XXTH CENTURY FINANCE CORPORATION LIMITED Vs. STATE OF MAHARASHTRA

JUDGEMENT

(1.) 1. (For himself and on behalf of S. P. Bharucha and D. P. Mohapatra, JJ.) (Majority view). Despite the decisions of this Court in Builders' Association of India v. Union of India, (1989) 2 SCC 645 : (AIR 1989 SC 1371) and M/s. Gannon Dunkerley and Co. v. State of Rajasthan, (1993) 1 SCC 364 : (1993 AIR SCW 2621), 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 legislature 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 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.) ON the argument of learned counsel for the parties, the questions that arise for consideration are (a) what are the limitations on the power of State to levy tax on the transactions of transfer of right to use any goods and (b) where is the situs of taxable event on the transfer of right to use goods under Article 366(29A)(d) of the Constitution. Before we deal with the aforesaid questions, it would be helpful to look into the legislative history of levy of sales tax in this country and the decisional law in order to resolve the controversy before us.