M/S. Infrastructure Leasing And ... vs The Commissioner Of Value Added ...
2010 Latest Caselaw 646 Del

*             IN THE HIGH COURT OF DELHI AT NEW DELHI

            W.P.(C) No.16142/2006 and CM No. 13143/2006 (stay)

%                                     Reserved on : 01st December, 2009.
                                      Date of Decision: 05th February, 2010.




M/s. Infrastructure Leasing and Financial Services Ltd. . . .Petitioner

                         through :           Mr.Randhir Chawla with Ms. Renu
                                             Sangal, Advocates.


                                VERSUS

The Commissioner of Value Added Tax & Ors.            . . . .Respondents

                         through:            Mr.Prag P. Tripathi, ASG with Mr.
                                             H.L. Taneja and
                                             Mr. Amey Nargolkar, Advocate.

CORAM :-
    THE HON'BLE MR. JUSTICE A.K. SIKRI
    THE HON'BLE MR. JUSTICE SIDDHARTH MRIDUL

       1.     Whether Reporters of Local newspapers may be allowed
              to see the Judgment?
       2.     To be referred to the Reporter or not?
       3.     Whether the Judgment should be reported in the Digest?

A.K. SIKRI, J.

1. The petitioner is carrying on the business of leasing of machinery and

vehicles all over the country. It leases goods required by the lessee for specified

period, namely, 24, 36 and 48 months against lease rentals payable each month

of the tenure of the lease. Admittedly such a transaction was not exigible to

sales tax under the Delhi Sales Tax Act as it was not treated as „sale of goods‟ as

understood in the Sale of Goods Act. The traditional concept of „sales tax‟ has

undergone a drastic change by amending Article 366 of the Constitution and

inserting Clause 29A therein. The scope for the levy of sales tax has been

expanded thereby in as much as clause 29A provides that sale and purchase of

goods would include, besides other transactions, the transfer of the right to use

goods. Clause 29A reads as under: -

"(29A) „tax on the sale or purchase of goods‟ includes-

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

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

(c) a tax on the delivery of goods on hire-purchase or any system of payment by installments;

(d) a tax on 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;

(e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration;

(f) a tax on 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 for cash, deferred payment or other valuable consideration

and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made."

2. After the said amendment, the sale and purchase of goods, by fiction of law

would, includes transfer of the right to use goods irrespective of the fact that in

leasing transactions, there is no ownership of goods passing from the seller to

the buyer. As a result of the Constitutional amendment, the powers of the States

were enlarged for making a law for levy of tax on such deeming sales referred to

in Article 366 (29A). Most of the States exercised their powers and amended

the respective Sales Tax Acts by extending the scope of the definition of the

term „sale‟ so as to include lease transactions in which transfer of the right to use

goods alone has been given. The Delhi State enacted a separate Act known as

the Delhi Sales Tax On Right to Use Goods Act, 2002 (hereinafter called as the

„Act 2002‟) which was notified and came into operation w.e.f. 15th September,

2004. After the enactment of the Act 2002, all lease transactions in which the

transfer of the right to use goods had been effected became liable to sales tax.

3. This enactment, namely the Act 2002 was repealed by the Delhi Value

Added Tax, 2004 (hereinafter called as the „DVAT Act‟) which has been enforced

on 1st April, 2005. Section 106 of the DVAT Act makes this repealing

provisions. Sub-Section (2) of Section 106, however, provides that the repeal

shall not affect the previous operation of the Act, or any right, title, entitlement,

obligation or liability, already acquired, accrued or incurred, thereunder.

4. It is clear from the aforesaid that the Act 2002 remained in operation from

15th September, 2004 to 30th April, 2005. All lease transaction agreement

entered into during this period would be liable for the tax under this Act. The

petitioner herein had, however, entered into various lease agreements prior to

15th September, 2004. The duration of these agreements was 24/36/48 months.

Obviously, therefore, such agreements, though entered prior to 15th September,

2004 continue to exist even after September‟04 and instalments by the lessees

were paid after September‟04 as well, which were received by the petitioner as

the lessor under those agreement.

5. The question that has arisen is as to whether the petitioner would be

liable to pay tax under the Act 2002 in respect of the amount towards the

installments received after 15th September, 2004 though the agreements were

entered prior to 15th September, 2004.

6. The case of the petitioner is that prior to coming into force of this

enactment, there was no law or any provision in the existing Sales Tax Act

providing for a levy of tax on lease transactions and it was for the first time that

law was made for levy of tax on lease transaction by the Legislating Act, 2002.

However, Section 3 of the Act 2002, which is the charging section and provides

for incidence of tax, inter alia, lays down that the tax shall be leviable on the

turnover of sale in respect of the transfer of the right to use goods accrued to

before the appointed date but the right to use goods is exercised on or after the

appointed date. The said Section 3 reads as under: -

"Section 3

Incidence of Tax - Subject to the provisions contained in this Act and the rules made thereunder, a tax shall be leviable on the turnover of sales in respect of -

(a) the transfer of the right to use any goods agreed to before the appointed day but the right to use the goods is exercised on or after the appointed day;

(b) the transfer of the right to use any goods agreed to prior to the appointed day, and wherein the right to use has been continued after the appointed day, to the extent of the sale price received or receivable in respect of such use on or after the appointed day; and

(c) the transfer of the right to use any goods agreed to on or after the appointed day."

7. By virtue of this provision, the tax becomes payable even qua those

agreements which were entered into prior to 15th September, 2004 but payments

under those lease agreements were received after 15th September, 2004. It is for

this reason that the petitioner feels aggrieved by the provisions of Section 3(b) of

the Act 2002 and challenges the validity of the provisions on the ground that it

is ultra vires to the provisions of Section 2(n) which defines „sale‟ in the following

terms: -

"2(n) "Sale" with its grammatical variation and cognate expressions means any transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or any other valuable consideration, and the word "sell" shall be construed accordingly."

8. Since the definitions of „goods‟ and „turnover of sales‟ as provided in

Section 2(f) and 2(s) of the Act 2002, would be relevant for the discussion it

would be apposite to reproduce these provisions also at this stage: -

"2(f) "goods" includes all materials, articles, commodities and all other kinds of movable property, but does not include newspapers, actionable claims, stocks, shares, securities or money.

2(s) "turnover of sales" means the aggregate of the amounts of sale price received or receivable during a year by a dealer in respect of the transfer of the right to use any goods."

9. Mr. Chawla, learned counsel appearing for the petitioner pointed out that

Section 2(n) provides that sale means any transfer of the right to use goods for

any purposes for cash or for deferred payment. But, Section 3 is the charging

Section and it provides, firstly, that tax shall be leviable on the turnover of sale

in respect of the transfer of the right to use goods agreed to before the appointed

day but the right to use goods is exercised on or after the appointed day. The

provisions of Section 3 are directly in violation of the provision of Section 2(n),

inasmuch as the sale under the enactment means transfer of the right to use the

goods for a price. If there is a transfer of the right to use goods i.e. if the right

has been given to the user of the goods then on the day the right has been given

it would deem to be a sale and would be liable to sales tax, irrespective of the fact

that the goods are subsequently used during the tenure of the agreement and

price thereof is received in installments during the tenure of the agreement

which may be even after coming into force of the new enactment. The user of

the goods and the receipt of the price has not criteria for determining the situs of

sale. Sale in law takes place only once when transfer of the right to use goods is

effected. It is at that point of time that taxable event takes place which can be

liable to tax. If on the date the transfer is effected there is no law for levy of tax

on lease transactions then no tax can be imposed.

10. Giving another twist to the same argument, he submitted that it is the

settled principle of law that when a sale is effected then subject to other

provisions of the law taxable event takes place which becomes liable to sales tax

at the rate prevailing at that point of time. Simply because the consideration is

received in installments through deferred payment relating to the said sale

transaction, that by itself would not change either the situs of sale or the rate of

tax applicable thereon. The mode of payment and the time of payment have no

relevancy either to the levy or to the rate applicable. In case where sale has

already taken place and installments are received subsequently by which point of

time the rates have changed then the changed rates do not come into play to

calculate the tax payable in respect of the prior completed sale. The rate of tax

applicable will always be the rate prevailing at that point of time when the sale

was effected.

11. He further pointed out that the rate of tax on leasing transactions was 4%

during the period 14-09-04 and 01-04-05. However, after the coming into force

of the DVAT Act, 2004, after 01-04-05 the rate of tax applicable on leasing

transactions was the rate prevalent on individual items namely

Motor vehicles 12.5% Machinery 12-5% Furniture 12-5% Computers 4%

12. Proceeding on that basis, his argument was that the deeming sale under

the Delhi Transfer of the Right to Use Goods takes place as and when the right

to use is transferred by virtue of the agreement. The taxable event is the taking

place of the sale. As and when the sale and the taxable event takes place the

same is liable to tax. The subsequent installments received spread over in

number of months have no relevancy and are immaterial to determine either the

sale or the taxable event. It is only a consideration received in deferred

installments. The receiving of the consideration in lumpsum on the same day or

deferred or by installments does not shift the point of sale or the taxable event.

The sale is one in the lease transaction and can only be taxed once as and when

the sale is effected. It is absurd that each installment received month after

month is by itself an independent sale. Section 3(b) is in excess of powers

conferred by Entry 54 and therefore, is without authority and in

unconstitutional.

13. He argued that though Section 2(n) was in line with clause (d) of Article

366 (29A), Section 3(b) was in excess of the powers conferred by roping in

subsequent payments of installments to tax by treating them as independent

sales."

14. Learned counsel also relied upon the judgment of the Supreme Court in

20th Century Finance Corpn. Ltd. and Another vs. State of Maharashtra

wherein it has been held as under: -

"27. Article 366(29A)(d) further shows that levy of tax is not on use of goods but on the transfer of the right to use goods. The right to use goods accrues only on account of the transfer of right. In other words, right to use arises only on the transfer of such a right and unless there is transfer of right, the right to use does not arise. Therefore, it is the transfer which is sine qua non for the right to use any goods. If the goods are available, the transfer of the right to use takes place when the contract in respect thereof is executed. As soon as the contract is executed, the right is vested in the lessee. Thus, the situs of taxable event of such a tax would be the transfer which legally transfers the right to use goods. In other words, if the goods are available irrespective of the fact where the goods are located and a written contract is entered into between the parties, the taxable event on such a deemed sale would be the execution of the contract for the transfer of right to use goods. But in case of an oral or implied transfer of the right to use goods it may be effected by the delivery of the goods.

28. No authority of this Court has been shown on behalf of respondents that there would be no completed transfer of right to use goods unless the goods are delivered. Thus, the delivery of goods cannot constitute a basis for levy of tax on

the transfer of right to use any goods. We are, therefore, of the view that where the goods are in existence, the taxable event on the transfer of the right to use goods occurs when a contract is executed between the lessor and the lessee and situs of sale of such a deemed sale would be the place where the contract in respect thereof is executed. Thus, where goods to be transferred are available and a written contract is executed between the parties, it is at that point situs of taxable event on the transfer of right to use goods would occur and situs of sale of such a transaction would be the place where the contract is executed." (emphasis supplied)

15. His argument based on the aforesaid observations, was that first there has

to be „sale‟ and then the question of „situs of sale‟ arises. He argued that the

exigibility to tax arises at the stage of „sale‟ and transaction of sale/deemed sale

even in case of transfer of right to use goods has to be treated as on the date of

entering into agreement.

16. Mr. Prag P. Tripathi, learned Additional Solicitor General appeared on

behalf of the respondents refuted the aforesaid submissions of the learned

counsel for the petitioner. He challenged the very foundation of the case laid by

the petitioner and submitted that one provision of the Act cannot be treated as

ultra vires the other provisions of the same Act. On merits, his arguments was

that by the 46th amendment to the Constitution and insertion of clause (29A) to

Article 366 thereof, the very scope of taxation was enlarged by the Parliament.

The said amendment was not limited to the scope of „sale‟ but conceptually

redefined the realm of „taxation‟. It was by this Amendment, that the deeming

provision was introduced, treating certain transactions as amenable to sales tax

which transactions in traditional sense were not treated as „sale‟. The leasing

transactions were to be taken into consideration in the light of this spirit behind

the aforesaid Amendment, was the submission of the learned Additional Solicitor

General. Examining in this backdrop, rentals paid were not to be treated as

„deferred payment‟ but it amounted to „sale‟ every month when rental was paid,

in as much as the right to use the equipment leased would arise only on payment

of the lease rentals every month. It is on the payment of lease rentals every

month that the right to use is perfected, for failure to pay lease rentals in a

particular month, the lessor (petitioner in the instant case), had right to recover

back the leased article. The submission, thus, was that taxability is on the event

of payment as the legislature was not taxing „sale‟ but payment received in case

of right to use. In this scenario, the principle of „sale‟ as applicable in case of

goods had no relevance, relating to the leased transactions. He argued that the

structure of a lease agreement/contract was different from that of „contract of

sale‟. When the sale of goods is affected, the property passed on to the purchaser

immediately and even if there is default in making the payment, the seller cannot

recover back the goods but is entitled to the price of the goods or damages. On

the contrary, in the case of a lease agreement, which are treated as „deemed sale‟

for the purpose of taxation, no right in the goods passes. There is only a right to

use and that right also accrues to the lessee every month on faithfully payment

of lease rentals every month. Thus, in case of default, when the payment of lease

rental is not made in a particular month, the right accrues in favour of the

lessor/transferor to get back the goods leased. Therefore, it follows that each

month is a separate transaction of deemed sale and each installment of lease

rental is „sale price‟.

17. The learned ASG referred to the lease agreement executed by the

petitioner and particularly paragraphs 21 and 22 thereof which are to the

following effect: -

"21. EVENTS OF DEFAULT :

An event of default shall occur hereunder if the Lessee:

21.1 Fails to pay any of the lease rentals or part thereof or other payment required hereunder when due and such failure

continues for a period of ____ days after written notice to the Lessee; or.........

              21.2   xxxx        xxxx         xxxx         xxxx         xxx
              21.3   xxxx        xxxx         xxxx         xxxx         xxx
              21.4   xxxx        xxxx         xxxx         xxxx         xxx
              21.5   xxxx        xxxx         xxxx         xxxx         xxx
              21.6   xxxx        xxxx         xxxx         xxxx         xxx
              21.7   xxxx        xxxx         xxxx         xxxx         xxx
              21.8   xxxx        xxxx         xxxx         xxxx         xxx
              21.9   xxxx        xxxx         xxxx         xxxx         xxx


              22.    REMEDIES :

22.1 On the occurrence of any of the Events of Default pursuant to what is stated hereinabove:

(a) The Lessor shall, without any notice, be entitled to remove the Equipment and for that purpose by itself, its servants or agents enter upon any land, building or premises where the Equipment is situated or is reasonably believed by the Lessor to be situated for the time being, and detach and dismantle the same and the Lessor shall not be responsible for any damage which may be caused by any such detachment or removal of the Equipment.

(b) Without prejudice to and in addition to the Lessor‟s rights provided hereinabove, the Lessor shall also be entitled to recover from the Lessee and the Lessee shall be bound to pay to the Lessor the following amounts, viz:..."

18. He also sought to draw sustenance from the judgment of the Supreme

Court in the case of Bharat Sanchar Nigam Ltd. and another vs. Union of

India and Ors. [2006] 146 STC 91 wherein this aspect of the matter is

highlighted by the Supreme Court in the following words: -

"98. To constitute a transaction for the transfer of the right to use the goods the transaction must have the following attributes:

(a) There must be goods available for delivery.

(b) There must be a consensus ad idem as to the identity of the goods;

(c) The transferee should have a legal right to use the goods - consequently all legal consequences of such

use including any permissions or licences required therefore should be available to the transferee;

(d) For the period during which the transferee has such legal right, it has to be the exclusion to the transferor - this is the necessary concomitant of the plain language of the statute - viz., a "transfer of the right to use" and not merely a licence to use the goods;

(e) Having transferred the right to use the goods during the period for which it is to be transferred, the owner cannot again transfer the same rights to others."

19. He specifically pointed to attribute at (c) where the court emphasized that

the transferee should have a legal right to use the goods and submitted that such

legal right to use the goods arises only when the payment of installment is made

regularly.

20. Further submission of the learned Additional Solicitor General was that

the petitioner had not challenged the legislative competence in enacting the

provisions like Section 3(b) of the Act which was a charging Section. Therefore,

no case was made out for declaring the said provisions as ultra vires the

Constitution.

21. He also submitted that reliance placed by the petitioner on the decision of

the Supreme Court in 20th Century Finance Corpn. Ltd. (supra) was misplaced

because in that case the Supreme Court was concerned with the situs of the

deemed sale in respect of transfer of right to use and its relation to sales which

are effected outside the State. According to him, the question posed in the

present case, on the contrary, is altogether different and the said judgment has

no relation to the controversy in question. He also referred to a single Bench

judgment of the Madhya Pradesh High Court entitled Arihant Hire Purchase

Co. Ltd. vs. State of Madhya Pradesh and Ors. (2005) 5 BST 593 as per

which a similar petition had been dismissed.

22. We have considered the submission made by the learned counsel on the

either side. In order to appreciate the respective contentions, the raison d'etre

behind introduction of Article 366(29A) is to be understood. This exercise is

already carried out by the Apex Court in Bharat Sanchar Nigam Ltd. and

another (supra) and 20th Century Finance Corpn. Ltd. (supra) which make our

task simple, as we are required nothing to take note of the discussion contained

in these judgments on this aspect.

Realizing that by virtue of locus classicus decision in the case of State of

Madras Vs. Gannon Dunkerley & Co. (Madras) Ltd., [AIR 1958 SC 560]

does not permit a composite contract of both goods and services (viz. a works

contract) to be taxed as sale of goods and does not permit serving of the contract

for the value of goods to be culled out from the same, the need was felt to amend

the Constitution to widen the definition of sale form that as was traditionally

understood and which meant an agreement to transfer title, payment of

consideration, and, transfer of title in the goods. Three proposals were mooted

by the Law Commission in its report of 1974 to give the power to the State to

tax goods included in works contracts, hire purchase transaction and transfer of

controlled commodities by virtue of statutory orders. The Law Commission

noted that there can be three actions, one of amending Entry Fifty-four of the

State List, second of adding afresh Entry in the State List or thirdly of inserting

in Article 366 a wider definition of sale so as to inclue works contract. The Law

Commission preferred the last alternative and, therefore, the Constitution came

to be amended by the Forty-sixth Amendment Act, 1982 to add Sub-Article

29A, which included six sub-clauses. Each of the sub-clauses served to bring

transactions where one or more essential ingredients of sale were absent so that

it fell within the ambit of sale and purchase for the purpose of levy of sales tax.

23. We have already reproduced these sub-clauses reading thereof indicates

that the traditional concept of levy of tax only on the „sale‟ of goods has been

totally transformed and by fiction of law even transfer of right to use goods is

treated as „sale‟. Thus, where there is no actual sale, but only right to use the

goods is transferred, that is also treated as „sale‟ and tax can be imposed

thereupon.

24. In the present case, there is no dispute that right to use goods has been

transferred n the leasing transaction even when no ownership of goods passed

from the seller to the buyer. Upto this stage, there is no quarrel between the

parties.

25. However, submission of the petitioner is that on the day when lease

agreement is entered into, there is a transfer of right to use goods. Therefore, it

would be deemed to be a „sale‟ and would be liable to sales tax, irrespective of the

fact that goods are subsequently used during the tenure of the agreement and

price thereof is received in installments during the tenure of the agreement,

which may be even after coming into force of the new enactment. While arguing

this, the petitioner cannot ignore the statutory provision. The submission is

contrary to the plain language of Section 3 of the Act. Section 3 of the said Act,

which is a charging Section, inter alia provides that tax would be paid on that

component of sale price, which is received or receivable and in respect of such

use even after the appointed date. This Section, thus, provides, in no uncertain

terms, that when the rentals in respect of lease agreements are received in future

after entering into the agreement, the tax would be paid as and when such

rentals are received. This would be the meaning attributed to the provisions on

their plain reading.

26. The petitioner is aware of this consequence created by Section 3 of the

Act. Reading this, the petitioner pleads that Section 3(b) of the Act, 2002 be

declared ultra vires.

27. Competence of the Legislature to enact this provision is not question.

What is argued is that this provision is ultra vires Section 2(n) of the Act, 2002,

which defines „sale‟. We are afraid such a plea cannot be accepted. Mr. Tripathi,

learned ASG is right in his submission that one provision of an enactment

cannot be ultra vires to another provision of the same enactment. The

expression "ultra vires" consists of two words: „ultra' and 'vires'. „Ultra‟ means

beyond and „Vires‟ means powers. Thus the expression ultra vires means an act

done outside the scope of the conferred power. This doctrine cannot be applied

to adjudicate upon the effects of inter-play of two different provisions of the

same statute as both of them draw their legal sanctity from a very single

transaction of the passing of that statute by the legislature. One must borne in

mind that to plead doctrine of ultra vires there must be pre-existence of the broad

contours of the conferred authority in pursuant to which or otherwise, some act

has been done, which was beyond the spectrum of the conferred power. In other

words, essence lies in the time interval and an act can be held ultra vires to a pre-

existing higher legal authority. The submission that Section 3(b) of the Delhi

Sales Tax on Right to Use Goods Act, 2002 is ultra vires to Section 2(n) of the

same Act indirectly means that Section 3(b) of the Act could not have been

enacted as that was beyond the power of the legislature because of the

operational effect of the pre-existing Section 2(n). This line of reasoning leads to

legally absurd conclusions. Therefore, having been enacted and came into effect

at the same time and by a single transaction, the doctrine of ultra vires cannot be

resorted to press the petition. At max, what the petitioner can plead is that

there is inconsistency between Section 3(b) and Section 2(n) of the Delhi Sales

Tax on Right to Use Goods Act, 2002.

28. What would be the position when there appears to be some contradiction

of the two provisions of the same Act? As per the settled law of interpretation,

Courts have to make an attempt to reconcile both the provisions, viz., they are to

be interpreted in a manner that they are harmoniously construed. This cardinal

rule of construction was incorporated by the Supreme Court in its judgment in

the case of The Bengal Immunity Company Limited Vs. The State of Bihar

and Ors. [AIR 1955 SC 661] in the following words:

"Crawford in STATUTORY CONSTRUCTION stated the principle in construe all the constituent parts of the stature together and seek to ascertain the light of the general purpose and object of the Act itself and endeavouring to make every part effective, harmonize ad sensible. It clearly establishes that the Court should avoid absurd consequences in any part of the statute and refuse to regard any word, phrase, clause or sentence superfluous, unless such a result is clearly unavoidable."

We can summarize the principle of harmonize construction following

parameters are to be kept in mind:

1. The effect is to be given to both the provisions. Thus, a

construction that reduces one of the provisions to a "useless lumber"

or "dead letter" is to be avoided, as that is not harmonious

construction. To harmonise is not to destroy.

2. A familiar approach in all such cases is to find out which of the two

apparently conflicting provisions is more general and which is more

specific and to construe the more general one as to exclude the more

specific. The question as to the relative nature of the provisions

general or special has to be determined with reference to the area

and extent of their application either generally or specially in

particular situations. The principle is expressed in the maxims

Generalia specialibus non derogant, and Generalibus specialia derogant.

3. The meaning of some words in a statue may be enlarged or

restricted in order to harmonize them with the legislative intent of

the entire statute. It is the spirit of the statute which should govern

over the literal meaning.

4. It should not be lightly assumed that "Parliament had given with

one hand what it took away with the other". The provisions of one

section of a statute cannot be sued to defeat those of another "unless

it is impossible to effect reconciliation between them".

5. The Courts have to take help from the preamble, objects, the

scheme of the Act, its historical back ground, the purpose of

enacting the provision, the mischief, if any which existed, which is

sought to be eliminated [see. Joginder Kumar Singla and Others

Vs. Government of N.C.T. of Delhi and Others, AIR 2005 Delhi

258].

29. In the present case, Section 2(n) defines „sale‟ means any transfer of the

right to use any goods for any purpose. No doubt, it would be treated as „sale‟

even if "deferred payment" is made. Likewise, Section 2(s) which defines

"turnover of sales" to mean the aggregate amounts of sale price received or

receivable during a year. On the other hand, Section 3 of the Act, 2002 makes

tax payable as and when the price is received, i.e., deferred payment received. If

we accept the contention raised by the learned counsel for the petitioner, Section

3(b) would be rendered nugatory and otiose. On the other hand, we can

harmonise the two Sections, viz., Section 3(b) of Section 2(n) by reading down

Section 2(n) in the following manner:

„Sale‟ as defined in Section 2(n) means any transfer of rights to use any

goods to any purpose, consideration therefore has to be deferred payment or any

other valuable consideration. Deferred payment here would mean that the

construction for transfer of right to use for goods has been be fixed, but down-

payment has not been made which is allowed to be staggered. Once this

restricted meaning is given to the expression "deferred payment", it would not

pose any difficulty in examining the cases of lease rentals. Here in such cases,

goods are given on lease and rent is payable every month during the tenancy of

the lease. Even as per the terms of the agreement, right to use accrues in favour

of the lessee only when he pays the said rentals regularly, each month.

Therefore, in such cases, deemed sale, i.e., transfer of right to use goods would

accrue every month on payment. That is the import of Section 3 f the Act as

rightly contended by the learned ASG.

30. As pointed out above, we have to keep in mind the purpose with which

Clause (29A) was inserted to Article 366. The entire concept of "sale" has

undergone drastic change for the purpose of taxation. It has conceptually

redefined realm of taxation by introduction fictional concept of „sale‟. When the

amendment makes certain transaction as „sale‟ by deeming provision, this

concept can be pressed into service for the purpose of taxation as well, viz., at

what point of time „sale‟ is to be inferred for the purpose of taxation. It is this

fiction, which has created Section 3(b) as well. According to us, this is the only

harmonious construction, which can be given to the two provisions so that both

the provisions are given due importance. Arguments of the learned counsel for

the petitioner are predicated on the traditional concept of „sale‟, which was the

position prior to the constitutional amendment. We may reiterate that the scope

of this writ petition is to challenge the vires of Section 3(b) of the Act, 2002.

This challenge is made only on the ground that it is ultra vires the provision of

Section 2(n) which, pointed out above, is not permissible. Therefore, once the

two provisions, viz., Section 2(n) defining „sale‟ on the one hand and Section 3(b),

[which is a charging Section] on the other hand, remain in the statute book and

we are above to place them harmoniously, most of the arguments made by the

learned counsel for the petitioner lose their force.

31. In these circumstances, we have no hesitation to hold that this petition is

devoid of any merits. We accordingly discharge the Rule and dismiss the Writ

Petition. However, in the facts of this case, we leave the parties to bear their

own respective costs.

A.K. SIKRI (JUDGE)

SIDDHARTH MRIDUL (JUDGE)

FEBRUARY 05, 2010.

sk/pmc