“98. To constitute a transaction for the transfer of the right to use the goods, the transaction must have the following attributes :
(a) There must be goods available for delivery;
(b) There must be a consensus ad idem as to the identity of the goods;
(c) The transferee should have a legal right to use the goods — consequently all legal consequences of such use including any permissions or licences required therefor should be available to the transferee;
(d) For the period during which the transferee has such legal right, it has to be the exclusion to the transferor — this is the necessary concomitant of the plain language of the statute — viz. a ‘transfer of the right to use’ and not merely a licence to use the goods;
(e) Having transferred the right to use the goods during the period for which it is to be transferred, the owner cannot again transfer the same rights to others.”
“54. The judgment in that decision is awaited. For the time being, we will assume that an incorporeal right is ‘goods’.
55. In fact the question whether ‘goods’ for the purpose of sales tax may be intangible or incorporeal need not detain us. In Associated Cement Companies Ltd. v. Commissioner of Customs, (2001) 4 SCC 593, the value of drawings was added to their cost since they contained and formed part of the technical know-how which was part of a technical collaboration between the importer of the drawings and their exporter. It was recognized that knowledge in the abstract may not come within the definition of ‘goods’ in S. 2(22) of the Customs Act.
56. This view was adopted in Tata Consultancy Services v. State of Andhra Pradesh for the purposes of levy of sales tax on computer software. It was held :
“A ‘goods’ may be a tangible property or an intangible one. It would become goods provided it has the attributes thereof having regard to (a) its utility; (b) capable of being bought and sold; and (c) capable of being transmitted, transferred, delivered, stored and possessed. If a software, whether customised or non-customised, satisfies these attributes, the same would be goods.”
57. This in our opinion, is the correct approach to the question as to what are ‘goods’ for the purposes of sales tax. We respectfully adopt the same.”
(b) Tata Consultancy Services, (137 STC 620) (SC)
In para 17 the Supreme Court has observed as under :
“17. Thus this Court has held that the term ‘goods’, for the purposes of sales tax, can-not be given a narrow meaning. It has been held that properties which are capable of being abstracted, consumed and used and/or transmitted, transferred, delivered, stored or possessed, etc. are ‘goods’ for the purposes of sale tax. The submission of Mr. Sorabjee that this authority is not of any assistance, as a software is different from electricity and that software is intellectual incorporeal property whereas electricity is not, cannot be accepted. In India the test, to determine whether a property is ‘goods’, for purposes of sales tax, is not whether the property is tangible or intangible or incorporeal. The test is whether the concerned item is capable of abstraction, consumption and use and whether it can be transmitted, transferred, delivered, stored, possessed, etc. Admittedly in the case of software, both canned and uncanned, all of these are possible.”
Situs of lease transaction:
If a lease transaction is a taxable lease transaction under Sales Tax Laws, then further issue is about the situs, i.e., where the sale has taken place. In this respect reference can be made to landmark judgment in case of M/s. 20th Century Finance Corporation Ltd. v. State of Maharashtra, (119 STC 182) (SC). In this case the Supreme Court has laid down as under about situs of lease transaction.
“35. As result of the aforesaid discussion our conclusions are these:
…………………….
The appropriate Legislature by creating legal fiction can fix situs of sale. In the absence of any such legal fiction the situs of sale in case of the transaction of transfer of right to use any goods would be the place where the property in goods passes, i.e., where the written agreement transferring the right to use is executed.
Where the goods are available for the transfer of right to use the taxable event on the transfer of right to use any goods is on the transfer which results in right to use and the situs of sale would be the place where the contract is executed and not where the goods are located for use.
In cases of where goods are not in existence or where there is an oral or implied transfer of the right to use goods, such transactions may be effected by the delivery of the goods. In such cases the taxable event would be on the delivery of goods.
The transaction of transfer of right to use goods cannot be termed as contract of bailment as it is deemed sale within the meaning of legal fiction engrafted in clause (29A)(d) of Article 366 of the Constitution wherein the location or delivery of goods to put to use is immaterial.”
Under the above background the Karnataka High Court had an occasion to deal with taxability of a particular transaction under the Karnataka VAT Act which is dealt with in the following judgment.
Antrix Corporation v. Asst. Commissioner of Commercial Taxes, (29 VST 308) (Kar.):
In this judgment, delivered on 6-2-2010, the issue was about taxability of transaction of hiring of space segment capacity on transponders attached to IN-SAT Satellites. The facts are that, under the authority from the Department of Space of Government of India, the dealer entered into agreements with private parties for hiring of space in the satellite. The Sales Tax authorities considered the transaction as lease of goods liable to tax under the Karnataka VAT Act. The High Court has upheld the action of the sales tax authorities.
The High Court based on judgments cited above about ‘goods’, observed that the ‘Space Segment Capacity’ in transponders is goods by itself. The High Court also noted that they are capable of giving exclusive control to the parties. In respect of effective control the High Court observed that though the technical control on the satellite is of the dealer, (the satellite being controlled and operated by them), the ‘legal control’ is with the lessee. In respect of situs the High Court observed that though the satellite, in which the space is located and which is given on hire, is in orbit, which is 36000 kms away from the earth, still since the agreement is executed in Karnataka the situs will be in Karnataka. Accordingly the High Court justified the assessment of hire charges for space under Karnataka VAT Act, rejecting the writ petition of the dealer.
Conclusion:
The judgment will have considerable impact upon the judicial interpretation of nature of lease transaction.
