I.A. Ansari, J.
1. The case of the petitioner-company may, in brief, be described thus:
(i) The petitioner, a public limited company, is engaged in the business of sale and supply of petroleum products inside as well as outside the State of Assam. The petitioner-company's case is that it hires trucks/tankers for delivery of petroleum to its dealers and, in course of its business, the petitioner-company enters into agreement with contractors as regards its hiring of trucks/tankers on various terms and conditions. The petitioner-company pays to the contractors hire charges for using the trucks/tankers specified in the Schedule attached to the respective agreements. As per the agreements, the contractors are liable to bear and pay the entire cost of the trucks/tankers, given on hire to the petitioner-company, including maintenance, repairing, insurance, fuel and salaries to the drivers, cleaners, etc. The petitioner-company does not guarantee the minimum mileage for each vehicle, which it obtains on hire, and it does not guarantee the minimum number of vehicles, which it may utilize per month. There is, thus, according to the petitioner-company, no transfer of the right to use vehicles from the contractors to the petitioner-company inasmuch as possession and custody of the vehicles remain, for all practical purposes, with the contractors and the petitioner-company pays only the hire charges to the contractors for the vehicles hired from them.
(ii) However, the Senior Superintendent of Taxes, Bongaigaon, issued a notice, dated May 16,1998, addressed to the petitioner-company's plant manager, who is in-charge of the LPG bottling plant, directing him to deduct tax under Section 27(a) of the Assam General Sales Tax Act, 1993, (in short, 'the Act') on payment of hire charges to the contractors, who are owners of vehicles hired by the petitioner-company. This was followed by yet another notice, dated May 15,1998, issued by the Senior Superintendent of Taxes, Bongaigaon, directing the petitioner-company's plant manager to show cause as to why penal action shall not be taken for failure to furnish the particulars relating to payment of hire charges to the owners of the public vehicles by the petitioner-company and deduction of tax as had been directed by the letter dated May 16, 1998, aforementioned. This was followed by a notice, dated June 4, 1998, issued by the Senior Superintendent of Taxes, Bongaigaon, directing the petitioner-company's plant manager to deduct tax at source with immediate effect, on the hire charges paid to the owners of the vehicles treating the use of the vehicles, on the basis of hire charges, by the petitioner-company, as lease.
(iii) The petitioner-company has put to challenge the jurisdiction, authority, legality and correctness of the letter, dated May 16,1998, aforementioned, whereby the petitioner-company was directed to deduct at source tax, in terms of Section 27(a) of the Act, from the owners of the vehicles and also the notice, dated May 15,1998, directing the petitioner-company to show cause as to why penal action shall not be taken as indicated hereinbefore and also the notice, dated June 4,1998, whereby the demand for making of deduction, at source, with immediate effect, was reiterated.
2. The respondents have resisted the writ petition by contending, inter alia, that the act of hiring of the vehicles for delivery of petroleum products by the petitioner-company to its dealers amounts to transfer of the right to use the vehicles and such transfers, within the meaning of Section 2(19), constitute lease and has become and therefore, amenable to tax under the Act. The respondents also contend that such transfers of the right to use the vehicles constitute 'sale' within the definition of the ambit of 'sale' as embodied in Section 2(33) of the Act and are, therefore, assessable to sales tax under the Act.
3. In order to substantiate its case that hiring of the vehicles amounts to transfer of the right to use the vehicles and are, therefore, exigible to sales tax, the respondents refer to, and rely upon, various clauses in the contract agreement, particularly, clauses 1, 2, 3, 4, 5, 8, 15, 17, 18, 21, 23, 26, 28, 38 and 39 of the contract agreement on the basis of which the petitioner-company hires the vehicles. The respondents also rely, in this regard, on the Schedules A and B to the contract agreement.
4. Countering the contentions of the respondents that the contract between the parties is nothing but a transfer of the right to use the vehicles, in question, the petitioner-company refers to, and relies upon, clauses 1, 4, 5, 8, 9, 11, 12, 13, 15, 17, 19, 21 and 38 of the contract agreement.
5. I have heard Dr. A. K. Saraf, learned senior counsel for the petitioner-company, and Mr. D. Saikia, learned Counsel, appearing on behalf of the respondents.
6. There is no dispute that the power of the State Legislature to impose tax on sale and purchase of goods emanates from entry 54 of List II of the Seventh Schedule to the Constitution of India nor is there any dispute that 46th Amendment of the Constitution, which inserted Clause (29A) in article 366 of the Constitution of India, has expanded the definition of 'tax on sale or purchase of goods' inasmuch as it has included, within the definition of 'sale', the transfer of the right to use any goods for any purpose, whether or not for a specified period, on cash, deferred payment or other valuable consideration. There is also no dispute that pursuant to the changes so introduced, amendments have been made by the Legislature, in the State of Assam, in the provisions of the Act, particularly Section 2(33) and 2(19) thereof, which embody the definition of 'sale' and 'lease', respectively.
7. In order to correctly appreciate the development of law relating to the expansion of the State's power to impose sales tax, by bringing 46th Amendment, it is imperative that the material facts, which led to the bringing of the changes in the definition of 'sale' for the purpose of enabling the States to impose sales tax, are taken note of.
8. Before introduction of the 46th Amendment of the Constitution of India, composite contracts, such as, works contract, hire-purchase contract, catering contracts, etc., were not assessable as contracts for sale of goods inasmuch as the contracts, which were indivisible, could not have become subject to sales tax.
9. Before the Constitution (46th Amendment) Act, 1982, the word 'sale', which occurred in the expression 'sale', in the Seventh Schedule to the Constitution of India, had carried the same meaning as a 'sale' defined in Section 4 of the Sale of Goods Act, 1930. Hence, prior to the 46th Amendment, sales tax could be imposed only upon transfer of property in goods from one person to another. Consequently, sales tax could not be imposed upon transactions, which might have resembled sale, but did not involve transfer of property in goods. Because of this judicial interpretation, States were losing revenue on account of sales tax in respect of transactions like transfer of the right to use goods, transfer of property in goods involved in execution of works contract, supply of food by a hotelier, etc.
10. With regard to the above, it may be pointed out that as far as back as in the year 1967, the Madras High Court, in A.V. Meiyappan v. Commissioner of Commercial Taxes reported in [1967] 20 STC 115, was confronted with the question as to whether a given transaction of 'lease' can ever amount to 'sale'. In A.V. Meiyappan [1967] 20 STC 115 (Mad), the court was examining an agreement entered into by an assessee, called lessor, with a limited company, called lessee, whereunder the assessee had made over to the lessee the outright lease of the world negative rights of the film, for a period of 49 years, for a consideration. The sales tax authorities were of the view that though the transaction was termed as 'lease' for 49 years, the assessee had actually effected a 'sale' of the negative print of the picture for a consideration and, therefore, the transaction was liable to sales tax under the Madras General Sales Tax Act, 1959. The Madras High Court, however, turned down the imposition of the sales tax by holding that even if a copyright is regarded as species of movable property, the transaction did not connote a 'sale' at all inasmuch as there was no transfer of property in the goods in such a case and the transaction was, therefore, not liable to payment of sales tax.
11. The decision of the Madras High Court, in A.V. Meiyappan [1967] 20 STC 115, created immense difficulty for the States for quite a long time, because novel device of leasing of films resulted into avoidance of huge amounts of sales tax. This apart, in State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. reported in [1958] 9 STC 353, the Supreme Court gave a new approach to the definition of 'sale' by prohibiting States from taxing transfer of property in goods involved in the execution of indivisible works contract. This decision also affected the revenue of the States. The State's revenue was further reduced to a great extent in view of the decision in K.L. Johar & Co. v. Deputy Commercial Tax Officer reported in [1965] 16 STC 213, wherein the apex court decided that the State can tax only the depreciated value of the goods. Yet another decision of the apex court, in State of Himachal Pradesh v. Associated Hotels of India Ltd. reported in [1972] 29 STC 474, closed the door of a big revenue-earning area by the States, when the apex court held that supply of food by a hotelier was essentially one of services by the hotelier and that it is, as a part of the amenities, incidental to the service, that a hotelier serves meals at specified hours.
12. Because of the traditional concept of 'sale', which the courts adhered to, while interpreting as to whether a given transaction amounts, or does not amount, to 'sale', the 46th Amendment Act of the Constitution brought changes in the definition of the word 'sale' as given in article 366 inasmuch as it widened, by inserting Clause (29A) to article 366, the definition of 'sale' by incorporating those transactions, which might have resembled 'sale', but did not fall within the traditional concept of 'sale', and were judicially held not to be exigible to sales tax. The idea behind this amendment was to create a concept of deemed sale by treating, with the help of a legal fiction, such a transaction as a 'sale' even if the same did not fall within the ambit of the definition of 'sale' as defined in the Sale of Goods Act. In other words, by bringing various transactions within the purview of the definition of 'sale', a transaction, which was, otherwise, not a 'sale', has been deemed to be a 'sale'. This Clause (29A) of article 366 states as under:
(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;
13. The effect of the amendment, which has been introduced to article 366, by inserting Clause (29A), is that a State Legislature has become competent to impose sales tax, amongst others, on the transfer of the right to use any goods, which, before the amendment, so made, the State Legislature was not competent to do. What the insertion of Clause (29A) has done is that various transactions, enumerated therein, which were, otherwise, not sales, have to be deemed, by a legal fiction, as sales. Such sales are commonly called deemed sales. Under Clause (29A)(d), a 'transfer of the right to use any goods' for any purpose and for any period, for cash, deferred payment or other valuable consideration, shall be deemed to be a sale of goods by the person making the transfer, delivery or supply, and a purchase of those goods by the person to whom transfer, delivery or supply is made.
14. Consequent upon the above amendments of the Constitution, almost all the States have amended their respective definitions of the word 'sale', in the sales tax statutes, by incorporating identical language used by the Constitution. Indisputably, the expression 'transfer of the right to use any goods' cannot be equated with the expression 'transfer of property in goods', because the transfer of the 'right to use any goods' is not the same as the 'transfer of the goods' itself ; but when the definition of 'sale' is amended in consonance with the change introduced in the definition of 'sale' by the 46th Amendment, a transfer of the right to use any goods would amount to 'sale' within the meaning of the sales tax laws empowering thereby the State Legislature impose tax, on such a transaction, as 'sale'.
15. In Assam too, under the Act, tax became exigible, by Section 8(1)(f), on 'operating lease' as mentioned in Clause (iv) at the rate(s) specified in the Schedule. Section 2(33) of the Act provides that 'sale' shall include 'any transfer of the use of any goods' under an 'operating lease'. Section 2(33) reads as under:
2(33) : 'Sale', with all the grammatical variations and cognate expressions, means any transfer of property in goods by any person for cash, deferred payment or other valuable consideration, and includes:
(iv) any transfer of the use of any goods under an operating lease.
16. The expression 'operating lease' has been defined, by Section 2(25), to mean a lease other than a financial lease. Thus, any lease, other than a financial lease, is an 'operating lease' within the sales tax laws in Assam. The term 'lease' has been defined under Section 2(19) of the Act as follows:
2(19) 'lease' means any agreement or arrangement whereby the right to use any goods for any purpose is transferred by one person to another whether or not for a specified purpose for cash or deferred payment or other valuable consideration without the transfer of ownership and includes a sub-lease but does not include any transfer on hire purchase or any system of payment by instalments.
17. Section 2(20) of the Act defines 'lessee' to mean a person to whom the right to use any goods for any purpose is transferred under a lease.
18. Section 2(21) of the Act defines 'lessor' to mean a person by whom any right to use any goods for any purpose is transferred under a lease.
19. From a combined reading of the various provisions of law, which have been pointed out above, what clearly transpires is that there must be 'a transfer of the right to use any goods' in order to attract levy of 'sales tax'. In other words, transfer of the right to use any goods, for any purpose, is a condition precedent for imposition of sales tax. This tax is not a tax on the right to use any goods or on the use of any goods ; it is, rather, a tax on the 'transfer' of the 'right' to 'use' any 'goods'. Thus, unless and until the incidence of 'transfer' of the right to use goods, in a given case, is present, a transaction would not become a 'sale' even under the expanded definition of 'sale'. Similarly, a transaction would not attract 'sales tax' merely because of the fact that the goods have been hired and the hiring charges have been paid to the person, who gives, on hire, the goods unless one can show that the transaction is not confined to 'use' of the goods, but it is, in substance, a 'transfer' of the 'right' to 'use' the 'goods'.
20. I may pause here to point out that in 20th Century Finance Corporation Ltd. v. State of Maharshtra reported in : AIR2000SC2436 , a Constitution Bench of the Supreme Court, speaking through Bharucha, J. (as his Lordship, then was), pointed out, while interpreting article 366(29A)(d), that levy of tax is not on use of goods, but on the transfer of the right to use goods and that the right to use goods accrues only on account of the transfer of right. In other words, explains the Supreme Court, in 20th Century Finance Corpn. Ltd. : AIR2000SC2436 , in order to attract sales tax, the right to use arises only on the transfer of such a right and unless there is transfer of such a right, the question of the transfer of the right to use does not arise. Having held that it is the transfer of the right to use any goods, which is exigible to sales tax, and that without such transfer, no sales tax can be imposed, the Supreme Court goes on to observe, in 20th Century Finance Corpn. Ltd. : AIR2000SC2436 , that if the goods are available, then, the transfer of the right to use goods takes place, when the contract, in respect thereof, is executed, for, the right to use goods would stand transferred to the lessee, no sooner the contract is executed. The Supreme Court further observed, in 20th Century Finance Corpn. Ltd. : AIR2000SC2436 , that if the goods are available, irrespective of the fact where the goods are located, and a written contract is entered into between the parties, the taxable event on such a 'deemed sale' would be the execution of the contract ; but in the case of an oral or implied transfer of the right to use goods, such transfer may be effected by the delivery of the goods. Having so observed, the Supreme Court, in 20th Century Finance Corpn. Ltd. : AIR2000SC2436 , pointed out that no authority could be shown to support the view that there would be no completed transfer of right to use goods unless the goods are delivered. The Supreme Court, therefore, concluded, in 20th Century Finance Corpn. Ltd. : AIR2000SC2436 , that delivery of goods cannot constitute a basis for levy of tax on the transfer of the right to use any goods.
21. The relevant observations made, on the above aspects of the law, by the 21 apex court in 20th Century Finance Corpn. Ltd. : AIR2000SC2436 , read as under:
27. Article 366(29A)(d) further shows that levy of tax is not on use of goods but on the transfer of the right to use goods. The right to use goods accrues only on account of the transfer of right. In other words, right to use arises only on the transfer of such a right and unless there is transfer of right, the right to use does not arise. Therefore, it is the transfer which is sine qua non for the right to use any goods. If the goods are available, the transfer of the right to use takes place when the contract in respect thereof is executed. As soon as the contract is executed, the right is vested in the lessee. Thus, the situs of taxable event of such a tax would be the transfer which legally transfers the right to use goods. In other words, if the goods are available irrespective of the fact where the goods are located and a written contract is entered into between the parties, the taxable event on such a deemed sale would be the execution of the contract for the transfer of right to use goods. But in case of an oral or implied transfer of the right to use goods it may be effected by the delivery of the goods.
28. 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.
22. Relying upon the decision in 20th Century Finance Corporation Ltd. : AIR2000SC2436 , the apex court held, in State of Uttar Pradesh v. Union of India reported in : 2004(170)ELT385(SC) , that handing over of possession of the goods is not sine qua non for completing the transfer of the right to use such goods.
23. In Bharat Sanchar Nigam Ltd. v. Union of India reported in [2006] 3 VST 95 (SC) : [2006] 145 STC 91 (SC) : [2006] 282 ITR 273 (SC) : [2006] 3 SCC 1, a three-judge Bench had the occasion to consider the question as to whether delivery of goods is at all necessary for the purpose of effecting the transfer of the right to use the goods. To the question, so put, the Supreme Court responded by holding that the essence of the right, under article 366(29A)(d), is that it relates to user of goods and though, in a given case, actual delivery of the goods may not be necessary for effecting transfer of the right to use the goods, yet the goods must be available at the time of the transfer, must be deliverable and delivered at some stage. The apex court pointed out, in Bharat Sanchar Nigam Ltd. : [2006]282ITR273(SC) , that the decision, in 20th Century Finance Corpn. Ltd. : AIR2000SC2436 , cannot be cited as an authority for the proposition that delivery of possession of goods is not a necessary concomitant for completing a transaction of sale for the purpose of bringing such a transaction within the ambit of article 366(29A)(d). The apex court also pointed out, in Bharat Sanchar Nigam Ltd. : [2006]282ITR273(SC) that in 20th Century Finance Corpn. Ltd. : AIR2000SC2436 , what the Constitution Bench was required to determine was the situs of the taxable event. In other words, what the Constitution Bench, in 20th Century Finance Corpn., Ltd. : AIR2000SC2436 , was required to determine was as to where the taxable event, for the purpose of sales tax, takes place in the context of Sub-clause (d) of article 366(29A), because the States had selected three distinct places for imposing sales tax. In other words, in 20th Century Finance Corpn. Ltd. : AIR2000SC2436 , three distinctly separate criteria were found to have been used by the States for the purpose of levying sales tax under article 366(29A)(d). Some States had levied tax, on the transfer of the right to use goods, on the basis of the location of the goods at the time of their use irrespective of the place, where the agreement for such transfer of the right to use such goods was made ; while some States had levied tax upon delivery of the goods, in the State, pursuant to the agreements of transfer. Yet another set of States had levied tax on deemed sale on the premise that the agreement of transfer of the right to use had been executed within the State concerned. It is the third view, which found approval by Constitution Bench in 20th Century Finance Corpn. Ltd. : AIR2000SC2436 , for, the Constitution Bench took the view that the transfer of the right to use took place, where the agreements were executed, and not at the place, where the goods were used, nor at the place, where the goods (pursuant to the agreement) were delivered.
24. Thus, in Bharat Sanchar Nigam Ltd. : [2006]282ITR273(SC) , the court held that delivery of goods, at some stage, is necessary in order to complete the transfer of the right to use the goods. To put it a little differently, though 'situs' of a 'deemed sale' does not depend on the place of delivery of goods, the taxable event is not complete, in the light of decision in Bharat Sanchar Nigam Ltd. : [2006]282ITR273(SC) , until the time the delivery of the goods takes place, for, it is upon delivery of the goods that the transfer of the right to use the goods is completed. This delivery may, however, be actual or constructive. In other words, a 'deemed sale' cannot be treated as complete until the time the contract is executed by delivery of the goods inasmuch as the transfer of the right to use goods does not take place until the time the transferor delivers the goods, which is the subject of contract, though, for the purpose of determining the 'situs' of such a 'deemed sale', it is the place, where the agreement is executed, which will be treated as the place of the 'deemed sale' provided that the agreement is in writing; but in a case of oral agreement, it may be affected by the delivery of the goods.
25. The relevant observations made, in this regard, in Bharat Sanchar Nigam Ltd. : [2006]282ITR273(SC) , read as under:
73. See para 72 of 3 VST With respect, the decision in 20th Century Finance Corporation Ltd. v. State of Maharshtra : AIR2000SC2436 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(29A)(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 para 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....
26. Explaining, in Bharat Sanchar Nigam Ltd. : [2006]282ITR273(SC) , its earlier decision, in 20th Century Finance Corpn. Ltd. : AIR2000SC2436 , the apex court pointed out that while determining the situs of the transfer of the right to use the goods, the court has not observed, in 20th Century Finance Corpn. Ltd. : AIR2000SC2436 , that the delivery of goods was inessential for the purpose of completing the process of transfer of the right to use ; rather, the Constitution Bench held, points out the Supreme Court, in Bharat Sanchar Nigam Ltd. : [2006]282ITR273(SC) , that the goods must be available, when the transfer of the right to use the goods takes place, and that the Constitution Bench also recognized that for oral contracts, the situs of the transfer may be the place, where the goods are delivered.
27. The apex court further held, in Bharat Sanchar Nigam Ltd. : [2006]282ITR273(SC) , that the delivery of the goods may not take place simultaneously with the transfer of the right to use the goods, but the goods must be in existence, deliverable, when the right is sought to be transferred, and must, at some stage, be delivered.
28. It is, therefore, clear that in order to constitute a transfer of right to use goods, there must be parting with the possession of the goods for the limited period of its use in favour of the lessee by the lessor. The effective control of the goods must not remain with the owner, but must stand transferred to the lessee for the use by the latter at his will and it is this transfer of the effective control of the goods, which attracts sales tax (See Alpha Clays v. State of Kerala reported in : 2004(2)KLT235 ).
29. In Rashtriya Ispat Nigam Ltd. reported in : AIR2002SC1305 , it was claimed by the sales tax authorities that the transaction, whereby the owner of certain machinery had made available, his machinery to the contractor, amounted to sale. Dealing with this contention of the sales tax authorities, a Division Bench of the Andhra Pradesh High Court held that the transfer of the right to use goods necessarily involves delivery of possession by the transferor to the transferee ; but the delivery of possession must be distinct from its custody and that mere transfer of possession does not amount to delivery in the context of the transfer of the right to use goods. In the facts of the case in Rashtriya Ispat Nigam Ltd., it was held by the Division Bench See that although the possession of the machinery was given to the transferee, yet the effective custody and control of the machinery having remained with the transferor, such transaction would not amount to transfer of the right to use goods. This decision of the Division Bench was upheld by the apex court in State of Andhra Pradesh v. Rashtriya Ispat Nigam Ltd. : AIR2002SC1305 .
30. In contrast, Aggarwal Brothers v. State of Haryana reported in : AIR1999SC2868 , was a case, wherein assessee had hired shuttering in favour of the contractor for use of the latter in the course of construction of the building. The apex court opined that the possession of the shuttering materials had been transferred by the assessee to the contractor for their use and, therefore, the transaction was a deemed sale.
31. What is immensely important to note is that in both the cases, namely, in Rashtriya Ispat Nigam Ltd. : AIR2002SC1305 as well as in Aggarwal Brothers : AIR1999SC2868 , the goods were in existence and the same were delivered to the contractors for their use. However, while in one case, namely, in Rashtriya Ispat Nigam Ltd. : AIR2002SC1305 , the transaction was not treated as sale, because there was no intention to transfer the right to use the goods and the effective custody and control of the machinery remained with the transferor, notwithstanding the delivery thereof, the other case, namely, Aggarwal Brothers : AIR1999SC2868 is one, wherein not only that the delivery of the shuttering materials took place, but even the right to use the shuttering materials, in any manner as the contractor wanted, stood permitted and it was for this reason that this transaction was held to be a transaction, which amounted to 'deemed sale'. The relevant observations made, in this regard, by the apex court in Bharat Sanchar Nigam Ltd. : [2006]282ITR273(SC) , read as under : (page 128 of VST).when the assessee had hired shuttering in favour of the contractors to use it in the course of construction of the 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 deemed sale within the meaning of Sub-clause (d) of Clause (29A) 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.
32. In Bhopal Sugar Industries Ltd. v. Sales Tax Officer, Bhopal reported in [1977] 40 STC 42, the apex court has pointed out that mere use of the words such as 'agent' or 'agency', 'buyer' or 'seller' cannot be sufficient to lead to an irresistible inference that the parties concerned did, in fact, intend that the status, so described in an agreement, shall stand conferred on the party concerned. The apex court has further pointed out, in Bhopal Sugar Industries Ltd. [1977] 40 STC 42, that unless the context shows that the parties to an agreement clearly intended to treat a buyer as buyer and not as an agent, the mere formal description of a person as an agent or buyer is not conclusive. The observations made, in this regard, in Bhopal Sugar Industries Ltd. : [1977]3SCR578 , read as under : (page 48).While interpreting the terms of the agreement, the court has to look to the substance rather than the form of it. The mere fact that the word 'agent' or 'agency' is used or the words 'buyer' and 'seller' are used to describe the status of the parties concerned is not sufficient to lead to the irresistible inferences that the parties did in fact intend that the said status would be conferred. Thus the mere formal description of a person as an agent or a buyer is not conclusive, unless the context shows that the parties clearly intended to treat a buyer as a buyer and not as an agent....
33. From the above discussion, what also clearly emerges is that the question as to whether, in a given case, there is or there is no transfer of the right to use goods becomes a question of fact and this fact can be determined on the basis of the terms of the contract, which may govern a given transaction. In fact, in North East Gases Pvt. Ltd. v. State of Assam reported in [2004] 134 STC 249, this Court has held that the question relating to transfer of the right to use any goods is essentially a question of fact, which has to be determined, in each case, having regard to the terms of the contract, wherein the transfer is made.
34. In view of the fact that the terms of the contract really determine whether, in a given case, there is or there is no transfer of the right to use any goods, it is necessary to take note of the relevant clauses of the agreement, which govern the transaction, which is sought to be made exigible to sales tax. The relevant portions of the agreement, in question, are, therefore, reproduced hereinbelow:
Whereas the contactor is desirous of operating tank/truck for effecting delivery of petroleum products of the Corporation and whereas the Corporation has agreed to appoint the contractor/s as contractor/s upon the terms and conditions hereinafter recorded. Now this agreement witnesseseth and it is hereby agreed by and between the parties hereto as follows:
Clause 1-That the contractor/s as owner/s of brand new/old...litre capacity tank truck/s diesel/petrol driven, as detailed under Schedule 'B' hereinbelow and shall provide same by (date)...and will maintain the same in good working order for the period of the contract. The contractors shall not do any act or omission whereby the implementation of the tank truck contract herein is in any way prejudiced or affected. The contractor/s shall immediately provide the registration number, engine number, chassis number and all the other particulars of the ownership or otherwise in respect of the tank trucks to the corporation which will be operated by contractors for the purpose of the corporation under this agreement and shall not undertake any change in respect thereof without obtaining the prior written consent of the corporation. Contractor/s further agrees that in the event of there being any laying off or lack of utilization of the tank trucks by accident or breakdown or any other reason which may affect the use thereof by the corporation, the corporation shall be entitled to claim such amount as is specified in Schedule A attached hereto as and by way of liquidated damages which the parties hereto estimate as fair and reasonable and/or to rescind the contract as being discharged by non-performance and/or abandoned by the Contractor/s and claim such damages, loss and expenses and other amounts as the corporation may have suffered or may suffer on account or by reason of the contractor/s aforesaid delay or default.
1(a) The corporation shall be entitled to requisition further number of tank-trucks in addition to the list given under Schedule B and to put them into operation under the terms and conditions of these presents.
Clause 2-The contractor/s shall get the said tank truck/s to conform to design and fittings as specified by the corporation as also will have the said tank trucks calibrated by weights and measures wherever applicable and will also allow the corporation to calibrate the same whenever found necessary. The contractor/s shall also immediately furnish to the corporation certificates in respect of calibration of weights and measures and have the same periodically checked and inspected by the concerned authorities and file such certificates with the corporation. The decision of the corporation regarding the correctness of the calibration and any allowance to be made therein shall be final and binding on the contractor/s. The contractor/s shall also obtain the counter-signature of the authorized representative of the corporation on the reverse of the calibration chart and if and when required by the corporation permit the said tank/trucks to be calibrated by weight/measures in the corporation's premises or in such manner in accordance with the directions that may be given by the corporation at the risk and expense of the contractor/s.
Clause 4-The contractor/s will operate the said tank trucks for haulage of bulk dangerous/non-dangerous heavy/excluded petroleum products of the corporation as and when required by the corporation Ex. ...bulk depot/installation to outstation nominated by the corporation from time to time whether located within the despatching State or outside. The contractors shall not use the said tank truck/s for any purpose other than for carrying out this agreement. It is distinctly understood that the corporation has not guaranteed any minimum turnover, whether daily, monthly or annually or during the duration of this agreement, and the contractor/s will not be entitled to demand idle charges or minimum turnover charges or any other loss or damage of whatsoever nature against the corporation for non-utilisation of the said tank trucks/wholly or in part.
Clause 5-The corporation shall pay to the contractor/s for the operation of the said tank truck/s at rates specified in the Schedule A attached hereto.
Clause 8-The contractor/s shall bear and pay the entire operation cost of the tank truck/s which will include and be deemed always to include the following:
(a) Provision for the driver, cleaner as also necessary reliefs including their salary and other emoluments.
(b) Cost of fuel and lubricating oil necessary.
(c) Maintenance and repairs of the tank truck/s
(d) Road tax, route permit fees, vehicle tax and other taxes in relation to the said truck/s
(e) Insurance
(f) All other charges not specified herein relating to the operation and or maintenance of the said tank truck/s and/or any other items incidental thereto and/or connected/therewith.
(g) All idling charges, loss by delay in transport/transit, road stoppage delay in final consuming, loading or unloading of products or otherwise howsoever on account of operation thereunder:
Clause 9-That compliance of all enactment and/or all Government Rules and Regulations regarding transportation of petroleum products and route permits, etc., will be the responsibility of contractor/s and any fines for non-compliance of any such rules will be borne by the contractor/s. The contractor/s will also comply with the provision of the new Petroleum Rule 1979 or any amendment made thereto from time to time and any Rules made thereunder affecting the construction and operation of the tank truck/s and will obtain certificate from the Chief Controller of Explosive or any appropriate Government Authority to the effect that the vehicle is fit for transporting the said products. The contractor shall also carry out, fulfil and implement all directions whether in writing or oral, that may be issued by the corporation or its authorized representative relating to loading, unloading, transport, operation and delivery of petroleum products in the tank/trucks and any violation, breach or default thereof will be construed and means a breach or default of this agreement entitling the corporation to terminate the same forthwith without prejudice to its other rights.
Clause 11-That the contractor/s will make good to the corporation any loss arising from:
(a) The confiscation by Government or local authorities of any quantities of the said products delivered to the contractor/s for transportation.
(b) Loading, unloading, or in transit for reasons other than the acts of God, riots, or civil commotion, PROVIDED that the corporation shall be entitled to recover from the contractors and the contractor/s hereby agree to be bound to pay to the corporation as and by way of compensation of liquidated damages an amount at the discretion of the general manager in the case of non-delivery of the bulk petroleum products of the corporation.
Clause 12-That the loading of tank trucks at the depot will be done by the personnel of the corporation with help of the tank/truck driver and cleaner and the unloading will be the responsibility of the contractor/s
Clause 13-That the contractor/s agrees/agree to employ competent and efficient employees and operators to ensure that deliveries are correctly effected and decanted into the proper tanks at destinations. Any consequent loss caused on account of contamination of the products in the tankage or during the course of transit, owing to the negligence of the contractor/s staff shall be made good by the contractor/s, contractor/s' employees and representatives inside the corporation's. Installation/depots should conform to the corporation working rules.
Clause 14-That the contractor/s is/are totally responsible for delivering the correct quality and quantity of product as per invoice at the destination specified. The contractor's driver/should satisfy himself/themselves regarding the dips and quality prior to the sealing of the tank trucks. In the event of any loss or product recorded as the destination, as reflected by fall in dips, the cost of such shortage would be debited either to the contractor's bills if any with us or will be made good directly by the contractor or will be adjusted against any deposit or other amounts payable to the contractor.
Clause 15-The contractor agrees to make delivery in all instances within a reasonable time and will not permit their trucks to be off the road for any unreasonable period, and will not hold up deliveries for any cause whatsoever.
Clause 17-The contractor/s shall not have exclusive right to operate tank truck/s at the depot/installation and the corporation will be at liberty to appoint one or more additional contractors either to run concurrently with the contractor/s or separately and to enter into a parallel contract with them.
Clause 19-That the corporation do not guarantee a minimum mileage for each and/or any vehicle per month, do not even guarantee the minimum number of vehicles that will be utilized per month, and no liability whatsoever shall be attached to the corporation on account thereof.
Clause 21-That in case the tank truck/s is/are found unserviceable for want of repairs servicing, the contactors will make arrangements to keep them serviceable immediately and if failed the contractor shall be bound to effect supplies to outstations in drums by stake trucks. The contractors will be paid for such other arrangement pro rata on the rates indicated in the Schedule A or any substituted Schedule as provided herein and computed on the actual quantity carried by the vehicles. In the event of the contractors' failure to provide alternative mode of transportation the contractor/s shall be liable to make good to the corporation the extra expenses that may be incurred by the corporation in making other arrangement for effecting supplies without prejudice to all other rights of the corporation.
Clause 38-As per the requirement of the corporation if the contractor fails to place tank trucks with us at depots/installations, it will be the responsibility of the contractor to engage tank trucks from outside. In such cases bills are to be raised by regular contractor only. In case corporation is compelled to engage any tank truck from outside at a higher rate, the difference in charges plus Rs. 100 per day per truck shall be debited to the contractors as penalty.
35. Clause 1 of the contract agreement requires a contractor to provide to the petitioner-company the registration number, engine number, chassis number and other particulars of ownership in respect of the tankers/trucks, which will be 'operated' by the contractor for the purpose of the petitioner-company. The provisions made in clause 1 clearly indicate that the tanker/trucks are to be 'operated' by the contractor.
36. Thus, not only the possession, but even the effective control of the vehicle remains with the contractor and does not get transferred to the petitioner-company. The purpose of furnishing various particulars of the vehicle is really intended at ensuring that as far as possible, the contractor operates only those vehicles, which the petitioner-company has accepted as the vehicles, which would carry their petroleum and petroleum products. This does not, however, mean that the contractor is completely disabled from using any other vehicle or means to carry and transport the petitioner-company's petroleum and petroleum products. The impression that the requirement of carrying petroleum and petroleum products in the vehicles, whose particulars have been furnished by the contractor to the petitioner-company, is not indispensable and may not be insisted upon by the petitioner-company is evident from clause 21 of the agreement. This clause, therefore, needs careful consideration.
37. With regard to the above, what needs to be noted is that clause 21 provides that in case the vehicle is found to be unserviceable for want of repairs and/or servicing, the contractor will make the necessary arrangements to make them serviceable and, if the contractor fails in this regard, the contractor shall be bound to effect supply in 'drums' by 'stake-trucks'. These provisions make it crystal clear that the contract, in question, does not 'transfer' the 'right to use the vehicle' 'in favour of the petitioner-company'. Had the transaction amounted to transfer of the right to use the vehicle, whose particulars the contractor was required to furnish to the petitioner-company, the contractor would not have been obliged to carry the petroleum and petroleum products in drums if his vehicle is not in serviceable state.
38. Thus, clause 21, once again, demonstrates that the intention of the parties is that the contractor shall carry the petroleum and petroleum products from one place to another and such carriage shall, ordinarily be, in those vehicles, which have been accepted by the petitioner-company, but, in unavoidable circumstances, the contractor may carry the petroleum and petroleum products in 'drums' by 'stake-trucks'. Thus, when the custody and effective control of the vehicles remain with the contractor, it would be incorrect to contend that there is transfer of the right to use the vehicles.
39. Clause 1 further makes it clear that if there be any lay off or lack of utilization of the tanker/trucks by accident or breakdown or for any other reason, which may affect the use thereof by the company, the contractor shall be liable to pay liquidated damages to the petitioner-company. This provision shows that the custody and control of the tanker/trucks, for all practical purposes, remain with the contractor. Had there been transfer of the right to use the tanker/trucks in favour of the petitioner-company, the effective control of the vehicles would have stood vested in the petitioner-company and the contractor, having transferred the right to use the vehicle to the petitioner-company, would not have remained obliged to pay liquidated damages to the petitioner-company if the petitioner-company was disabled from using the vehicle due to the eventualities as mentioned hereinbefore.
40. Coming to clause 2 of the agreement, it may be pointed out that this clause requires that the tanker/truck must conform to the design and fittings as specified in clause 2. Since petroleum or petroleum products can be carried only in specified types of tanker/trucks, clause 2 puts an obligation on the contractor to ensure that his tanker/truck conforms to the design/fittings as may be specified by the petitioner-company. The requirement of conforming to the specified design and fittings cannot be stretched to mean that the right to use the tanker/truck would stand vested in the contractor to the petitioner-company and/or the effective custody and control of the vehicle would stand transferred to the petitioner-company merely because of the fact that the vehicles, which are to be 'operated' by the contractor for the petitioner-company's purpose, have to conform to the design and fittings as may be specified by the petitioner-company.
41. Though the respondents have relied on clause 4 of the agreement in order to sustain their contention that the transaction, in question, amounts to transfer of the right to use the vehicles in favour of the petitioner-company by the contractor, it may be pointed out that when clause 4 is read in the light of the other clauses of the agreement, in question, what clearly transpires is that the contract, in question, is for carriage of the petroleum and petroleum products and the vehicles are to be operated by the contractor himself. Any and every vehicle cannot be used by the contractor for the purpose of carrying petroleum and petroleum products. Far from this, the vehicles must conform to the design and fittings as may be specified by the petitioner-company, because of the fact that petroleum and petroleum products, being highly inflammable substances, can be carried safely and securely only in vehicles with specified designs and fittings. Clause 4 cannot be held to support the case of the respondents inasmuch as the petitioner-company does not guarantee any minimum use of the vehicle, which the contractor may have agreed to operate for the purpose of carrying petroleum and petroleum products. When even the minimum turnover is not guaranteed by the petitioner-company and when it is unknown as to whether a vehicle, during the subsistence of the contract agreement, will or will not be required to be operated by the contractor, it would not be possible to hold that there is transfer of the right to use the vehicle.
42. Thus, when the transfer of the right to use the vehicles (which is sine qua non for the purpose of attracting imposition of sales tax), is lacking in the present case, the question of the present transaction being treated as a 'deemed sale' cannot arise at all.
43. We may, now, come to clause 5 of the agreement. This clause obliges the petitioner-company to make payment to the contractor for operation of the tanker/trucks at the rate as is specified in the Schedule A. This clause clearly demonstrates that there is no transfer of the right to use the tanker/ trucks inasmuch as a contractor would be entitled to receive payment provided that he 'operates' the tankers/trucks in accordance with the requirement of the petitioner-company as stipulated in the agreement.
44. Turning to clause 8 of the agreement, it may be noted that this clause provides that the contractor shall bear and pay the entire operational cost of the vehicle. This operational cost would include not only making of payment of the salary and other emoluments of the driver and cleaner, but also making payment for the cost of fuel and lubricating oil. The operational cost further includes (as the contents of clause 8 reflect), the necessary maintenance and repairing of the vehicle, payment of road tax, route permit fee, vehicle tax and other relevant taxes, insurance and all such other charges as may be necessary in order to maintain and operate the vehicles. These provisions make more than abundantly clear that it is the contractor, who bears not only the expenses for the salary and emoluments of the driver and the cleaner, but also the cost-of fuel, etc., its maintenance and all such other mandatory expenses, such as, insurance, tax, etc., which are required to be borne by any person, who carry petroleum and petroleum products in a vehicle.
45. That there is no transfer of the right to use the vehicles in favour of the petitioner-company also becomes clear from the fact that clause 9 obliges the contractor to comply with all enactments and all the rules and regulations, which may be framed by the company for transportation of petroleum and petroleum products. In fact, clause 9 further states that it will be the responsibility of the contractor to pay such fines, as may be imposed for non-compliance of any of the rules, which may be applicable to the carriage of petroleum and petroleum products by the vehicle of the contractor.
46. The impression that there is no transfer of the right to use the vehicle and that the vehicle remains under the effective custody and control of the contractor gets further strengthened, when one reads clause 11 of the agreement, which provides that any loss, which may be incurred by the petitioner-company due to confiscation of the petroleum and petroleum products delivered to the contractor for transportation, shall be made good by the contractor. Had the transfer of the right to use the vehicle stood transferred to the petitioner-company, the contractor could not have been made liable for confiscation of the petroleum and petroleum products carried in the vehicle of the contractor. This provision has been, admittedly, made in order to ensure that the petroleum and petroleum products, which are handed over to the contractor by loading the same into the contractor's vehicle, is carried by the contractor in accordance with the terms of the contract agreement and in accordance with law. Clause 12 of the contract agreement also proceeds in the same direction inasmuch as it makes it clear that the loading and unloading of the petroleum and petroleum products will not be the unilateral act of the petitioner-company ; rather, the loading will be done by the personnel of the petitioner-company with the help of the driver and cleaner of the vehicle and, as far as unloading is concerned, the same will be exclusive responsibility of the contractor. This Clause (clause 12), once again, shows that it is not the petitioner-company, which has exclusive right to load the petroleum products or unload the same. When considered in this light, it becomes clear that the right to use the vehicle is not really transferred to the petitioner-company under the contract agreement; rather, not only the possession, but also the control of the vehicle remains with the contractor and it is for this reason that from the very stage of loading of the petroleum and petroleum products into a vehicle, the contractor concerned remains involved.
47. Clause 13 of the contract agreement requires that the contractor shall employ competent and efficient persons to ensure that the deliveries are correctly effected and decanted into the proper tanks at destinations and that these employees of the contractor shall comply with the working rules of the petitioner-company. Clause 13 further provides that any consequential loss caused on account of contamination of the products in the truck/ tanker, during the course of transit, owing to the negligence of the contractor/staff, shall be made good by the contractor. All these provisions, which clause 13 make, clearly go to indicate that the contractor remains the possessor and custodian of the vehicle and, at all stages, he is required to 'operate' the vehicle with the help of his people and, in the event of any dereliction, on the part of his employees, the contractor shall remain liable.
48. Clause 14 of the contract agreement requires a contractor to deliver the correct quality and quantity of the product, as per invoice, at the specified destination and, in the event of any loss due to short delivery, etc., the contractor shall make good the loss, which the petitioner-company may sustain. This clause too clearly reflects that the right to use the vehicle remains with the contractor and it does not stand transferred to the petitioner-company and it is for this reason that it is the contractor, who is held responsible if there is short-delivery of the substance at the destination.
49. The respondents have heavily relied on clause 15. In this regard, it is noteworthy that the contract agreement, when read as a whole, clearly reflects that the contract is for carriage of petroleum and petroleum products and the right to use the vehicle does not stand transferred to the petitioner-company and since it is the responsibility of the contractor to carry the petroleum and petroleum products, clause 15 of the contract agreement puts an obligation, on the contractor, to deliver the petroleum and petroleum products, at its destination, within a reasonable time and not to permit the vehicle to be off the roads for unreasonable period. This clause can, by no means, be stretched to hold that there is a transfer of the right to use the vehicle in favour of the petitioner-company by the contractor.
50. As far as clauses 23, 26 and 28 are concerned, these clauses relate to payments to be made to the contractor and also the manner of computation of the dues of the contractor. These clauses give no indication at all that there is any transfer of the right to use the vehicle in favour of the petitioner-company.
51. As far as clause 38 is concerned, it puts an obligation on the contractor to engage tanker/trucks from outside if he fails to place his vehicle at the depot/installation. Clause 38, though relied upon by the respondents, really helps the case of the petitioner-company inasmuch as clause 38 belies the respondents' contention that there is transfer of the right to use the vehicle, for, clause 38 makes it possible for the contractor to put a vehicle other than the one which he had agreed to operate. When the contract agreement allows the contractor to place a vehicle other than the one, which he had agreed to operate, no transfer of right to use the vehicle can be said to have been taken place in the present case.
52. Coming to clause 39, suffice it to mention here that this clause relates to validity of the contract agreement and does not, in any way, throw light on the nature of the contract agreement, namely, as to whether there is transfer of the right to use the goods or not.
53. What emerges from the above discussion is that the contract agreement obliges the contractor to operate the vehicles, which he has undertaken to operate for the purpose of carrying petroleum and petroleum products, as per the directions of the petitioner-company, from one place to another. If the vehicle remains off the road and, consequent thereupon, the petitioner-company sustains any loss, the contractor is liable to make good the loss. The contractor is also obliged to keep the vehicle in good serviceable condition and, if he fails and his failure adversely affects the transportation of the petroleum and petroleum products, he, again, becomes liable to make good the loss, which the petitioner-company may sustain due to contractor's failure to transport their products. If, in certain circumstances, the contractor is unable to carry the petroleum and/or petroleum products in a particular vehicle, wherein he had undertaken to carry, he can carry the products in 'drums' in 'stake-trucks'. Similarly, the contractor would be liable to make good the loss, which the petitioner-company may sustain due to short-delivery of its products or due to confiscation thereof during the course of carriage. These provisions are demonstrative of the fact that the contractor retains the possession and effective control of his vehicle ; but, while carrying the petitioner-company's petroleum and petroleum products, he remains a trustee so far as the petroleum and petroleum products are concerned.
54. Thus, when the contract agreement is read clause-by-clause, it becomes abundantly clear that there is no transfer of the right to use the vehicles involved in the contract agreement and that the contract agreement is merely for carriage of the petroleum and petroleum products and nothing more.
55. The respondents have referred to, and relied upon, the decision of the Allahabad High Court, in Ahuja Goods Agency v. State of Uttar Pradesh reported in [1997] 106 STC 540. In this decision, a Division Bench of the Allahabad High Court observed as under : (page 540)
The intention of the parties, mode of use and several other surrounding and relevant aspects have to be considered to come to the conclusion whether or not under a particular contract there is transfer of the right to use any goods. A mere contract of hiring without more, is a species of contract of bailment. Transfer of a right to use goods implies that full liberty is vested in the transferee to have the right to use the goods to the exclusion of all others including the owner of the goods.
56. I respectfully agree with the above observations made in Ahuja Goods Agency [1997] 106 STC 540 (All). There cannot be, therefore, any doubt that a contract agreement has to be read, as a whole, in order to determine the intention of the parties. Merely because of the fact that the vehicles stand identified under the contract agreement, it does not necessarily mean that the right to use the vehicles stands transferred in favour of the petitioner-company by the contractor; more so, when the contract agreement provides for substitution of the vehicles and also permits even carrying petroleum and petroleum products, in 'drums', by 'stake-trucks'.
57. Though the respondents have also relied on the decision of the Karnataka High Court, in Lakshmi Audio Visual Inc. v. Assistant Commissioner of Commercial Taxes reported in [2001] 124 STC 426, this case too does not help the respondents' case. Lakshmi Audio Visual is a case regarding hiring of audiovisuals and multimedia equipment. In Lakshmi Audio Visual , hired audiovisual and multimedia equipment were delivered to the customer, taken to the site, installed, operated, dismantled and brought back by the petitioner at their risk. In such circumstances, the Karnataka High Court observed, in Lakshmi Audio Visual [2001] 124 STC 426 thus : (page 434)
10. I will now examine the nature of a business of hiring of audio, visual and multimedia equipment, in the light of the aforesaid principles. The position will be as follows:
(i) If the petitioner hires the audio/visual multimedia equipment to the customer without rendering any other service, i.e., it merely delivers the equipment to the customer on hire and leaves it to the customer to transport the equipment, installs and operate them in any manner he wants and at the end of the period of hiring, return them to the petitioner, then the possession and the effective control is transferred to the customer. The transaction will therefore be a deemed sale, exigible to tax under Section 5C.
(ii) On the other hand, if the customer engages the petitioner for providing audio-visual services for any programme or event and the petitioner does not deliver any equipment to the customer, but takes the equipment to the site of the programme, installs them, operates them and then dismantles them and brings them back after the period of hiring, in such an event the possession and effective control never leaves the petitioner and the customer never gets the right to the use of equipment. In such an event there is no deemed sale attracting tax under Section 5C.
The undisputed facts in this case disclose that the transaction of the petitioners falls under the second category and therefore, the transactions are not transfer of use of goods amounting to deemed sales exigible to tax under Section 5C of the Act.
58. In the case at hand too, the transactions do not amount to transfer of the right to use the goods inasmuch as the contractor, as a trustee of the petroleum and petroleum products, carries the same in the identified vehicles or, in exceptional circumstances, in such a manner as have been agreed to by the parties concerned.
59. Let me, now, turn to the momentous question and the question is : In the face of the facts, as discussed above, indicating that there is really no transfer of the right to use the vehicles in favour of the petitioner-company, whether it is possible for the petitioner-company to file a writ petition challenging the order(s), whereby the petitioner-company has been directed make deductions at source, and/or the notice, whereby the petitioner-company has been directed to show cause as to why penal action shall not be taken against the petitioner-company for its failure to make deductions of tax at source. In this regard, what needs to be pointed out is that in order to invoke a High Court's jurisdiction under Article 226, it is not necessary that the right, which is alleged to have been infringed, is a fundamental right. High Court can exercise its extraordinary jurisdiction, under Article 226, for any purpose. Hence it is possible to invoke Article 226 if a person is compelled by the State to do an act, which the person, so ordered, is not obliged, under the law, to do, particularly, when the person, so directed by the State to do the act, is put by the State under threat of penal action if the direction is not carried out.
60. Section 27 of the Act casts a liability on the person making payment, for the transfer of the right to use any goods, to deduct tax, at source. There must, therefore, be transfer of the right to use any goods in order to enable deduction at source. In view of the fact that the Superintendent of Taxes has directed the petitioner-company to make deduction, at source, as discussed above, and it has also been made clear to the petitioner-company that the failure, on the part of the petitioner-company, to make deduction would expose the petitioner-company to penal action under Section 57 and Section 23(1)(i) of the Act, the petitioner-company's legal rights, under the Act, must be taken to have been infringed, when the petitioner-company is being forced to make deduction, though it is not liable to make any deduction.
61. While deducting tax at source, the petitioner-company has to act as an agent of the State to collect revenue and every person, who is fastened with such relationship of principal and agent, can object and no force can be used against such a person and no penal action can be taken against such a person. The State cannot impose on any person a liability to collect tax as its agent unless the statute so provides.
62. It may be pointed out that a person, who makes deduction, at source, has to maintain an account of such deduction and, if required, such books of account would have to be produced for inspection in order to ascertain as to whether the deduction at source, as were required, have or have not been made and also for the purpose of making assessment of the taxable liability of the person from whose bills, such deductions have been made. Non-production of the accounts or omission to maintain the accounts would amount to contravention of the provisions of the statute. In such circumstances, a person, who is directed to make deductions, would expose himself to criminal prosecution if he does not comply with these requirements. When the statute itself has not made a person liable for making deduction, at source, in respect of transfer of the right to use goods, such a liability cannot be imposed by making rules or issuing executive instructions and thereby expose the person, who is so made liable to make deductions, to criminal prosecution for contravention of the provisions of law.
63. Thus, the effect of directing the petitioner-company to make deduction would expose the petitioner to criminal prosecution and such prosecution would be impermissible in law, when law does not permit the State to compel a person, situated as the petitioner-company is, to make deduction at source.
64. Under Article 265, no tax shall be levied or collected except by authority of law. The words 'levy' and 'collect' are words of wide amplitude so as to cover any process employed to collect any amount purporting to be a tax. If the procedure employed is unauthorized, the process of collection would render a levy or collection illegal and, hence, unconstitutional. In almost similar circumstances, the Delhi High Court, in S. R. F. Finance Ltd. v. Central Board of Direct Taxes reported in : [1995]211ITR861(Delhi) , observed and held as follows : (page 868)
It is unnecessary to burden this judgment with the precedents in support of a principle which seems to be too obvious. If the petitioner has to deduct and retain a part of the sum payable under a contract to another person and then hand over this retained sum to the State, necessarily he has to maintain a proper account of the payments with all its incidental nuisance, he may have to employ extra staff; he may have to pay more to his auditors ; he may have to engage in paper work of many sorts, apart from being made the target of suspicion and investigation by the Income-tax Department. Jurisprudentially, this person is compelled to be the agent of the State to collect revenue for it--a status or employment he may not like. Every person is entitled to object to the creation of such a relationship of principal and agent. The State cannot impose itself on any person to be its collecting agent, except under a valid law.
In Om Prakash Puri v. State of West Bengal [1975] Tax LR 1894, the Bench of the Calcutta High Court also took a similar view. The following observations, at page 1896, of the High Court are self-contained.:
It is clear, therefore, that the responsibility for collecting the entertainment tax from the person or customer liable to pay is that of the proprietor of a hotel or restaurant. It is he who has to keep regular accounts of taxes colleted in the prescribed manner and the assessing officer has the right to inspect the accounts maintained by him. It is he who is liable to make over to Government taxes collected by him and should he fail to do so he would be liable to the penalties provided for in Section 6 of the Act. In these circumstances, we cannot hold that the appellants before us are not entitled to maintain the present application as they are directly concerned with the operation of the Act and may be prejudicially affected if there is any failure on their part as contemplated by the Act.
The foundation for exercising jurisdiction under Article 32 or 226 of the Constitution is ordinarily the personal or individual rights of the petitioner himself, though in the case of some of the rights like habeas corpus, quo-warranto, this rule may have to be relaxed or modified. But a personal right need not be in respect of a proprietary interest; it can also relate to interest of a trustee. That apart, in exceptional cases, as the expression 'ordinarily' indicates, a person who has been prejudicially affected by an act or omission of authority can avail of a writ even though he has no proprietary or even fiduciary interest in the subject-matter thereof.
The preliminary objections are, accordingly rejected.
65. I am wholly in respectful agreement with the views expressed by the Delhi High Court in S. R. F. Finance Ltd. : [1995]211ITR861(Delhi) . The observations, made in S. R. F. Finance Ltd. : [1995]211ITR861(Delhi) , further fortifies the conclusion reached by me that the respondents could not have, in the facts and attending circumstances of the present case, directed, much less compel, the petitioner-company to make deductions at source. The reference made, in this regard, by Dr. Saraf to the case of Steel Authority of India Ltd. v. State of Orissa reported in : [2000]1SCR1192 is not misplaced, wherein the apex court has held as follows : (page 305 of STC)
It was contended on behalf of the State that the appellant, as owner, had no locus to challenge the validity of Section 13AA. It was contended that the moneys that were deducted were moneys that belonged to the contractor and it was only the contractor who could successfully lay such a challenge. The contention ignores the fact that the appellant-owner is aggrieved and damnified by the penalties that has been imposed upon it under Sub-section (5) for contravention of Sub-section (1) of Section 13AA. It has, therefore, the standing to contest the validity of Section 13AA.
66. Though it has been contended, on behalf of the respondents, that the impugned notices were issued on the basis of this High Court's decision in Mahabir Transport Agency v. Chairman, Food Corporation of India reported in [1998] 109 STC 99, and, hence, this writ petition, in the light of the decision in Mahabir Transport Agency [1998] 109 STC 99 (Gau), is not maintainable, suffice it to point out here that in Mahabir Transport Agency [1998] 109 STC 99 (Gau), the question as to whether the custody and effective control of the vehicles remained with the lessor or not had not been examined. This apart, the decision, in Mahabir Transport Agency [1998] 109 STC 99 (Gau), was delivered before the decisions were rendered in 20th Century Finance Corpn. Ltd. : AIR2000SC2436 and Bharat Sanchar Nigam Ltd. : [2006]282ITR273(SC) . In view of the fact that the law declared by the Supreme Court is bound on all courts including this High Court, it clearly follows that the contract agreement, in question, needs examination in the light of the law as have been discussed and laid down in 20th Century Finance Corpn. Ltd. : AIR2000SC2436 and Bharat Sanchar Nigam Ltd. : [2006]282ITR273(SC) . When so considered, as have been done above, it becomes more than abundantly clear that in the case at hand, the transactions do not amount to transfer of the right to use the goods and are, therefore not exigible to sales tax.
67. What crystallizes from the above discussion is that the petitioner-company is not bound to deduct tax, at source, in respect of the transactions, which form the subject-matter of this writ petition. In such circumstances, the impugned order(s) and notice(s) are liable to be set aside and quashed.
68. In the result and for the reasons discussed above, the impugned order(s) as well as the notice(s) are hereby set aside and quashed.
69. No orders as to costs.