Holding

Over‑retention charges are includable in the sale price as they constitute consideration for the transfer of the right to use the gas cylinders.

Summary

The State of Orissa appealed against the judgment that over‑retention charges collected by M/s Asiatic Gases Ltd. for gas cylinders were not part of the sale price under the Orissa Sales Tax Act, 1947. The assessee supplied medical oxygen and industrial gases in cylinders and allowed customers to use the cylinders on a free‑of‑charge loan for 14 days, after which a charge was levied for retaining the cylinders longer. The Supreme Court examined whether the cylinders together with their contents constitute "goods" and whether the charge represents consideration for a transfer of the right to use those goods. It held that the cylinder and its contents are composite goods, that a loan creates a transfer of the right to use, and that the over‑retention charge is consideration for that transfer, thus includable in the sale price defined by Section 2(h). Consequently, the appeal was allowed, setting aside the High Court’s decision.

Issues considered

Whether over‑retention charges for gas cylinders are part of the sale price under Section 2(h) of the Orissa Sales Tax Act, 1947.
Whether the transfer of the right to use a cylinder on loan falls within the definition of "sale" under Section 2(g)(iv) of the Act.
Whether the cylinder container is an integral part of the commodity and thus part of "goods".

Legislation cited

Constitution of Indias. Article 366(29A)(d)
Orissa Sales Tax Act, 1947s. 2(d), s. 2(g)(iv), s. 2(h)

Subjects

Sales taxSale priceOver‑retention chargeRight to useLoan of goodsMedical oxygenIndustrial gasesComposite goodsSection 2(g)(iv)Section 2(h)Orissa Sales Tax Act

Judgment

A STATE OF ORISSA AND ANR.
~
v.
M/S ASIATIC GASES LTD.

MAY 16, 2007

B [S.H. KAPADIA AND B. SUDERSHAN REDDY, JJ.]

Orissa Sales Tar: Act, 1947; Ss. 2 (d) (h) 2 (g) (iv):

Sale of Medical Chygen and industrial gases by filling in cylinders-
c Sale price-Inclusion of charges for over retention of Cylinders-Correctness
of-Held: Property in the commodity in question, viz., medical oxygen/
industrial gases could not pass to customers without containers-Thus,
container/cylinder with its contents constitute goods--When goods were
given on loan to customer, right to use the goods comes into existence-Such
loan was free from payment of charges for 14 days-Over retention charges
D
levied thereafter-Such levy was on transfer of the right to use the goods for
consideration-Hence, in terms of s. 2(g) (iv) of the Act over retention
charges includible in the sale price as defined u!s 2(h) of the Act for the
purpose of /e1y of Sales Tax-Constitution of India, 1950-Article 366 (29-
A)(d).
E
Assessee carried on business in manufacture and sale of medical
oxygen and industrial gases by filling in cylinders. The assessee collected
certain amount from its customers during the assessment year 1986-87 for
over-retention of gas cylinders. The question which arose for determination
before this Court was as to whether the said amount was includible in the
F sale price as defined under Section 2(h) of the Orissa Sales Tax Act.

Allowing the appeal, the Court

HELD: I.I. In the present case the commodity in question is medical-
oxygen/industrial gases. The said commodity requires a container and it
G cannot be sold without the containers. The property in goods (oxygen/gas)
cannot pass to the customers without such containers. Therefore, containers
constitute an integral part of the commodity in question.
[Para 4) (1185-B, CJ r

H 1182
STATE OF OR!SSA v. AS!A T!C GASES LTD. I 183
1.2. The cylinders together with its content namely gas/oxygen A
constitute 'goods'. Under the contract between the assessee and the customer,
it was open to the customer to buy the gas cylinder or to borrow it on loan
from the assessee. For the first 14 days the loan was free from payment of
any charges. However, thereafter a fixed amount was levied by the assessee
as a charge for over-retention. According to the impugned judgment the said B
charge for over-retention was in the nature of penalty imposed on the
customer in order to dissuade the customer from retaining the cylinders.
The assessee required empty cylinders to be returned so that the said
•(
cylinders could be refilled and sold/transferred by way of loan.
!Para 41 11185-D, E, Fl

1.3. When the goods (cylinder containing medical oxygen) were given
c
on loan to the customer the transfer of the right to use the said goods came
into existence. It may be that for the first 14 days the said loan is free from
payment of any charges. However, exemption from payment would not militate
against the concept of transfer of the right to use the goods.
!Para 4] (1185-F, G] D
1.4. The High Court has failed to notice the provisions of Section 2(g)(iv)
; of the Orissa Sales Tax Ad which states that the sale shall mean any transfer
of property in goods for cash or defer payment or for any other valuable
consideration and that it shall include transfer of the right to use such goods
for any purpose, whether or not for specified period for cash, deferred payment E
or any other valuable consideration. It is important to bear in mind that
Section 2(g)(iv) was placed on the statute in terms of Article 366(29A)(d) of
the Constitution. [Para 4] [1185-G, H; 1186-A]

2. The cylinders in question filled with medical oxygen/industrial gas F
were loaned to the customers. The loan was free from payment of charges
for 14 days. The over-retention charges were levied after 14 days. In the
circumstances the levy was on the transfer of the right to use the goods for
consideration. [Para 4] 11186-C]

Aggarwal Brothers v. Stale of Haryana and Anr., 11999] 9 sec 182, G
relied on.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 6482 of2001.

From the finul Judgment and Order dated 21.09 .2000 of the High Court
of Orissa at Cuttack in S.J.C. No. 157 of 1996. H
1184 SUPREME COURT REPORTS [2007] 6 S.C.R.

A Altaf Ahmed, A.S.G., Jana Kalyan Das and Avijeet Bhujabal for the )
Appellants.

Yashbant Das, Sr. Adv., Arvind Tiwary and Subhash Sharma for the
Respondent.

B The Judgment of the Court was delivered by

KAPADIA, J. (I) This civil appeal is directed against the judgment and
order dated 21.9 .2000 passed by the Orissa High Court in SJC No. 157 of 1996
holding that the consideration received by the manufacturer for over-retention
of gas cylinders did not constitute 'sale price' as defined under Section 2(h)
c of the Orissa Sales Tax Act, 1947. According to the impugned judgment there
was no transfer of right to use the cylinders and that the charge levied by
the respondent-assessee for over-retention of the gas cylinders was in the
nature of penalty, and ~herefore, the same did not form part of the sale price
as defined in Section 2(h) of the 1947 Act. The impugned judgment has been
challenged by the Department.
D
(2) The short question which arises for determination in this civil appeal
is whether there was transfer of the right to use the goods for consideration
under the extended definition of the word 'sale' under Section 2(g) (iv) of the
said 1947 Act which incorporates the concept of transfer cf the right to use
E any goods from Article 366 (29A)(d).

(3) The assessee was a registered dealer during the assessment year
1986-87. During that year it carried on business in manufactuer and sale of
medical oxygen and industrial gases by filling in cylinders. The assessee
collected Rs.42,500 (approximately) from its customers during the aforesaid
F year for over-retention of gas cylinders. The question before us is whether
the said amount was includible in the sale price as defined under Section 2(h) ,_
of the said Act. In this connection we have examined the contract between
the assessee and its customers. In clause 3 of the contract it was provided
that the assessee shall deliver cylinders containing medical oxygen and collect
empty cylinders from the buyers after specified period of two weeks. Clause
G
(iv) of the contract stipulated that the consumer/buyer (customer) shall deposit
by way of security certain amount which would be refunded on termination
of the contract. The said clause further stated that the return of the security
deposited was subject to the customer returning the cylinder in good condition. r
Clause (v) of the contract provided that the cylinder was the property of the
H assessee; that it was given on loan for 14 days free from payment of any
STATEOFORISSAv.ASIAT!CGASESLTD. [KAPADIA.J.) 1185

{ charges; that if the customers retained the said cylinders beyond the period A
of 14 days then the customer was liable to pay 0.50 paise per day in respect
of each cylinder for certain number of days and thereafter Rs.2 per day. In
the event of loss or damage of the cylinder the customer was required to
compensate the assessee such loss in terms of the schedule mentioned in the
contract. In terms of the said contract be stated above the assessee collected
Rs.42,500 (approx.) during the year 1986-87 as charges for over-retention from B
its customers.

(4) We find merit in this civil appeal filed by the Department. Firstly, in
the present case the commodity in question is medical-oxygen/industrial
gases. The said commodity requires a container. The said commodity cannot C
be sold without the containers. The property in goods (oxygen/gas) cannot
pass to the customers without such containers. Therefore, containers constitute
art integral part of the commodity in question. The word 'goods' has been
defined in Section 2( d) to mean all kinds of moveable property other than the
actionable claims shares, security and stocks and include goods used in
words "whether as goods or in some other form". Therefore goods do have D
what is called 'composite personality'. In the present case the said cylinders
together with its content namely gas/oxygen constitute 'goods'. Secondly, it
> is not in dispute that under the contract in the present case it was open to
the customer to buy the gas cylinder or to borrow it on loan from the assesse.
For the first 14 days the loan was free from payment of any charges. However, E
thereafter a fixed amount was levied by the assessee as a charge for over-
retention. According to the impugned judgment the said charge for over-
retention was in the nature of penalty imposed on the customer in order to
dissuade the customer from retaining the cylinders. The assessee required
empty cylinders to be returned so that the said cylinders could be refilled and
sold/transferred by way of loan. In our view when the said goods (cylinder F
containing medical oxygen) were given on loan to the customer the transfer
of the right to use the said goods came into existence. It may be that for the
first 14 days the said loan is free from payment of any charges. However,
exemption from payment would not militate against the concept of transfer of
the right to use the goods. Thirdly, in the impugned judgment the High Court
has failed to notice the provisions of Section 2(g)(iv) which states that the G
sale shall mean any transfer of property in goods for cash or defer payment
or for any other valuable consideration and that it shall include transfer of
the right to use such goods for any purpose, whether or not for specified
period for cash, deferred payment or any other valuable consideration. Lastly,
it is important to bear in mind that Section 2(g)(iv) was placed on the statute H
1186 SUPREME COURT REPORTS [2007) 6 S.C.R.

A in tenns of Article 366(29A)(d) of the Constitution. In the case of Agganval
Brothers v. State of Haryana and Anr., [1999] 9 SCC 182 a Division Bench
of this Court has held that the provision under Section 2(1 Xiv) of Haryana
General Sales Tax Act, 1973 (which was similar to Section 2(g)(iv) of this Act)
expressly spoke of "transfer of the right to use goods' and not 'transfer of
goods'. In that matter it was argued on behalf of the assessee that in the case
B of a deemed sale within the meaning of Section 2(1 )(iv) there must be a legal
transfer of goods. This arguments was rejected by this Court stating that the
levy of tax was not on transfer of the goods itself but the levy was on the
transfer of the right to use such goads for consideration. In our view, the
judgment of this Court in Aggarwal case (supra) would squarely apply to the
C present case. In the present case as stated above the cylinders filled with
medical oxygen/industrial gas were loaned to the customers. The loan was
free from payment of charges for 14 days. The over-retention charges were
levied after 14 days. In the circumstances the levy was on the transfer of the
right to use the goods for consideration.

D (5) For the aforestated reasons, we set aside the impugned judgment
and hereby allow the appeal with no order as to costs.

S.K.S. Appeal allowed.