Bombay High Court
Sumer Corporation vs The State Of Maharashtra And 2 Ors on 25 April, 2017
Author: S.C. Dharmadhikari
Bench: S.C. Dharmadhikari, B.P. Colabawalla
WP2119.16.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL APPELLATE JURISDICTION
WRIT PETITION NO. 2119 OF 2016
M/s. Sumer Corporation, a Partnership Firm ]
and having its registered office at 201, ]
Commerce House, 2nd Floor, 140, Nagindas ]
Master Road, Fort, Mumbai - 400 001. ] ... Petitioner
Versus
1 The State of Maharashtra, Through ]
Government Pleader, High Court, Bombay ]
2 The Commissioner of Sales Tax, having his ]
Office at 8th floor, Vikrikar Bhavan, ]
Mazgaon, Mumbai - 400 010. ]
3 The Maharashtra Sales Tax Tribunal, ]
7th floor, Vikrikar Bhavan, Mazgaon, ]
Mumbai 400 010. ] ... Respondents
WITH
MAHARASHTRA VAT APPEAL NO. 68 OF 2016
M/s. Sumer Corporation, a Partnership Firm ]
and having its registered office at 201, ]
Commerce House, 2nd Floor, 140, Nagindas ]
Master Road, Fort, Mumbai - 400 001. ] ... Appellant
Versus
1 The State of Maharashtra, Through ]
Government Pleader, High Court, Bombay ]
2 The Commissioner of Sales Tax, having his ]
Office at 8th floor, Vikrikar Bhavan, ]
Mazgaon, Mumbai - 400 010. ] .. Respondents
SRP 1/83
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Mr. V. Sridharan, senior counsel with Mr. C.B. Thakar, Mr. Rahul
Thakar and Mr. Girish Kalla i/b M/s. C.B. Thakar & Co. for the
Appellant / Petitioner.
Ms. Naira Jeejeebhoy, special counsel for the State along with Ms.
Jyoti Chavan, Asstt. Government Pleader for the State for the
Respondents in both the Appeal and the Writ Petition.
CORAM : S.C. DHARMADHIKARI &
B.P. COLABAWALLA, JJ.
Reserved On : 10 th MARCH, 2017
Pronounced On: 25TH APRIL, 2017
JUDGMENT :[Per S.C. Dharmadhikari, J.] 1 The writ petition challenges the order dated 3 rd May, 2016.
2 The petitioner before us is a partnership firm, duly registered under the Indian Partnership Act, 1932, and having its office at the address mentioned in the cause title. The business of the firm, inter alia, is to construct buildings and tenements for the Slum Rehabilitation Authority ("SRA" for short). The Commissioner of Sales Tax, Maharashtra State, together with the State are impleaded as respondents for they are discharging duties and exercising powers conferred upon them SRP 2/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:10 ::: WP2119.16.doc vide the Maharashtra Value Added Tax Act, 2002 (for short "MVAT Act").
3 On 3rd May, 2016, the Maharashtra Sales Tax Tribunal at Mumbai (for short "the Tribunal") decided VAT Second Appeal No.335 of 2015. That Second Appeal was directed against an order dated 29th May, 2015, of the Deputy Commissioner of Sales Tax (Appeals) - III, Mazgaon, Mumbai. That appeal, in turn, arose out of an order of assessment passed by the Assistant Commissioner of Sales Tax (INV-07), Investigation-A, Mumbai, for the Financial Year 2006-07. 4 The Tribunal has, by the impugned order, partly allowed the appeal and in the following terms :
"Hence, we pass the following order -
ORDER VAT Second Appeal No.335 of 2015 is partly allowed. The order passed by the appellate authority stands confirmed but for determination of tax liability, the order is modified as under -
Appellate authority to rework out tax on the basis SRP 3/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:10 ::: WP2119.16.doc of the observations made i.e. appellate authority to obtain the value of the entire contract on the basis of the value of the tenements that would have fetched as on the date of the agreement i.e. 01/12/2003 in the locality. Thereafter, to apply rule 58 for determining the value of the goods at the time of transfer of property in the goods whether as goods or in some other form which was involved in the execution of the works contract in that year from 20/06/2006 to 31/3/2007 and to levy tax only on the goods used in the works contract and to grant relief to the appellant accordingly.
Penalty stands deleted.
No order as to costs.
Accordingly, VAT second appeal is disposed off."
5 At the outset, we wish to clarify that there is a preliminary objection raised to the maintainability of the writ petition. That is raised on the ground that there is an alternate and equally efficacious remedy to challenge the impugned order. A writ petition under Articles 226 and 227 of the Constitution of India should not be entertained when there is a remedy of appeal. In the instant case, section 27 of the MVAT Act, 2002, provides for an appeal against the Tribunal's order. SRP 4/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:10 :::
WP2119.16.doc 6 We do not think that this preliminary objection survives for the petitioner in this petition has indeed exercised that statutory right. The MVAT Appeal No.68 of 2016 which is tagged with the writ petition is, in fact, such an appeal. It invokes section 27 of the Maharashtra Value Added Tax Act, 2002. 7 In the process, we also take note of another objection raised by Ms. Jeejeebhoy, learned special counsel for the State and the Commissioner of Sales Tax, that both the petition and appeal raise some questions which were never argued before the Tribunal. She would submit that before the Tribunal the appellant-dealer argued that the only issue is whether receipt of Transferable Development Rights (TDR) will amount to other valuable consideration. The other issue now raised and during the course of submissions by the appellant-dealer were never raised before the Tribunal. Therefore, we should not allow them to be raised nor are we obliged to consider them. 8 On the other hand, the learned senior counsel appearing for the appellant in the appeal as also the petitioner in the writ petition would submit that this hyper technical objection SRP 5/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:10 ::: WP2119.16.doc should not be entertained. If the core issue is whether the receipt of transferable development rights will amount to other valuable consideration, then, it is apparent that the submissions and arguments now are all connected or ancillary to this issue. It would not make any difference whether the appellant-dealer traces the history of availability and receipt of this TDR during the course of the slum rehabilitation projects for being utilised for construction of buildings. It is submitted by Mr. Sridharan that what is really decided and by the Tribunal is the legality and validity of a tax styled as value added tax imposed on the dealer when he undertakes a project for the SRA. That project is of construction of building so as to rehabilitate the slum dwellers who have encroached upon and taken over a property reserved for a public purpose or a private land. Such slum dwellers have to be evicted from the site. However, it is not always and humanly possible to evict such slum dwellers and moved by their plight, a welfare State has, with the assistance of private entrepreneurs, conceived a project of rehabilitation of such slum dwellers at the very site by making available decent housing accommodation to them free of cost. That housing accommodation is provided at the cost of a private developer and to reimburse him of such cost of SRP 6/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:10 ::: WP2119.16.doc construction and provision of basic amenities, the private developer earns, what he terms as a right to put up further building at the very site so as to exploit the full potential of the site / land. He can also obtain a TDR so as to load it on the site / property where the construction of sale building is to be made. The units or flats in such sale buildings can be sold by him in open market and thereupon, he not only reimburses himself of the cost of construction, but earns a profit. It is this explanation which is provided by the appellant-dealer in his written submissions and he has not deviated in any manner from this core issue. 9 Having heard both sides on this limited point, we see substance in the contentions of the appellant-dealer. Mr. Sridharan is right that the substantial questions of law in this appeal are indeed centering or focusing on the single issue. The single issue and as broken up into several questions means the same thing, namely, can the tax liability be foisted upon the appellant-dealer when he has obtained from the SRA, TDR. That TDR is obtained against handing over of land and constructed tenements. That handing over and construction of tenements to SRA, whether amounts to sale and whether the issue and receipt SRP 7/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:10 ::: WP2119.16.doc of the TDR amounts to other valuable consideration. Therefore, whether this whole exercise amounts to a sale within the meaning of the MVAT Act or not should be the most relevant factor for us. We do not, in any manner, depart or deviate from the same only when we allow the dealer to make some detailed submissions. Hence, even this preliminary objection of the State is rejected.
10 Since the preliminary objections are taken care of and we find that the Tribunal's order does raise substantial questions of law, we admit the MVAT Appeal on the following substantial questions of law :
(1) On the facts and circumstances of the case and in terms of agreement dated 1.12.2003 and related documents, whether Tribunal is justified in holding that the transaction of appellant to handover land and constructed tenements to SRA amounts to "sale" by way of works contract under MVAT Act, 2002 ?SRP 8/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:10 :::
WP2119.16.doc (2) When, as per agreement dated 1.12.2003, SRA has agreed to allot and issue TDR against handing over of land and constructed tenements, whether Tribunal is correct in law in holding the said transaction as "sale" under MVAT Act, 2002 ? (3) Whether Tribunal is correct and justified in law in directing to compute tax as per market price based on Ready Reckoner under Stamp Duty Act without opportunity of hearing to appellant ? (4) On the facts and circumstances of the case, when under MVAT Act, 2002, no statutory method for converting consideration received in other then money form, in money form, is provided, whether Tribunal is legally correct in directing to compute tax liability based on market value, taking ready reckoner under Stamp Duty Act as basis ?
(5) Whether Tribunal is justified in confirming interest u/s 30(1) of MVAT Act, 2002, when appellant SRP 9/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:10 ::: WP2119.16.doc deserves waiver/reduction/remission or cancellation of interest on the facts and circumstances of the case ?"
11 The facts necessary for disposal of this appeal are set out as under:
(i) A D Sheth HUF (Owner), was the owner of land approximately admeasuring 3,23,538.73 Sq.Mtrs. The said plot of land was given on lease to various quarry operators and was also encroached upon by the slum dwellers.
(ii) The owner entered into an agreement dated 31.07.1998 with M/s. Sumer Corporation (Developers) -
petitioners herein, agreeing to grant the development rights in respect of the property admeasuring approximately 3,23,538.73 square meters on "as is where is" basis.
(iii) The owner and petitioners subsequently entered into a supplemental agreement to alter certain terms and conditions in the agreement dated 31.07.1998. On 03.01.2000, the owner SRP 10/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:10 ::: WP2119.16.doc and petitioner entered into an agreement for grant of development cum sale rights, whereby the petitioner had agreed inter alia to develop the property.
(iv) On 13.06.2002, the petitioner had submitted a rehabilitation proposal for slum dwellers, on the aforesaid property to the Slum Rehabilitation Authority for approval as a Slum Rehabilitation Project under clause 3.11 read with clause 3.19 of DCR No.33(10) as modified by Government Notification No.1095, 1209/CR-273/95/UD-11 dated 15th October, 1997.
(v) The SRA then issued a letter of intent dated 26.11.2002 to the petitioner approving the application for 4.892 FSI as per clause 3.11 read with clause nos. 3.19 and 3.5 of Appendix IV of sanctioned DCR 33(10) as amended from time to time.
(vi) On 24.01.2003, the SRA and petitioner entered into articles of agreement for conveyance of land admeasuring 65,245.57 square meters (Land Parcel - I), out of 1,98,293 SRP 11/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:10 ::: WP2119.16.doc square meters of land falling under R Zone. The petitioner was required to construct and hand over free of cost to the SRA about 3100 tenements each comprising of 225 square feet carpet area for rehabilitation of the slum dwellers covered by the "Slum Rehabilitation Proposal".
(vii) In lieu thereof SRA will give benefits of transfer of development right after receiving the certificates from the Architect, Structural Engineer & Site Supervisor in the prescribed formats as in DCR 1991 of the work carried out by the petitioner and cause to issue DRC to the petitioner under the regulation for the grant of TDR under Appendix VII-B of the Development Control Regulations.
(viii) On the same date i.e. on 24.01.2003, a conveyance agreement was entered into between SRA, petitioners (as confirming party) and owner for conveying the Land Parcel - I admeasuring 68,245.57 square meters to SRA in consideration of SRA agreeing to provide TDR to petitioners (for short, TDR for land Parcel - I).
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(ix) On 06.05.2003, the SRA and the petitioner entered into second articles of agreement for conveyance of land admeasuring 85,504, 94 square meters (Land Parcel - II, out of 1,98,293 square meters of land falling under R Zone.
(x) The petitioner was required to construct and hand over free of cost to the SRA about 11,900 tenements each comprising of 225 square feet carpet area for rehabilitation of the Slum Dwellers covered by the "Slum Rehabilitation Proposal".
(xi) In lieu thereof SRA will give benefits of transfer of development right after receiving the certificates from the Architect, Structural Engineer & Site Supervisor in prescribed formats as in DCR 1991 of the work carried out by the petitioner and cause to issue Development Rights Certificate to the petitioner under the regulations for the grant of TDR under Appendix VII-B of the Development Control Regulations. SRP 13/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:10 :::
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(xii) On the same date i.e. on 01.12.2003, a third conveyance agreement was entered into between SRA, petitioners (as confirming party) and the owner for conveying the Land Parcel - III admeasuring 20,512.50 square meters to SRA in consideration of SRA agreeing to provide TDR to Petitioners (for short, Land TDR for land Parcel - III).
(xiii) After conveying the above three Land Parcels to SRA, the petitioners were granted TDR called as Land TDR as per the SRA Proposal.
(xiv) Further, as and when the construction works is carried out by the petitioners, construction TDR was being issued to the petitioners from time to time.
(xv) These were sold from time to time in the open market for a consideration by the petitioners.
(xvi) The petitioners being a developer of buildings was SRP 14/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:10 ::: WP2119.16.doc subjected to assessment under the MVAT Act as an unregistered dealer for the assessment of Assessment Year 2006-07. (xvii) In the assessment order dated 12.05.2014, the Assessing Officer noted the fact that the petitioner is constructing tenements free of cost and handing it over to SRA to be allotted to the eligible slum dwellers.
(xviii) The Assessing Officer in the said order dated 12.05.2014 concluded that the aforesaid construction activity carried out by the petitioner was taxable as a works contract falling under the definition of 'sale' as defined in section 2(24) of the MVAT Act.
(xix) According to the Assessing Officer, the Petitioners were only granted the TDR in the form of DRC as per Regulation 33(10) of the Development Control Regulations, 1991 and as amended from time to time.
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WP2119.16.doc (xx) The Assessing Officer also duly noted that separate TDR for land and construction work is granted by SRA and the construction TDR is granted as per the stage wise construction stipulated in the Articles of Agreement.
(xxi) The Assessing Officer concluded that TDR/DRC received by the petitioner was in lieu of a works contract executed by the petitioner. The Assessing Officer further held that the TDR/DRC would be a consideration in money covered by the definition of sale not only under the phrase "other valuable consideration", but also under "deferred payment". (xxii) Therefore, according to the Assessing Officer, the petitioner has been adequately compensated by the valuable consideration in the form of TDR/DRC which has been sold by the petitioner in market for generating money. 12 It is against this view and concurrently taken by the authorities under the MVAT Act that the instant appeal has been filed.
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WP2119.16.doc 13 Mr. Sridharan, learned senior counsel appearing on behalf of the appellant would submit that the view taken by the Tribunal is untenable and unsupportable in law. He would submit that the Tribunal has proceeded on the footing that the activity and exercise undertaken by the appellant would fall within the latter part of the definition of the term "sale" as appearing in the MVAT Act. Mr. Sridharan would submit that section 2 clause (24) of the MVAT Act in the first part contains a substantive definition and, by the explanation, sets outs various acts which, according to the Tribunal, would amount to a sale. Rather, the explanation ends by stating that whatever has been set out in clauses (a) and (b) with their sub-clauses shall be deemed to be a sale and attracting clause (24) of section 2 of the MVAT Act. Mr. Sridharan submits that in the present case, we are concerned with section 2(24) and the explanation clause (b)(ii) of the MVAT Act, 2002. Mr. Sridharan would submit that what is dealt with by this sub-clause is a transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract, including an agreement for carrying out for cash, deferred payment or other valuable consideration, the works SRP 17/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:11 ::: WP2119.16.doc covered by this sub-clause. Mr. Sridharan would submit that the present activity and exercise would never fall within this definition. Mr. Sridharan, therefore, submits that the Tribunal has devised a novel method to compute the amount of consideration. It evolves a formula and holds that the one devised by the Assessing Officer may not be correct. The Tribunal concludes that the sales turnover of the goods contract should be the market value as per stamp duty ready reckoner for that particular area. According to the Tribunal, for this purpose ready reckoner rate on the date of entering into agreement for construction of tenements has to be considered. In other words, according to the Tribunal, the consideration will have to be ascertained as price which the tenements would fetch if they would have been sold in the open market, but based on the stamp duty reckoner under the Bombay Stamp Act. Mr. Sridharan would submit that this is not a proper understanding of the transaction or the activity at all.
14 Mr. Sridharan was at pains to submit that the articles of agreement entered into by the petitioner with the SRA and under which it is required to construct tenements for SRA do not SRP 18/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:11 ::: WP2119.16.doc provide for any monetary consideration. That stipulates that the petitioner shall construct the tenements and hand them over to the SRA free of cost.
15 Mr. Sridharan then invites our attention to Regulation 33(10) of the Development Control Regulations for Greater Bombay, 1991, to submit that SRA grants TDR to the petitioner / appellant based on the FSI which would be calculated as per the said Regulations and the articles of agreement. The TDR is issued in the form of a Development Rights Certificate (for short "DRC"). That is transferable in nature. The petitioner makes use of this TDR for its own construction activity or sells it in the market to a third party for a price. The sale price realised from third parties for transfer of TDR is entirely governed by demand and supply and other conditions in the market. There is no monetary consideration assigned or arrived at between the parties to the agreement for the work to be done by the petitioner. 16 Mr. Sridharan submits that the definition of the term "sale" and particularly the explanation therein, if read properly, SRP 19/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:11 ::: WP2119.16.doc would mean that the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract, including an agreement for carrying out the works set out in the sub-clause for cash, deferred payment or other valuable consideration, would have to be interpreted and understood ejusdem generis. In the sense that the words "other valuable consideration" would take their colour from the preceding words 'cash', 'deferred payment' and which can only mean some other monetary payment.
17 Mr. Sridharan in that regard relies upon Entry 54 of List II, Seventh Schedule to the Constitution of India. Mr. Sridharan would submit that if the words are not understood in such a narrow or restricted sense and as explained in the Constitution Bench decision of the Hon'ble Supreme Court in the case of M/s. Devi Dass Gopala Krishnan & Ors. vs. State of Punjab & Ors. (22) Sales Tax Cases, Pg. 430 , then, they would be ultra vires Entry 54 of List II of the Seventh Schedule of the Constitution of India. Mr. Sridharan would submit that the Hon'ble Supreme Court read down these words so as to make the whole provision falling for its consideration intra vires Entry 54. SRP 20/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:11 :::
WP2119.16.doc 18 Mr. Sridharan then relies upon the concept of ejusdem generis and would submit that the Hon'ble Supreme Court's judgment in Devi Dass (supra) binds us completely. The Supreme Court had clearly held in this case that the term "other valuable consideration" has been used in various sales tax laws. It has never been argued or decided that the said expression mentions anything other then monetary consideration. Mr. Sridharan then contends that this interpretation placed by the Hon'ble Supreme Court on this phrase has been consistently followed by various High Courts. He then invites our attention to several judgments following Devi Dass and rendered by the High Courts in India.
19 Mr. Sridharan then submits that the genesis of the rule of ejusdem generis is that, but for this principle specific words preceding the general words would be rendered redundant. In that regard, he relies upon the Principles of Statutory Interpretation by Justice G.P. Singh (Page 326 of IInd Edition). 20 Mr. Sridharan then points out that the contra SRP 21/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:11 ::: WP2119.16.doc submission of the Revenue would render the words 'cash' or 'deferred payment' completely redundant. The Revenue has not understood the intent of the legislature inasmuch as it has not used the words "valuable consideration" simply, but "other valuable consideration". Therefore, every word has a meaning and the legislature is not supposed to employ it merely for the sake of inserting something. The word "other" is, therefore, superfluous. The legislature could not have intended to use the words 'cash' or 'deferred payment' before the words "other valuable consideration" to understand anything other than money.
21 Mr. Sridharan would then submit that it has been a long established principle and applied in the construction of an act of the Parliament that where doubtful meaning has received clear judicial interpretation, the subsequent statute which incorporates the said word or the same word phrased in a similar context must be construed as interpreted by the Court. 22 The interpretation of the Supreme Court in Devi Dass' case that the term "other valuable consideration" in the phrase SRP 22/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:11 ::: WP2119.16.doc "cash, deferred payment or other valuable consideration" will be restricted to consideration in money only has been well accepted / acquiesced by the legislature.
23 It is now a well-accepted principle of law that in case of an enactment, if judicial decisions have consistently adopted one construction, inaction of the legislature in not amending the enactment may lend support to the view that the construction so adopted is in accord with the intention of the legislature. 24 Then, Mr. Sridharan makes some ancillary submissions. He would submit that if the interpretation of the Revenue is accepted, it will result in two different meanings of the same term "other valuable consideration" in different clauses of the same sub-section. That is impermissible in law. Mr. Sridharan then submits that reliance on a decision by the Revenue in the case of Dhampur Sugar Mills vs. Commissioner of Trade Tax, U.P. (2006) 5 SCC 624, is misplaced. Mr. Sridharan then submits that even the MVAT Act does not prescribe any machinery when the consideration is in kind. SRP 23/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:11 :::
WP2119.16.doc 25 Therefore, we should never place an interpretation which would introduce something as a levy when the legislature never intended to lay down any procedure or machinery for assessing the same. Mr. Sridharan has also contended that the entire sub-clause (ii) of clause (b) should not be read in isolation. The entire section has to be read as a whole. So read, it would indicate as to how the legislature never intended to bring in by an explanation, something which is not a sale. The sale as ordinarily understood would, therefore, be the governing test. Mr. Sridharan then relies upon the wording of this sub-clause prior to its amendment and post its amendment on 20 th June, 2006. Mr. Sridharan also invited our attention to Rule 58 of the MVAT Rules to submit that it does not provide any machinery for arriving at the value of a contract. Mr. Sridharan has then relied upon the principles of construction of an explanation to a section to submit that the entire explanation, including the sub-clause exists only for the purpose of clause (24) of section 2. There is intrinsic evidence therein to indicate that what is falling in the explanation would also have to satisfy the other requirements of the main clause (24) of section 2. It is in these circumstances he would submit that if the Revenue's interpretation is accepted, the SRP 24/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:11 ::: WP2119.16.doc explanation then would travel and go beyond the main section. There is no need to add any words and which the Revenue suggests. Mr. Sridharan's final contention was that looked at from any angle, TDR/DRC cannot be considered as money or cash. 26 In that regard he has submitted that we should note all the submissions which he has put down in writing. That is in his written arguments titled as Additional Submissions. 27 Mr. Sridharan has relied upon the following decisions in support of the above contentions.
(1) The Addl. Commissioner of Sales Tax, VAT-III, Mumbai vs. M/s. Kirloskar Copeland Ltd. (2014) 71 VST 300 (Bom). (2) Collector of Sales Tax vs. Kanthadbhai & Popatlal (1959) 10 STC 516 (Bom).
(3) Sales Tax Commissioner, U.P. vs. Ram Kumar Agarwal (1967) 19 STC 400 (All.) (4) Commissioner, Sales Tax, M.P., Indore vs. Kansari Udyog Sahakari Samiti, Rajim (1979) 43 STC 176 (MP) (5) The State of Andhra Pradesh vs. Hotel Sri Lakshmi Bhavan, Visakhapatnam (1974) 33 STC 444 (A.P.) SRP 25/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:11 ::: WP2119.16.doc (6) M/s. Vijaya Alluminium Industries, Warangal vs. State of Andhra Pradesh (1996) 103 STC 508(A.P.) (7) Dhampur Sugar Mills Limited vs. Commissioner of Trade Tax, U.P. (2006) 5 SCC 624 / (2006) 147 STC 57 (S.C.) (8) Larsen and Toubro Limited & Anr. vs. State of Karnataka & Anr. (2014) 1 SCC 708 / (2013) 65 STC 1 (S.C.) (Judgment as per Hon'ble Mr. Justice R.M. Lodha) (9) Larsen and Toubro Limited & Anr. vs. State of Karnataka & Anr. (2008) 17 VST 460 (S.C.) (Judgment as per Hon'ble Mr. Justice S.H. Kapadia) (10) Larsen and Toubro Limited & Anr. vs. Additional Deputy Commissioner of Commercial Taxes & Anr. (2015) 84 VST 403 (S.C.) (Judgment per the Hon;ble Mr. Justice Rohinton F. Nariman) (11) Morriroku UT India (P) Limited vs. State of Uttar Pradesh & Ors. (2008) 4 SCC 548 / (2007) 7 VST 482 (S.C.) (12) H.H. Sri Rama Verma vs. Commissioner of Income Tax, Ernakulum, 1991 Supp (1) SCC 209.
(13) M. Jaihind vs. State of Kerala (1998) 111 STC 374 (Ker.) (14) Sree Gajanana Motor Transport Co. Ltd. vs. State of Karnataka & Ors. (1977) 1 SCC 37.
28 There is an affidavit-in-reply to the Writ Petition by the Joint Commissioner of Sales Tax.
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WP2119.16.doc 29 Consistent with the stand taken in this affidavit, it is urged by Ms. Jeejeebhoy, learned special counsel, that there is not merit in the challenge raised by the petitioners. She would submit that the petitioner-appellant has admittedly entered into a works contract with the SRA and, therefore, there is a deemed sale of the goods involved in the execution of a works contract. This is the broad heading of her first submission. 30 The second submission and broadly stated is that the DRCs received by the petitioner-appellant are money consideration. The third submission is that the consideration for a works contract may be something other than money. She has also contended that a machinery is provided by the statute and all such provisions must be interpreted in a manner that make the statute workable and gives a meaning to the charging section. 31 Ms. Jeejeebhoy would submit that it is essential to first consider the plank of the arguments of Mr. Sridharan. She submits that the petitioner-appellant is engaged in the business of construction of buildings and tenements for SRA. SRP 27/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:11 :::
WP2119.16.doc 32 Relying upon the recitals and clauses of the agreement she would submit that the petitioner-appellant agreed with the SRA for rehabilitation of the slum dwellers in consideration for the DRC. The terms of these agreements are more or less similar. Ms. Jeejeebhoy relies upon the agreement dated 1st December, 2003, and points out from clauses 4, 16(a) and 19 that at the time of entering into each of these agreements, the land was simultaneously conveyed to the SRA by way of a tripartite deed of conveyance between the owner of the land, the petitioner-appellant and the SRA. Each deed of conveyance was entered into on the same date as the articles of agreement by virtue of which the SRA became the owner of the land before any works / construction was carried out thereon. 33 Ms. Jeejeebhoy, therefore, submits that for levying a tax on the transfer of materials under a works contract, the tests are that there must be a works contract, the goods should have been involved in the execution of a works contract and the property in the goods must be transferred to a third party either as goods or in some other form. It is, therefore, clear that once the three conditions are satisfied, it is not necessary that the SRP 28/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:11 ::: WP2119.16.doc ingredients of sale under the Sale of Goods Act, 1930, be present. She would submit that the petitioner-appellant's agreements with the SRA fulfill all the three conditions. Therefore, she would submit that once the petitioner-appellant agrees to construct tenements for SRA, that denotes it is carrying out works for the SRA and has entered into a works contract. The goods were used in the course of execution of the works contract. That is, inter- alia, evident from the Books of Account of the petitioner-appellant which particularizes the goods used by the petitioner-appellant in the execution of the works contract for the SRA and the property in the goods involved in the works contract passed to the SRA as an owner of the land by way of accretion on incorporation in the works. She, therefore, submits that the petitioner entered into two separate and distinct transactions - One by which there was a transfer of the land to the SRA and one for construction on the land so transferred. The Petitioner's agreement to construct was, therefore, a classic works contract where SRA was the owner of the land and the work was being carried out for the owner. The transaction between the Petitioner and the SRA whereby the Petitioner was to construct tenements and hand them to the SRA squarely falls within the definition of works contract. Even assuming the transaction was one SRP 29/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:11 ::: WP2119.16.doc for works and transfer of land, such a transaction would nevertheless be a works contract.
34 It is then contended that in the present case the deemed sale of goods used in the works contract has, in fact, taken place for money consideration. She would submit that it has been recognised by the Courts in India that payment for an ordinary sale may be by way of a commodity or goods that is easily convertible into money in the hands of the vendor. The DRC received by the petitioner-appellant under its works contract with the SRA can be easily converted into money in the hands of the petitioner-appellant. In fact, in the present case, the petitioner-appellant has sold such DRCs in the open market. Therefore, the DRCs would be valuable consideration in the nature of cash or money. Ms. Jeejeebhoy has then, in her written note, contended as under :-
(a) Further, it is noteworthy that Section 126 of the Maharashtra Regional Town Planning Act, 1996 ("the MRTP Act") indicates that TDR/FSI is granted by the State in lieu of or as a replacement for an amount to be paid by the concerned Authority to a land owner against the surrendered land or against construction of an amenity on the surrendered land:
"126 Acquisition of land required for public purposes specified in plans:-
SRP 30/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:11 ::: WP2119.16.doc (1) When after the publication of a draft
Regional Plan, a Development or any other plan or town planning scheme, any land is required or reserved for any of the public purposes specified in any plan or scheme under this Act at any time the Planning Authority, Development Authority, or as the case may be, any Appropriate Authority may, except as otherwise provided in section 113A acquire the land, -
(a) by an agreement by paying an
amount agreed to, or
(b) in lieu of any such amount, by
granting the land-owner or the lessee,
subject, however, to the lessee paying the lessor or depositing with the Planning Authority, Development Authority or Appropriate Authority, as the case may be, for payment to the lessor, an amount equivalent to the value of the lessor's interest to be determined by any of the said Authorities concerned on the basis of the principles laid down in the Land Acquisition Act, 1894, Floor Space Index (FSI) or Transferable Development Rights (TDR) against the area of land surrendered free of cost and free from all encumbrances, and also further additional Floor Space Index or Transferable Development rights against the development or construction of the amenity on the surrendered land at his cost, as the Final Development Control Regulations prepared in this behalf provide, or ..... (emphasis supplied)"
14. In Dhampur Sugar Mills Ltd. v. Commr. Of Trade Tax (2006) 5 SCC 624 at para. 29 (Petitioner's Compilation, vol. III, page 51 ), the Supreme Court held that a mutual arrangement in which the price for molasses was to be adjusted from the amount payable as consideration for use of a mill was a transaction which "in effect and substance involve passing of monetary consideration. Significantly, in Dhampur Sugar Mills case, the price for molasses was determined by the central Government (see para 23). SRP 31/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:11 :::
WP2119.16.doc Similarly, in Premier Electro Mechanical Fabricators v. State of Tamil Nadu, (1982) SCC Online Mad 345, a Division Bench of the Madras High Court held that shares given as payment for machinery were valuable consideration akin to cash payment or deferred payment to make the transfer a sale. Applying the principle laid down in these decisions to the provisions of the MRTP Act, the TDR (given in the form of DRCs) is in effect and substance monetary consideration as it is an arrangement whereby the price of the land or construction/works to be carried out is adjusted against TDR given to the person with whom the Authority has entered into an agreement. The owner or works contractor could have independently purchased TDR in the market using the money received from the Authority for the land/construction as the case may be. Instead, the TDR has been given in lieu of the money.
(b) In any event, even the cases relied on by Petitioner hold that the expression "valuable consideration" when interpreted ejusdem generis means "cheques, bills of exchange and other negotiable instruments" [see M. Jaihind v State of Kerala, (1998) 111 STC 374 at 382, para 19(Ker) (Petitioner's Compilation, Vol. III, page 186 ); Sales Tax Commissioner v. Ram Kumar Agarwal, (1967) 19 STC 400 at 403, 407 (All) (Petitioner's Compilation, Vol. III, page 18 ); Radhas Printers v. State of Kerala, (1993) 90 STC 201 at 206(Ker) (Petitioner's Compilation, Vol. I, page 22 )] Notably, the DRCs are negotiable instruments and would, therefore, be covered by the term "valuable consideration" even if the restricted meaning of this expression as relied on by the Petitioner is accepted.
(c) The Petitioner's proposal for slum rehabilitation was under Regulation 33(10) of the Development Control Regulations for Greater Bombay, 1991 ("the DC Regulations "). The grant of TDR to the Petitioner is therefore as per Appendix VII-B of the DC Regulations. Clause 15 of Appendix VII-B is a deeming provision by virtue of which the DRCs are considered transferable/negotiable instruments:
"15. A DRC shall be issued by the commissioner himself as a certificate printed on bond paper in SRP 32/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:11 ::: WP2119.16.doc an appropriate form prescribed by the Commissioner. Such a certificate shall be a transferable/negotiable instrument after due authentication by the Commissioner."
(d) This Hon'ble Court has also recognized that the DRCs are negotiable instruments. In Manish D. Soni v. State of Maharashtra, 2012 (6) Bom CR 162 at para 30, this Hon'ble Court held that "The separation of development potential of land from land which is under acquisition, as a negotiable instrument is a well-recognized concept". In Naiknavare & Associates v. State of Maharashtra, (2008) 5 Mh. L. J. 355, the Court considered the Pune Development Control Rules governing grant of TDR/DRCs and has observed as follows:
"7. It can be seen from the reading of the aforesaid clauses of R-2.4 that the grant of TDR is subject to the conditions laid down in its aforesaid clauses thus:
1(A) The owner's entitlement is to the FSI in the form of the DRC which may be used by him or which could be transferred to any other person.
14. It therefore becomes a "transferable and Negotiable Instrument .
....."
(e) It is well settled that "when the law creates a legal fiction such fiction should be carried to its logical end. There should not be any hesitation in giving full effect to it"
[Builders Association v Union of India, (1989) 2 SCC 645 at para 36-9 (Petitioner's compilation, Vol II, pg 1 ). Therefore, the DRCs which are deemed negotiable instruments in law ought to be treated on par with other negotiable instruments that constitute money consideration for an ordinary sale.
(f) The Petitioner's contention that the State cannot declare the DRCs to be negotiable instruments is erroneous and cannot be raised in these proceedings for the following reasons:
a. The Petitioner has not challenged the deeming SRP 33/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:11 ::: WP2119.16.doc fiction in the DC Regulations as being beyond the legislative competence;
b. The Constitution does not provide that only the Union Government has power to legislate in respect of "negotiable instruments";
c. The Negotiable Instruments Act, 1881 ("the NI Act") is not exhaustive of all types of negotiable instruments. This is evident from the Preamble to the NI Act, which states as follows:
"WHEREAS it is expedient to define and amend the law relating to promissory notes, bills of exchange and cheques; It is hereby enacted as follows:-
d. The Law Commission of India Eleventh Report (on the NI Act) further clarifies that the NI Act is not exhaustive by inter alia stating as follows:
"6. It has to be mentioned at the outset that the title "Negotiable Instrument Act" is somewhat misleading as it conveys the idea, at first sight, that it is a comprehensive enactment relating to all negotiable instruments whether recognized as such by law or by usage or custom. A perusal of Section 13 of the Act shows, however, that the Act is confined only to three specific types of negotiable instruments viz., promissory note, bill of exchange and cheque. The codified law in India relating to negotiable instruments thus deals, as in England, only with the aforesaid three instruments.
.....
16. ..... codification not being possible, we must leave such instruments in use as at present. We, therefore, propose to make it clear that the Act will be confined in its application to the three kinds of instruments viz. bills of exchange, promissory notes and cheques, but that it will apply to them irrespective of the language in which they are written. Instruments which do not answer the requirements of the Act in respect of SRP 34/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:11 ::: WP2119.16.doc any of these three kinds of instruments will remain outside the purview of the Act, so that no saving clause is required to save usages relating to such instruments."(emphasis supplied) e. The cases which equate money consideration with negotiable instruments do not restrict this comparison to negotiable instruments as defined under the NI Act;
f. The Petitioner's interpretation would have serious implications on trade and commerce. Illustratively, a sale against a hundi not covered by the NI Act such as "Jokhmi hundi" would no longer be a sale. Similarly, sale contracts regularly include payment terms that require opening of a letter of credit, which is not a negotiable instrument as defined under the NI Act. The petitioner's interpretation would result in such contracts being outside the purview of the definition of sale under the Sale of Goods Act.
(g) The mere fact that TDR has been held to be immovable property is irrelevant since the TDR is given to the Petitioner "in the form of DRC" under the Petitioner's agreement with the SRA, which DRCs can be easily converted into cash and are negotiable instruments, as set out above. Moreover, the Petitioner's agreement with the SRA also expressly provides for free transferability of the DRCs received by the Petitioner [see, for example, clause 10(vi) of the Articles of Agreement dated 1 December, 2003 which stipulates that "(iv) The Developer will be entitled to transfer or assign the FSI, TDR and / or DRC which may become available to the Developer under this Agreement as the Developer may desire without reference or recourse to or consent or concurrence of the SRA."]
(h) The Impugned Order therefore correctly holds the DRCs have an inherent value and are treated and dealt with as negotiable instruments [See para 22 at page 43 of Appeal].
(i) The petitioner accepts that the Development Rights SRP 35/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:11 ::: WP2119.16.doc Certificates ("DRCs") have been issued as consideration but contends that even where there is a works contract, there should be monetary consideration against the transfer of ownership in goods, failing which no tax can be levied. The Petitioner relies on the decision of the Supreme Court in Devi Dass Gopala Krishan v. State of Punjab, 1967 (20) STC 430 (SC) (Petitioner's Compilation, vol. I, page 1 ) in support of this contention and states that the Rule of ejusdem generis must be applied to the term valuable consideration even qua a works contract. However, neither the decision in Devi Das Gopala Krishna' case, supra, nor any other decision cited by the Petitioner supports such a construction. All the decisions relied on by the Petitioner have construed the terms "valuable consideration" in the context of sale of goods and not a deemed sale under the 46 th Amendment to the Constitution. Further, in each of these decisions, the meaning of the term "valuable consideration"
was held to have been restricted by the use of the words "cash or deferred payment", which preceded the use of the expression "valuable consideration". It was in these circumstances that the ejusdem generis rule was made applicable.
(j) It is submitted that the interpretation of "valuable consideration" in the cases relied on by the Petitioner would not apply to a deemed sale of goods involved in the execution of a works contract for the reasons set out below.
46 th Amendment of the Constitution
(k) In State of Madras v. Gannon Dunkerley & Co., AIR 1958 SC 560 at paras 64, 71 (Petitioner's compilation, vol. II, page 46 ), the Hon'ble Supreme Court considered whether the provisions of the Madras General Sales Tax Act are ultra vires, in so far as they seek to impose a tax on the supply of materials in execution of works contract treating it as a sale of goods by the contractor and concluded that the State legislature did not have the competence to impose such a tax since the expression sale of goods "is a nomen juris, its essential ingredients being an agreement to sell movables for a price and property passing therein pursuant to that agreement. In a building contract which is, as in the present case, one, entire and indivisible - and that is its norm, there is no sale of goods". The Hon'ble Supreme Court inter alia SRP 36/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:11 ::: WP2119.16.doc considered the possibility of bifurcation of the works contract and held that even in such circumstances there would be no sale:
"64. If in a works contract there is no sale of materials as defined in the Sale of Goods Act, and if an action is not maintainable for the value of those materials as for price of goods sold and delivered, as held in the above authorities, then even a disintegration of the building contract cannot yield any sale such as can be taxed under Entry 48."
(l) The decision of the Hon'ble Supreme Court in State of Madras v. Gannon Dunkerley & Co., AIR 1958 SC 560 formed the cornerstone for the subsequent decisions of Indian Courts which considered the necessary ingredients of the expression "sale of goods" for the purpose of levy of tax. The Petitioner has placed heavy reliance on one such decision, viz. Devi Das Gopal Krishan v. State of Punjab, AIR 1967 Sc 1895, in which the Hon'ble Supreme Court has referred to and relied on the decision in State of Madras v. Gannon Dunkerley, supra, and has then interpreted the expression "valuable consideration" in the context of sales tax law to mean "some other monetary payment in the nature of cash or deferred payment."
(m) In order to overcome the restrictive meaning of tax on the sale or purchase of goods, as interpreted by the Hon'ble Supreme Court, Article 366(29A) was inserted in the Constitution by Constitution (Forty-sixth Amendment) Act, 1982. .....
Notably, Article 366(29A) does not prescribe that the transfer of property in goods involved in the execution of a works contract is to be for "cash deferred payment or valuable consideration ". .....
(n) After the decision of the Supreme Court in Builders Association case, supra (Petitioner's compilation, Vol II, pg 1), the Maharashtra Sales Tax on the Transfer of property in goods involved in the execution of Works SRP 37/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:11 ::: WP2119.16.doc Contracts (Re-enacted) Act, 1989 ("the Works Contract Act, 1989") was enacted. Like Article 366(29A) of the Constitution, the Works Contract Act, 1989 did not require a works contract to be for "cash deferred payment or valuable consideration". This is inter alia evident from the following definitions in Section 2 (emphasis supplied):
"(d) "dealer" means any person who, whether for valuable consideration, commission, remuneration or otherwise , transfers property in goods involved in the execution of works contracts and includes any State Government and the Central Government which so transfers such property in goods, and any society, club, or association of persons which so transfers the property in goods to its members;
.....
(i) "purchase price" means the amount of valuable consideration paid or payable by a person for purchase of any goods in relation to execution of works contract, effected in the State or the Course of inter-State trade or commerce or in the course of import including any sum charged for anything done by the seller in respect of the goods at the time of or before delivery thereof and will also include the cost of freight, transit or insurance and any taxes, duties, ceases and fees paid or payable in respect of such goods, whether charged separately or not;
.....
(l) "sales" means a transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract in the State; and the word "sell" with all its grammatical variation and cognate expressions shall be construed accordingly;
Explanation :- For the purpose of this clause, the transfer of property in the execution of a works contract shall be deemed to have taken place in the State, if the goods so transferred are within the State SRP 38/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:11 ::: WP2119.16.doc at the time of their use, application or, as the case may be, appropriation in the execution of the works contract, irrespective of the place where the agreement for works contract is made and whether the consent of the other party is prior or subsequent to such use, application or appropriation."
(o) The definition of sale in Section 2(24) of the Maharashtra Value Added Tax Act, 2002 ("MVAT Act") incorporates an explanation that is a deeming provision by which transactions that were not considered sales prior to the 46th Constitutional amendment have been deemed to be sales for the purpose of the MVAT Act.
.....
(p) Clause (b)(ii) of the Explanation to Section 2(24) of the MVAT Act refers to works contracts as including certain specified contracts. This clause in the MVAT Act was initially in pari materia with Article 366(29A)(b). Admittedly, Article 366(29A) of the constitution is extremely broad and covers all types of works contracts.
(q) Clause (b)(ii) in the MVAT Act was amended after the decision of the Supreme Court in K. Raheja Dvelopment Corporation v. State of Karnataka, (2005) 5 SCC 162 (Petitioner's Compilation, Vol. VI, page 1 ). It is noteworthy that the clause was first amended by Maharashtra Act No. 32 of 2006 (Petitioner's Compilation, Vol. I, page 11 ).
(r) Subsequently, the word "means" was retrospectively replaced by Maharashtra Act No. 25 of 2007 (Petitioner's compilation, Vol. VI, page 17 ) with the word "including". The fact that the Legislature modified the word "means" to "including" clearly indicates that the intent of the amendment was to clarify that a works contract is much wider than an agreement for carrying out for cash, deferred payment or other valuable consideration the different types of works described in clause (b)(ii) of the MVAT Act. The Amendment of clause (b)(ii) was intended to clarify what was already implicit in the term "works contract" without in any manner restricting the meaning of the term.
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(s) It is well settled that the use of the word includes or including serves to enlarge the meaning of the preceding words and not restrict them [see, for instance, Regional Director, ESIC v. High Land Coffee Works, (1991) 3 SCC 617 at 620]. Therefore, Section 2(24) of the MVAT Act clarifies that works contract includes an agreement for carrying out for cash, deferred payment or other valuable consideration but does not limit works contract to a contract for monetary consideration.
(t) The fact that valuable consideration for a works contract may be something other than cash or deferred payment is also evident from the use of the words "valuable consideration" in the MVAT Act on a standalone basis defining purchase price and sale price:
"(20) "purchase price" means the amount of valuable consideration paid or payable by a person for any purchase made including any sum charged for anything done by the seller in respect of the goods at the time of or before delivery thereof, other than the cost of insurance for transit or of installation, when such cost is separately charged...
(25) "sale price" means the amount of valuable consideration paid or payable to a dealer for any sale made including any sum charged for anything done by the seller in respect of the goods at the time of or before delivery thereof, other than the cost of insurance for transit or of installation, when such cost is separately charged....."
(u) The words "valuable consideration" have been used without the words "cash or deferred payment". The absence of the words "cash and deferred payment" preceding the term "valuable consideration" in Section 2(20) and 2(25) of the MVAT Act shows that the term "valuable consideration"
is not intended to be read ejusdem generis with cash or money as contended by the Petitioner.SRP 40/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:11 :::
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(v) No doubt Section 2(24) has to be read as a whole but the Petitioner's interpretation of this clause is incorrect inter alia for the following reasons:
(w) The first part of Section 2(24) defines "sale" as meaning "a sale of goods made within the State for cash or deferred payment or other valuable consideration but does not include a mortgage, hypothecation, charge or pledge". By reason of the deeming fiction in the Explanation, each of the entries in clause (b) is deemed to be a sale thereby expanding the meaning of "sale".
(x) The petitioner's contention that an Explanation cannot go beyond the main section is incorrect, contrary to law and contrary to the clear legislative intent expressed in the MVAT Act. In Government of Andhra Pradesh v. Corporation Bank, (2007) 9 SCC 55 at para 10-14 (a copy of which is Annexure B hereto), the Supreme Court has set out the manner in which an Explanation is to be interpreted. It is clear from this decision that an Explanation may widen the scope of the main section and that a deeming provision is generally intended to enlarge the meaning of the particular word or to include matters which otherwise may not fall within the main provision. In the present case, the Explanation to Section 2(24) of the MVAT Act is clearly and unambiguously a deeming provision which enlarges the meaning of "sale" beyond that in the main section. (y) Therefore, when reading clause 2(24), the meaning of sale is enlarged so as to take within its umbrella each of these entries in the Explanation, Illustratively the deeming provision in clauses (b)(i) or (b)(iii) require sale to be understood as follows:
"Sale" means the transfer of property in any goods, otherwise than in pursuance of a contract, for cash, deferred payment or other valuable consideration;
"Sale" means a delivery of goods on hire-purchase or any system of payment by instalments.
(z) The Petitioner's interpretation is not only contrary to law but also results in the words "for cash, deferred payment or other valuable consideration" used for a deemed SRP 41/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:11 ::: WP2119.16.doc sale in the various sub-clauses to Explanation (b) to be rendered redundant or otiose. Illustratively, transposing the description of a deemed sale would result in the definition of sale reading as follows in the case of clauses (b)(i) or (b)(iii):
(11) "sale" means [the transfer of property in any goods, otherwise then in pursuance of a contract, for cash, deferred payment or other valuable consideration ] made within the State for cash or deferred payment or other valuable consideration but does not include a mortgage, hypothecation, charge or pledge;
(12) "sale" means [a delivery of goods on hire-
purchase or any system of payment by instalments] made within the State for cash or deferred payment or other valuable consideration but does not include a mortgage, hypothecation, charge or pledge.
(aa) It is well settled that every word in a statute should be given meaning. The fact that only some of the sub-clauses to Explanation (b) themselves use the word "for cash, deferred payment or other valuable consideration" means these words were not intended to apply to all deemed sales. (bb) The Petitioner's interpretation of Section 2(24) would not only necessitate a re-writing of Section 2(24) but would also require the words "cash" and "deferred payment"
to be read into several clauses of the MVAT Act. As set out above, Sections 2(20) and 2(24) only use the phrase "valuable consideration" and not "cash, deferred payment or other valuable consideration". The Petitioner's interpretation of Section 2(24) would result in a re-writing of these definitions. Similarly, under Section 3 of the MVAT Act the liability to pay tax is that of a "dealer". The definition of "dealer" in Section 2(8) provides as follows:
"(8) "dealer" means any person who, for the purposes of or consequential to his engagement in or, in connection with or incidental to or in the course of, his business buys or sells, goods in the State whether for commission, remuneration or otherwise and includes...."SRP 42/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:11 :::
WP2119.16.doc Therefore, the consideration that may be received or given by a "dealer" is once again not restricted to "cash, deferred payment or other valuable consideration". (cc) The Petitioner's apprehension that the Respondent's interpretation of Section 2(24) will result in sales outside the State being taxed is misplaced when the MVAT Act is read as a whole. Illustratively, Section 8 of the MVAT Act expressly clarifies as follows:
"(1) Nothing in this Act or the rules or the notifications shall be deemed to impose or authorise the imposition of a tax or deduction of tax at source on any sale or purchase of any goods, where such sale or purchase takes place, -
(a) (i) outside the State; or
(ii) in the course of the import of the goods into the territory of India, or the export of the goods out of such territory, or
(b) in the course of inter-State trade or commerce, and the provisions of this Act and the said rules and notifications shall be read and construed accordingly."
Therefore, independent of Section 2(24) of the MVAT Act, it is clear that the sale or deemed sale has to take place within the State for it to be liable to tax. This purported justification for reading the deeming provision in Section 2(24) as subject to the same limitations as a "sale of goods" in the main part of the Section 2(24) is therefore also misplaced and erroneous. (dd) The Petitioner's interpretation of Section 2(24) not only does violence to the definition of sale but is also contrary to the MVAT Act when read as a whole. The provisions of the MVAT Act are suitably clear and unambiguous and cannot be re-drafted in this manner. (ee) Section 2(d) of the Indian Contract Act, 1872 defines consideration. In Chidambara Iyer & Ors. v. P. S. Renga Iyer SRP 43/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:11 ::: WP2119.16.doc and Ors., AIR 1966 SC 193, the Supreme Court has relied on the classic definition of the term "valuable consideration", which is given in Currie v. Misa [(1875) LR 10 Ex 162] thus:
"A valuable consideration in the sense of the law may consist either in some right, interest, profit or benefit accruing to one party, or some forebearance, detriment, loss or responsibility, given suffered or undertaken by the other."
(ff) The Legislature when enacting the Works Contract Act, 1989 and the MVAT Act is deemed to have been aware of the different meaning given by the Hon'ble Supreme Court to the term "valuable consideration" when used on its own and when used in conjunction with the words "cash or deferred payment". Therefore, in the Works Contract act, 1989 and the MVAT Act the Legislature consciously decided that the consideration for a works contract (and certain other deemed sales) need not be restricted to money or its equivalent as in the case of an ordinary sale. (gg) Notably, in Dhampur Sugar Mills Ltd. v. Commissioner of Trade Tax, UP, (2006) 5 SCC 624 at para. 28 (Petitioner's compilation, vol. III, page 51 ), the Hon'ble Supreme Court has inter alia observed (without going into the question) that "the term "valuable consideration" in the changed context (in view of the Constitution amendment) may be viewed differently." (hh) In the light of the foregoing, it is submitted that unlike in the case of sale as envisaged under the Sale of Goods Act, 1930, it is not necessary that a works contract should be only for monetary consideration. Pursuant to the 46th Constitutional Amendment, the State legislatures are empowered to levy tax on transactions enumerated in Article 366(29A) even though such transactions do not have all the ingredients necessary for a sale of goods. In the case of a works contract, this is expressly made clear by the decision of the Hon'ble Supreme Court in M/s Larsen & Toubro Ltd. v. State of Karnataka, (2014) 1 SCC 708 at para 97 (Petitioner's Compilation, vol. III, page 65 )...... SRP 44/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:11 :::
WP2119.16.doc 35 It is in the light of the above that it is submitted by Ms. Jeejeebhoy that the machinery provided in terms of Rule 58 of the MVAT Rules for determining the tax payable on the value of the goods involved in the execution of a works contract ought to be made workable. In the present case, it makes the whole scheme workable and lends a proper meaning to the charging section. Pertinently, this rule uses the word 'value'. It does not speak of 'cash', 'deferred payment' or 'valuable consideration' when referring to the goods or the entire contract. In such circumstances, it would mean that the intention of the legislature was to tax all kinds of works contracts, including ones where the consideration is in kind. This is evident from the use of the word 'value' instead of 'price' or 'money consideration'. Therefore, placing heavy reliance upon this Rule and its wording it is urged by her that where consideration for works contract is money, that is definitely covered, but also those situations where the transaction is other than money even that is brought within the purview of the provision. The provision is not worded in a restrictive manner. She has emphasized the use of the word 'value' so as to support her argument that the term 'value' is understood as the intrinsic worth of a thing. Hence under Rule SRP 45/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:11 ::: WP2119.16.doc 58 the intrinsic worth of the petitioner's contract is to be determined and then deductions are to be made from that amount. Hence this will denote that where the works contract involves a consideration in something other than money, then, even that is covered if a machinery provision has to be construed liberally. That is to be construed and interpreted in a manner giving meaning to the charging section and making the whole machinery workable. Hence she would support the Tribunal's conclusions. The Tribunal, according to her, has rightly approached the matter. She would, therefore, submit that the petitioners having not challenged either the provisions of the MVAT Act or Rule 58 in these proceedings, the plain words of the statute and the Rule would bring the transaction with SRA to tax. The tax would be payable irrespective of the DRCs being held akin to money. Looked at from the above angle, the conclusion in the impugned order that the DRC / TDR amounts to valuable consideration is, therefore, correct. For the above reasons, she would submit that the appeal and the petition be dismissed. 36 She relies upon the following decisions in support of her above contentions:
SRP 46/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:11 :::
WP2119.16.doc (1) Regional Director, Employees State Insurance Corporation vs. High Land Coffee Works of P.F.S. Saldanha and Sons & Anr. (1991) 3 SCC 617.
(2) Chindambara Iyer & Ors.vs. P.S. Renga Iyer & Ors. AIR 1966 SC 193 (V 58 C 44) (3) Commissioner of Income Tax, West Bengal & Anr. vs. George Henderson & Co. Ltd. (1967) 66 ITR 622.
(4) M/s. Gannon Dunkerley & Co. & Ors. vs. State of Rajasthan & Ors. (1993) 1 SCC 364.
(5) M/s. Assam Oil Company Ltd. vs. Commissioner of Taxes, Guwahati, 1990 SCC Online Gau. 148.
(6) V.P. Vadivel Achari vs. The Madras Sales Tax, Order dated 28 th October, 1968 in WP Nos.1462 to 1466 of 1967. (7) Premier Electro Mechanical Fabricators vs. The State of Tamil Nadu, 1982, SCC Online Mad 345.
(8) Manish Dinesh Soni & Ors. vs. State of Maharashtra & Ors., 2016 (6) Bom. C.R. 162.
(9) Naiknavare & Associates, Pune vs. State of Maharashtra & Anr., 2008 (5) Mh. L.J. (10) Commissioner of Income Tax III vs. Calcutta Knitwears, Ludhiana, (2014) 6 SCC 444.
(11) Gurbachan Singh & Anr. vs. Shivalak Rubber Industries & Ors. (1996) 2 SCC 626.
SRP 47/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:11 :::
WP2119.16.doc 37 For properly appreciating these contentions a reference will have to be made to some basic and undisputed facts.
38 There is no dispute that there was an agreement and that agreement, copy of which has been annexed as Exhibit-I to the writ petition, is styled as a Deed of Conveyance. It is between a Hindu Undivided Family. That is styled as Sheth HUF. They are referred as the owners. They are the parties of the First Part. Then, the petitioners M/s. Sumer Corporation are referred as Confirming Party and finally the SRA is styled and referred as a third party. The owners absolutely own and/or otherwise are well and sufficiently entitled to certain pieces and parcels of land along with ground and structures standing thereon known as Chandivali Quarry Area. That is described in the First Schedule as the larger property. There was an agreement for development cum sale dated 3rd January, 2000, executed by the owners in favour of the Confirming Party. The Confirming Party agreed, inter-alia, to develop the larger property in the manner provided therein. The larger property admeasuring approximately 198293.80 square meters falls in a residential zone and balance SRP 48/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:11 ::: WP2119.16.doc area falls in no development zone. By an agreement made on 16 th August, 1999, between the owners and the Confirming Party, the Confirming Party had agreed to keep provided and reserved for the owners and their nominee/s, the right of way through the said property. On 24th January, 2003, a Deed of Conveyance was executed whereunder the owners, the Confirming Party and the SRA recorded that the owners conveyed to the SRA, the property bearing Survey Nos.6, 7, 12, 14 corresponding to CTS No. 11A (Part) admeasuring 65245.57 square meters or thereabouts of village Chandivali being a portion of the larger property described in the First Schedule and which property is more particularly described in the Second Schedule to this Deed of Conveyance. 39 Then, there is a reference to the conveying of the balance land after conveying the property described in the Second Schedule. How that conveyance of 6th May, 2003, came to be executed and in relation to which properties is extensively set out in the recitals. There was an addendum to the conveyance and the agreement executed on 6th May, 2003. The addendum to the conveyance and bipartite agreement dated 6th May, 2003, remained to be executed. Thereafter, there are certain recitals so SRP 49/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:11 ::: WP2119.16.doc as to record, confirm and ratify the location of the property. There is a more particular description of the lands to be conveyed. Since the Confirming Party for a consideration agreed and the owners also consented to convey the property described in the Fifth Schedule admeasuring 20512.50 square meters or thereabouts to SRA and the Confirming Party has agreed to join in the conveyance as Confirming Party, that this Deed of Conveyance records that this land is conveyed for the purpose of Slum Rehabilitation Scheme in lieu of SRA agreeing and undertaking and covenanting to provide or cause to be provided Slum Transferable Development Rights (TDR) by way of recommending to the Municipal Corporation of Greater Mumbai to issue a Development Right Certificate for the land, more particularly described in the Schedule, excluding land admeasuring 1025.62 square meters under five percent amenity open space as defined in the DCR as per the separate terms under the agreement dated 1st December, 2003, simultaneously executed between the parties. At the behest of SRA and in lieu of grant of Slum TDR, the owner has agreed to cause the conveyance in respect of the said property, more particularly described in the Fifth Schedule in favour of the SRA. Then, there are the usual SRP 50/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:11 ::: WP2119.16.doc and ordinary recitals and stipulations. It is, therefore, apparent that this Deed of Conveyance and which is signed by all the three parties enabled the petitioners to execute the impugned agreement/transaction with SRA whereby it was agreed that the petitioner would convey lands to SRA, more particularly described therein along with handing over free of cost constructed tenements for rehabilitation of slum dwellers affected by vital public purpose projects. Based upon the two documents above, from time to time the petitioner was granted a Development Right Certificate by the Brihanmumbai Municipal Corporation (for short "MMC") for the work done under the approved SRA Scheme. This DRC would be against the land TDR or the construction TDR as approved by the SRA. Mrs. Jeejeebhoy is right in urging that the TDR is understood as a transferable document in the form of DRC. It can be sold in the open market for a price. The petitioner has further sold TDR in the open market for a price which is determined by the demand and supply conditions in the market. The buyer of this TDR may either use the TDR for his own construction or further sell in the market. The price is determined and paid in terms of money. SRP 51/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:11 :::
WP2119.16.doc 40 It is in the above context, we must now refer to the definition of the term "sale" in the MVAT Act, 2002. Section 2(24) defines the word "sale" as under :
"2. In this Act, unless the context otherwise requires,-
.... .... .... ....
(24) "sale" means a sale of goods made within the State for cash or deferred payment or other valuable consideration but does not include a mortgage, hypothecation, charge or pledge; and the words "sell", "buy" and "purchase", with all their grammatical variations and cognate expressions, shall be construed accordingly;
Explanation.-- For the purposes of this clause,-
(a) a sale within the State includes a sale determined to be inside the State in accordance with the principles formulated in section 4 of the Central Sales Tax Act, 1956 (74 of 1956);
(b)(i) the transfer of property in any goods, otherwise than in pursuance of a contract, for cash, deferred payment or other valuable consideration;
(ii) the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract including, an agreement for carrying out for cash, deferred payment or other valuable consideration, the building, construction, manufacture, processing, SRP 52/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:11 ::: WP2119.16.doc fabrication, erection, installation, fitting out, improvement, modification, repair or commissioning of any movable or immovable property;] :
(iii) a delivery of goods on hire-purchase or any system of payment by instalments;
(iv) 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;
(v) the supply of goods by any association or body of persons incorporated or not, to a member thereof for cash, deferred payment or other valuable consideration;
(vi) 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 made or given for cash, deferred payment or other valuable consideration :
shall be deemed to be a sale."
41 Before we analyse this definition it would be advantageous to refer to the scheme of the Act itself. The Act, as is apparent from its preamble, is enacted to consolidate and SRP 53/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:11 ::: WP2119.16.doc amend the laws relating to the levy and collection of tax on the sale and purchase of certain goods in the State of Maharashtra. Chapter I of the Act contains the preliminary provisions. Chapter II deals with the incidence and levy of tax. Chapter III deals with sales tax authorities and tribunals, whereas Chapter IV provides for registration. The returns and assessment etc are governed by Chapter V, whereas penalty and interest are set out in Chapter VI. The payment of tax and recovery is dealt with by Chapter VII and contains sections 31 to 47. Chapter VIII provides for set off, refunds etc. and Chapter IX is titled as Proceedings. By Chapter X, there is a liability to produce accounts etc. and by Chapter XI, the statistics are dealt with. Chapter XII provides for offences and penalties and Chapter XIII contains miscellaneous provisions. Chapter XIV deals with package scheme incentive and Chapter XV is titled as Repeals and Savings. 42 As far as the incidence and levy of tax is concerned section 3(1) with which the Chapter II opens states that every dealer who immediately before the appointed date holds a valid or effective certificate of registration or licences under any of the SRP 54/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:11 ::: WP2119.16.doc earlier laws or who is liable to pay tax under any of the earlier laws, shall, if his turnover of sales or purchases exceeds the quantum specified therein, be liable to pay tax with effect from the appointed date in accordance with the provisions of the Act. Thus, the incidence and levy falls on the dealer. The tax is computed on the basis of the turnover of sales or purchases and the quantum thereof in money is specified. Taxes are payable in terms of section 4. Tax is not leviable on certain goods and section 6 deals with levy of sales tax on the goods specified in the schedule. Then, there are two sections dealing with purchase tax (Sections 6A and 6B). Rate of tax on packing materials is dealt with by section 7 and by section 8, certain sales and purchases are not to be liable to tax. By section 9, there is a power to amend the schedule. Thus, the State Government may be conferred with the power to exempt in cases covered by the sub-sections of section 8, yet, for the purpose of understanding the liability to pay tax and the levy itself, some definitions are relevant. The term "appointed date" is defined in section 2(3) to mean the 1 st of April, 2005. The term "business" is defined in section 2(4) and reads as under :
SRP 55/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:11 :::
WP2119.16.doc "2. In this Act, unless the context otherwise requires.-
.........
(4) "business" includes, -
(a) any service;
(b) any trade, commerce or manufacture;
(c) any adventure or concern in the nature of
service, trade, commerce or manufacture;
whether or not the engagement in such service, trade, commerce, manufacture, adventure or concern is with a motive to make gain or profit and whether or not any gain, or profit accrues from such service, trade, commerce, manufacture, adventure or concern.
Explanation : For the purpose of this clause,-
(i) the activity of raising of man-made forest or rearing of seedlings or plants shall be deemed to be business ;
(ii) any transaction of sale or purchase of capital assets pertaining to such service, trade, commerce, manufacture, adventure or concern shall be deemed to be a transaction comprised in business;
(iii) sale or purchase of any goods, the price of which would be credited or, as the case may be, debited in the profit and loss account of the business under the double entry system of accounting shall be deemed to be a transaction comprised in business; SRP 56/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:11 :::
WP2119.16.doc
(iv) any transaction in connection with the commencement or closure of business shall be deemed to be a transaction comprised in business ;" 43 The word "capital asset" is defined in section 2 clause (5), the word "Commissioner" is defined in clause (6) of section 2, whereas the term "dealer" is defined in section 2 clause (8) and reads as under :
"2. In this Act, unless the context otherwise requires.-
.........
(8) "dealer" means any person who, for the purpose of or consequential to his engagement in or, in connection with or incidental to or in the course of, his business buys or sells, goods in the State whether for commission, remuneration or otherwise and includes,-
(a) a factor, broker, commission agent, del-
credere agent or any other mercantile agent, by whatever name called, who for the purposes of or consequential to his engagement in or in connection with or incidental to or in the course of the business, buys or sells any goods on behalf of any principal or principals whether disclosed or not;
(b) an auctioneer who sells or auctions goods SRP 57/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:11 ::: WP2119.16.doc whether acting as an agent or otherwise or, who organises the sale of goods or conducts the auction of goods whether or not he has the authority to sell the goods] belonging to any principal whether disclosed or not and whether the offer of the intending purchaser is accepted by him or by the principal or a nominee of the principal;
(c) a non resident dealer or as the case may be, an agent, residing in the State of a non-resident dealer, who buys or sells goods in the State for the purposes of or consequential to his engagement in or in connection with or incidental to or in the course of, the business,
(d) any society, club or other association of persons which buys goods from, or sells goods to, its members;
Explanation.-- For the purposes of this clause, each of the following persons, bodies and entities who sell any goods whether by auction or otherwise, directly or through an agent for cash, or for deferred payment, or for any other valuable consideration shall, notwithstanding anything contained in clause (4) or any other provision of this Act, be deemed to be a dealer, namely:-
(i) Customs Department of the Government of India administering the Customs Act, 1962 (52 of 1962);
(ii) Departments of Union Government and any SRP 58/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:11 ::: WP2119.16.doc Department of any State Government;
(iii) Local authorities;
(iv) Port Trusts;
(iv-a) Public Charitable Trust;
(v) Railway Administration as defined under the
Indian Railways Act, 1989 (24 of 1989) and Konkan Railway Corporation Limited;
(vi) Incorporated or unincorporated societies, clubs or other associations of persons;
(vii) Insurance and Financial Corporations, institutions or companies and Banks included in the Second Schedule to the Reserve Bank of India Act 1934 II of 1934;
(viii) Maharashtra State Road Transport Corporation constituted under the Road Transport Corporation Act, 1950 (LXIV of 1950);
(ix) Shipping and construction companies, Air Transport Companies, Airlines and Advertising Agencies;
(x) any other corporation, company, body or authority owned or constituted by, or subject to administrative control, of the Central Government, any State Government or any local authority:
**** Exception I.-- An agriculturist who sells exclusively SRP 59/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:11 ::: WP2119.16.doc agricultural produce grown on land cultivated by him personally, shall not be deemed to be a dealer within the meaning of this clause.
Exception II.- An educational institution carrying on the activity of manufacturing, buying or selling goods, in the performance of its functions for achieving its objects, shall not be deemed to be a dealer within the meaning of this clause.
Exception III.-- A transporter holding permit for transport vehicles (including cranes) granted under the Motor Vehicles Act, 1988 (5 of 1988), which are used or adopted to be used for hire or reward shall not be deemed to be a dealer within the meaning of this clause in respect of sale or purchase of such transport vehicles or parts, components or accessories thereof."
44 Therefore, a perusal of these definitions would mean that dealer means any person who for the purposes of or consequential to his engagement in or in connection with or incidental to or in the course of his business, buys or sells goods in the State whether for commission, remuneration or otherwise and includes every entity specified in the sub-clauses of clause (8) of section 2. There are exceptions carved out but we are not concerned with the same. The word "declared goods" is defined in section 2(9), whereas the expression 'goods' itself is defined in SRP 60/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:11 ::: WP2119.16.doc section 2 clause (12). Thereafter, there are certain definitions preceding clause (24) of section 2(sale). Section 2, clause (17) defines the word "person" and by section 2 clause (20), the term "purchase price" is defined to mean the amount of valuable consideration paid or payable by a person for any purchase made, including any sum charged for anything done by the seller in respect of the goods at the time of or before delivery thereof other than the cost of insurance for transit or of installation when such cost is separately charged. The term "prescribed" is defined in section 2 clause (19) whereas the term "registered dealer" is defined in section 2(21). The words "re-sale" and "rules" are also defined in section 2 clauses (22) and (23) respectively. The word "sale price" is defined in section 2(25), whereas the term "service" is defined in section 2 clause (27). The words and expressions "turnover of purchases" and "turnover of sales" are defined in section 2, clauses (32) and (33) respectively. 45 Thus, a survey of these definitions and the substantive provisions contained in the Chapters referred by us above would indicate that in the instant case, what is brought SRP 61/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:11 ::: WP2119.16.doc within the purview of the Act is a 'sale' as defined in section 2 clause (24). It means a sale of goods made within the State. Such sale must by for cash or deferred payment or other valuable consideration, but does not include what is spelt out in the first part and preceding the explanation of clause (24). Then, the Explanation follows and it is for the purpose of section 2 clause (24) itself. This explains that not only a sale within the State, including a sale determined to be inside the State in accordance with the principles formulated in section 4 of the Central Sales Tax Act, 1956. It means a transfer of property in any goods otherwise than in pursuance of a contract, for cash, deferred payment or other valuable consideration. For our purpose we have to see whether transfer of property in goods or in some other form involved in the execution of a works contract and which includes an agreement for carrying out for cash, deferred payment or other valuable consideration the works set out in sub- clause (ii) of clause (b) and all the other sub-clauses, namely, delivery of goods on hire purchase, the transfer of right to use any goods for any purpose, the supply of goods by any association of a body of persons etc and supply by way of or part of any service. Each of these are deemed to be a sale. Therefore, a SRP 62/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:11 ::: WP2119.16.doc transfer of property in goods whether as goods or in some other form involved in the execution of a works contract, including the works specified in an agreement for carrying out for cash, deferred payment or other valuable consideration and enumerated in sub-clauses of clause (b) are deemed to be a sale. The sale price means the amount of valuable consideration paid or payable to a dealer for any sale entered, including any sum charged for anything done by the owner in respect of the goods at the time of or before delivery and excluding the cost specified in clause (25) of section 2 when such cost is separately charged. Thus, sale price is understood to mean the amount of valuable consideration and not necessarily in monetary terms. This is also in tune with the definition of the term 'sale' as explained above. After the constitutional amendment, we cannot ignore the plain words in the statute. Thus, cash, deferred payment or other valuable consideration cannot necessarily be understood in the manner suggested by the petitioners herein. 46 The expression "Valuable consideration" though not defined in the Act, is ordinarily understood as under : SRP 63/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:12 :::
WP2119.16.doc "Valuable Consideration. Consideration that is valid under the law, consideration that either confers a pecuniarily measurable benefit on one party or imposes a pecuniarily measurable detriment on the other - Also termed good and valuable consideration, legal consideration (Black, 7th Edn. 1999) "By a valuable consideration is meant something of value given or promised by one party in exchange for the promise of the other..... The thing thus given by way of consideration must be of some value. That is to say, it must be material to the interests of one or the other or both of the parties. It must either involve some gain or benefit to the promisor by way of recompense for the burden of his promise, or it must involve some loss or disadvantage to the promisee for which the benefit of the promise is a recompense. JOHN SALMOND, Jurisprudence 360 (GLANVILLE L. WILLIAMS ed. 10th ed. 1947) A consideration which the law regards as an equivalent, as money, goods, lands, services on marriage.
A valuable consideration in the sense of law, may consist either in some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility, given suffered or undertaken by the other, Kanak Sundar Bibi v. Ram Lakhan Pandey, AIR 1955 Pat. 458, 462 [Provincial Insolvency Act (5 of 1920), S. 58] Statutory definition excluding marriage consideration and nominal consideration in money. S.132(1) of the Land Registration Act 2002 (c.9) (Stroud. 6th Edn. 2000, Supplement 2003)"
47 Apart from the general understanding that it has to be SRP 64/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:12 ::: WP2119.16.doc valuable what this expression ordinarily means is that it either confers a pecuniarily measurable benefit on one party or imposes a pecuniarily measurable detriment on the other. It is a consideration which the law regards as an equivalent as money, goods, lands, services on marriage. It is also explained in a decision of the Patna High Court reported in AIR 1955 Patna 458. In the sense of law, it may consist either in some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility, given suffered or undertaken by the other. Thus, if TDR is pecuniarily measurable benefit, then, concededly, it can be brought to tax under the MVAT Act, 2002. 48 We need not go into a very wide controversy and generated by the arguments canvassed on behalf of the dealer / appellant-petitioner and the Revenue-respondents before us. That is already outlined. Mr. Sridharan would urge that the expression "or other valuable consideration" and as found in clause (ii) of sub-clause (b) clause (24) of section 2 to mean necessarily in money. Ms. Jeejeebhoy, on the other hand, would contend that it does not have to be so and it could be anything SRP 65/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:12 ::: WP2119.16.doc other than money.
49 For our purpose and this matter, it is not necessary to enter into this controversy. Even if we agree with Mr. Sridharan that the expression "or other valuable consideration" has to be understood ejusdem generis and with the preceding words and, therefore, has to be monetary consideration alone, still, we have no hesitation in holding that in the instant case, it is indeed identifiable and in terms of money. In other words, it is capable of being computed in terms of money.
50 Once we understand the two agreements and other documents referred therein to mean that the owner who owned a piece of land in Mumbai found it difficult to develop it or exploit its full potential in the market; it brought the petitioner-appellant developer on the scene. The developer noticed that the land is encroached upon by slum dwellers. They have organised themselves into a cooperative society or some other entity. They are bound to seek the intervention of the SRA for they had apprehended dispossession and eviction from the site if the SRP 66/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:12 ::: WP2119.16.doc petitioner-appellant takes up the property for redevelopment. Therefore, a tripartite arrangement was conceived and put into operation. It has been brought into effect by the above documents which envisage that a housing stock would be provided by the petitioner-appellant to the SRA free of cost. The houses / units would be transferred to SRA without charging any cost to it. That housing stock would be utilised for rehabilitation of the slum dwellers at site and some others dis-housed and evicted by public projects. In consideration of this obligation undertaken by the petitioner-appellant they would obtain an advantage or benefit capable of being computed in terms of money. They would get a right to exploit the potential of the land. That is computed on the basis of the provisions contained in the Development Control Regulations for Greater Bombay. Those DRCs and traceable to clause (m) of section 22 of the Maharashtra Regional Town Planning Act, 1966, inter-alia, provide for the floor space index and which the individual plot generates or is capable of generating provided it is exploited in the manner indicated in the DC Rules. In that event, the FSI would be available. That FSI could be utilised and admittedly as indicated by the petitioner- appellant themselves.
SRP 67/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:12 :::
WP2119.16.doc 51 To be precise, the Articles of Agreement dated 6th May, 2003, between the SRA and the appellant and the Constituted Attorney of the owners of the property contains the material recitals. The material recitals would indicate that on 13th June, 2002, the petitioner-appellant has submitted a rehabilitation proposal for slum dwellers on the said larger property to the SRA for approval as slum rehabilitation project under clause 3.11 read with clause 3.19 of the DCR No.33(10) as notified by Government Notification dated 15th October, 1997. The SRA is empowered to take over lands along with constructed tenements for the purpose of creating housing stock so as to enable rehabilitation of slum dwellers affected by vital public purpose projects. Then, there is a reference made to an agreement dated 24th January, 2003, executed by the SRA of the one part and the developer (appellant before us) of the other part under which it was agreed that the developer would convey lands more particular described in the schedule of agreement to the SRA along with handing over free of cost constructed tenements to SRA for rehabilitation of slum dealers affected by any vital SRP 68/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:12 ::: WP2119.16.doc public project and in exchange thereof the SRA agrees and undertakes to give or cause to be given, transferable development rights (TDR) and development right certificate (DRC) to the developer through the Municipal Corporation of Greater Mumbai as laid down in clause 3.11 and 3.19 read with clause 3.5 of Appendix IV of D.C.R. No.33(10) and also allowing the developer to further rights and privileges as appearing in the agreement. The developer agrees to construct and provide to the SRA, free of cost, about 11900 tenements comprising of 225 square feet (carpet area) each, including amenity tenement and other non- residential premises / public amenities in accordance with the approved SRA project. This is called the rehabilitation component. The developer would surrender the ownership of the land more particularly described in the Fourth Schedule by a separate Deed of Conveyance. Then, there is a stipulation at clause 7 of page 189 of the paper-book in Writ Petition No.2119 of 2016. That clause reads as under :
"7. The S.R.A. hereby confirms that the proposed project of construction of Rehabilitation Component by the Developer in pursuance of this Agreement on the said property is as per Clause 3.11 read with Clause No. 3.5 and 3.19 of Appendix IV of SRP 69/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:12 ::: WP2119.16.doc Development Control Regulations 33 (10) under Notification dated 15th October 1997, as S.R.A. intends to create housing stock for rehabilitation of slum dwellers affected by any vital public purpose projects and the Developers are entitled to get the benefit of the F.S.I. of the land as mentioned in Fourth Schedule hereunder written excluding land adm. about 7960.00 sq. mtr. under 5% amenity open space under DCR-2 required for construction of Rehabilitation Components in the form of T.D.R. It is agreed that the T.D.R. for the F.S.I. in respect of the land component for the said property will be given or cause to be given as per the ratio of F.S.I. prevalent at the time of signing of this Agreement by the S.R.A. to the Developer as herein mentioned. It is clarified that any higher F.S.I. ratio in respect of the land component, if available, hereafter due to any change in the Development Control Regulations upto the time of issue of last D.R.C. in respect of the last building under the Rehabilitation Component of approved S.R.A. Project or issue of last D.R.C. in respect of the land component whichever is earlier will be given by the S.R.A. at the time of such change for the entire land component irrespective of the fact that part T.D.R. was issued earlier for the said land component in the proportion as mentioned in this Agreement."
52 A perusal of this clause and the further clauses would SRP 70/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:12 ::: WP2119.16.doc leave us in no manner of doubt that the developer will be entitled to transfer or assign the TDR and/or DRC which may become available to him under this agreement as the developer may desire, without reference or recourse to or consent and concurrence of the SRA. If the very concept is understood as generating a right in favour of the developer-appellant which can be transferred for money in the open market, then, it is evident that both this agreement and also the Deed of Conveyance separately executed enable the petitioner-developer to earn consideration in the form of money. If this is a transferable property and commanding a price in the market, then, on the own showing of the petitioner-appellant, there is a money component clearly involved. The other valuable consideration for which the works are to be carried out under the works contract and which involves transfer of property in goods, therefore, is nothing but money.
53 Ms. Jeejeebhoy is right in relying upon the averments in the Writ Petition which denote that the TDR is a transferable document in the form of DRC. It can be sold in the open market SRP 71/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:12 ::: WP2119.16.doc for a price. The price is determined by the demand and supply conditions in the market. The buyer of the TDR may either use the TDR for his own construction or further sell it in the market. The petitioners have, on their own showing, dealt with such TDR and obtained the determined price in money for it.
54. The Development Control Regulations for Greater Mumbai, 1991, vide Regulation 33 provide for additional FSI, which may be allowed in certain categories. We are concerned with one of such categories, the terms and conditions on which the additional FSI would be granted and what we have before us is a scenario when additional FSI is permissible for reconstruction of buildings destroyed by fire, which have collapsed or which have been demolished, reconstruction or redevelopment of cessed buildings in the island city by co-operative housing society or of old buildings belonging to the Corporation or of old buildings belonging to the Police Department, reconstruction or redevelopment of cluster(s) of buildings under Urban Renewal Schemes and finally what we have is Regulation 33(10)(i) styled as Eligibility for Redevelopment Scheme. The redevelopment SRP 72/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:12 ::: WP2119.16.doc scheme, which is now in vogue is for a protected occupier as defined in Chapter I-B of the Maharashtra Slum Areas (Improvement, Clearance and Redevelopment) Act, 1971 and orders issued thereunder. Then, we have the eligibility criteria, definitions of "slum" "pavement" and "structure or hut" etc. and how the additional FSI would be admissible is stipulated further. Then, what we have is DC Regulation 34, which deals with transfer of development rights. That reads as under:-
"34. Transfer of Development Rights In certain cases, the development potential of a plot of land may be separated from the land itself and may be made available to the owner of the land in the form of Transferable Development Rights (TDR). These Rights may be made available and be subject to the Regulations in Appendix VII hereto.
Provision for Proposed Nalla/Nalla Widening/ Training and appurtenant service roads thereto shall be considered to be "reservation" in the Development Plan and if the FSI of such land is not possible to be consumed on the remaining land as envisaged under regulation 35, with prior approval of the Government, the owner shall be eligible for grant of TDR on handing over the land free of cost for such purpose as in Appendix-VII. However, as per the provision of regulation 15 of Appendix VII, the owner shall be insisted to pay pro-rata charges for cost of construction of compound wall instead of retaining wall:SRP 73/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:12 :::
WP2119.16.doc Provided that when Proposed Nalla/Nalla Widening/ Training and appurtenant service road thereto is passing through the lands affected by any other reservations of the Development Plan, then TDR of the land can be granted only once either for D. P. reservation or deemed reservation mentioned above for nalla etc. Efforts shall be made to cover/to train the nalla suitably so that the said land can be used for its intended purpose as proposed in the Development Plan. However, if such covering of nalla is not feasible/viable then the nalla and appurtenant service road shall be developed as per requirement and the said other reservation of the Development Plan affecting the said land shall be deemed to be deleted/modified to that extent."
55. We have also before us the Appendix VII and Appendix VII-B and prior thereto, Appendix VII-A. However, Appendix VII, which is referable to Regulation 34 and which would have to be read together with other regulations would indicate that it is providing for the grant of TDRs to owners/developers and conditions for grant of such rights. The various stipulations under this Appendix and the further Appendices wold indicate as to how the legislature has introduced a incentive scheme, by which, if the developers develop a plot of land or make development in respect of Slum Rehabilitation SRP 74/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:12 ::: WP2119.16.doc Scheme vide DCR 33(10) and 33(14) that they become entitled to such TDRs, which are transferable by themselves. Thus, to take care of the object and purpose of the Slum Act and to achieve it, to ensure public health and safety, which is a casualty because of proliferation of slums in Mumbai, with the involvement of private players, the eligible slum dwellers are rehoused in a decent accommodation free of cost and the Builder/Developer is compensated by the above method. They can utilise the TDR by themselves or dispose it of in the market and earn money so as not to loose monetarily in such rehabilitation projects. 56 Therefore, to our mind, this is a clear transaction where the petitioner-developer has for other valuable consideration which is nothing but money, agreed to construct the number of tenements specified above and handing them over free of cost to the SRA. In return of the same, it has obtained the above monetary benefits. To say that what they have obtained is an immovable property in exchange or in lieu of the cost of construction incurred by them means not presenting a true and complete picture. The DRC by itself has been sold for a price in SRP 75/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:12 ::: WP2119.16.doc the market depending upon demand and supply conditions. Thus, we have no hesitation in holding that this is to be understood as a valuable consideration and equivalent to money. It has definitely a market for it is a right which can be transferred by itself. The transferee of such a right would be able to exploit the potential of an immovable property. We are not concerned with the right derived by the transferee from transfer of TDR/DRC. We are construing a provision in a tax statute. The argument is that no tax is leviable on the activities and evidenced by the two agreements / conveyances. The argument is that this is not a deemed sale though falling in section 2 clause (24) but without involving cash or deferred payment and the expression "other valuable consideration" derives its colour from the preceding words "cash", "deferred payment". It is that argument which is being considered by us. Therefore, any broader aspects are immaterial and irrelevant. So long as the TDR is understood by law to be equivalent to cash compensation and which can be dealt with in the market for a price as it is able to command, then, the tax liability can be clearly computed and by recourse to the machinery provisions contained in the MVAT Act. It is not as if this transaction has no component of or does not involve money SRP 76/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:12 ::: WP2119.16.doc at all. The agreements, read as a whole and harmoniously would denote as to how in discharge of the obligation, the developer- petitioner has derived benefits. This is nothing but other valuable consideration capable of being computed in terms of money. If the DRC / TDR commands a price in the market, then, on the strength of that prevailing price in the market, the tax liability can be computed. That can be derived from application of the machinery provisions and the formula envisaged therein. There is absolutely no confusion or complication if the transaction is approached and understood in this manner.
57 Once this view is taken, then, it is evident that we have not deviated from the principle of law pressed into service by Mr. Sridharan. We have not travelled beyond the dictum laid down in Devi Dass (supra).
58 In the view that we have taken, therefore, the other issues are not necessary to be gone into and decided in further details. Mr. Sridharan would engage us in a very detailed discussion, but what one finds is that if the legal issue is settled, SRP 77/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:12 ::: WP2119.16.doc then, the peripheral or secondary matters can always be considered and decided on case to case basis. In the instant case, we cannot fault the assessment and valuation. 59 Therefore, what we have done in the preceding paragraphs is to take the second, third and fourth submission set down in writing by Mr. Sridharan. Even if we agree with him that the term "other valuable consideration" has been used in various sales tax laws and has always been understood to mean money consideration / monetary consideration, still, the sixth, seventh and eighth submission put down in writing need not detain us. Then, there is no question of any redundancy for we have read the definition as a whole. The ninth, tenth and eleventh submission also need not detain us further. 60 The Tribunal may have gone into and decided the issue on the basis that the law has considerably changed after Devi Dass' case and with the introduction and insertion of Article 366(29A) in the Constitution of India. However, even that approach, to our mind cannot be faulted as it is only because of SRP 78/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:12 ::: WP2119.16.doc that the activities of the parties before us have been brought within the tax net. They are now deemed to be sale. 61 Our conclusion also takes care of all the additional submissions rendered by Mr. Sridharan.
62 Ms. Jeejeebhoy has submitted that the interpretation of valuable consideration in the cases relied upon by the petitioner would not apply to a deemed sale of goods involved in the execution of a works contract and she has, in her written note, set out the reasons for the same. She has extensively referred to the constitutional amendment, the amendment to the Maharashtra Works Contract Act in 1989 and the provisions of the MVAT Act. We think that it is not necessary to go into this aspect and for the reasons indicated above. At the same time, we must clarify that we have agreed with her submission that the DRCs have an inherent value and are treated and dealt with for a price. Her reliance upon clause 15 of the Appendix VII-B of the DCR is apposite. That reads as under :
SRP 79/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:12 :::
WP2119.16.doc "15 A DRC shall be issued by the Commissioner himself as a certificate printed on bond paper in an appropriate form prescribed by the Commissioner.
Such a certificate shall be a transferable / negotiable instrument after due authentication by the Commissioner."
63 A perusal of the same would indicate that the certificate shall be a transferable /negotiable instrument after due authentication by the Commissioner. Her further argument is that there is a separation of development potential of land from a land which is under acquisition. That is a well recognised concept. In that regard the reliance placed by her on the decision noted in paragraph 17 of her written submissions is accurate. She has rightly relied upon section 126 of the MRTP Act and the DC Regulations to the extent relevant, namely, to contend that even what is derived by the petitioner-appellant is capable of being transferred for money. That the DRCs are valuable is not in dispute at all.
64 Finally, we find that her reliance on the decision of the Hon'ble Supreme Court reported in AIR 1966 SC 193 Chidambara SRP 80/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:12 ::: WP2119.16.doc Iyer & Ors vs. P.S. Renga Iyer & Ors. is also accurate. The Hon'ble Supreme Court in dealing with somewhat identical controversy held as under :
"11. Exhibit B-1 is an agreement dated August 22, 1934, executed between the members of the mortgagee-family. The relevant part of the document reads :
"All of us have out of our free will and consent set apart on this day the sum of Rs. 36,988-9-8 found entered against the date 30th Meenom 1109 M.E. (12th April 1934) in the ledger book under the head "kulathoorayyan" in the accounts maintained in respect of our common family business, the interest accrued thereon from the aforesaid date, the sum of Rs. 1,490 found entered in the ledger under the head "Patasala,.... (other properties are mentioned)...................... for charitable purposes for the welfare and prosperity of our family. And it is stipulated that the under-mentioned ceremonies shall be performed with the income derived from the aforesaid properties.
x x x x x x x (specific amounts to be spent for different purposes are given) x x x It has been stipulated that the management of the aforesaid properties endowed for purposes of charity shall be conducted by the seniormost male members of the respective branches for SRP 81/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:12 ::: WP2119.16.doc each year by rotation, commencing from first Kanni 1110 M.E. (17th September 1934) and the accounts shall be rendered to the satisfaction of the members of the rest of the branches at the end of the year."
The recitals of this documents are clear and unambiguous. Under this document the members of the family set apart a specific amount and other properties for charitable purposes. Under the scheme of administration the seniormost male members of the different branches of the family were constituted the managers and they were directed to pay specified amounts for specific religious purposes. The members of the family were the authors of the trust. The seniormost male members of the respective branches were the trustees. The charity was the beneficiary. The subject-matter of the trust was the said amount and the properties. All the necessary ingredients of a trust are present in the document. It is, therefore, clear that the document created a valid trust of the said amount."
"14 ... ... ... ... ... ... ... ... The classic definition of "valuable consideration" is given in Currie v. Misa, (1875) 10 Ex. 153 at p. 162, thus: "A valuable consideration in the sense of the law may consist either in some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility, given, suffered or undertaken by the other."SRP 82/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:12 :::
WP2119.16.doc 65 As a result of the above discussion, both the Writ Petition and the appeal fail. The Rule is discharged in the Writ Petition. The substantial questions of law on which the Appeal is admitted stand answered in favour of the Revenue and against the appellant. There would be no order as to costs. 66 At this stage, Mr. Thakar, on instructions, seeks stay of the recovery by coercive means. This request is opposed by Ms. Jeejeebhoy on the ground that there are concurrent findings recorded against the petitioner/appellant. 67 Having heard both sides on this point, we are of the view that in the light of the statement of law and which is upheld, the Revenue will have to adopt procedure for recovery as set out in the Act and the Rules. There is no immediate apprehension of the nature expressed by Mr. Thakar. Hence the request is refused.
B.P. COLABAWALLA, J. S.C. DHARMADHIKARI, J. SRP 83/83 ::: Uploaded on - 15/05/2017 ::: Downloaded on - 28/08/2017 00:38:12 :::