|
March of the Professional |
|
Indirect Taxes
Analysis - Latest Supreme Court Judgments on
Goods - Yash Overseas decided on 6-5-2008 |
|
Every Sales Tax Act enacted by the different States have defined “goods” which alone is liable for payment of tax under the respective Sales Tax Act, now VAT Act. Few of the definitions which are analogous of the different States are given below:– Section 2 (d) of U.P. Trade Tax Act
Section 2(j) of Tamil Nadu General Sales Tax Act, 1959
In the Kerala General Sales Tax Act “goods” is defined in section 2 (xii) as follows:
A perusal of the aforesaid provisions would show that the definitions of “goods” and “sale” under the Delhi, Bombay and Kerala Acts are the same as the definitions of the two expressions in the Tamil Nadu, Karnataka, West Bengal and U.P. Entry 54 of List–II of the 7th Schedule of the Constitution as well as Entry 92 A of List-I of the Constitution of India authorizes the State Legislature and the Parliament to enact a law for imposition of tax on the sale or purchase of goods, which reads as follows :-
In view of the specific entries under the Constitution, the tax can be levied on the sale or purchase of goods only both by the State Legislature or by the Parliament, under the Entry 54, List–II and Entry 92 A of List–I. The various decisions which are being considered in this sessions viz., Tata Consultancy Service, 2005 (1) SCC 308, BSNL, 2006 (3) SCC 1, Sunrise Associates, 2006 (5) SCC 603 or Yash Overseas were all concerned regarding the interpretation of the term “goods” and the commodity involved therein. Inasmuch as the liability for payment of tax is only on the goods which may be tangible or intangible but they can be subject to tax on its sale or purchase but actionable claim as defined in section 3 of the Transfer of Property Act has been specifically excluded. Now I shall be taking up each decision separately. Tata Consultancy Services vs. State of A.P., (2005) 1 SCC 308 : The Tata Consultancy was concerned as to whether the goods as defined under section 2(1)(h) of the A.P. Sales Tax Act shall include the software or not. The matter was referred to the Constitution Bench in which the only question involved was as to whether the customised software sold by the TCS can be treated as “goods” liable to sales tax. Hon’ble Apex Court while considering the said question has held that The term “goods” as used in Article 366 (12) of the Constitution and as defined under the said Act is very wide and includes all types of movable properties, whether those properties be tangible or intangible. We are in complete agreement with the observations made by this Court in Associated Cement Companies Ltd. A software programme may consist of various commands which enable the computer to perform a designated task. The copyright in that programme may remain with the originator of the programme. But the moment copies are made and marketed, it becomes goods, which are susceptible to sales tax. Even intellectual property, once it is put on to a media, whether it be in the form of books or canvas (in case of painting) or computer discs or cassettes, and marketed would become “goods”. We see no difference between a sale of a software programme on a CD/floppy disc from a sale of music on a cassette/CD or a sale of a film on a video cassette/CD. In all such cases, the intellectual property has been incorporated on a media for purposes of transfer. Sale is not just of the media which by itself has very little value. The software and the media cannot be split up. What the buyer purchases and pays for is not the disc or the CD. As in the case of paintings or books or music or films the buyer is purchasing the intellectual property and not the media; i.e., the paper or cassette or disc or CD. Thus a transaction/sale of computer software is clearly a sale of “goods” within the meaning of the term as defined in the said Act. The term “all materials, articles and commodities” includes both tangible and intangible/incorporeal property which is capable of abstraction, consumption and use and which can be transmitted, transferred, delivered, stored, possessed, etc. The software programmes have all these attributes. Mr. Sorabjee submitted that the High Court fell in error in making a distinction between branded and unbranded software and erred in holding that branded software was “goods”. We are in agreement with Mr. Sorabjee when he contends that there is no distinction between branded and unbranded software. However, we find no error in the High Court holding that branded software is goods. In both cases, the software is capable of being abstracted, consumed and used. In both cases the software can be transmitted, transferred, delivered, stored, possessed, etc. Thus even unbranded software, when it is marketed/sold, may be goods. We, however, are not dealing with this aspect and express no opinion thereon because in case of unbranded software other questions like situs of contract of sale and/or whether the contract is a service contract may arise.
Bharat Sanchar Nigam Ltd. vs. Union of India [2006] 3 SCC 1 : The nature of transaction with regard to mobile phone connection provided by the various telecommunication mobile service providers was the subject matter of consideration before the Apex Court. The Court was concerned with the levy of tax on the provision of mobile phone facilities to the subscriber. Whether the transaction is Service on which the Central Government is competent to levy tax or the amount received by such mobile service provider is liable to tax under Sales Tax Act. The Apex Court has taken into consideration Article 366(29-A) of the Constitution while deciding the said question. “366.(29-A) ‘tax on the sale or purchase of goods’ includes
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; The Apex Court while considering the amended provisions of Article 366 (29-A) and the concept of sale of goods has held as follows :- The classical concept of sale was held to apply to the entry in the legislative list. In that there had to be three essential components to constitute a transaction of sale, namely, (i) an agreement to transfer title, (ii) supported by consideration, and (iii) an actual transfer of title in the goods. In the absence of any one of these elements it was held that there was no sale. The expression “sale of goods” was, at the time when the Government of India Act, 1935 was enacted, a term of well recognized legal import in the general law relating to sale of goods and must be interpreted in Entry 48 of List II of Schedule VII of the 1935 Act as having the same meaning as in the Sale of Goods Act, 1930. According to this decision of the words “sale of goods” have to be interpreted in their legal sense, that sense can only be what it has in the law relating to sale of goods. By introducing separate categories of “deemed sales”, the meaning of the word “goods” was not altered. Thus the definitions of the composite elements of a sale such as intention of the parties, goods, delivery, etc. would continue to be defined according to known legal connotations. This does not mean that the content of the concepts remain static. The courts must move with the times. But the Forty-sixth Amendment does not give a licence, for example, to assume that a transaction is a sale and then to look around for what could be the goods. The word “goods” has not been altered by the Forty-sixth Amendment. That ingredient of a sale continues to have the same definition. The second respect in which Gannon Dunkerley has survived is with reference to the dominant nature test to be applied to a composite transaction not covered by Article 366(29-A). Transactions which are mutant sales are limited to the clauses of Article 366(29-A). All other transactions would have to qualify as sales within the meaning of the Sales of Goods Act, 1930 for the purpose of levy of sales tax. Apart from these two cases where splitting of the service and supply has been constitutionally permitted in sub-clauses (b) and (f) of clause (29-A) of Article 366, there is no other service which has been permitted to be so split. For example, the sub-clauses of Article 366(29-A) do not cover hospital services. Therefore, if during the treatment of a patient in a hospital, he or she is given a pill, can the Sales Tax Authorities tax the transaction as a sale? Doctors, lawyers and other professionals render service in the course of which can it be said that there is a sale of goods when a doctor writes out and hands over a prescriptions or a lawyer drafts a document and delivers it to his/her client? Strictly speaking, with the payment of fees, consideration does pass from the patient or client to the doctor or lawyer for the documents in both cases. Article 366(12) has defined the word “goods” for the purpose of the Constitution as including “all materials, commodities and articles”. The word “goods” has also been defined in section 2(7) of the Sale of Goods Act, 1930 as meaning
In our opinion, the essence of the right under Article 366(29-A) is that it relates to user of goods. It may be that the actual delivery of the goods is not necessary for effecting the transfer of the right to use the goods but the goods must be available at the time of transfer, must be deliverable and delivered at some stage. It is assumed, at the time of execution of any agreement to transfer the right to use, that the goods are available and deliverable. If the goods, or what is claimed to be goods by the respondents, are not deliverable at all by the service providers to the subscribers, the question of the right to use those goods, would not arise. Goods do not include electromagnetic waves or radio frequencies for the purpose of Article 366(29-A) (d). The goods in telecommunication are limited to the handsets supplied by the service provider. As far as the SIM cards are concerned, the issue is left for determination by the assessing authorities. Sunrise Associates vs. Govt. of NCT of Delh 2006 (5) SCC 603 : Question was whether lottery tickets were actionable claim and, therefore, excluded from the definition of “goods” under Central Sales Tax Act. “Goods’ as defined in section 2(7) of the Sales of Goods Act means, subject to certain exceptions, every kind of movable property, Expression movable property is not defined in any of the Sales Tax enactments, hence we have to see the meanings of ‘movable property’ and ‘immovable property’ under the General Clauses Act. The expression “goods” was given the same meaning as in the Sale of Goods Act and more importantly, in all those definitions `actionable claim’ was expressly excluded from the definition of `goods’. It was further noted that ‘actionable claim’ as defined in section 3 of the Transfer of Property Act, 1882 as “a claim to any debt, other than a debt secured by mortgage of immovable property or by hypothecation or pledge of movable property, or to any beneficial interest in movable property not in the possession, either actual or constructive, of the claimant, which the civil courts recognize as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent. In Sunrise case it was clearly stated as follows: “It is necessary at this stage to clarify that the order of reference in Sunrise vs. NCT, Delhi is limited to the question whether lottery tickets are “goods”. We have not been called upon to answer the question whether REP licences (or the DEPB which has replaced the REP licences) are “goods”. Although we have heard counsel at length on this, having regard to the limited nature of the reference, we do not decide the issue. The decision in Vikas Sales was referred to only because it approved the reasoning in H. Anraj and not because the referring court disagreed with the conclusion in Vikas Sales that REP licences were not the subject-matter of the appeal before the referring court and could not have formed part of the reference. The only question we are called upon to answer is whether the decision in H. Anraj that lottery tickets are goods for the purpose of Article 366(29-A)(a) of the Constitution and the State sales tax laws was correct.” The word “goods” for the purposes of imposition of sales tax has been uniformly defined in the various Sales Tax laws as meaning all kinds of movable property. The decision in Sunrise by giving many illustrations showed that transferability of value was as much an attribute of actionable claim as any other kind of goods and transferability was not the point of distinction between actionable claim and other goods that could be sold. Hence, to say that an article or right was goods and not actionable claim because it was saleable was pointless. Commenting upon this aspect of the decision in Vikas the Constitution Bench in paragraph 38 of the decision in Sunrise observed as follows: “It was assumed that actionable claims are not transferable for value and that was the difference between “actionable claims” and those other goods which are covered by the definition of “goods” in the Sale of Goods Act, 1930 and the Sales Tax laws. The assumption was fallacious and the conclusion insofar as it was based on this erroneous perception, equally wrong.” The decision in Sunrise then examined the nature of a ticket. It referred to Webster’s Words and Phrases, Permanent Edn., Vol. 25-A and in paragraph 43 came to hold as follows : “The sale of a ticket does not necessarily involve the sale of goods. For example, the purchase of a railway ticket gives the right to a person to travel by railway. It is nothing other than a contract of carriage. The actual ticket is merely evidence of the right to travel.” A contract is not property, but only a promise supported by consideration, upon breach of which either a claim for specific performance or damages would lie (Said vs. Butt), [1920 (3) KB 497]. Like railway tickets, a ticket to see a cinema or a pawnbroker’s ticket are memoranda or contracts between the vendors of the ticket and the purchasers. Cases on whether the terms specified on such tickets bind the purchaser are legion. It is sufficient for our purpose to note that tickets are themselves, normally evidence of and in some cases the contract between the buyer of the ticket and its seller. Therefore a lottery ticket can be held to be goods if at all only because it evidences the transfer of a right. On purchasing a lottery ticket one merely gets a claim to a conditional interest in the prize money that is not in the purchaser’s possession and the right would, therefore, squarely fall within the definition of actionable claim. The Constitution Bench decision in Sunrise further held that Anraj wrongly split up the right accruing to the purchaser of a lottery ticket. The right was one and indivisible. But even assuming the right to participate in the draw to be a separate right there would still be no sale of goods within the meaning of sales tax laws because the draw itself could not be any movable property and the participation in the draw was only with the object to win the prize. The transfer of the right would thus be of a conditional beneficial interest in movable property that is not in possession, in other words, once again in actionable claim. The illustrations given in paragraphs 39 and 40 of the decision in Sunrise, namely, (i) a right on the fulfilment of certain conditions to call for delivery of goods mentioned in a contract, (ii) negotiable instruments, (iii) right to recover insurance company, (iv) a partner’s right to sue for an account of a dissolved partnership, (v) the right to claim the benefit of a contract not coupled with any liability, (vi) a claim for arrears of rent and (vii) a right to the credit in a provident fund account are all indeed transferable for consideration but none of these is a market commodity. The holder of any of the above rights or claims may or may not be able to find a ready buyer at a given time; conversely a prospective buyer may not find any of the above rights or claims available for purchase by going to the market at any time. Yasha Overseas vs. Commissioner of Sales Tax and Others, Appeal (Civil) 2155 of 2000, decided on 6th May, 2008 The court was concerned as to whether REP licence is goods liable to tax or not. A REP licence allowed its holder to import licensed goods, free from ‘actual user condition’ but a REP licence was freely transferable and it did not require any approval or endorsement by the Licensing Authority. The registered importer to whom it was granted in the first instance could transfer it to anyone else and the transferee in turn could further transfer it to others. It could be endorsed in favour of another party by the previous endorsee. Its transfer did not require any approval or endorsement by the licensing authority and it was simply governed by the ordinary law of the land. Two questions were considered, whether the decision in Vikas can be said to be impliedly overruled by the Constitution Bench decision in Sunrise? And, if the answer to this question is in the negative and Vikas is still good law, would it also apply to sale of DEPB? The question of taxability of REP licence under the sales tax enactments of Tamil Nadu, Kerala and Karnataka came up for consideration before this Court in Vikas. Before referring to the decision it will be useful to see what exactly REP licence is and how the matter came to this Court. REP licence was a kind of freely transferable, pre-duty paid import licence not subject to ‘actual user condition’. It was thus a highly attractive and sought after instrument/means for importing goods. In Vikas this Court noted that a number of registered exporters who obtained REP licences sold them to others for profit. In fact those licences were being traded freely in the market and stock exchanges. In Vikas the Court observed that REP licences were being bought and sold freely in the market as goods and took their saleability as an additional ground to hold that it would be idle to contend that those licences were in the nature of actionable claim. In other words, saleability was a feature of distinction between goods and actionable claim (which but for its express exclusion from the definition is also a kind of goods). Goods were saleable but actionable claim was not. In order to constitute a deemed sale within the meaning of Article 366(29-A) (a), there has to be (1) goods (2) a transfer of property in the goods (3) valuable consideration. The absence of any one of these elements would mean that the transaction far from being a sale within Gannon Dunkerley definition, would not even be a deemed sale within the extended definition of sale under Article 366(29-A)(a). The expression “goods” was given the same meaning as in the Sale of Goods Act and more importantly, in all those definitions ‘actionable claim’ was expressly excluded from the definition of `goods’. It further noted that `actionable claim’ was defined in section 3 of the Transfer of Property Act, 1882 as meaning “a claim to any debt, other than a debt secured by mortgage of immovable property or by hypothecation or pledge of movable property, or to any beneficial interest in movable property not in the possession, either actual or constructive, of the claimant, which the civil courts recognize as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent”. The Supreme Court has considered that the decision of Sunrise was confined to the lottery ticket only and not for REP licence. We are unable to see how the decision in Sunrise can be said to alter the position in regard to the sale of REP licences as held by the earlier decision in Vikas. It is noted above that the Constitution Bench in Sunrise firmly and expressly declined to go into the question whether REP licences (or DEPB which replaced REP licences) were ‘goods’. It is indeed true that the Constitution Bench in Sunrise did not approve the decision in Vikas. But to our mind that does not in any way change the position insofar as REP licences are concerned. While examining the three-Judge Bench decision in Vikas earlier in this judgment it is seen that the Court first came to hold that REP licence/Exim scrip fell within the definition of goods quite independently. The court found and held that REP licences had their own values; they were freely bought and sold in the market for their intrinsic value and for that reason alone those were goods. To us it is plain that DEPB like REP licence has its own intrinsic value and the purchaser, on payment of consideration, buys something for its value. The DEPB credit is thus clearly ‘goods’ within the meaning of Sales Tax laws and its sale clearly exigible to tax. |