20TH CENTURY FINANCE CORPN.LTD. vs STATE OF MAHARASHTRA. Supreme Court, 09-05-2000

CourtSupreme Court (India)
JudgeS.P.BHARUCHA , B.N.KIRPAL , V.N.KHARE , S.S.M.QUADRI , D.P.MOHAPATRA
Parties 20TH CENTURY FINANCE CORPN.LTD.STATE OF MAHARASHTRA
Docket NumberC.A. No.-004500-004500 / 1989
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CASE NO.:
Appeal (civil) 4500 of 1989
PETITIONER:
TWENTIETH CENTURY FINANCE CORPN.LTD.& ANR.
RESPONDENT:
STATE OF MAHARASHTRA
DATE OF JUDGMENT: 09/05/2000
BENCH:
S.P.BHARUCHA & B.N.KIRPAL & V.N.KHARE & S.S.M.QUADRI & D.P.MOHAPATRA
JUDGMENT:
JUDGMENT
DELIVERED BY:
V.N.KHARE,J.
S.S.M.QUADRI,J.
V.N.KHARE, J.
(1) Despite the decisions of this Court in Builders
Association of India and others vs.Union of India and
others (1989) 2 SCC 645 and M/s. Gannon Dunkerley & Co.
and others vs. State of Rajasthan and others (1993) 1 SCC
364, the controversy as regards the power of the State
legislature to levy sales tax under clause (29A)(d) of
Article 366 of the Constitution in the context of the
question where is the taxable event on the transfer of right
to use any goods remained unresolved. In this group of
cases, we are concerned with the power of States
legislatures to levy sales tax on the transfer of right to
use any goods envisaged under clause (29A)(d) of Article 366
of the Constitution on the premise that goods put to use are
located within their States. Several States by their
legislations have levied tax on the transactions of transfer
of right to use goods on the location of goods at the time
of their use within their States irrespective of the place
where the agreement for such transfer of the right to use
such goods is made. The questions therefore, that arise for
consideration in these cases are, whether a State can levy
sales tax on transfer of right to use goods merely on the
basis that the goods put to use are located within its State
irrespective of the facts that - (a) the contract of
transfer of right to use has been executed outside the
State; (b) sale has taken place in the course of an
inter-State trade; and (c) sales are in the course of
export or import into the territory of India. The
appellants case is that, the State legislature cannot so
frame its law as to convert an outside sale or a sale in the
course of import or a sale in the course of an inter-State
trade or commerce into a sale inside the State. (2) The
appellants in civil appeals and the petitioners in the writ
petitions filed under Article 32 of the Constitution and
transferred petition, and respondent in Civil Appeal Nos.
6218- 23/95 are the companies incorporated under the
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Companies Act, and some have their registered offices at
places outside the respondent States and others have inside
the States. They carry on business of leasing diverse
equipments. According to them, they entered into Master
Lease Agreements with the lessee i.e. the party who desired
to take equipment for use on hire. The appellants and the
petitioners agree to give on lease diverse
machinery/equipments listed in the Lease Summary Schedule,
subject to terms and conditions stipulated in the Master
Lease Agreements. The Lease Summary Schedule only mentions
the broad category of equipment proposed to be leased and
the correct value thereof. The Master Lease Agreement
provides that orders for individual equipment will be placed
by the appellants at the instance of lessees and that the
equipment to be leased will be dispatched by the
manufacturer or supplier concerned to the locations
specified in the lease. Thereafter, at the instance of the
lessees, the appellants place their purchase orders to the
suppliers or manufacturers for supply of individual items or
equipments falling within the category and correct value
mentioned in the Master Lease Agreement Schedules. The
appellants and the petitioners further case is that, they
disburse the value of equipment to the suppliers and at the
instance of the appellants and the petitioners the suppliers
deliver the equipments to the lessees at the specified
locations for use. After the equipments are delivered and
put to use, the lessee executes supplementary lease
schedules acknowledging due receipt of the lease equipments,
and such supplementary lease deeds form an integral part of
the Master Lease Agreement. Such is the nature of business
carried on by the appellants and the petitioners in this
group of cases. According to the appellants and the
petitioners, one transaction of transfer of right to use
goods is subjected to sales tax by more than one States. On
such a transaction, some States levy tax on the appellants
and the petitioners, merely because the goods were found to
be located in their States at the time of execution of
contract which has taken place outside the State. Some
States levy tax when the goods are delivered in their States
for use in pursuance of agreements of transfer executed
outside their States and some States tax such transactions
of deemed sales on the premise that agreements for transfer
of right to use have been executed within their States. The
appellants and the petitioners, therefore, have challenged
the validity of the legislations by various States whereby
one transaction of transfer of right to use goods has been
subjected to tax by more than one States.
(3) The petitioners by means of writ petitions under
Article 32 and transferred petition have challenged the
validity of the provisions relating to imposition of tax on
transfer of right to use goods contained in the sales tax
laws of States of Maharashtra, Karnataka, Tamil Nadu,
Haryana, Uttar Pradesh, Rajasthan and Andhra Pradesh. Civil
Appeal Nos. 6218-23/95 are directed against the judgment of
the Andhra Pradesh High Court allowing the writ petitions
filed by the respondents therein. We will separately deal
with the sales tax laws of other States. At present, we
propose to consider the controversies involved in these
cases with reference to the provisions contained in The
Maharashtra Sales Tax on the Transfer of the Right to Use
Any Goods for any Purpose Act, 1985 (hereinafter referred to
as the Maharashtra Act). The Maharashtra Act purports to
levy and collect tax on the transfer of the right to use any
goods for any purpose in the State of Maharashtra. Section
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2(10) of Maharashtra Act defines sale thus: sale means
the transfer of the right to use any goods for any purpose
(whether or not for a specified period) for cash, deferred
payment or any other valuable consideration, and the word
sell with all its grammatical variations and cognate
expressions, shall be construed accordingly. The above
sub-section has an Explanation, which runs as under: -
Explanation. - For the purposes of this clause, the
transfer of the right to use any such goods shall be deemed
to have taken place in the State of Maharashtra if the goods
are in the State of Maharashtra at the time of their use
irrespective of the place where the agreement for such
transfer of the right to use such goods is made, and whether
the assent of the party is prior or subsequent to such
transfer of the right to use any such goods.
Section 3 of the Maharasthra Act provides for
incidence of tax and Section 4 deals with levy of tax.
There is no dispute as regards the definition of sale.
What is under challenge is the Explanation to sub-section
(10) of Section 2 of the Act, which fixes situs of deemed
sale within the State of Maharashtra on location of goods at
the time of their use. The appellants in Civil Appeals
excepting Civil Appeal Nos. 6218-23/95, had challenged the
levy of sales tax by State of Maharashtra by means of writ
petitions under Article 226 of the Constitution before the
Bombay High Court. Before the High Court, it was contended
by the appellants that the Maharashtra Act, particularly
Section 3 read with Section 2(10), purports to levy tax not
only the transfers of right to use goods which takes place
within the State of Maharashtra, but also upon the transfer
which occasions the movement of leased or to be leased goods
from one State to another, and also upon the transfers
effected during movement of goods from one State to another
and, therefore, the Act is ultra vires Articles 269(3) and
246 read with Entry 92A of List I of the Seventh Schedule of
the Constitution. It was also contended that the Act
imposes sales tax upon transfers of the right to use goods
which takes place outside the State of Maharashtra and also
in the course of import of the goods into the territory of
India and as such the Act is ultra vires Articles 286(1)(a)
and (b) of the Constitution. The High Court was of the view
that the transaction of transfer of right to use goods is a
species of bailment, as there is no transfer of ownership in
such transaction and since such transactions are in the
nature of contract of bailment, the transfer is completed
only upon the delivery of the goods and, therefore, situs of
sale created by the Explanation to Section 2(10) of the Act
is valid. Consequently, the writ petitions were dismissed.
It is in this way the appellants are in appeal before this
Court. Excepting two States the provisions of the Sales Tax
Acts of all the other States are on line with that of the
Maharashtra Act. Since the grounds of challenge to all the
Acts are substantially the same, we, therefore, propose to
decide these cases by a common judgment.
(4) S/Shri K.R.Parasaran, R.F.Nariman and Harish N.
Salve, learned senior counsel, appearing for the appellants
and the petitioners urged, that there are two independent
limitations upon the taxing power of the State based on
situs of the sale - one is engrafted in Article 286 and the
other where the sale occurs within the State, it cannot by
virtue of Entry 54 of List II read with Entry 92A of List I

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