By G. G. Goyal | Chartered Accountant
C. B. Thakar | Advocate
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VAT
An important issue arose before the Maharashtra Sales Tax
Tribunal in respect of nature of interstate lease transaction in the case of
Thermax Babcock & Wilcox Ltd. (S.A. 1285 of 2003, dated 14-12-2009). The facts
are that M/s. RIL entered into a lease transaction for lease of boiler with M/s.
RUPL. Both parties are located in Gujarat. M/s. RUPL placed order on M/s. T of
Pune for supply of boiler component. The unloading place was RIL in Gujarat. The
period involved was 1997-98. M/s. T collected ‘C’ Form from RUPL. In the
assessment of T, tax at 4% was levied on the above supply value under the CST
Act, 1956. The appellant, M/s. T was agitating the levy of tax on the ground
that his supplies to RUPL are in the course of inter-state lease and the period
being prior to 11-5-2002, tax is not attracted. It was submitted that the lease
transactions are brought in the CST Act from 11-5-2002 and hence the levy of tax
in case of the appellant was argued to be illegal and unlawful.
Thus the issue before the Tribunal was whether the
transaction of M/s. T to supply boiler parts to M/s. RUPL, who has leased boiler
to M/s. RIL, amounts to inter-state lease transaction. The gist of arguments of
the appellant may be noted as under :
(a) There was a tripartite agreement between the T, RUPL and RIL.
(b) There was a lease agreement between RUPL and RIL by which the lessor, RUPL, agreed to purchase the goods (auxiliary boiler) from the appellant (M/s. T) and lease it out to RIL (lessee). The lease agreement between RUPL and RIL has identified M/s. T as a manufacturer and supplier of required goods as per the specification and design agreed upon.
(c) RUPL has placed the purchase order pursuant to lease agreement between RUPL and RIL and accordingly the goods manufactured by the appellant (M/s. T) have been moved from Pune to Jamnagar (Gujarat). These goods were dispatched to RIL, Jamnagar A/c RUPL who was described as consignee.
(d) When the manufacturer dispatched the goods to the consignee ‘RIL A/c RUPL’ and handed over the goods to the common carrier, according to M/s. T, the right to use the goods got transferred to the consignee, RIL.
(e) Since these transactions involved inter-state movement from Maharashtra to Gujarat, it was an inter-state lease transaction, not liable to tax, being effected prior to the amendment in the Central Sales Tax Act, 1956 to this effect.
(f) According to M/s. T, the facts and the ratio laid down in the case of M/s. ITC Classic Finance & Services v. Commissioner of Commercial Tax, Andhra Pradesh, (97 STC 337) are similar to those present in the case of the appellant, and therefore, prayer was made to delete the tax levied on inter-state lease transactions @ 4% against declarations in Form ‘C’, which were issued as a matter of abundant caution.
The M.S.T. Tribunal examined the above arguments in light of
legal position about inter-state sales transactions, as well as nature of the
lease transaction. Citing the judgments in the case of M/s. Magnese Ore India
Ltd. (37 STC 489) & M/s. Mohmad Sirajuddin (36 STC 136) (SC), the Tribunal
observed as under in relation to the inter-state lease transaction :
“That the following conditions must be fulfilled before the
sale can be said to take place in the course of inter-state trade;
1. There is a contract of sale, which contains a
stipulation express or implied, regarding the movement of the goods from one
state to another.
2. In pursuance of that agreement, the goods in fact move
from one state to another.
3. Ultimately a concluded sale takes place in the state
where the goods are sent, which must be different from the state from which
the goods moved.
If these conditions are complied with, then by virtue of S. 9
of the Central Act, it is the state from which the goods moved which will be
competent to levy the tax under the provision of the Central Act.”
The M.S.T. Tribunal also referred to the judgments cited by
the appellant viz. M/s. ITC Classic Finance & Services (97 STC 330) and M/s.
Srei International Finance Ltd. (16 VST 193). In this respect, the M.S.T.
Tribunal observed that in these judgments the issue was about lease charges
charged by respective parties. The Tribunal observed that in the present case,
the amount charged by the appellant is for supply of goods and not for leasing
of goods. Therefore, the M.S.T. Tribunal held that these judgments are not
applicable to the present case.
The Tribunal noted the factual position as under :
-
The appellant is a
manufacturer and supplier of boilers and its parts.
-
It is an admitted fact
that RUPL entered into an agreement to lease out the goods required by RIL,
and this lease agreement was signed on 6-6-1997.
-
This lease agreement was
between RUPL and RIL and not with the appellant M/s. T.
-
As per this lease
agreement, the lessor (RUPL) agreed to give and the lessee (RIL) agreed to
take on lease diverse equipment, details and aggregated amount whereof was
specified in Schedule-I attached to that agreement on the terms and conditions
mentioned therein.
-
As per this lease
agreement the lessor (RUPL) agreed to transfer the right to use by way of
lease and RIL (lessee) agreed to take on lease the equipment to be operated
under the supervision and the technical assistance of RUPL.
-
The lease agreement has
identified M/s. T as a vendor who was to manufacture and supply auxiliary
boilers at particular value.
- The Schedule-I also referred to purchase order No. 22960-EE-MBB001-MA, dated 2nd August, 1997, which appears at Sr. No. 45 along with other vendors who were also identified as manufactures and suppliers of various parts and components for installing power plant at Jamnagar for RIL.
- The total value of entire lease agreement was at a much higher amount than the sale value of goods by the appellant.
- The Schedule 2 indicated that after the installation of power plant, RUPL was entitled to receive monthly lease at particular amount from RIL, with whom lease agreement was made.
Based on the above facts, the Tribunal held that RUPL becomes owner of goods after supply by M/s. T. RUPL has leased the goods as his goods. Therefore, the transaction by M/s. T was pure and simple normal sale for supply of goods and not a lease transaction. Accordingly, the Tribunal rejected the arguments of the appellant holding as under :
1. The agreement between the appellant and RUPL was not a lease agreement which stipulated handing over the possession of goods for absolute use.
2. There was an agreement which is reflected in the purchase order placed by RUPL, which proves that the agreement was for transfer of property in the goods and not transfer of right to use the goods as contemplated under the Lease Act.
3. RUPL has to first acquire the property in goods by way of purchase from the appellant to become absolute owner of property and then only RUPL becomes legally competent to lease out this property and not otherwise. When RUPL acquired the property in goods, inter-state sale got concluded, which was effected by the appellant (M/s. T). The Tribunal observed that M/s. T has failed to establish inextricable link.
Accordingly, the M.S.T. Tribunal held that the leasing is between RUPL and RIL which is a separate transaction. The sale by M/s. T to RUPL is normal sale liable to tax and as such the Tribunal confirmed the levy of tax under the CST Act, 1956.
