M/S. GOA CARBON LTD.versusCOMMISSIONER OF TRADE TAX

                         [2008] 3 S.C.R. 602


A                    MIS. GOA CARBON LTD.
                                  v.
                 COMMISSIONER OF TRADE TAX
                  (Civil Appeal No. 1660 of 2008)
                       FEBRUARY 28, 2008
B
       [S.H. KAPADIA AND 8. SUDERSHAN REDDY, JJ.]

          Uttar Pradesh Trade Tax Act, 1948: s.3F - Transaction
    of transfer of right to use - Supply of plant and machinery on
c   lease - Receipt of lease rent - Taxability of - Held, on facts,
    taxable in terms of s.3-F as it was local sale.
        Assessee was engaged in the business of leasing
  and financing plants and machinery. While examining the
  case for the assessment year 1994-95, 1995-96 and 1996-
D 97, the Department noticed that assessee supplied plant
  and machinery to KE Ltd, U.P. on lease and in return
  received lease rent. The assessing officer issued show
  cause notice under s.3F of U.P. Trade Tax Act, 1948 and
  thereafter when assessee did not reply passed the
E assessment orders imposing tax on lease rent received
  by the assessee, which was confirmed by the Deputy
  Commissioner (appeal). On appeal, Tribunal remanded
  the matter to Assessing Officer. On remand, the Assessing
  Officer observed that in the lease agreement, there was a
F warranty clause which indicated that KE Ltd. had selected
  the equipment which were leased out to it prior to its
  purchase by the assessee. In view of these clauses in the
  lease, the assessee was called upon to produce
  agreement/agreement pursuant to which equipment
G stood purchased. Assessee failed to produce such
  agreement. The Assessing Officer also noticed an invoice
  under which the assessee had purchased machinery in
  which there was reference to the purchase order which
   indicated that the equipment was purchased from Punjab

H                                 602
        M/S. GOA CARBON LTD. v. COMMISSIONER OF               603
                      TRADE TAX

      under an arrangement prior to lease agreement executed A
      at Mumbai. Assessing Officer found that this was an after
      thought to earmark the transaction as an outside sale.
      This finding was upheld by Deputy Commissioner
      (appeal). It was held that movement of equipment cannot
      be said to have taken place from ex U.P. place to U.P. in B
      pursuance of lease. It was also held that the letter of intent
      dated 29.10.1991 was not part of the lease. The concurrent
      findings were affirmed by the Tribunal. High Court also
      dismissed the revisions. Hence the present appeal.
           Dismissing the appeal, the Court                         C
            HELD: 1. In cases falling under s.3F of the U.P. Trade
      Tax Act, 1948 the subject-matter of taxation is transfer of
      right to use goods and, therefore, it is unnecessary to deal
      with the question of delivery of possession which is
                                                                     0
      related to situs. Therefore, in this case the place where
      the right to use is transferred is relevant and not place of
      delivery which may be relevant in case of oral contracts
      to determine the situs. In cases under s.3F, the subject-
      matter of taxation is transfer of right to use and, therefore,
      place where such right is transferred assumes E
      importance. Hence, the place at which the contract is
      executed is relevant. [Para 9] [607-D, E, F]
           2. According to assessee, the Letter of Intent was the
.,.   contract which existed on 29.10.91. However, the said F
      Letter does not indicate the place, namely, Mumbai. This
      Letter of Intent was produced for the first time after 12
      years by the assessee. No explanation has been given
      for not producing the said letter earlier, particularly, when
      the Department had repeatedly called upon the assessee G
      to produce any agreement/arrangement prior to the lease
      and pursuant to which the Purchase Orders dated
      28.11.91 were placed by the assessee. Moreover, in the
_.,   invoice dated 26.2.92, KE Ltd. is described as lessee. On
      that date there was no lease. The lease has been executed
                                                                    H
    604       SUPREME COURT REPORTS                [2008] 3 S.C.R.


A only on 24.3.92. Taking i11oto account the aforesaid                     •
                                                                               ~



  circumstances, the Letter of Intent produced after 12 years
  cannot be relied upon in support of the assessee's case
  that there was a prior agreement/arrangement even before
  24.3.92 pursuant to which the equipment stood
B purchased. From the above circumstances it is clear that
  the Letter of Intent is executed not for commercial
  purposes but to evade the tax and consequently it cannot
  be said that the impugned transaction was an outside
  sale. The entire arrangement was got up in order to project
c the impugned transaction as an outside sale so that the
  said transaction does not come within the ambit of s.3F
  of the 1948 Act. [Para 10-11] [607-G, H; 608-A-D; 609-A]
        20th Century Finance Corpn. Ltd. and Anr. v. State of
    Maharashtra (2000) 6 SCC 12 - distinguished.
D
         CIVILAPPELLATE JURISDICTION: Civil Appeal No. 1660
    of 2008.
                                                                      •        '
        From the common Judgment and Order dated 19/10/2006
  of the High Court of Judicature at Allahabad in TTR Nos. 691,
E 692 and 693/2006.
        Dinesh Dwivedi, Kavin Gulati, Rashmi Singh, Avinash
    Pandey, Pratik Dwivedi and T. Mahipal for the Appellant.
        Krishnan Venugopal, S.K. Dwivedi, Ravinder Kumar and
F   Gunnam Venkateswara Rao for the Respondent.                       ._

          The Judgment of the Court was delivered by
          KAPADIA, J. Leave granted.
        2. This civil appeal filed by the assessee is directed
G against the judgment and order dated 19.10.06 passed by the
  High Court of Judicature at Allahabad in three Trade Tax
  Revision Nos.691, 692 and 693 of 2006 by which it has been
  held that the transaction of transfer of the right to use was a
                                                                      f
  local sale under Section 3F of the U.P. Trade Tax Act, 19"'8 (for
H short, "1948 Act").
                   M/S. GOA CARBON LTD. v. COMMISSIONER OF                   605
                             TRADE TAX [KAPADIA, J.]
-I
     ... ...         3. Assessee is a company incorporated under Companies A
                Act, 1956 having its registered office at Panjim, Goa. It is
                engaged in the business of leasing and financing plants and
                machinery.
                     4. In this civil appeal we are concerned with the assessment
                years 1994-95, 1995-1996 and 1996-97.                               B

                      5. While examining the case for the assessment years in
                question pertaining to M/s. Kesar Enterprises Limited Baheri,
          "     U.P., the Department noticed that the assessee herein supplied
                plants and machinery to Mis. Kesar Enterprises Limited on lease     c
                 and that the assessee was in receipt of lease rent for the
                machinery supplied by it to M/s. Kesar Enterprises Limited .
                Baheri, U.P. Therefore, the Assessing Authority issued notices
                under Section 3F of the 1948 Act to show cause as to why tax
                should not be levied on the lease rent received by the assessee
                                                                                  D
                herein. None appeared on behalf of the assessee and,

-i
     "    -     therefore, A.O. passed ex-parte assessment orders dated
                31.3.98 and 27.3.99 imposing tax on the lease rent received by
                the assessee. The said assessment orders were confirmed by
                the Deputy Commissioner (A).
                                                                                  E
                      6. Aggrieved by the orders passed by the Deputy
                Commissioner (A), the assessee preferred second appeal
                under Section 10 of the 1948 Act before the Tribunal, Bareilly.
                Vide order dated 28.1.04 the Tax Tribunal remanded the cases
           )<   to the A.O. for fresh disposal. The Tribunal directed the A.O. to F
                consider the cases de nova in the light of the judgment of this
                Court in the case of 20th Century Finance Corpn. Ltd. and
                Anr. v. State of Maharashtra - (2000) 6 SCC 12.
                      7. On remand, the A.O. held that in the lease agreement
                dated 24.3.92 there was a warranty clause which indicated that G
                M/s. Kesar Enterprises Limited had selected the equipments
                which were leased out to it prior to its purchase by the assessee.
                A.O. came to the conclusion that the equipment was purchased
 "" ....        prior to the execution of the lease dated 24.3.92. According to
                A.O., in view of the said clause in .the said lease the assessee H
    606      SUPREME COURT REPORTS                   [2008] 3 S.C.R.


A was called upon to produce the agreement/arrangement either            ..    ..
  oral or written pursuant to which the equipment stood purchased
  by the assessee According to A.O., despite opportunity the
  assessee failed to produce such agreement/arrangement.
  Further, the A.O. also relied upon an invoice dated 26.2.92 under
B which   the assessee had purchased boilers and turbines from
  Punjab Chemicals and Pharmaceuticals Ltd., Dist. Patiala,
  Punjab, in which there was reference to the Purchase Order
  dated 28.11.91 which indicated that the equipment was
  purchased under an agreement/arrangement prior to lease
c agreement dated 24.3.92 which lease has shown to have been
  executed at Mumbai as an afterthought and in order to earmark
  the transaction as an outside sale. This finding of the A.O. was
  confirmed once again by the Deputy Commissioner (A). It was
  held that since the equipment was purchased on 26.2.92 (as
  indicated by the invoice at page No.36 of the S.L.P. Paper
D
  Book), the movement of the said equipment cannot be said to
  have taken place from ex-U.P. place to Baheri in U.P. in
  pursuance of the lease dated 24.3.92. It was further held that
                                                                         -          >




  the Letter of Intent dated 29.10.91 was not a part of the lease.
  Consequently, the appeal filed by the assessee stood
E dismissed. The concurrent findings, above-mentioned, were
  affirmed by the Tribunal vide its order dated 6.5.06. The Tribunal
  further held that there was no merit in the argument of the
  assessee that lease agreement was executed pursuant to Letter
  of Intent dated 29.10.91, particularly, when there was no
F indication to that effect in the lease. According to the Tribunal,     "'
   had the lease been executed in continuation of the Letter of
   Intent, there would have been reference to such letter in the lease
   and in the absence of such reference it cannot be said that the
   lease stood executed pursuant to the Letter of Intent.
G Consequently, the appeal filed by the assessee before the
   Tribunal stood dismissed. The Tax Revisions, filed by the
   assessee before the High Court, have also been dismissed,
   hence this civil appeal.                                                   ,. ...
          8. In the case of 20th Century Finance Corpn. Ltd.
H
              MIS. GOA CARBON LTD. v. COMMISSIONER OF                   607
                        TRADE TAX [KAPADIA, J.]

           (supra) the Constitution Bench of this Court by majority held      A
           that delivery of goods may be one of the elements of transfer of
           right to use, but the same would not be the condition precedent
           for a contract of transfer of right to use goods. That, where a
           party has entered into a formal contract and the goods are
           available for delivery, irrespective of the place where they are B
           located, the situs of such sale would be where the property in
           goods passes, namely, where the contract is entered mto [See:
           para 25]. It has been further held that Article 366(29-A)(d) shows
           that levy of tax is not on use of goods but on the transfer of the
           right to use goods. That, right to use arises only on the transfer c
           of such a right under the contract and unless there is transfer of
           such 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
                                                                              0
           as the contract is executed, the right is vested in the lessee
·..-....   [See: para 27].
                  9. On reading the above judgment it is clear that, in cases
           falling under Section 3F of the 1948 Act, the subject-matter of
           taxation is transfer of right to use goods and, therefore, it is E
           unnecessary to deal with the question of delivery of possession
           which is related to situs. Therefore, in this case the place where
           the right to use is transferred is relevant and not place of delivery
           which may be relevant in case of oral contracts to determine
           the situs. In cases under Section 3F, the subject-matter of F
           taxation is transfer of right to use and, therefore, place where
           such right is transferred assumes importance. Hence, we are
           required to look to the place at which the contract is executed.
           In case of oral contracts with which we are not concerned the
           situs of the transfer may be where goods are delivered.
                                                                              G.
                 10. According to assessee, the Letter of Intent was the
           contract which existed on 29.10.91. However, the said Letter
           does not indicate the place, namely, Mumbai. It is important to
           note that this Letter of Intent was produced for the first time after
           12 years by the assessee. No explanation has been given for H
    608       SUPREME COURT REPORTS                  [2008] 3 S.C.R.
                                                                               .-

A not producing the said letter earlier, particularly, when the
  Department had repeatedly called upon the assessee to
  produce any agreement/arrangement prior to the lease and
  pursuant to which the Purchase Orders dated 28.11.91 were
  placed by the assessee with the Punjab Chemicals and
B Pharmaceuticals Ltd. Moreover, in the invoice dated 26.2.92,
  M/s. Kesar Enterprises Limited Baheri is described as lessee.
  On that date there was no lease. The lease has been executed
  only on 24.3.92. Taking into account the aforesaid
  circumstances, we are of the view that the Letter of Intent
c produced after 12 years cannot be relied upon in support of the
  assessee's case that there was a prior agreemenVarrangement
  even before 24.3.92 pursuant to which the equipment stood
  purchased. From the above circumstances it is clear that the
  Letter of Intent is executed not for commercial purposes but to
D
  evade the tax and consequently it cannot be said that the
  impugned transaction was an outside sale. In the case of 20th
  Century Finance Corpn. Ltd. (supra), the assessee carried
                                                                        ,.._   --
  on business of leasing of diverse equipment. In that case,
  assessee had entered into Master Lease Agreements with the
  lessee which provided that orders for individual equipment will
E be placed at the instance of the lessee by the appellants and
  that the equipment to be leased will be despatched by ·the
  supplier to the locations specified in the lease. Therefore, in
  that case it was established that the appellants had placed their
  purchase orders to the suppliers pursuant to the Master Lease
F Agreement whereas in the present case there is nothing to
  indicate that there existed an agreemenVarrangement pursuant
  to which the Purchase Orders were placed on 28.11.91.
  Therefore, on the facts of the present case, we hold that the
  judgment of this Court in the case of 20th Century Finance
G Corpn. Ltd. (supra) has no application to the present case. In
  fact, the record indicates that the Letter of Intent surfaced after
  12 years at the instance of the assessee in order to align this
                                                                        /
  case with the facts in the case of 20th Century Finance Corpn.
  Ltd. (supra).
H
              MIS. GOA CARBON LTD. v. COMMISSIONER OF                     609
                        TRADE TAX [KAPADIA, J.]

                 11. For the aforestated reasons, we are in agreement with       A
           the view expressed by the Tribunal that the entire arrangement
           was got up in order to project the impugned transaction as an
           outside sale so that the said transaction does not come within
           the ambit of Section 3F of the 1948 Act. The High Court has
           given reasons with which we do not agree in entirety though we        B
           agree with the operative part of its judgment dismissing the
     ,..   appeal of the assessee.
                 12. For the aforestated reasons, in the facts of the present
           case, we do not wish to interfere with the finding of fact recorded
           by the Tribunal in the present case. Accordingly, the civil appeal    C
           is dismissed with no order as to costs.
           D.G.                                         Appeal dismissed.



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