Amitava Roy, J.
1. The appellants/writ petitioner's having failed in their challenge mounted on the assessment and the consequential demand of tax and penalty under the Assam General Sales Tax Act, 1993 (hereafter referred to as the Act) on the charges realized by them for retention of their empty gas cylinders by the purchasers thereof for the assessment years 1993-94, 1994-95, 1995-96, 1996-97, 1997-98 are in appeal for redress.
2. We have heard Mr. G.K. Joshi, Sr. advocate assisted by Mr. R.K. Joshi, Advocate for the appellants and Mr. K.N. Choudhury, learned Additional Advocate General, Assam, assisted by Mr. R. Dubey, Advocate for the respondents.
3. The pleaded case of the appellants is that the appellant No. 1 is a private limited Company carrying on business of manufacture of Industrial Oxygen, Nitrogen and Dissolved Acetylene Gases and sale and supply thereof to its customers within and outside the State of Assam. It is a registered dealer under the Act and the Assam General Sales Tax Rules, 1993 (hereafter referred to as the Rules) framed thereunder. The appellant No. 2 is its Director. In course of their business, the appellants' sell and supply the industrial gases as above to its customers filled in cylinders, as it is not feasible to do so otherwise. All such sales or supplies are covered by written agreements. The cylinders are allowed to be retained by the customers for a stipulated period of 15 days free on loan without any charge. If however, the same are not returned within the said period, the customers are required to pay a rental per day for such retention. According to the appellants, the charges have been prescribed to ensure return of the empty cylinders within the stipulated time as otherwise they would not be able to carry on their business operations smoothly. They have maintained that the charges so stipulated do not constitute a consideration for the sale of the industrial gases but are construable as fine or compensation for desisting the customers from retaining the cylinders for long. It has been stated that the charges are realized by separately raising bills. As the appellants believed bonafide that such collections are not taxable those were not reflected in the returns filed by them before the concerned Sales Tax Authority. The appellants have contended that they do not carry on business of leasing out the cylinder or transfer of right therein under the Lease to their customers and the cylinders being the only mode of transportation of the gases, those are accepted as containers only. The charges, the appellants reiterate, were to ensure a quick return of the empty cylinders to ensure smooth supply of gas to their customers.
4. For the period 1993-94, 1994-95, 1995-96 and 1996-97, the appellant No. 1 submitted its return showing its turnover of industrial gases along with the payment of due tax as required under the Act and the Rules. The respondent No. 2, Sr. Superintendent of Taxes, Bongaigaon, verified its returns and being satisfied that the same were in order completed the assessments on different dates under Section 17(4) of the Act. On receipt of the assessment orders, the appellant No. 1 paid the balance amount of tax on the basis thereof. It was thereafter that the said authority by notice dated 22.01.1998 initiated a proceeding under Section 18(1) of the Act for assessment of the escaped turnover for the above period alleging that the appellant No. I had during that time realized rent separately from various customers by selling industrial gas and that such receipts were exigible to tax under the Act. The appellant No. 1 was accused of withholding such income earned by leasing out its cylinders on rent to its customers thus exposing it to criminal actions under Sections 60 and 61 of the Act as well.
5. The appellant No. 1, in response submitted a detailed reply on 19.02.1998 disclosing inter alia the terms and conditions under which the sale and/or supply of the industrial gas to its customers had been made. It clarified that the cylinders were supplied on free loan basis for a limited period and a normal rent per day thereafter was charged to ensure prompt return of the empty cylinders thereafter. It insisted that the rent charged was by way of compensation for the loss to be caused to it due to the default on the part of the customers to return the same in time. It categorically denied that any lease was involved in such realization or that the same contemplated any transfer of right to use the cylinder by it in favour of the customers.
6. The respondent No. 2, however, by his order dated 03.03.1998 completed the reassessment under Section 18(1) for the assessment years 1994-95,1995-96 and 1996-97. The rental charges collected were assessed as taxable turnover under the Schedule VII to the Act. Penalty for the year 1993-94 was also levied under Section 23(1)(f) of the Act. Similarly by order dated 03.12.1998, the said authority completed that reassessment for the year 1997-98 levying tax on the rental charges. Based on the reassessments, additional demands of tax for the assessment years involved were raised. Being aggrieved, the appellant No. 1 filed appeals under Section 33(1) of the Act and the statutory Appellate Authority, the Joint Commissioner of Tax, respondent No. 3, by his common order dated 15.12.1998 dismissed the appeals.
7. In the affidavit filed on behalf of the respondents, the impugned action was endorsed contending that the cylinder rentals collected from the customers for retention thereof beyond the stipulated time were exigible to tax under Schedule VII of the Act. The answering respondents pleaded that the gas cylinders were goods, the possession whereof remained with the customers for which the appellants collected rentals at specified rates and the collections were taxable under Section 8(1)(f) of the Act. According to them, the related transactions were in the nature of operating lease and thus a sale under Section 2(33)(iv) of the Act. They maintained that the realization of rental charges against retention of the cylinders denoted transfer of right of use therein for cash and was thus taxable under the Act. The appellants having allowed their customers to retain the cylinders for a indeterminate period against payment of rental charges, the same envisage a transfer of right to use the cylinders in their favour which being a taxable event, the reassessment and the demands were authorized in law. According to them, the fact that the appellants in addition to the security deposits had realized rental charges from the customers permitting them to use the cylinders establish that a transfer of right to use the same against monetary consideration was involved on lease attracting tax liability under the Act.
8. The learned Single Judge, on a consideration of the pleadings of the parties and the various clauses in the agreement between the appellant Company and its distributors/customers evidencing the stipulations regarding cylinder charges concluded that though the property in the cylinders always remained with the manufacturers/sellers, a transfer of the right to use thereof subject to the payment as per the terms of the agreement had been intended. It was held that such a transfer of the right to use the goods was not limited for any specified duration of time and that the amount of rent derived must be construed to be on account of a sale within the meaning of Section 2(33)(iv) of the Act which, therefore, was rightly included in the taxable turnover of the appellant Company.
9. Mr. Joshi has emphatically urged that the appellant Company being engaged in the manufacture and sale of industrial gas to be supplied in cylinders, the delivery of such containers can by no means be construed to be either a sale thereof or transfer of any right to use the same as contemplated under the Act. He contended that the appellant Company not being engaged in the business of sale of empty cylinders reference to item No. 13 of Schedule VII of the Act in support of the impugned reassessment is per se misconceived. As the terms and conditions governing the supply of industrial gases to the customers and the related agreement embodying the same demonstrate that the rental charges were prescribed as a deterrent to ensure early return of the empty cylinders, neither any sale nor any transfer of right of use thereof is conceivable. As the appellant Company at no point of time either intended to sell the cylinders or to transfer the right of use thereof on lease or otherwise, no such transaction existed at any point of time and, therefore, the rental charges realized by it by no means could be construed to be a taxable turnover exigible to tax under the Act. According to Mr. Joshi, the learned Single Judge erred in his conclusion for not appropriately scrutinizing the covenants governing the transactions and the clauses of the related agreements. He pleaded that item No. 13 of Schedule VII to the Act envisages empty gas cylinders and having regard to the nature of business in which the appellant Company was engaged as well as the terms and conditions of the deals, the rental charges, keeping in view the exigencies justifying the realization thereof were not liable to the tax under the Act. Mr. Joshi to reinforce his arguments has placed reliance on the decisions in Asiatic Gases Ltd. v. State of Orissa and Ors. 121 STC 405, State of Andhra Pradesh and Anr. v. Rashtriya Ispat Nigam Ltd. 126 STC 114, West Coast Industrial Gases Ltd. v. State of Kerala 132 STC 177 and State of Orissa and Ors. v. Titaghur Paper Mills Co. Ltd. and Anr. 60 STC 213.
10. The learned Additional Advocate General, Assam, referring to para 19 of the writ petition argued that as admittedly gas cylinders contained in entry 13 of the Schedule VII of the Act if leased out, the proceeds of the transaction involved were liable to be taxed under Section 8(1)(f), the impugned action in the attending facts and circumstances cannot be faulted with. According to the learned Counsel, the appellant Company by realizing rental charges had evidently transferred the right of use of the empty cylinders to its customers for valuable consideration and, therefore, collections were rightly included in the taxable turnover by the respondent authorities. According to Mr. Choudhury, the arrangement permitting retention of the empty cylinders on payment of rental charges contemplated extension of the original right of use thereof for financial returns and, therefore, was squarely covered within the definition of sale under Section 2(33)(iv) of the Act. Mr. Choudhury urged that it being manifest that the transactions concerned establish transfer of right of use of the empty cylinders for monetary gains, the test of dominant intention of the parties was of no avail. The impugned judgment and order, he maintained, did not merit any interference. To buttress his submissions, Mr. Choudhury has placed reliance on the decision of the Apex Court in Bharat Sanchar Nigam Ltd. and Anr. v. Union of India and Ors. : [2006]282ITR273(SC) .
11. The rival submissions have received our due consideration. The primary facts pertaining to the business of the appellant Company and the covenants governing the sale and supply of industrial gases to its customers as embodied in the documents annexed to the writ petition are not in dispute. Having regard to the topic of the debate, it would be appropriate at the threshold to notice the conditions governing the transactions. The relevant clauses contained in the letter of the appellant Company detailing the dealership terms to one of its customers and those incorporated in the agreement with it are extracted herein below:
5. ...Transportation: You will have to collect the filled cylinders from our factory and return the empty cylinders to our factory totally on your own cost and risk, our responsibilities ceases as soon as the cylinders are delivered to your authorized representative/transporter till the same are received back by us. Loading and unloading charges at factory will be paid by you direct to the labours.
6. ...Interest Free Security:- You will have to deposit following amount against holding of our cylinders as interest free security deposit:
1. For Oxygen gas cylinders (a), Rs. 1,500/-per cylinder.
2. For Nitrogen gas cylinders (a) Rs. 3.000/-per cylinder.
3. For D.A. gas cylinders (a) Rs. 1,500/- per cylinder.
4. You will have to deposit, as agreed in between use Rs. 10,000/- as a fixed.
The above interest free security deposit in no case can be treated as part of cost of cylinders. The Company reserves the right to call back the cylinders at any time without assigning any reason therefor at its own will.
The above deposits will be refunded only at the time of discontinuing the dealership after receipt back of all cylinders receipts for above deposit issued by us.
7. ...Rental Charges:- Rent at the following present rates will be charges on Company's cylinders subject to the change without prior notice:-
a) First 15 days: Free (inclusive the date of supply and receipt of the cylinders).
b) Next 45 days: Rs. 1/- per cylinder per day.
c) Next 120 days: Rs. 21- per cylinder per day.
d) Balance days: Rs. 3/- per cylinder per day plus Debit Note against cost of cylinders. The rent will be charged till the date of either the payment received against Debit Note or Cylinder receipt. We will not allow to hold any cylinders more than 180 days (6 months). On completion of 180 days, we will charge the cost of cylinder by way of Debit Note along with its rent; for which you are liable to pay the same immediately cylinder cost plus its rent. If latter the cylinder will be returned by you, the cylinders' cost will be credited to your account.
9. ...Rotation of cylinders:-You will have to ensure that we get atleast 2.0 rotation of our each cylinder per month i.e., if you wish to hold 50 cylinders at a time, your monthly off take should not be less than 100 cylinders.
10. ..Refilling of our cylinder:-Our cylinders given to you on loan are to be refilled at our works only. In no case, you/your customer can get our cylinders refilled by any other gas manufacturer without prior permission in writing.
12. A plain reading of the above terms demonstrates an uniformity in the stipulations outlined in the letter as well as the agreement. Thereunder, the customer was required to collect the filled cylinders from the appellants' factory and return the empty cylinders totally on his (customer) cost and risk. The purchaser was required to deposit the amount specified therein as interest free security, however, not to be treated as a part of the cost of the cylinders. The deposit was to be returned at the time of discontinuance of the dealership after the return of all cylinders. Though no rent was chargeable on the company’s' cylinders for the first fifteen days from the date of supply thereof, rent at different rates was prescribed per cylinder per day for the different slabs of periods thereafter. It was stipulated that rent would be charged till the date of either the payment or the return of the cylinder. The appellant Company specified that the cylinders would not be allowed to be held for more than 180 days and on completion of the said period, the cost thereof would be charged along with the rent due. On the return of the cylinders, however, the cost thereof was to be credited to the account of the customers. The customers/dealers were to ensure that there were atleast two rotations of each cylinder per month and were debarred from having those refilled by any other gas manufacturer without any prior permission in writing of the appellant Company. The cylinders were strictly required to be refilled at its factory. The cylinders entrusted to the dealer/purchaser was to remain the property of the appellant company at all times and the former were to be responsible for their safety till return. The authorized dealers, were to indemnify the loss or damage to the cylinders or part thereof.
13. On a close reading of the above conditions, any transaction comprehending transfer of right of use of the empty cylinders to the dealers/customers for valuable consideration on the basis of any operating lease cannot be logically discerned. Admittedly, the appellant Company was engaged in the business of manufacture and sale of industrial gas, which by the nature of the commodity involved was unavoidably required to be supplied in cylinders. The dealer/purchasers were imperatively required to return the empty cylinders to the appellant's factory site at their cost and risk. The prescriptions witnessed herein above and essentially governing the transactions did not unequivocally countenance the use of the cylinders at their convenience and desire. It was incumbent on them to return the same to the appellant Company so much so that there could be two rotations of each cylinder per month. Not only refundable interest free security was realized from the dealer/purchasers the appellant Company reserved its rights to call back the cylinder at its own will.
14. Understandably the dealers/purchasers were granted a reasonable time for supplying the cylinders to their customers and to return the empty cylinders to the appellant Company. As its business required uninterrupted availability of empty cylinders for filling up the industrial gases therein, to be delivered to the dealers to maintain the cycle of supply, the timely return of the empty cylinders was a demanding essentiality. Unmistakably, the appellant Company not being the manufacturer of gas cylinders as well, in the interest of its business, return of the empty cylinders in time was of utmost significance. Though the rental charges for different periods beyond the first 15 days are at varying rates, it is evident from the extracted clauses that an outer limit of 180 days had been prescribed beyond which the appellant Company reserved its right to charge the cost of the cylinder along with the rent due. The cost of the cylinder, however, was to be credited to the account of the dealer on its return. The strict instructions to the dealers against refilling of empty cylinders elsewhere is also of significant relevance.
15. In all, no voluntary or unqualified gesture or disposition on the part of the appellant Company either contemplating or approving any transfer of right of use of the empty cylinders in favour of the dealers is perceptible. The cylinders as the containers of the industrial gas sold were allowed to be retained free of charge for a period of 15 days from the date of their delivery at the factory site of the appellant Company obviously to enable the dealers to distribute the same amongst the consumers. On return of empty cylinders, the rental charges were realizable only in case of default of the dealers/purchasers beyond the charge free period. In other words, the liability to pay the rental charges was contingent on the lapse on the part of the dealers to return the empty cylinders in time. The levy of rental charges for delay in the return of the empty cylinders, therefore, clearly demonstrates the disapproval of the appellant Company in favour of the retention thereof by the dealers/purchasers. The realization of rental charges thus cannot be equated with valuable consideration for transfer of right of use thereof on a lease as contemplated in Section 2(33)(iv) of the Act. The cylinders containing the industrial gas had to be parted with as containers thereof, as a necessary concomitant of the appellant Company's business and not as a consequence of any transfer of the right of use of the empty cylinder for valuable consideration. The fact that an interest free security deposit for the cylinders had been obtained was no guarantee for the early return thereof. Considering the exigency of empty cylinders to ensure smooth and uninterrupted supply of gas and in the interest of its business, the provisions for rental charges evidently have been made to exert pressure on the dealers to animate them in this regard. In our view, the nature of the business of the appellant Company and the terms and conditions bearing on the supply of industrial gas to the dealers as a whole have to be evaluated in the background of the appellant Company's business to comprehended the true purport thereof.
16. The Apex Court in State of Orissa and Ors. v. Titaghur Paper Mills Co. Ltd. and Anr. (supra), had reiterated the fundamental principle of interpretation that a document must be construed as a whole and ought not to be interpreted by picking out only a few clauses ignoring the other relevant ones.
17. As it is, the best and surest mode of construing an instrument is to read it in the sense, which would have been applied when it was drawn up (Contemporanea Expositio Est Optima Et Fortissima In Lege). Prescription of rental charges at different rates beyond the first 15 days of supply of the cylinders per se therefore in the above conspectus of facts does not establish any transaction evidencing transfer of right of use of the empty cylinders in favour of the dealers/purchasers on a lease to render the amounts realized on that count to be a taxable turnover liable to be assessed and tax under Section 8(1)(f) of the Act.
18. In Asiatic Gases Ltd. versus State of Orissa and Ors. (supra), the issue raised was whether the amounts received by the petitioner on account of delay in return of the cylinders by its purchasers could be held to be taxable under Section 2(g)(iv) of the Orissa Sales Tax Act, 1947. The contextual facts were identical as in the case in hand. Their Lordships of Orissa High Court, on a scrutiny of the clauses of the contract, which are substantially in parimeteria with the stipulations, extracted hereinabove held that the consideration received after the charge free period of 14 days was by way of penalty. It was held that the detention of the cylinders beyond the said period was without the permission of the petitioner and the buyers were required to pay certain amount, which could only be as penalty till the possession and custody of the cylinders were handed over by them to the petitioner. Observing that 'transfer of right to use' denotes an agreement between the parties their Lordships ruled that beyond the stipulated 14 days the detention of the cylinders was without any authority and in total disregard of the terms of the contract and, therefore, there was no transfer of right of use of the cylinders beyond the said term. The decision amongst others in Industrial Oxygen Company Private Ltd. v. State of Andhra Pradesh (1992) 86 STC 539 (AP), the foundation of the impugned action was taken note of and distinguished. The definition of the word 'transfer' in Salmond's Jurisprudence (Twelfth Edition, at pages 332 and 333) as set out herein below was taken note of in arriving at the above conclusion.
The common use of the word 'transfer' is to denote the passing of title in property, or an interest therein, from one person to another, and in this sense the term means that the owner of property delivers it to another person with the intent of passing the rights which he had in it to the latter.
19. In State of Andhra Pradesh v. Rashtriya Ispat Nigam Ltd. (supra), the respondent which owned the Visakhapatnam Steel Project, allotted different works to Contractors and to execute the same, they were supplied sophisticated machineries by the Nigam. The provisional assessment of the hire charges realized by the respondent with consequential levy thereon was assailed by it successfully in the jurisdictional High Court. On a consideration of the nature of the transaction and the various clauses of the related agreement it was held that no transfer of right to use the machineries in favour of the contractors was involved. The Apex Court sustained the determination holding that the effective control of the machineries even while in use by the Contractors was with the respondent Company and that the former was not free to make use thereof for works other than those involved in the project. The condition that the contractors would be responsible for the custody of the machineries while these were at the site, according to the Apex Court did not militate against the respondent's possession and control thereof.
As noticed hereinabove in the instant case as well the dealers were not conceded any right of free use of the empty cylinders which they were bound to return at the earliest. The cylinders were parted with by the appellant Company being indispensably required to supply the commodity involved and not by way of transfer of any right of use thereof in favour of the dealers on lease for financial gains.
20. The view expressed in Asiatic Gases Ltd. (supra), was reiterated in West Coast Industrial Gases Ltd., (supra), involving similar facts. It was held that for a transfer of right to use the goods there must be an agreement between the dealer and the customers for giving the same absolutely for a period. It held the view that the assessee never intended to transfer the right to use the cylinder. The incidental retention of the cylinder by the customers and the provisions for payment of some rent to the petitioner for such retention could not be treated as a part of the agreement between the parties for transfer of right to use the cylinder for consideration, the Court ruled. Their Lordships concluded that the consideration in the form of rent was only for ensuring the proper return of the cylinders by the customers and such transfer could not be treated as a transfer of right to use the cylinder by the petitioner to the customers. In the factual premise alluded hereinabove, we subscribe to the above view.
21. The plea of irrelevance of dominant nature test in respect of sales conceptualized in Clause 29A of Article 366 of the Constitution of India pre-supposes a transfer in property as envisioned therein whether or not as an incident of contract of service. However, if no such transfer is borne out at all by the attendant facts, this contention pales into insignificance. The decision in Bharat Sanchar Nigam Limited, (supra), is thus of no assistance to the respondents.
22. We have carefully perused the impugned judgment and order. For the reasons cited hereinabove, with all humility we find ourselves in disagreement with the findings of the learned Single Judge. The appeal succeeds and is thus allowed. The impugned judgment and order is interfered with. The impugned orders of reassessment and demands are adjudged to be illegal, null and void. As a consequence, we set aside the impugned order dated 15.12.1998 passed by the Joint Commissioner of Tax, Guwahati, (Annexure-8 to the writ petition) and the impugned orders of reassessment dated 03.03.1998 and 30.12.1998 of the Senior Superintendent of Taxes, Bongaigaon (Annexure-4 to the writ petition) and the communication dated 07.03.1998 of the Commissioner of Taxes, Assam (Annexure-9 to the writ petition). No costs.