Havells India Ltd. vs The Commissioner Value Added Tax & ...
2010 Latest Caselaw 1994 Del

             THE HIGH COURT OF DELHI AT NEW DELHI

%                                         Judgment reserved on: 13.04.2010
                                          Judgment delivered on: 19.04.2010

+ ST.APPL. 3/2008, ST.APPL. 4/2008, ST.APPL. 5/2008,
  ST.APPL.6/2008 & ST.APPL. 7/2008

Havell's India Ltd.                                         ..... Appellant

                                                   versus

The Commissioner Value Added Tax & Anr.
                                                            ..... Respondent


Advocates who appeared in this case:
For the Appellant : Mr S.K. Taneja
For the Respondent: Mrs Avnish Ahlawat, Ms Simran and
                    Mr Nitesh Kumar Singh

                                             And
+ W.P.(C) 5430/2008

I.T.C. LTD. & ANR.                                          ..... Petitioner

                                                   versus

COMMISSIONER OF VALUE ADDED TAX & ORS.
                                   ..... Respondent

Advocates who appeared in this case:
For the Petitioner : Mr R. Narain, Ms Sonu Bhatnagar,
                     Ms Mallika Joshi and Mr Siddharth
For the Respondent: Mr Rajesh Mahana, Mr Ramanand Roy
                     and Mrs Navneet Dhillion

CORAM:-
HON‟BLE MR JUSTICE BADAR DURREZ AHMED
HON‟BLE MR JUSTICE V.K. JAIN

      1. Whether Reporters of local papers may be allowed to
         see the judgment?                             Yes


ST.APPL. 3/2008 to 7/2008 and W.P.(C) 5430/2008                        Page 1 of 29
       2. To be referred to the Reporter or not?                              Yes

      3. Whether the judgment should be reported in Digest?                  Yes

V.K. JAIN, J.

1. By this common judgment, we will dispose of all the

six matters referred above.

2. STA.3/2008 to 7/2008 are directed against a

common order passed by the Appellate Tribunal, Value Added

Tax, Delhi, whereby it upheld the order passed by the

Appellate Authority. The following substantial questions of

law were framed for consideration in these appeals:

(i) "Whether the Tribunal was correct in law in holding that an agent to whom the goods are transferred on consignment basis, is covered under the definition of „dealer‟ under Section 2(j) of the Delhi Value Added Tax, 2004 and the transfer of goods to such an agent for consideration, whether received in advance or subsequently in consequence of sale of goods, shall amount to sale and be taxed accordingly?

(ii) Whether the Tribunal was correct in law in holding that the appellant in affecting sale of goods through its consignment agent who has paid due tax on the said sales to the Government, he is also liable to pay tax under the DVAT Act, 2004?"

3. Since the questions, as framed earlier, do not reflect

true controversy involve in the appeals, we have reframed the

question as under and have heard the parties accordingly:

(i) "Whether in the facts and circumstances of the case, the Tribunal was correct in law in holding that the appellant was liable to pay VAT in respect of goods transferred by it to its agent on consignment basis?"

4. The brief facts, as noted by the Tribunal, are that the

appellant company is engaged in sale of electronic goods and

has appointed a Consignment Agent in Delhi. In the monthly

returns filed by it, the appellant disclosed that certain goods,

on which credit of input tax had been claimed by it, were

physically transferred by it to the Consignment Agent, for sale

through him. The Consignment Agent sold the goods of the

appellant under a written agreement which provided that he

would sell the goods on behalf of the appellant and would

deposit the tax on its behalf. The VAT Officer rejected the

claim of input tax credit and levied tax on the value of the

goods transferred to the Consignment Agent. The order of the

VAT Officer was upheld by the Appellate Authority, which

dismissed the appeal and also upheld the notice of assessment

of penalty, issued to the appellant under Section 33 Delhi

Value Added Tax Act. While dismissing the appeal, the

Tribunal was of the view that Value Added Tax is to be levied

on the value of „every‟ transfer, when the goods changes hands

from the original producer to the ultimate consumer.

5. In exercise of the power conferred upon him under

Section 85 of Delhi Value Added Tax Act, 2005, the

Commissioner of Value Added Tax issued a Notification No.

F.4(3)/P-II/VAT/2005/1158 dated 2.12.2005 clarifying therein

as under:

1. "The scheme of DVAT envisages taxing different stages in the production and distribution chain and allows set off for taxes paid at the earlier stages. Unlike the Central Sales Tax, 1956 wherein there is provision for transfer of goods by the dealer to his branch or his agent otherwise than by way of sale, in Delhi Value Added Tax 2004 there is no similar provision for intra- state transfer of goods to the branch or an agent without payment of tax. Under the DVAT Act, even an agent to whom goods are transferred on consignment basis are covered under the definition of "dealer" and transfer of goods to an agent for consideration, whether received in advance or subsequently on conclusion of sale of goods shall amount to sale and shall be taxed accordingly. However, the agent shall be eligible to claim input tax credit for taxes paid to the Principal. To sum-up all intra- state transfer of goods to an agent within Delhi on consignment without payment of tax is not allowed under the provisions of DVAT Act, 2004 and such intra-state transfers are covered under the definition of sale and are liable to tax as per provision contained in DVAT Act, 2004 from the day the DVAT Act came into force.

2. Transfer of goods by a dealer from his one

place of business to another place of business within Delhi is not sale and is not to be taxed provided all the places of business of the dealer within Delhi are covered in dealer‟s single registration under the DVAT Act 2004 and the dealer is filing one single return in one jurisdiction.

3. However, in case the branches are registered as independent dealers, a transfer by one such branch to another branch is transfer by one Principal to another Principal and such transfers are covered under the definition of sale and to be taxed accordingly.

4. The notification shall be treated as effective from the date the Delhi Value Added Tax Act came into effect."

6. Though the notification was challenged before the

Tribunal, it did not examine its validity and held that transfer

of goods to an agent for a consideration, whether received in

advance or subsequently, in consequence of sale, shall

amount to sale and shall be taxed accordingly and in such

case the Consignment Agent shall be eligible to claim input tax

credit for the tax paid to the Principal. The Tribunal also held

that appointment of Consignment Agent was contrary to the

provisions of the Act.

7. In WP(C)543/2008, petitioner No.1 ITC Limited,

which is engaged in the business of sale of apparels and other

accessories, has appointed five Consignment Agents in NCT of

Delhi. It is alleged that the petitioner company transferred the

goods from its warehouses to the Consignment Agents in

Delhi, who sold those goods to the retailers/consumers, for

and on behalf of and in the name of the petitioner company. It

is further alleged that the title in the goods remains with the

company till the goods are sold by the Consignment Agent and

on sale by its agents, the company is entitled to entire sale

proceeds and the Consignment Agent is paid commission at

the agreed rate. The case of the petitioners is that there is no

transaction of sale between the petitioner company and its

Consignment Agents and, therefore, the transaction between

the company and the Consignment Agents does not attract

charging of Value Added Tax. The VAT Officer issued demand

notices dated 9.6.2008 demanding tax in respect of the goods

supplied by the petitioner to its Consignment Agents between

April, 2005 and March, 2006. The VAT Officer relied upon

the Advance Ruling published vide above referred Notification

dated 2.12.2005 as well as the order of the Tribunal which is

under challenge in STA 3/2008 to 7/2008. This is also the

case of the petitioner that any demand of value added tax, on

supply of goods by the petitioner to its Consignment Agents,

would be unconstitutional being beyond the legislative

competence of the State, under Entry 54 of List II of Schedule

7 of the Constitution, which empowers the State to levy tax

only on sale and not on such stock transfers by the Principal

to his agent. The petitioners have, therefore, sought quashing

of the demand notices as well as the impugned Advance

Ruling, published vide notification dated 2.12.2005. The

petitioners have also prayed that the provisions of Section 3(2),

2(1)(zc) and 2(1)(j) of DVAT Act be declared as unconstitutional

and beyond the legislative competence of the State if they

purport to levy tax in respect of transaction which does not

amount to sale of goods.

8. The respondent has contested the petition and has

taken a preliminary objection that the writ petition is not

maintainable since it is open to the petitioner to file objections

under Section 74 of the DVAT Act against the default

assessment orders passed by VAT Officer. On merits, it has

been alleged that transfer of property takes place from the

petitioner to the Consignment Agents under an arrangement of

deferred payment of consideration and such arrangements are

not exempt as per the scheme of DVAT Act. It has been

claimed that the Consignment Agents issue their invoices pay

taxes on them and carry on business under their own TIN

number. It has also been stated that under DVAT Act, there is

no provision for intra-State transfer of goods to the agents

without payment of tax and since the Consignment Agent is

covered under the definition of dealer, he is liable to pay tax

on the goods transferred to him.

9. Section 3 of Delhi Value Added Tax Act, which is the

charging Section for VAT, to the extent it is relevant, provides

as under:

"3. Imposition of tax

(2) Every dealer shall be liable to pay tax at the rates specified in Section 4 of this Act on every sale of goods effected by him--

(a) while he is a registered dealer under this Act or

(b) on and from the day on which he was required to be registered under this Act."

10. It would, thus, be seen that the liability of a dealer to

pay tax in terms of DVAT Act arises only in respect of the

goods sold by him. „Sale‟ has been defined under Section 2 (zc)

of the Act which reads as under:

"(zc) "sale" with its grammatical variations and cognate expression means any transfer of property in goods by one person to another for cash or for deferred payment or for other valuable consideration (not including a grant or subvention payment made by one

government agency or department, whether of the central government or of any state government, to another) and includes-

(i) a transfer of goods on hire purchase or other system of payment by installments, but does not include a mortgage or hypothecation of or a charge or pledge on goods;

(ii) supply of goods by a society (including a co-operative society), club, firm, or any association to its members for cash or for deferred payment or for commission, remuneration or other valuable consideration, whether or not in the course of business;

(iii) transfer of property in goods by an auctioneer referred to in sub-clause

(vii) of clause (j) of this section, or sale of goods in the course of any other activity in the nature of banking, insurance who in the course of their main activity also sell goods repossessed or re-claimed;

(iv) transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration;

(v) transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;

(vi) 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;

(vii) supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service is for cash, deferred payment or other valuable consideration;"

11. A careful analysis of the above referred definition

would show that the following are the essential ingredients of

sale as defined in the Act:

(i) There should be transfer of property in goods by

one person to another.

(ii) The transfer should be for cash or for deferred

payment or for some other valuable consideration.

What is noteworthy is that it is „transfer of property in goods‟

and not „transfer of goods‟, which constitutes sale within the

meaning of Section 2(zc) of the Act, unless the transaction is

otherwise covered under sub-clause (i) to (viii) of the clause.

In the present case, there was no transfer of goods on hire

purchase or any other system whereby payment was to be

made on instalment, there was no supply of goods by a

society, club, firm or any association to its members, there

was no transfer of right to use the goods and there was no

supply, by way of or as part of any service and, in any case,

the goods in question were not any food, drink or other article

for human consumption. Sub-clause (viii) of section 2 (zc) is

also not attracted, since the transaction does not come within

the purview of sub-clause (ix) of clause (j) of Section 2.

Therefore, the transaction between the Principal and the

Consignment Agent would not constitute „sale‟ unless there is

transfer of property in the goods. Sub-clauses (iii), (iv) and (v)

of clause (zc) of Section 2, which do not apply to transactions

between the Principal and a Consignment Agent, in any case

require transfer of property in the goods before the transaction

can constitute sale within the meaning of the Act.

12. Transfer of property in goods implies that the

ownership or title of the goods must necessarily get

transferred from one person to another. In the appeals

referred above, the facts, as recorded by ATVAT, do not

indicate that the title or ownership of the goods got transferred

from the appellant company to its Consignment Agent, when

the goods were delivered to the agent on consignment basis.

The Tribunal has recorded that the Consignment Agent was

selling the goods of the appellant, which means that the title

or ownership of the goods continued to vest in the appellant

company despite transfer of physical possession of the goods

from the place of the appellant to the place of the Consignment

Agent. The Tribunal has recorded that as per the written

agreement between the appellant and its Consignment Agent,

the goods were sold from the agent on behalf of the appellant.

This term, in the contract between the appellant and its

Consignment Agent, shows that the title or ownership in the

goods continued to vest in the appellant company and the

Agent was carrying out the sale for and on behalf of the

appellant. It has been specifically noted by the Tribunal that

the Consignment Agent deposits the tax on behalf of the

appellant. This is yet another indicator of the fact that title in

the goods continued to vest in the appellant company and that

is why the tax was deposited by the Agent on its behalf and

not on his own behalf. There is absolutely no finding by the

Tribunal to the effect that property or title or ownership in the

goods got transferred by the appellant to its agent either before

or at the time of delivery of the goods to the Agent or at any

time thereafter. Even the Revenue did not contend before the

Tribunal that in fact the title or ownership in the goods was

transferred to the agent along with physical transfer of the

goods. Since there was no transfer of property in the goods

from the appellant to its Agent, the transaction between the

parties cannot be said to be a transaction of „sale‟ within the

mean of Section 2 (zc) of the Act.

13. In our view, the Tribunal was wrong in saying that

Value Added Tax is payable on „every‟ transfer till the goods

reach the ultimate consumer. If that were to be so then mere

physical transfer of goods from the place of the Principal, to

the place of the Agent, without being coupled with transfer of

ownership in those goods, would constitute what the Tribunal

termed as „transfer‟. Tax is payable only if the transfer of

goods constitutes sale within the meaning of Section 2(zc) of

the Act and mere physical transfer of goods from the premises

of the Principal to the premises of the Agent, without transfer

of title in the goods, from the Principal to the Agent, will not

amount to sale and, consequently, will not be liable to

payment of Value Added Tax under Section 3(2) of the Act.

Even if the Consignment Agent is covered under the definition

of dealer under Section 2(j) of the Act, that by itself will not

attract payment of Value Added Tax unless the physical

transfer of goods to the „Dealer‟ is coupled with transfer of

ownership in those goods to him so as to constitute a „sale‟

within the meaning of Section 2(zc)

14. We have examined the terms and conditions of the

Agreement for Consignment executed between the appellant

and its Consignment Agent. The relevant terms and

conditions of the agreement read as under:

"1. General 1.04 That the little of the goods shall rest with the principal and agent shall not create any charge or lien or hypothecate such goods lying in their custody in any manner, and the principal alone shall have the right to hypothecate or create a charge or lien on such goods lying in the agent‟s custody.

2. That the Agents shall:

2.03 Maintain separate books of accounts, i.e., bill register, Challan Register, Stock Register, Debtor‟s Register, Bank Register etc., of any other files and the books of accounts opened for scrutiny of the Principal from time to time.

2.04 Deposit all collections made in Consignment account in a separate Bank account which is to be operated jointly.

2.12 Sell the goods to their other customers only as per Company policy. For any excess discounts a written approval from the principal is a must. At month end the agent shall send the sale detail showing separately the sale made with excess discount along with copy of approvals.

2.14 Maintain proper records of the

receipts, despatches and sales returns, remittance and any other reports in the prescribed format as per the statutory requirements under any statute/law for the time being in force and/ or as per the instructions of the principal.

                2.15        Send monthly updated statement
                of

                Receipts
                Dispatches
                Sales returns
                Stock positions
                Collections
                Money transferred to Head Office or
                Any other report

By 3rd of next month. The Agent shall also provide the information/report as required by the principal for any shorter period.

                2.16     Shall provide facilities for monthly
                authentication of the stocks in the
                presence       of      at       least     one
                direction/authorized      person      of  the
                principal     and    the      agent.     Such

authentication shall have to be signed by the respective directors/authorized persons.

2.17 Shall allow the persons authorized by the principal to inspect and verify the stocks at any time with or without prior notice to the agent.

3. That the agent shall not:

3.05 Effect any change in the constitution of their organization without the written consent of the principal.

4. Insurance:

4.01 That Principal shall insure at its own cost the stocks held by the agent at the agent‟s godown for the value of the stock for fire, theft, riot, earthquake, floods, damage etc., as well as transit insurance. For this, Agent shall keep the Principal informed about any expected or otherwise increase/decrease in stocks.

5. Consideration:

5.01 In consideration of the services provided by the agent, the agent shall be entitled to receive a commission as follows which will be settled on a monthly basis on the net material value of sales effected from Delhi depot and from Principal directly to the area of Delhi.

                            Switchgear items       3%
                            Cable                  3%
                            Wires                  3%
                            Meters                 3%

15. Clause 1.04 of the agreement leaves no doubt that

the ownership and title in such goods continues to vest in the

appellant and the Agent has no right or title in them, as is

evident from the prohibition against hypothecation of such

goods or creation of any charge or lien on them by the Agent,

while specifically retaining such right with the appellant. The

requirement to deposit all the sale proceeds in a separate bank

account, to be jointly operated by the parties also indicates

that property in the goods did not pass to the Consignment

Agent and that is why the sale proceeds were to be kept in a

separate Bank account. Conferring a right upon the appellant

to scrutinize the account books and requiring the Agent to

send monthly statements of all receipts, dispatches, sales,

stock position, etc. to the appellant, in terms of clause 2.15 of

the agreement is yet another term which shows that title in

the goods did not pass to the Consignment Agent and that is

why he was required to send all these statements to the

appellant for the purpose of rendering true and complete

account of the sales effected by him on behalf of the appellant.

Had the title in the goods passed to the Consignment Agent,

there would have been no reason for him to agree for monthly

authentication of the stock in the presence of a representative

of the appellant in terms of clause 2.16 of the agreement and

to agree for inspection and verification of the record by the

authorized representative of the appellant without even a prior

notice to the Consignment Agent, in terms of clause 2.17 of

the agreement. The requirement of insurance at the cost of

the appellant also shows that the ownership in the goods

continue to vest in the appellant company and that is why it

had to insure the stock kept in the premises of the

Consignment Agent, at its own cost. Obviously, it is the

appellant and not the Consignment Agent who would have

suffered loss in case of any damage or destruction of the stock

kept in the premises of the Consignment Agent.

16. Therefore, we have no hesitation in holding that

under the terms and conditions of the agreement between the

appellant and its Consignment Agent Guptajee & Co., the

property in the goods transferred by the appellant to the

Consignment Agent and kept in his premises did not get

transferred to the Agent.

17. As regards the Notification No. F.4(3)/P-II/

VAT/2005/1158 dated 2.12.2005, a perusal of the document

would show that this is an Advance Ruling given by the

Commissioner of Value Added Tax under Section 85 of the Act,

which provides that the Commissioner may by notification in

the Official Gazette, publish his ruling on the answer to any

question involving the interpretation of the Act or application

of the Act to a class of persons or a class of transactions.

Obviously, the ruling of the Commissioner needs to be based

upon a correct interpretation of the provisions of the Act and it

cannot either substitute or supplement the provisions of the

Act. It is not open to the Commissioner, while publishing a

ruling in terms of Section 85 of the Act to take a view contrary

to the provision of the Act or to add to its provisions. Hence,

the Commissioner cannot classify a transaction as sale if such

a transaction otherwise does not constitute „sale‟ within the

purview of the Act. The Commissioner cannot, by way of

Advance Ruling, say that a transaction between the Principal

and his Agent will necessarily amount to sale in every case,

even if it does not amount to sale within the meaning of

Section 2(zc) or any other provision such as Section 17 of the

Act which deals with transactions between „related parties‟. It

is not permissible to levy and collect Value Added Tax merely

on the strength of the Advance Ruling published by the

Commissioner under Section 85 of the Act when the

transaction does not constitute sale within the meaning of the

Act.

18. In State of Madras Vs. Gannon Dunkerley &

Co.(Madras) Limited : (1958) 9 STC 353 (SC), it was held by

the Supreme Court that the expression „sale of goods‟ in Entry

48 in List II of Schedule 7 of Government of India Act, 1935

cannot be construed in its popular sense but must be

interpreted in its legal sense and should be given the same

meaning which it has in the Sale of Goods Act, 1930, its

essential ingredients being an agreement to sell movables for a

price and property passing therein pursuant to that

agreement. Thus, passing of property in the movable goods

was held to be an essential ingredients of sale.

19. Article 366 of the Constitution which defines certain

expressions used in the Constitution was amended by

Constitution (46th Amendment) Act, 1982 so as to include

certain transactions within the expression „tax on sale or

purchase of goods‟ used in Entry 54 in the II List of the

Schedule 7 of the Constitution and to provide that such

transfer, delivery or supply of any goods shall be deemed to be

a sale of those goods, by the person making transfer, delivery

or supply and of purchase of those goods by the person to

whom such transfer, delivery or supply is made. None of

these transactions includes a transaction involving a mere

physical transfer of goods by the Principal to its Consignment

Agent, without being coupled with transfer of property in those

goods from the Principal to the Agent. In any case since the

transactions which are the subject matter of STA 3/2008 to

7/2008 do not constitute „sale‟ as defined in the Act, it is not

permissible for the respondent to levy Value Added Tax on the

said goods.

20. In Bharat Sanchar Nigam Limited & Another Vs.

Union of India & Others : (2006) 145 3 SCC 1, the Supreme

Court held that its decision in the case of Gannon Dunkerley

(supra) survives the 46th Constitutional Amendment with

regard to the definition of „sale‟ for the purpose of the

Constitution in general and for the purpose of Entry 54 of List

II in particular except to the extent that the clauses in Article

366(29A) operate.

21. In Sri Tirumala Venkateswara Timber & Bamboo

Firm Vs. Commercial Tax Officer : (1968) 21 STC 312,

Explanation III to Andhra Pradesh General Sales Tax Act,

1957 was under consideration. The said Explanation-III read

as under:

"Explanation III: -- Notwithstanding anything contained in this Act or in the Indian Sale of Goods Act, 1930 (Central Act 3 of 1930), two independent sales or purchases shall, for the purposes of this Act, be deemed to have taken place--

(1) when the goods are transferred from a principal to his selling agent and from the selling agent to the purchaser, or (2) when the goods are transferred from the seller to a buying agent and from the buying agent ____ principal, if the agent is found in either of the cases aforesaid.--

(i) to have sold the goods at one rate and to have passed on the sale proceeds to

his principal at another rate; or

(ii) to have purchased the goods at one rate and to have passed them on to his principal at another rate; or

(iii) not to have accounted to his principal for the entire collections or deductions made by him, in the sales or purchases effected by him on behalf of his principal; or

(iv) to have acted for a fictitious or non- existent principal;"

The Supreme Court held that the real effect of the third

Explanation is to impose the tax only when there was a

transfer of title to the goods and not where there is a mere

contract of agency.

It was further held that the phrase „goods are transferred‟ in

clause 1 & 2 of Explanation III on a proper construction meant

„title to the goods is transferred‟. During the course of

judgment, the Supreme Court, inter alia, noted as under:

"As a matter of law there is a distinction between a contract of sale and a contract of agency by which the agent is authorised to sell or buy on behalf of the principal and make over either the sale proceeds or the goods to the principal. The essence of a contract of sale is the transfer of title to the goods for a price paid or promised to be paid. The transferee in such a case is liable to the transferor as a debtor for the price to be paid and not as agent for the proceeds of the sale. The essence of agency to sell is the delivery of the goods to a person who

is to sell them, not as his own property but as the property of the principal who continues to be the owner of the goods and will therefore be liable to account for the sale proceeds. The true relationship of the parties in each case has to be gathered from the nature of the contract, its terms and conditions, and the terminology used by the parties is not decisive of the legal relationship."

22. In Bhopal Sugar Industries Limited Vs. STO,

Bhopal : 1997 (40) STC 42, the Supreme Court, while

considering the definition of „sale‟ given in Madhya Pradesh

Sale of Motor Sprit Taxation Act, 1957, which defined „sale‟,

noted that in a contract of sale, title to the property passes on

to the buyer on delivery of the goods for a price paid or

promised and once this happens, the buyer becomes the

owner of the property and the seller has no vestige of title left

in the property. It was further noted that in a contract of

agency, the agent takes delivery of the property, does not sell it

as his own property and sells the same as the property of the

Principal and under his instructions and directions. Since the

agent is not the owner of goods, if any loss is suffered by the

agent, he is to be indemnified by the Principal.

23. For the reasons given in the preceding paragraphs,

we are of the view that the Tribunal was not correct in law in

holding that the appellant company was liable to pay Value

Added Tax in respect of the goods physically transferred by it

to its Consignment Agent. The question of law is therefore

answered in the negative. The impugned order is, accordingly,

liable to be set aside.

24. Coming to WP(C)5430/2008, admittedly, the

respondents raised demand in respect of the supplies made by

the petitioner No.1 to its Consignment Agents without going

into the question as to whether property in the goods supplied

by the petitioner No.1 to its Consignment Agents stood

transferred to the Agents or not and whether the transactions

between petitioner No.1 and its Consignment Agents

amounted to sale under the provisions of the Act, or not. The

demand has been raised on the strength of the Notification

No. F.4(3)/P-II/ VAT/2005/1158 dated 2.12.2005 published

by Commissioner of Value Added Tax, on the assumption that

every supply made by the Principal to a Consignment Agent

attracts levy of Value Added Tax. As held by us, the

transaction between the Principal and Consignment Agent

does not constitute „sale‟ within the meaning of Section 2(zc) of

the Act unless it is coupled with transfer of property in the

goods from the Principal to the Consignment Agent. Hence, it

was not open to the respondent to demand Value Added Tax

unless either the property in the goods supplied by petitioner

No.1 to its Consignment Agents got transferred to the Agents

or the transaction between the parties amounted to sale within

the meaning of some other provision of the Act. In fact, a

perusal of the demand notices issued by the Department of

Trade and Taxes would show that it has relied upon the

decision of the Tribunal in the case of Havell‟s India Limited,

which has not found favour with us.

25. During the course of arguments, it was contended

before us that neither Consignment Agents nor supply on

consignment basis is recognized by Delhi Value Added Tax

Act, 2004. In our view, it is absolutely immaterial that the Act

does not deal with appointment of Consignment Agents or

supply of goods on consignment basis. So long as the

transaction between the Principal and Consignment Agent or

between any two persons, does not amount to a sale within

the meaning of Section 2(zc) or any other provisions of the Act

it is not open to the Department to insist upon payment of

Value Added Tax on such a transaction. The Act does not

declare supply of goods on consignment basis to be illegal and

does not deem such supply to be a sale. Our attention has not

been drawn to any provision of the Act declaring such

transactions to be „sale‟ of goods. In the absence of any

provision to this effect in the Act and considering the definition

of „sale‟ given in Section 2(zc) of the Act, such transactions do

not attract payment of Value Added Tax in Delhi.

26. The respondents have pleaded that the writ petition

filed by ITC Limited & Another is not maintainable since it is

open to them to file objections under Section 74 of the Act.

We, however, find that the demand notice issued by the

respondent relies upon the Advance Ruling published by the

Commissioner vide Notification No. F.4(3)/P-II / VAT /2005 /

1158 dated 2.12.2005 and the 5th proviso to Section 74 (1) of

the Act specifically provides that no objection shall be made to

the Commissioner against an order under Section 84 or

Section 85 of the Act, if the Commissioner has not delegated

his power under the said section to other Value Added Tax

Authorities. Therefore, we cannot say that petitioner instead

of filing writ petition should file objections under Section 74(1)

of the Act before the Commissioner against his own ruling.

So long as the Advance Ruling published by the Commissioner

stands in its present form, no useful purpose would be served

by directing the petitioners to file objections before the

Commissioner, who, in view of his own Ruling, is bound to

dismiss such objections.

27. Since we have come to the conclusion that a

transaction involving mere physical transfer of goods by the

Principal to its Consignment Agent unless coupled by transfer

of title or property in the goods to the Agent, does not

constitute sale under the provisions of Delhi Value Added Tax

Act, we need not examine the contention that the State

Legislature is not competent to levy tax on a transaction where

the goods are physically transferred from the Principal to the

consignment Agent but the property or title in the goods

continues to vest in the Principal.

28. The Notification No. F.4(3)/P-II/VAT/2005/1158

dated 2.12.2005 issued by Commissioner, Value Added Tax to

the extent it requires payment of Value Added Tax on the

supplies made by a Principal to a Consignment Agent, even if

such supply is not coupled with transfer of property in the

goods to the Consignment Agent and the transaction between

the parties otherwise does not amount to „sale‟ in terms of the

provisions of Delhi Value Added Tax, 2004, is, therefore, liable

to be set aside. Since demand notices to the writ petitioner

have been issued, without examining as to whether the

property in the goods transferred from the possession of

petitioner No.1 ITC Limited to its Consignment Agents, also

got transferred to the Agents or not, the same are also liable to

be quashed.

Conclusions:

1. The Tribunal, in the facts and circumstances of the

case, was not correct in law in holding that the appellant was

liable to pay VAT in respect of goods transferred by its to its

agent on consignment basis. The impugned order is,

therefore, set aside.

2. Notification No. F.4(3)/P-II/VAT/2005/1158 dated

2.12.2005 issued by Commissioner, Value Added Tax to the

extent it requires payment of Value Added Tax on the supplies

made by a Principal to a Consignment Agent, even if such

supply is not coupled with transfer of property in the goods to

the Consignment Agent and the transaction between the

parties otherwise does not amount to „sale‟ in terms of the

provisions of Delhi Value Added Tax, 2004 is quashed. The

demand notices impugned in the writ petition are hereby

quashed. It will, however, be open to the Department to

examine the nature of the transactions between the petitioner

Company and its Consignment Agents in the light of

observations made in this judgment and thereafter proceed in

accordance with law if it comes to the conclusion that the

transactions between them constitute „sale‟ within the

meaning of Delhi Value Added Tax Act, 2004.

The appeals as well as the writ petition stand

disposed of.

(V.K. JAIN) JUDGE

(BADAR DURREZ AHMED) JUDGE APRIL 19, 2010/RS