Bombay High Court
Sumer Corporation vs The State Of Maharashtra And 2 Ors on 25 April, 2017
Bench: S.C. Dharmadhikari
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
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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
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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
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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.
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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
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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
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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
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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 ?
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(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
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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
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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
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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.
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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
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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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(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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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
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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
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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,
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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.
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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
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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
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"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.
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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
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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.)
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(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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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.
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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
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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
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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:-
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(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).
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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
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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
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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
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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
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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
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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
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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
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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.
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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
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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...."
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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
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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 )......
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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
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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:
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(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.
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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
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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
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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
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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.
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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,
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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
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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
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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 :
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"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;
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(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
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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
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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
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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
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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
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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
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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 :
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"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
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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
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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
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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.
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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
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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
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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
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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
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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
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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:
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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
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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
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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
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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,
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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
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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 :
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"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
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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
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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."
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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.
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