside the State or a sale in the course of import or export.
The provisions of Sections 3, 4 and 5 and Sections 14 and 15 of the Central Sales Tax Act, 1956, are applicable to a transfer of property in goods involved in the execution of a works contract covered by Article 366(29-A)(b).
While defining the expression 'sale' in the sales tax . legislation, it is open to the State Legislature to fix the situs of a deemed sale resulting from a transfer falling within the ambit of Article 366(29-A)(b) but it is not permissible for the State Legislature to define the expression 'sale' in a way as to bring within the ambit of the taxing power a sale in the course of inter-State trade or commerce, or a sale outside the State or a sale in the course of import and export.
The tax on transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract falling within the ambit of Article 366(29-A)(b) is leviable on the goods involved in the execution of works contract and the value of the goods which are involved in the execution of works contract would constitute the measure for imposition of the tax.
In order to determine the value of the goods which are involved in the execution of a works contract for the purposes of levying the tax referred to in Article 366(29-A)(b), it is permissible to take the value of the works contract as the basis and the value of the goods involved in the execution of the works contract can be arrived at by deducting expenses incurred by the contractor for providing labour and other services from the value of the works contract.
The charges for labour and services which are required to be deducted from the value of the works contract would cover (i) labour charges for execution of the works, (ii) amount paid to a sub-contractor for labour and services, (iii) charges or obtaining on hire or otherwise machinery and tools used for execution of the works contract, (iv) charges for planning, designing and architect's fees and (v) cost of consumables used in the execution of the works contract, (vi) out of establishment of the contractor to the extent it is relatable to supply of labour and services, (vii) other similar expenses relatable to supply of labour and services and (viii) profit earned by the contractor to the extent it is relatable to supply of labour and services.
To deal with the cases where the contractor does not maintain proper accounts or the account books produced by him are not found worthy of credence by the Assessing Authority the Legislature may prescribe a formula for deduction of cost of labour and services on the basis of a percentage of the value of the works contract but while doing so it has to be ensured that the amount deductible under such formula does not differ appreciably from the expenses for labour and services that would be incurred in normal circumstances in respect of that particular type of works contract. It would be permissible for the Legislature to prescribe varying scales for deduction on account of cost of labour and services for various types of works contract.
While fixing the rate of tax, it is permissible to fix a uniform rate of tax for the various goods involved in the execution of a works contract which rate may be different from the rates of tax fixed in respect of sales or purchase of those goods as a separate article.
22. Apex Court further held as follows:
On behalf of the State, it has been seriously contended that a deemed sale resulting from transfer of property in goods involved in the execution of a works contract can never be a sale in the course of inter-State trade or commerce and it cannot be an outside sale or a sale in the of import since the transfer of property in the goods takes place only at the stage when the goods are incorporated in the works and that can take place only in the State where the work is required to be executed. On behalf of the contractors, on the other hand, it has been urged that a works contract can involve transactions constituting a sale in the course of interstate trade and commerce as well as an outside sale or sale in the course of import and that is a matter which will have to be considered in accordance with the principles contained in Sections 3, 4 and 5 of the Central Sales Tax Act keeping in view the terms and conditions of the particular contract. In this regard, the learned Counsel have placed reliance on a number of decisions of this Court wherein the provisions of Sections 3 and 4 of the Central Sales Tax Act, 1956, have been considered. We do not propose to go into this controversy because the question whether a deemed sale resulting from transfer of property in goods involved in the execution of a particular works contract amounts to a sale in the course of inter-State trade or commerce under Section 3 of the Central Sales Tax Act or an outside sale under Section 4 of the Central Sales Tax Act or a sale in the course of import under Section 5 of the Central Sales Tax Act has to be decided in the light of the particular terms of the works contract and it cannot be decided in the abstract. As at present advised, we are not in a position to say that in no case, can there be a sale in the course of inter-State trade or commerce or an outside sale or a sale in the course of import in respect of a deemed sale resulting from transfer of property in goods involved in the execution of a works contract falling within the ambit of Sub-clause (b) of Clause (29-A) of Article 366 of the Constitution.
It must, therefore, be held that while enacting a law imposing a tax on sale or purchase of goods under Entry 54 of the State List read with Sub-clause (b) of Clause (29-A) of Article 366 of the Constitution, it is not permissible for the State Legislature to make a law imposing tax on such a deemed sale which constitutes a sale in the course of inter-State trade or commerce under Section 3 of the Central Sales Tax Act or an outside sale under Section 4 of the Central Sales Tax Act or sale in the course of import or export under Section 5 of the Central Sales Tax Act. So also it is not permissible for the State Legislature to impose a tax on goods declared to be of special importance in inter-State trade or commerce under Section 14 of the Central Sales Tax Act except in accordance with the Section 14 of the Central Sales Tax Act except in accordance with the restrictions and conditions contained in Section 15 of the Central Sales Tax Act.
It has been contended on behalf of the contractors that while it is permissible for the State Legislature to define the expression 'sale' in the sales tax legislation to include transfer of property in goods involved in the execution of a works contract, it is not permissible for the State Legislature to locate the situs of such sale in a manner as to treat a sale in the course of inter-State trade or commerce or a sale outside the State or a sale in the course of import and export, as a sale inside the State and thereby assume the power to impose a tax on sales which are actually sales in the course of inter-State trade or commerce or outside sales or sales in the course of import and export. In this regard, it may be stated that so far as sales in the course of inter-State trade or commerce are concerned, the position is well settled that the situs of the sale or purchase is wholly irrelevant as regards its inter-State character, See Bengal Immunity Co. Ltd. v. State of Bihar . In Onkarlal Nandlal v. State of Rajasthan , it has been observed:
There is, in our opinion, no antithesis between a sale in the course of inter-State trade or commerce and a sale inside the State. Even an inter-State sale must have a situs and the situs may be in one State or another. It does not involve any contradiction in saying that an inter-State sale or purchase is inside a State or outside it.
The location of the situs of the sale in sales tax legislation of the State would, therefore, have no bearing on the chargeability of tax on sales in the course of inter-State trade or commerce since they fall outside the field of legislative competence of the State Legislatures and will have to be excluded while assessing the tax liability under the State legislation. The same is true of sales which are outside the State and sales in the course of import and export. The State Legislature cannot so frame its law as to convert an outside sale or a sale in the course of import and export into a sale inside the State. The question whether a sale is an outside sale or a sale inside the State or whether it is a sale in the course of import or export will have to be determined in accordance with the principles contained in Sections 4 and 5 of the Central Sales Tax Act and the State Legislature will enacting the sales tax legislation for the State cannot make a departure from those principles.
23. It may be mentioned here that initially when Section 3-F was introduced, transactions covered under sections 3 4 and 5 of the Central Sales Tax Act have not been excluded. Thus, the provisions has been declared ultra vires by the Division Bench decision of this Court in the case of V.K. Singhal v. State of U.P. reported in 1995 UPTC 337. Thereafter, Section 3-F has been re-introduced in 1995 by Act No. 31 of 1995 with retrospective effect. Under the new amended Section 3-F of the Act transactions relating to Sections 3 4 and 5 of the Central Sales Tax Act have been excluded. Amended Section 3-F of U.P. Trade Tax Act has already been referred herein above.
24. Clause (d) of Article 366(29-A) which is Clause (a) of Section 3-F (1) of the Act came up for consideration before the Constitution Bench of the Apex Court in the case of 20th Century Finance Corporation Ltd. v. State of Maharashtra (Supra), the Apex Court held as follows:
As a result of the aforesaid discussion our conclusions are these:
(a) The States in exercise of power under Entry 54 of List II read with Article 366(29-A)(d) are not competent to levy sales tax on the transfer of right to use goods, which is deemed sale, if such sale takes place outside the State or is a sale in the course of inter-State trade or commerce or is a sale in the course of import or export.
(b) The appropriate Legislature by creating legal fiction can fix situs of sale. In the absence of any such legal fiction the situs of sale in case of the transaction of transfer of right to use any goods would be the place where the property in goods passes, i.e. where the written agreement transferring the right to use is executed.
(c) Where the goods are available for the transfer of right to use the taxable event on the transfer of right to use any goods is on the transfer which results in the right to use and the situs of sale would be the place where the contract is executed and not where the goods are located for use.
(d) In cases where goods are not in existence or where there is an oral or implied transfer of the right to use goods, such transactions may be effected by the delivery of the goods. In such cases the taxable event would be on the delivery of goods.
(e) The transaction of transfer of right to use goods cannot be termed as contract of bailment as it is deemed sale within the meaning of legal fiction engrafted in Clause (29-A) (d) of Article 366 of the Constitution where the location or delivery of goods to put to use is immaterial.
25. After laying down the aforesaid law. the Apex Court examined the provision of respective State relating to the transfer of right to use the goods. The provisions of Section 2 (h) and Section 3-F of the Act have also been examined. The Apex Court held as follows:
The aforesaid provisions shows that so far as the inter-State sales are concerned, in substance are not taxable, but no provision has been made for declared goods. Yet, there is another aspect. By virtue of Clause (ii) of Explanation 1 to Section 2 (h), the ambit of sale has been widen by including 'outside sale' as 'inside sale' on mere location of goods for use within the State irrespective of the fact that the agreement for transfer of right to use has been executed outside the State or whether the sale is outside the State, the tax is chargeable within the State. And, further, on account of a special provision for rates of tax, the other provision such as single point tax as well as exemption etc. is not applicable to the transaction of transfer of right to use any goods. We find that Clause (ii) of Explanation I of Section 2 (h) is in excess of legislative power under Entry 54, List-II of Seventh Schedule and, therefore, we direct that Clause (ii) of Explanation I of Section 2 (h) of the Act shall be read down to this effect that it would not be applicable to the transaction of transfer of right to use any goods if such deemed sale is (i) an outside sale, (ii) sale in course of the import of the goods into or export of the goods out of the territory of India and (iii) an inter State sale.
26. From the law laid down as above, it emerges that the State has no jurisdiction to levy the tax on such deemed sale if such sale take place outside the State or in the course of inter-State trade or commerce or in the case of import or export; the legislature by creating fiction can fix situs of sale in the absence of such legal fiction the situs would be a place where the written agreement transferring the right to use is executed ; where the goods are available for the transfer of right to use the taxable event on the transfer of right to use any goods is on the transfer which results in right to use and the situs of sale would be the place where the contract is executed and not where the goods are located for use; in case where the goods are not in existence or where there is an oral or implied transfer of right to use the goods, such transactions may be effected by the delivery of the goods and in such cases the taxable event would be on the delivery of the goods.
27. Clause (ii) of Explanation-I of Section 2 (h) of the Act is to be read down to the effect that it would not be applicable to the transaction of transfer of right to use any goods, if such deemed sale is (i) an outside sale, (ii) sale in course of the import of the goods into or export of the goods out of the territory of India and (iii) an inter-State sale.
28. In the case of Bharat Sanchar Nigam Ltd. and Anr. v. Union of India and Ors. reported in 2006 NTN (Vol.29), 307 the decision of the Apex Court in the case of 20th Century Finance Corporation Ltd and Anr. v. State of Maharashtra (supra) came up for consideration. The quarrel was with regard to the following observation of the Apex Court. "In our view, therefore, on a plain reading of Sub-section (d) of Clause (29-A) the taxable event is transfer of right to use the goods regardless to say whether the goods are delivered for use, what is required is that should be in existence so that they may be used." In view of the aforesaid observation, the State was of the view that for the transfer of right to use the goods possession/delivery of the goods was not necessary. This aspect of the matter has been examined by the Apex Court in the case of Bharat Sanchar Nigam Ltd. and Anr. v. Union of India and Ors. (supra), Apex Court held as follows:
In the State of U.P. v. Union of India (supra) it was also held:-"Handing over of possession is not sine qua non of completing the transfer of the right to use any goods, as was held by a Constitution Bench of this Court in 20th Century Finance Corporation Ltd. v. State of Maharashtra . Once DoT connects the telephone line of the assigned number of the subscriber to the area exchange, access to other telephones is established. There cannot be denial of the fact that giving such an access would complete the transfer of the right to use the goods".
With respect, the decision in 20th Century Finance Corporation Limited v. State of Maharashtra, cannot be cited as authority for the proposition that delivery of possession of the goods is not a necessary concomitant for completing a transaction of sale for the purposes of Article 366(29-A)(d) of the Constitution. In that decision the Court had to determine where the taxable event for the purposes of sales tax took place in the context of Sub-clause (d) of Article 366(29A). Some States had levied tax on the transfer of the right to use goods on the location of goods at the time of their use irrespective of the place where the agreement for such transfer of right to use such goods was made. Other States levied tax upon delivery of the goods in the State pursuant to agreements of transfer while some other States levied tax on deemed sales on the premise that the agreement for transfer of the right to use had been executed within that State (vide paragraph 2 of the judgment as reported). This Court upheld the third view namely merely that the transfer of the right to use took place where the agreements were executed. In these circumstances the Court said that:
No authority of this Court has been shown on behalf of respondents that there would be no completed transfer of right to use goods unless the goods are delivered. Thus, the delivery of goods cannot constitute a basis for levy of tax on the transfer of right to use any goods. We are, therefore, of the view that where the goods are in existence, the taxable event on the transfer of the right to use goods occurs when a contract is executed between the lessor and the lessee and situs of sale of such a deemed sale would be the place where the contract in respect thereof is executed. Thus, where goods to be transferred are available and a written contract, is executed between the parties, it is at that point situs of taxable event on the transfer of right to use goods would occur and situs of sale of such a transaction would be the place where the contract is executed.
(emphasis ours) In determining the situs of the transfer of the right to use the goods, the Court did not say that delivery of the goods was inessential for the purposes of completing the transfer of the right to use. The emphasized portions in the quoted passage evidences that the goods must be available when the transfer of the right to use the goods take place. The Court also recognized that for oral contracts the situs of the transfer may be where the goods are delivered (see para 26 of the judgment).
In our opinion, the essence of the right under Article 366(29-A)(d) is that it relates to user of goods. It may be that the actual delivery of the goods is not necessary for effecting the transfer of the right to use the goods but the goods must be available at the time of transfer must be deliverable and delivered at some stage. It is assumed, at the time of execution of any agreement to transfer the right to use, that the goods are available and deliverable. If the goods, or what is claimed to be goods by the respondents, are not deliverable at all by the service providers to the subscribers, the question of the right to use those goods, would not arise.
(emphasis provided) In State of Andhra Pradesh and Anr. v. Rastriya Ispat Nigam Ltd. (2003) 3 SCC 214, it was claimed by the Sales Tax Authorities that the transaction by which the owner of certain machinery had made them available to the contractors was a sale. The Court rejected the submission saying that:
the transaction did not involve transfer of right to use the machinery in favour of contractors. The effective control of the machinery even while the machinery was in use of the contractor was that of the respondent Company; the contractor was not free to make use of the machinery for the works other than the project work of the respondent or (para 4 page 315) But in the case of Agrawal Brothers v. State of Haryana and Anr. when the assessee had hired shuttering to favour of contractors to use it in the course of construction of buildings it was found that possession of the shuttering materials was transferred by the assessee to the customers for their use and therefore, there was a deemed sale within the meaning of Sub-clause (d) of Clause 29-A of Article 366. What is noteworthy is that in both the cases there were goods in existence which were delivered to the contractors for their use. In one case there was no intention to transfer the right to use while in the other there was.
But if there are no deliverable goods in existence as in this case, there is no transfer of user at all. Providing access or telephone connection does not put the subscriber in possession of the electromagnetic waves any more than a toll collector puts a road or bridge into the possession of the toll payer by lifting a toll gate. Of course the toll payer will use the road or bridge in one sense. But the distinction with a sale of goods is that the user would be of the thing or goods delivered. The delivery may not be simultaneous with the transfer of the right to use. But the goods must be in existence and deliverable when the right is sought to be transferred.
Therefore whether goods are incorporeal or corporeal, tangible or intangible, they must be deliverable. To the extent that the decision in State of U.P. v. Union of India held otherwise, it was, in our humble opinion erroneous.
(Emphasis provided)
29. In the same case Hon'ble Dr.A.R. Lakshamanan. J. held as follows:
To constitute a transaction for the transfer of the right to use the goods the transaction must have the following attributes:
a. There must be goods available for delivery;
b. There must be a consensus an item as to the identity of the goods;
c. The transferee should have a legal right to use the goods consequently all legal consequences of such use including any permissions or licenses required therefor should be available to the transferee;
d. For the period during which the transferee has such legal right, it has to be the exclusion to the transferor this is the necessary concomitant of the plain language of the statute viz. a "transfer of the right to use" and not merely a licence to use the goods;
e. Having transferred the right to use the goods during the period for which it is to be transferred, the owner cannot again transfer the same rights to others.
30. Under U.P. Trade Tax Act by Clause (ii) of Explanation-I of Section 2 (h) of the Act, the legislature has created a fiction and fix the situs of the sale in the State where the goods are used, notwithstanding that the agreement for lease has been entered outside the State. In view of the decision of the Apex Court, such fiction is valid. Therefore, the place of the execution of the agreement at Mumbai has no relevance in the present case.
31. Further, in view of the decision of the Apex Court in the case of 20th Century Finance Corporation Ltd and Anr. v. State of Maharashtra (supra) and Clause (i) of Section 3-F (2) (a) of the Act the amount representing the value of the goods covered by Sections 3 4 and 5 of the Central Sales Tax Act are to be excluded from gross turnover. Thus, the amount representing the sale value of the goods, which is imported in the course of inter-State under Section 3 of the Act would not be subject to tax under Section 3-F.
32. Now on the facts of the present case, question for consideration is whether the impugned transactions are covered by Section 3 of the Central Sales Tax Act with reference to the transfer of right to use such goods. Under Section 3 of the Central Sales Tax Act, sale or purchase of goods shall be deemed to take place in the course of inter-State trade or commerce if the sale or purchase occasions the movement of goods from one State to another. It means that to be a inter-State sale, movement of goods should be in pursuance of prior contract of sale. In this regard, it is relevant to examine, that in the present case when, there was transfer of right to use the goods.
33. Letter of intent dated 29.10.1991 is produced herein below.
LETTER OF INTENT (L.O.I) BETWEEN GOA CARBON LIMITED AND KESAR ENTERPRISES LIMITED It has been decided that Goa Carbon Limited will purchase "ONE NUMBER 15T/HR CAPACITY FLUIDISED BED BOILER MODEL MTFH-20 MAKE 'THERMAX', 22 KG / C.M. (g) WITH SUPERHEATER FOR 360 C TEMPERATURE CHIMNEY AND OTHER REQUIRED ACCESSORIES AND ONE NUMBER ' A.P.E. BELLISS' MADE MS-26, MULTISTAGE BACK TURBINE INLET STEAM 21 KG/CM (g) WITH 'KIRLOSKAR' MAKE 1000 KW, 1500 RPM, 415 VOLTS ALTERNATOR-ALONGWITH REQUIRED ACCESSORIES" and will provide the same on case to Kesar Enterprises Limited. Detailed Agreement to be finalized later on.
34. By the aforesaid letter of intent, there was no transfer of right to use the goods. The goods were not in existence and were not in a deliverable stage. The right to use the machinery was transferred only by the agreement dated 24th March, 1991 and not prior to that. When the lease agreement was executed on 24th March, 1992, the impugned machinery were already in existence inside the State of U.P. Admittedly, they have not been imported in the course of inter-State transaction from outside the State of U.P. in pursuance of the agreement dated 24th March, 1992. Thus, the applicant cannot claim the benefit of Clause (i) of Section 3-F(2)(a) of the Act.
35. For the reasons stated above, I do not find any merit in the present revisions.
36. In the result, all the three revisions fail and are, accordingly, dismissed.