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Transfer of right to use goods, delivery
of physical possession of goods not an essential precondition
Question came before Guwahati High Court, whether dealer is
liable to pay tax on transaction of lease under Assam General Sales Tax Act,
1993. The petitioner entered into contract with Oil India Ltd. to provide
highly professional and technical services in connection with extraction of
oil and in wire line logging activities. In the agreement the petitioner
agreed to use its own high tech equipment for carrying out wire line logging
and perforation activities consisting of electronic seismic scanning of
subterranean strata and rock formation in the oil fields. In terms of the
contract, the equipment remained in absolute possession of company and used by
it to provide the required data and other professional services. The
equipments were operated by utilizing the services of highly technically
qualified and experienced personnel of the company. As per the terms of
agreement Oil India Ltd. deducted sales tax while making payments.
The appellant was of the opinion that no tax is attracted
on the nature of works to be rendered under the contract, because clause of
contract specifically provide that appellant company uses its own equipments
which were never handed over to Oil India Ltd.
The court noticed from the terms of agreement that the
equipment and tools to be furnished by the contractor to be exclusively used
for the services of Oil India Ltd. and could not be utilized for any other
purpose. The appellant company was required to provide 24 hours service to Oil
India Ltd. by mobilizing the crew and the equipment. The covenant for payment
of monthly rental charges on equipment also indicate that the wire line
logging and perforation activities were exclusively Meal for Oil India Ltd.
and petitioner had no right use those in any manner other than the terms of
contract, and held that terms of the contract clearly indicated that the
appellant company had entered into an agreement where under the right to use
of the equipment was transferred to Oil India Ltd. on payment of rent.
In terms of question, and referring to sec. 2(19) defining
“lease” it is observed that the definition does not envisage any arrangement
requiring transfer of possession of the goods involved to constitute the
transfer of right.
The court referred to observations of Supreme Court in the
case of Bharat Sanchar Nigam Ltd. 145 STC 91, wherein clearest terms it is
expounded that actual delivery of the goods was not necessary for effecting
the transfer of right to use the same but those must be available and
deliverable at the time of transfer and delivered at some stage.
Court held that, the provisions of the contract
understandably have to be construed in the context of the service accorded to
be rendered. The transfer of right to use the equipments has to be perceived
in the context of the nature, manner and extent of engagement thereof. The
retention of physical possession thereof by the appellant company cannot be
decisive. The parties entered into the contract understanding the implications
of each and every provision thereof, which according to us, demonstrate an
obvious dominion and control of Oil India Ltd. over the equipment used by the
appellant for execution of the works during the period of the contract.
Therefore the transaction in question involved transfer of right to use the
equipment, plant and machinery under the lease within the meaning of section
2(33)(iv) of the Act.
HLS Asia Ltd. vs. State of Assam 8 VST 314 (Guwahati)
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Transfer of right to use goods, delivery
of physical possession of goods not an essential precondition
On the question whether hiring services of crane, oil
tanker light motor vehicle, school buses etc. rendered by the petitioners to
OIL/ONGC fall within the category of transfer of right to use goods within the
meaning of the Assam General Sales Tax Act, 1933.
The petitioners were of the opinion that, agreement does
not pass any right to use, nor it was sale/lease within the meaning of
sections 2(19) and 2(23) of the Act. After referring to contract between the
parties and provision in the Act, court held that contract in question had
been made in respect of specific movable property at the deliverable stage and
those goods had been delivered to OIL/ONGC in terms of contract. It was clear
from the terms of contract that once the machinery/vehicle were placed at the
disposal of OIL/ONGC the owner lost effective control over them. It was the
absolute will and discretion of the transferee as to how or what manner those
were to be used. The transferee was not entitled to use the goods in any
manner otherwise than as provided for in the contract and certain fixed
charges were to be paid to the petitioners even for the period when no work
was provided. The terms of contract thus disclosed that the transaction in
question amounted to transfer of right to use goods.
Peerless Shipping and Oil Field Services Ltd. and Another
vs State of Assam and others 8 VST 330. [Guwahati]
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Frozen semen whether a dairy product.?
Held No Whether extraction of semen from bull and preservation in liquid
nitrogen to avoid decay amounts to manufacture?
While assessing the dealer under U.P. Trade Tax Act, 1948
for the year 1989-90 assessing authority taxed the frozen semen treating the
dealer as manufacturer. In Second Appeal before the Tribunal, it was held that
dealer was not liable as manufacturer as no manufacturing was involved in the
process of extraction of semen from bull and its preservation. In liquid
nitrogen and that the frozen semen was exempted under proviso to section 2(c)
as dairy product. Commissioner of Trade Tax came in revision before the High
Court.
While deciding the question in revision petition that
whether semen is a “Diary Product” Court referred to dictionary meaning of
word “Dairy” Dairy means the place where milk is kept and made into butter and
cream. ‘Product” means something produced by physical labour or intellectual
effort or something produced naturally or as result of natural process or
generation of growth. Court held that frozen semen is not a dairy product.
Semen is neither obtained at a place where milk is kept. Semen is extracted
from the bull through syringes.
While dealing with the question whether preservation of
semen amounts to manufacture, court referred to decision of Apex Court in the
case of Delhi Cold Storage Pvt. Ltd. vs Commissioner of Income Tax 191 ITR 656
and held that, in preservation of semen no process is involved and anything is
done to semen. Semen remains the same at the time of its sale.
Commissioner of Trade Tax U.P. Luknow vs. Cross Breeding
Project 8 VST 61 (Allahabad)
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Whether grinding of whole spices amounts
to manufacture ?
Held ... No
The respondent in this case was dealer dealing in spices
and condiments. The respondent grinds them and in some cases mixes them
together and sells them accordingly. While assessing the dealer for the years
1980-81 and 1981-82 he treated the activity as manufacturing and levied tax on
the ground masala. In appeal before the Tribunal, appeal was allowed saying
that grinding sabut (whole spices), no new commodity is common parlance come
into existence. The Commissioner came in revision before the High Court. High
Court referred to definition of word “manufacture” in sec. 2(e-1) of the U.P.
Sales Tax Act, 1948. The said definition is very widely worded however it has
been held that, every change as mentioned in the definition of manufacure is
not manufacturing activity, unless and until a new commodity; i.e.,
commercially different has come into existence on account of such activity.
Manufacturing masala implies a change. But every change is not manufacture.
Something more is necessary. There must be transformation and new and
different article must emerge having a distinct name, character or use. The
court also noticed that the notification does not use the word “whole” or
grinded. It simply enumerates the various kinds of masala.
Following the ratio of apex courts judgment in Kunwa Stone
Crusher Pvt. Ltd. reported in 118 STC 287 and State of Maharashtra vs. Maha
Laxmi Stores reported in 129 STC 79 held that grinding sabut masala does not
amount to manufacture.
Commissioner of Sales Tax vs. Ashok Gruh Udyog Kendra Pvt
Ltd. [ 8 VST 716 ]
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Penalty u/s 10A of CST Act — Not attracted
on purchase of Lathe machine used for repairs of mould and new parts of main
machinery
Brief facts of this case was assessee purchased Lathe
machine against Form C and availed the benefit of concession rate of tax.
While assessing the dealer, the authority was of the opinion that this is
contravention and therefore levied penalty under section 10A of the CST Act.
Action of lower authority is confirmed by all subsequent appellate authority.
The appellant therefore came in revision petition before the High Court. The
petitioner submitted that he is engaged in the business that production of
glass chetons (small glass pieces) use for decorating glass, bangles etc. To
manufacture glass chetons various machines are used. Machines and several
parts of such machinery gets damaged or worn out time and again during the
production process. To repair these machines and mould and to make new parts
the Lathe machine purchased against Form C is used. According to petitioner it
helps in the manufacturing process as secondary machinery and it also saves
considerable time and extra money to get such parts repaired or purchased in
the open market. The petitioner also brought on record that registration
certificate issued by the assessing authority under the CST Act clearly
stipulated amongst other things ”machinery & their parts” for use in the
manufacturing or processing of goods for sale.
Allowing the petition, court held that there is no legal
requirement to construe “machinery and their parts” in a narrow sense. The
word “machinery” is a word of wide import and not only is machinery used
directly for manufacturing the goods sold by the assessee sought to be covered
but even ancillary or supportive machines which aid or help in the
manufacturing of main product can also be included in these terms. The lathe
machine in question admittedly was used as a supportive machinery for
constantly carrying out repair and moulding work for keeping the main
machinery producing the glass chetons in a working condition and could
definitely be included within the ambit and scope of the term “machinery and
their parts” used in the registration certificate. Therefore the authorities
below had erred in imposing penalty under section 10A of the Central Sales Tax
Act for misuse of declaration form.
Jai Glasskow vs. Commercial Tax Officer, Circle ’F’, Jaipur
[8 VST 770]
