Bombay High Court
20Th Century Finance Corporation ... vs State Of Maharashtra on 12 September, 1989
JUDGMENT C. Mookerjee, C.J.
1. The 1st petitioners are a company incorporated under the Indian Companies Act and have their registered office at Bombay. They carry on the business of leasing diverse equipment. The 2nd petitioner is described as a shareholder of the 1st petitioners. In this writ petition the petitioners have prayed for a declaration that the Maharashtra Sales Tax on the Transfer of the Right to use any Goods for any purpose Act, 1985 (hereinafter called "the impugned Act") is ultra vires the Constitution of India and is null and void. They have also prayed for issue of a writ of mandamus directing the respondent not to enforce or to act in furtherance of the said Act or to demand, levy or recover any tax from the 1st petitioners on the basis thereof. In paragraph 5 of their writ petition the petitioners have set out the manner in which the 1st petitioners carry on the said business of leasing goods for use. According to the petitioners, the 1st petitioners as lessors enter into a Master Lease Agreement with the lessee (i.e., the party who desires to take the equipment for use on hire). The 1st petitioners agree to give on lease diverse machinery/equipment listed in the lease summary schedule subject to the terms and conditions stipulated in the Master Lease Agreement. The lease summary schedule only mentions the broad category of equipment proposed to be leased and the aggregate value thereof. The Master Lease Agreement provides that orders for individual equipment will be placed by the 1st petitioners at the instance of the lessee and that the equipment to be leased will be despatched by the manufacturer or supplier to the location specified by the lessee. Thereafter at the instance of the lessee the 1st petitioners place their purchase orders with the supplier or manufacturer chosen by the lessee for supply of individual items and equipment falling within the category and aggregate value mentioned in the Master Lease Agreement Schedule. The petitioners' further case is that the 1st petitioners disburse the value of the equipment to the supplier. At the instance of the 1st petitioners the supplier delivers the equipment to the lessee at the specified/agreed location for use. After the equipment is delivered and put to use, the lessee executes a supplementary lease schedule acknowledging due receipt of the leased equipment, etc. Such supplementary lease schedule forms integral part of the Master Lease Agreement.
2. The impugned Act purports to levy and collect tax on transfer of the right to use any goods for any purpose for cash/deferred cash or other valuable consideration in the State of Maharashtra. By issuing a notification under section 1(3) of the said Act, the Maharashtra Government appointed 1st day of October, 1986 as the date on which the said Act would come into force. Maharashtra Act 23 of 1986 amended the explanation to section 2(10) of the impugned Act. Section 2(10) defines the expression "sale" for the purposes of the said Act. Section 3 deals with incidence of tax. The petitioners contend that the impugned Act and in particular section 3 read with section 2(10) purports to levy tax not only upon transfers of the right to use goods which take place within the State of Maharashtra but also upon transfers which occasion the movement of leased or to be leased goods from one State to another and also upon transfers effected during movement of goods from one State to another. The same is ultra vires articles 269(3) and article 246 read with entry 92A, List I, Seventh Schedule of the Constitution of India.
3. According to the petitioners, the impugned Act imposes tax also upon transfers of the right to use goods which are in another State at the time of the execution of the lease deeds. Therefore, the Act is ultra vires article 286(1)(a) and article 286(2) read with section 4(2) of the Central Sales Tax Act, 1956. The third contention of the petitioners is that the Act is ultra vires article 286(1)(b) read with article 286(2) of the Constitution because it also purports to levy tax on transfer of the right to use goods which have occasioned import into India. Lastly, the petitioners have urged that section 3(ii) and (iii) of the impugned Act levies tax on transfers of the right to use goods effected before the date of commencement of the Constitution (Forty-sixth Amendment) Act, 1982, which had inserted clause (29-A) in article 366 of the Constitution. Therefore, the said two clauses (ii) and (iii) of section 3 of the Act are ultra vires.
4. After the Constitution of India was amended by the Constitution (Sixth Amendment) Act, 1956, the provisions relating to powers to tax sales and purchases of goods were as follows :
5. Under article 269(1)(g) of the Constitution, taxes on sales or purchases of goods other than newspapers which took place in the course of inter-State trade or commerce were to be levied and collected by the Government of India but were to be assigned to the States in the manner provided in clause (2) of article 269 of the Constitution. Clause (3) of article 269 provided that the Parliament may by law formulate the principles for determining when a sale or purchase of goods took place in the course of inter-State trade and commerce. The Union Parliament, under article 246(1) read with entry 92A, List I, Seventh Schedule (inserted by the said Sixth Amendment Act), was given exclusive power to make laws in respect of taxes on sale or purchase of goods other than newspapers, where such sales or purchases took place in the course of inter-State trade and commerce. The power of the States to make laws under article 246(3) read with entry 54, List II, Seventh Schedule, to impose taxes on sale or purchase of goods other than newspapers was subject to the provisions of the above entry 92A of List I. Article 286(1) laid down that :
"No law of a State shall impose, or authorise the imposition of, a tax on -
(a) sale or purchase of goods which took place outside the State;
(b) sale or purchase of goods in the course of the import of the goods into or export of the goods out of the territory of India."
6. The Parliament was authorised by clause (2) of article 286 to enact law in order to formulate the principles for determining when a sale or purchase took place (a) outside the State or (b) in the course of import and export of goods. The Parliament under clause (3) of the said article was empowered to pass law imposing restrictions and conditions in regard to the system of levy, rates, etc., on taxes on sale or purchase of goods which would be declared by Parliament to be of special importance in inter-State trade and commerce. The Parliament had enacted the Central Sales Tax Act, 1956. Chapter II of the said Act contains a formulation of principles for determining when a sale or purchase of goods takes place in the course of inter-State trade or commerce or outside a State or in the course of import and export into or out of India. Chapter III of the Act contains provisions relating to imposition of Central tax on inter-State trade and commerce. Sections 14 and 15 of the Central Sales Tax Act deal with goods which are of special importance in inter-State trade and commerce and restrictions in the matter of imposing State sales tax upon the said goods.
7. Before the Constitution (Forty-sixth Amendment) Act had inserted clause (29-A) in article 366, by a series of decisions, the Supreme Court held that the expression "sale of goods" in the different entries in the Seventh Schedule had the same meaning as "sale" as defined in section 4 of the Sale of Goods Act, 1930. In other words, sales tax could be imposed only upon transfer of property (i.e., transfer of ownership of goods) from one person to another. Under the law as it stood, sales tax could be levied by State laws only when there was by mutual consent, transfer of property in goods for a price between parties who were competent to contract. Accordingly it was held that sales tax could not be imposed upon transactions which might resemble sale but did not involve transfer of property in goods, i.e., ownership. The Constitution (Forty-sixth Amendment) Act, 1982, has inserted in article 366 the following clause (29-A) :
"'tax on the sale or purchase of goods' includes -
(a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration;
(b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;
(c) a tax on the delivery of goods on hire-purchase or any system of payment by instalments;
(d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration;
(e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration;
(f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made."
8. Under clause (29-A)(d) a transfer of the right to use goods for any purpose for cash, deferred payment or other valuable consideration would be now deemed to be a sale of goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made. A tax on such transfer would be considered as a tax on the sale or purchase of goods. The Constitution (Forty-sixth Amendment) Act has also inserted in article 269(1) clause (h) authorising the Government of India to levy tax on consignment of goods taking place in the course of inter-State trade and commerce. The said Constitution (Forty-sixth Amendment) Act also inserted entry 92B in List I, Seventh Schedule anthorising Parliament to impose levy on inter-State consignment of goods. The Constitution (Forty-sixth Amendment) Act, 1982, also added sub-clause (b) to clause (3) of article 286. Under the said sub-clause (b) of clause (3), the Parliament is now competent to enact law specifying restrictions and imposing conditions also in regard to the system of levy, rates, etc., upon State Legislature's power to impose tax on the sale and purchase of goods referred to in sub-clauses (b), (c) and (d) of clause (29-A) of article 366.
9. Before us the petitioners did not make the extreme submission that the Maharashtra Legislature was not at all competent to levy and collect sales tax upon the transfer of the right to use any goods for any purpose for cash, deferred payment or other valuable consideration within the State. In fact, after clause (29-A) was inserted in article 366, such a contention could not be urged. The main thrust of the petitioners' argument was that the explanation to section 2(10) of the impugned Act was invalid because it purports to impose sales tax on the transfer of the right to use goods taking place (i) in the course of inter-State trade and commerce, (ii) transfer outside the State of Maharashtra, and (iii) transfers which occasion import of goods into India. Secondly, section 3 imposes tax on hiring transactions entered into before the Constitution (Forty-sixth Amendment) Act came into force. We would presently examine the merits of the petitioners' contentions that the impugned Act transgressed the limitations imposed by (a) article 246 read with entry 92A, List I, Seventh Schedule, (b) article 269(1)(g), (c) article 286(1)(a) or (b) and (d) the restrictions and conditions, if any, imposed by the Parliament under article 286(3)(b).
10. The definition of "sale" in section 2(10) of the impugned Act is as follows :
"'Sale' means the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or any other valuable consideration, and the word 'sell' with all its grammatical variations and cognate expressions, shall be construed accordingly.
Explanation. - For the purposes of this clause, the transfer of the right to use any such goods shall be deemed to have taken place in the State of Maharashtra, if the goods are in the State of Maharashtra at the time of their use irrespective of the place where the agreement for such transfer of the right to use such goods is made, and whether the assent of the party is prior or subsequent to such transfer of the right to use any such goods."
11. The language used in the main part of the aforesaid definition of "sale" in section 2(10) is substantially the same as the words of sub-clause (d) of clause (29-A) of article 366. Secondly, even if the petitioners are correct in contending that the explanation to section 2(10) was not valid, the main part of section 2(10) cannot be struck down because the main part of section 2(10) is clearly severable from the said explanation.
12. We may shortly dispose of the petitioners' contention that the definition of "sale" in section 2(10) and in particular the explanation to the said clause were ultra vires the provisions of the Central Sales Tax Act. When the Central Sales Tax Act, 1956, was enacted, the word "sale" in entry 92A, List I, Seventh Schedule and in entry 54, List II, Seventh Schedule meant transfer of property in goods and did not include the transactions which resembled sale but did not involve transfer of ownership or property in goods. Only after clause (29-A) was inserted in article 366 the State Legislature became competent to impose sales tax on transfers mentioned in clause (29-A). We have given hereinafter the definition of "sale" in section 2(g) of the Central Sales Tax Act. In the said definition of "sale", transfer of the goods on hire-purchase or other system of payment by instalments could be included because the Parliament, under entry 97, List I, Seventh Schedule, was competent to enact law on any other matter not enumerated in List II or List III including any tax not mentioned in either of those Lists.
13. It cannot be cogently contended that the provisions of the Maharashtra Sales Tax on the Transfer of the Right to use any Goods for any purpose Act were repugnant to the principles contained in Chapter II of the Central Sales Tax Act for determining when a sale or purchase of goods takes place in the course of inter-State trade or commerce or outside a State or in the course of import or export in or out of India. The principles in Chapter II of the Central Sales Tax Act were in respect of "sales" as defined in the said Act. Section 2(g) of the Central Sales Tax Act enacts that "sale", with its grammatical variations and cognate expressions, means any transfer of property in goods by one person to another for cash or for deferred payment or for any other valuable consideration, and includes a transfer of goods on the hire-purchase or other system of payment by instalments, but does not include a mortgage or hypothecation of or a charge or pledge on goods. After clause (29-A) was inserted, clause 2(g) of the Central Sales Tax Act has not yet been amended. The formulation of principles applied in respect of inter-State sales, sales outside the State and sales in the course of import and export contained in sections 3, 4 and 5 was in respect of "sale" as defined in section 2(g) of the Act. On the date of enactment, "transfer of the right to use goods for any purpose" was not a sale within the meaning of the Central Sales Tax Act. As stated hereinbefore, only after clause (29-A) was inserted in article 366 by the Constitution (Forty-sixth Amendment) Act, such transactions would be deemed to be sales and levy of sales tax upon such transfers has become legally permissible. In exercise of the powers conferred by article 269(3), the Parliament has not yet formulated the principles for determining when such transactions which are deemed sales under article 366(29-A), take place in the course of inter-State trade or commerce. The Parliament has not also as yet passed any law specifying restrictions or conditions in regard to tax on the sale or purchase of goods being of the nature referred to in sub-clauses (b), (c) and (d) of clause (29-A) of article 366.
14. The learned counsel for the petitioners has submitted that it is settled law that three constitutional limitations on the legislative competence of the States contained in article 286(1)(a), article 286(1)(b) and entry 92A, List I, Seventh Schedule read with article 246 exist and operate, irrespective of the applicability of the Central Sales Tax Act. According to Mr. Chinoy, the learned counsel for the petitioners, the aforesaid constitutional limitations have been in existence even before the Central Sales Tax Act was enacted which, inter alia, formulated the principles for determining inter-State sale, sale outside a State or a sale in the course of import and export of goods. Mr. Chinoy, the learned counsel for the petitioners, has relied upon the decisions in India Copper Corporation Ltd. v. State of Bihar , A. V. Thomas & Co. Ltd. v. Deputy Commissioner of Agricultural Income-tax and Sales Tax and Malayalam Plantations Ltd. v. Deputy Commissioner of Agricultural Income-tax and Sales Tax , in which levy of sales tax pertained to the period prior to the commencement of the Central Sales Tax Act. According to these reported decisions, it is the passing of property which is intended to be fastened for the purpose of determining whether the sale is inside or outside a State. Other circumstances leading to such sale are irrelevant.
15. Undoubtedly, power of the State Legislature to tax on sale or purchase of goods is subject to the aforesaid constitutional limitations. But the moot point before us is whether the impugned Act in fact purports to levy tax in disregard of these limitations imposed by article 269(1)(g) read with entry 92A, List I, article 286(1)(a) and article 286(1)(b) of the Constitution.
16. We may proceed to examine some of the provisions of the impugned Act. Under section 2(10) of the impugned Act, "sale" means the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or any other valuable consideration, and the word "sell" with all its grammatical variations and cognate expressions, shall be construed accordingly. We have mentioned that the original explanation to section 2(10) had been amended by Maharashtra Act 23 of 1986. By reason of the said explanation, transfer of the right to use any goods shall be deemed to have taken place in the State of Maharashtra, irrespective of the place where the agreement for such transfer of the right to use took place, if the goods are in the State of Maharashtra at the time of their use. In other words, the situs or the location of the goods at the time of their use has been chosen as the basis of taxability under the Act. Thus, in view of the amended explanation to section 2(10) of the impugned Act, the place where an agreement is made for transfer of the right to use goods is irrelevant and under the impugned Act, the State of Maharashtra has assumed power to levy tax on such transfer of the right to use goods which are located in the State of Maharashtra at the time of their use. In our view, the said provision contained in the explanation to section 2(10) does not result in bringing inter-State sales or sales taking place outside the State of Maharashtra within the scope of the impugned Act. The reported decisions upon which the learned counsel had relied were rendered in the context of sale transactions which then only meant transfer of property in goods. We have already pointed out that after clause (29-A) was inserted in article 366, tax on sale or purchase of goods included, inter alia, tax on transfer of the right to use for any purpose goods for cash, deferred payment or other valuable consideration. Therefore, the validity of a tax on such transfer of right to use ought not to be tested by applying these reported decisions regarding the meaning of sale. It would not be also appropriate to apply the tests applicable for deciding when property in goods passes in case of transfers of the right to use goods for any purpose. The legal concepts of transfer of the right to use goods are quite different.
17. It would be relevant to mention that pursuant to a request made by the Government of India, the Law Commission had submitted its sixty-first report on certain problems connected with powers of the States to levy a tax on sale of goods and with the Central Sales Tax Act, 1956. The Law Commission was of the view that the entries in the legislative list should receive a broad interpretation and power should be given to the States to tax the transactions which resemble sale in substance. After mentioning the three alternatives which could be adopted, the Commission had expressed preference for inserting in article 366 a wide definition of sale. We may also refer to the Statement of Objects and Reasons of the Constitution (Forty-sixth Amendment) Bill. The said statement had referred to a series of Supreme Court decisions which held that transactions in order to be subject to levy of sales tax under entry 92A of the Union List or entry 54 of the State List should have the ingredients mentioned in section 4 of the Sale of Goods Act. According to the said statement, the said position had resulted in scope for avoidance of tax in various ways. It was proposed to suitably amend the Constitution to include in article 366 a definition of "tax on sale or purchase of goods" in order to specifically include the tax on other transactions. The amendments proposed were also for augmentation of State revenue. Thus, the legislative history regarding insertion of clause (29-A) in article 366 clearly shows that the said constitutional amendments were made in order to widen the scope of power of the States to impose sales tax also on transactions which resembled sale but might not involve transfer of property in goods. The object was to augment the revenue of States. We ought not to interpret the Constitution and the laws in a manne which instead of widening would curtail the power of the State to impose sales tax on transactions which resemble sale.
18. After clause (29-A) was inserted in article 366, the legislature under entry 54 has legislative competence subject to entry 92A to impose tax upon sale and purchase of goods including deemed sales. The transfer of the right to use goods under article 366(29-A)(d) of the Constitution and also under section 2(10) of the impugned Act does not involve passing of property in the goods. There is a conceptual distinction between a contract of sale as defined in section 4 of the Sale of Goods Act and a transfer of the right to use goods without being accompanied by transfer of ownership in the goods in favour of the hirer. Such a transfer of the right to use goods is a species of bailment. According to section 148 of the Indian Contract Act, a bailment is delivery of goods by one person to another for some purpose upon a contract. Such transfer of the right to use goods, no doubt, produces some of the effects of the sale and also achieves some of the objects for which sales and purchases of goods are made. But unlike sale, in case of a transfer of only right to use goods, proprietary rights in the goods remain with the transferor. Only upon delivery of the goods, the transferee becomes legally possessed of such goods and the hirer or the transferee becomes entitled to enjoy the use of the goods upon periodic payment or other valuable consideration to the transferor. Such transaction of hiring has been described as disguised sale. Absence of transfer of ownership in favour of the hirer distinguishes such a transaction from a sale proper. Since the substance of the right is the enjoyment of the goods, the said transfer is completed only upon the delivery of the goods. In other words, only after acquiring possession of the goods hired out, the transferee begins to exercise right to use the same. Unlike the sale proper, on mere entering into an agreement to transfer the right to use goods, i.e., to hire or lease the goods, the transaction would be still inchoate and incomplete. An agreement which may precede delivery of goods for use would be in the nature of a promise to deliver goods to the lessee. Only after the goods in question are delivered to the lessee, he becomes legally entitled to possess and use the goods.
19. Accordingly, by the amended explanation to section 2(10), the commencement of the use of the goods which are situated within the State of Maharashtra has been chosen as the taxable event. In case of the transfer of the right to use for any purposes, signing of an agreement outside Maharashtra cannot in the eye of law mean that the said transfer of use had taken place outside Maharashtra. We have already observed that mere signing of such an agreement does not by itself conclude the transaction for transfer of the right to use goods. Only when the transferee or the lessee is put in possession of the goods, there would be a concluded transaction between the parties. We may also observe that the explanation to article 286(1) which was deleted by the Constitution (Sixth Amendment) Act had purported to select the place of actual delivery for the purposes of sale within the meaning of sub-clause (a) of article 286(1). There was difference in judicial views as regards the true scope of the said explanation, vide State of Bombay v. United Motors (India) Ltd. and Bengal Immunity Company Limited v. State of Bihar . In order to avoid such controversy, the said explanation to article 286(1)(a) had been deleted by the Constitution (Sixth Amendment) Act. Instead the test of physical location of the goods for determining the situs of a sale had been adopted in sub-section (1) of section 4 of the Central Sales Tax Act. The impugned Act also places incidence of the tax upon transfer of use of goods which are within Maharashtra at the time of their use.
20. It would be neither irrational nor arbitrary to adopt the said test of physical location of the goods at the time of their use for determining the situs of deemed sales under section 2(10) read with section 3 of the impugned Act. We have already pointed out that the impugned Act purports to levy tax upon assumed or disguised sale transactions under which only right to use goods is transferred or leased out. Therefore, it would be legitimate to levy tax under the impugned Act at a place where, at the time of their use, the goods are situated. In case of a tax imposed on a transaction which is a sale according to section 4 of the Sale of Goods Act, it is the transfer of property in goods which attracts the sales tax. In case of transfer of the right to use goods, it is the yielding up of possession to the lessee for its use which is made taxable.
21. It will not be correct to contend that a transaction is an inter-State sale or purchase merely because an agreement might have been entered into outside Maharashtra for transferring right of use in respect of the goods which are located within Maharashtra at the time of their use. We have already observed that the transfer of the right to use contemplated by section 2(10) of the impugned Act read with article 366(29-A) is in the nature of a bailment, the right to use must be deemed to arise at the place the goods are located at the time of their use. A transaction which is an inter-State sale within the meaning of section 2(g) read with section 3 of the Central Sales Tax Act takes place when the transfer of property by way of sale occasions movement from one State to another or when transfer of documents of title takes place during movement of goods. Thus, in case of an inter-State sale under article 269(3)(g) read with section 3 of the Central Sales Tax Act, a sale must be integral part of the movement of goods from one State to another. Such a sale, i.e., transfer of property, must either result in movement of goods to another State or at least involve a transfer of title to the goods in the course of movement to another State. When, under convenant or incidence of a contract of sale, there is physical movement of goods from one State to another, the same would come within the purview of section 269(1)(g) of the Constitution. But in case an agreement for transfer of only right to use goods is made, such transfer of the right to use is incomplete until the transferee or the lessee is put in possession of the goods. We cannot agree with the contention that the explanation to section 2(10) of the impugned Act resurrects the concept of "nexus theory" which was in vogue when the provisions of the Government of India Act, 1935, were in force. The said definition of "sale" in section 2(10) read with the explanation does not select as taxable event any incident which may ultimately lead to transfer of the right to use goods. But in fact by deeming provisions contained in the explanation to section 2(10) tax has been levied on goods at the place where goods are yielded up for use by the lessee. The impugned Act does not adopt the nexus concept at all for imposing tax on transfer of the right to use goods. Further, in case of a transfer of the right to use goods, when an agreement is made in one State for giving delivery of goods for use by the transferee in another State, the movement precedes the transfer of the right to use, i.e., the movement is antecedent to the completed transaction. Only upon delivery of the goods the transfer of the right to use goods is completed. The transfer of the right to use goods is not concluded merely by execution of an agreement or document.
22. In their writ petition the petitioners have mentioned that the 1st petitioners initially enter into a Master Lease Agreement with the lessee who desires to take equipment for use on hire. The said agreement mentions the lease of machines and equipment and the terms and conditions for such lease, etc. But such Master Lease Agreement on their own showing does not involve transfer of the right to use specific machineries or equipment. The petitioner's further case is that the 1st petitioners at the instance of the lessee thereafter place purchase orders upon suppliers and manufacturers chosen by the lessee for supply of individual items. The transaction between the 1st petitioners and the manufacturers or suppliers with whom the petitioners might place such orders are clearly independent and separate transactions and the place where these manufacturers or suppliers might be carrying on their business is irrelevant for the purposes of the impugned Act. Only when the said goods are transferred by the petitioners for use by the lessees, the transfer becomes taxable. In other words, the impugned Act levies tax only when the lessee is put in possession for using the goods. According to the claim made by the petitioners themselves, therefore, the movement, if any, of goods pursuant to the orders placed by the 1st petitioners upon the manufacturers and suppliers precedes the transfer of the right to use in favour of the lessee. The impugned Act levies tax upon transfer of the right to use goods which are within Maharashtra at the time of their use.
23. The impugned Act does not also purport to impose tax on the sale of goods which occasions import of goods into the territory of India. The test laid down in the case of State of Travancore-Cochin v. Bombay Company Ltd. [1952] 3 STC 434 (SC); AIR 1952 SC 366, inapplicable in case of transfer of the right to use goods which are located within Maharashtra at the time of use. The majority decision in the case of State of Travancore-Cochin v. Shanmugha Vilas Cashew-nut Factory , was that a transaction which directly and immediately leads to export and import taking place shall be considered to be in the course of export or import. This decision is also distinguishable. The act of import of goods from outside India by the lessor is a distinctly separate transaction. The transfer of the right to use imported goods is a separate and subsequent transaction. The identity of the material or equipment is not sufficient. The imports of goods is really independent of the transfer of goods for use effected after importation of the said goods. Such transfer of right in the eye of law is effected when the lessee is put in possession in order to use the goods. Thus, the importation made prior to effecting transfer of the right to use the imported goods in favour of the lessee would be irrelevant for the purposes of article 286(1)(b) of the Constitution.
24. Thus, in case there is a transfer of the right to use goods which are already located within the State of Maharashtra at the time of their use, there could be no question of such transaction occasioning import of such goods from outside India. In the example given by the petitioners, import of goods is bound to precede transfer of the right to use such goods in favour of the lessees of the petitioners. Any such import made cannot be considered to be an integral part of the transfer of the right to use goods.
25. Therefore, the explanation to section 2(10) does not provide for levy of tax on inter-State sales or on sales taking place outside the State or on sales which occasion import into India. The choice of the location at the time of use for imposing tax under the impugned Act cannot be held as ultra vires. Therefore, section 2(10) including explanation thereunder was not in excess of the legislative powers of the Maharashtra Legislature.
26. There is also no substance in the contention that section 3 of the impugned Act purports to levy tax upon transfers and transactions which took place even before clause (29-A) was inserted in article 366 of the Constitution. Under section 3(i), tax shall be leviable on the turnover of sales and also in respect of transfer of the right to use any goods agreed to be sold before the appointed day but, the right to use is exercised, on or after the appointed day. We have already pointed out that the taxable event under the Act is exercise or enjoyment of the right to use. Under clause (i) of section 3, the date of the agreement to transfer such right is not at all relevant. Under the said clause (i) of section 3, the exercise of the right to use has been taken to be the taxable event. Under the said clause (i), is to be levied on the turnover of sales under which the right of use is exercised on or after the appointed day, i.e., the date of the commencement of the Act. We have already pointed out that mere agreement to transfer the right of use of goods is not material. The Act does not at all impose tax on use of goods made before the appointed day. Therefore, no question arises of imposing tax under section 3(i) upon any transfer of the right to use goods taking place prior to either the appointed day or prior to insertion of clause (29-A) in article 366. Section 3(ii) deals with the cases where transfer of the right was agreed prior to the appointed day and the said right to use might have also commenced before the appointed day. But tax is to be levied only upon use of goods made on or after the appointed day. In other words, price or consideration paid for exercise of the right to use made before the appointed day is not, taxable. Under clause (ii) of section 3, tax is leviable upon the price or any other consideration received or receivable in respect of use from the date the impugned Act has come into force. We have already mentioned that the impugned Act has made taxable the transfer of the right to use goods without passing of property in such goods. Under clauses (ii) and (iii) of section 3, price received or receivable in respect of the post-Act use of goods, irrespective of the dates of the agreement to transfer, had become taxable. Therefore, none of the clauses of section 3 of the impugned Act purports to levy tax on deemed sales covered by the said Act taking place prior to the appointed day.
27. At the time of hearing of this case, the learned counsel for the respondent placed before us letter No. DY 314/DIR (ST)/86 dated 3rd December, 1986 written by the Director of Sales Tax, Government of India, Ministry of Finance, Department of Revenue, stating that before the Constitution (Forty-sixth Amendment) Act, 1982 received the assent of the President of India, the same had been ratified by requisite number of State Legislatures.
28. After we had reserved our judgment, the Supreme Court has pronounced its decision in the case of Builders' Association of India v. Union of India since . The court was satisfied that the Constitution (Forty-sixth Amendment) Act had been ratified by the Legislatures of not less than one-half of the States in terms of the proviso to article 368(2) of the Constitution. The Supreme Court further held that after the said amendment to the Constitution levy of sales tax on the transfer of property in goods involved in the execution of works contracts would be subject to the restrictions and conditions mentioned in article 286. Having interpreted the relevant provisions of the Constitution, the civil appeals filed against orders of the High Courts were directed to be placed before the appropriate Benches hearing tax matters in order to decide the questions raised therein including the validity of any statutory provisions or rules.
29. In our judgment delivered today, we have, however, held that the said law imposing sales tax on the transfer of the right to use goods in the State of Maharashtra is valid and that the said Act was not in contravention of articles 269 and 286 of the Constitution.
30. For the foregoing reasons, we hold that there is no merit in the writ petition. The rule is accordingly discharged with costs.
31. On the application made by the learned counsel for the petitioners, operation of the order is stayed for a period of six weeks from today.
32. After we delivered our judgment, the learned counsel for the petitioners prayed for a certificate under article 133 read with article 134A of the Constitution. We grant the certificate asked for.
33. Writ petition dismissed.