# 20TH CENTURY FINANCE CORPORATION LTD. AND ANR v. ST A TE OF MAHARASHTRA

- **Citation:** [2000] Supp. 1 S.C.R. 120
- **Court:** Supreme Court of India
- **Decided:** 2000-05-09
- **Case number:** Civil Appeal No. 4500of1989
- **Bench:** S.P. Bharucha, B.N. Kirpal, V.N. Khare, SYED SHAH c MOHAMMED QUADRI, D.P. Mohapatra
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/20th-century-finance-corporation-ltd-and-anr-v-st-a-te-of-maharashtra-17455
- **Pages:** 65

## Headnote

Sales Tax
Maharashtra Sales Tax on the Transfer of the Right to Use Any Goods
for Any purpose Act, 1985 (18 of 1985)-S.2(10) Explain, Ss.3 and 8-A:
Constitutionality of Expln to S.2(10)-Read down to the effect that it
would not be applicable if the deeme,f sale is: (i) an outside; (ii) a sale in
D course of import or export; (iii) an inter-State sale.
Transfer of right to use any goods/or any purpose-Taxable event and
situs of-In absence of a legal fiction created by the appropriate legislature
contemplating otherwise, situs of such sale, held, would be the place where
the property in goods passes and not the place of location of the goods where
E they are put to use-Where the goods are in existence and right to use them
is transferred under a written contract, the taxable event would be the
execution of the contract and situs of the sale would be the place where the
contract is executed-Where the goods are not in existence or there is an
oral or implied transfer of the right to use them, the taxable event would be
. F
the delivery of goods.
Contract Act, 1878-Ss. 148,14'9-Bailment-Transfer of right to use
goods-Nature of-Held, not in the nature of bailment-It is a deemed sale
under the legal fiction engrafted in Art. 366(29-(A)(d).
U.P. Trade tax Act, 1948(15 to 1948)-Ss.2(h)(iv) & Expln. /(ii) and
G S.3F-Consitutionality-Expln. /(ii), held is in excess of legislative power of
the State Legislature-However, instead of striking it down, it is read down.
Rajasthan Sales Tax Act, 1954-Ss.2(38}(4) and Expln. IJ(b)-
Constitutiona/ity-Expln. II(b), Held, is in excess of legislative powerH provision read down.
120
•
=
20TH CENTURY FINANCE CORPN. LTD. v. STATE OF MAHARASHTRA
121
A.P. General Sales Tax Act, 1957-Ss. 5-E(a)&(b) and 38 and S.2(n) A
Explns. ll(a)&(JV)-Constitutiona/ity-S. 5-E(b), held, is in excess of
legislative power of the State of under Entry 54 of List 11 of Sch. VJ/ of the
Constitution-provision read down.
Haryana General Sales Tax Act, 1973-S.2(J)(iv) Note 4Constitutionality-upheld.
B
Karnataka Sales Tax Act, 1957-S.2(t)(iv) & Expln. 3(d) and S.5-CConstitutionality-Expln. 3(d) to S.2(1), held, is beyond the State Legislature's
power under Entry 54 of List 11 of Sch. Vll to the Constitution-Provision read
down.
T.N. General Sales Tax Act, 1959, S.2(n)(iv) & Expln. 3(a) and S.3A-Constitutionality-Exp/n. 3(a) to S.2(n), held, is in excess of legislative
power under Entry 54 of List 11 of Sch. Vl! to the Constitution-Provision
read down.
c
Constitution of India-Arts. 366(29-A)(d), 269 & 286 and Sch. Vl! D
List II Entry 54 & List /, Entry 92-A-Power of State Legislatures to levy tax
on the transfer of right to use any goods-Held, is subject to Entry 92-A of
list I read with Art. 269 and is also subject to restrictions under Art. 286Central Sales Tax Act, 1956, Ss. 4, 3, 5, 2(g).
The appellants and the petitioner companies having offices in and out
of the respondent State carrying on business of leasing diverse equipments,
entered into Master Lease Agreements with lessees i.e. the party who desired
to take equipment for use on hire. The petitioners agreed to give on lease
various machinery/equipments listed in the Lease Summary Schedule, subject
E
to terms and conditions stipulated in the Master Lease Agreements. The Lease F
Summary Schedule only mentions the broad category of equipment proposed
to be leased and the correct value thereof. The Master Lease Agreement
provides that orders for individual equipment will be placed by the appellants
at the instance of lessees and that the equipment to be leased will be dispatched
by the manufacturer or supplier concerned to the locations specified in the G
lease. Thereafter, at the instance of the lessees, the appellants placed purchase
orders to the suppliers or manufacturers for supply of individual items or
equipments fal!ing within the category and correct value mentioned in the
Master Lease Agreement Schedules. They disburse the value of equipment
to the suppliers and at

## Text

_Characters 0–39,977 of 166,123. This is a partial read: ask again with offset=39977 for what follows._

A
20TH CENTURY FINANCE CORPORATION LTD. AND ANR.
v.
ST A TE OF MAHARASHTRA
MAY 9, 2000
B
[S.P. BHARUCHA, B.N. KIRPAL, V.N. KHARE, SYED SHAH
c
MOHAMMED QUADRI AND D.P. MOHAPATRA, JJ.]
Sales Tax
Maharashtra Sales Tax on the Transfer of the Right to Use Any Goods
for Any purpose Act, 1985 (18 of 1985)-S.2(10) Explain, Ss.3 and 8-A:
Constitutionality of Expln to S.2(10)-Read down to the effect that it
would not be applicable if the deeme,f sale is: (i) an outside; (ii) a sale in
D course of import or export; (iii) an inter-State sale.
Transfer of right to use any goods/or any purpose-Taxable event and
situs of-In absence of a legal fiction created by the appropriate legislature
contemplating otherwise, situs of such sale, held, would be the place where
the property in goods passes and not the place of location of the goods where
E they are put to use-Where the goods are in existence and right to use them
is transferred under a written contract, the taxable event would be the
execution of the contract and situs of the sale would be the place where the
contract is executed-Where the goods are not in existence or there is an
oral or implied transfer of the right to use them, the taxable event would be
. F
the delivery of goods.
Contract Act, 1878-Ss. 148,14'9-Bailment-Transfer of right to use
goods-Nature of-Held, not in the nature of bailment-It is a deemed sale
under the legal fiction engrafted in Art. 366(29-(A)(d).
U.P. Trade tax Act, 1948(15 to 1948)-Ss.2(h)(iv) & Expln. /(ii) and
G S.3F-Consitutionality-Expln. /(ii), held is in excess of legislative power of
the State Legislature-However, instead of striking it down, it is read down.
Rajasthan Sales Tax Act, 1954-Ss.2(38}(4) and Expln. IJ(b)-
Constitutiona/ity-Expln. II(b), Held, is in excess of legislative powerH provision read down.
120
•
=
20TH CENTURY FINANCE CORPN. LTD. v. STATE OF MAHARASHTRA
121
A.P. General Sales Tax Act, 1957-Ss. 5-E(a)&(b) and 38 and S.2(n) A
Explns. ll(a)&(JV)-Constitutiona/ity-S. 5-E(b), held, is in excess of
legislative power of the State of under Entry 54 of List 11 of Sch. VJ/ of the
Constitution-provision read down.
Haryana General Sales Tax Act, 1973-S.2(J)(iv) Note 4Constitutionality-upheld.
B
Karnataka Sales Tax Act, 1957-S.2(t)(iv) & Expln. 3(d) and S.5-CConstitutionality-Expln. 3(d) to S.2(1), held, is beyond the State Legislature's
power under Entry 54 of List 11 of Sch. Vll to the Constitution-Provision read
down.
T.N. General Sales Tax Act, 1959, S.2(n)(iv) & Expln. 3(a) and S.3A-Constitutionality-Exp/n. 3(a) to S.2(n), held, is in excess of legislative
power under Entry 54 of List 11 of Sch. Vl! to the Constitution-Provision
read down.
c
Constitution of India-Arts. 366(29-A)(d), 269 & 286 and Sch. Vl! D
List II Entry 54 & List /, Entry 92-A-Power of State Legislatures to levy tax
on the transfer of right to use any goods-Held, is subject to Entry 92-A of
list I read with Art. 269 and is also subject to restrictions under Art. 286Central Sales Tax Act, 1956, Ss. 4, 3, 5, 2(g).
The appellants and the petitioner companies having offices in and out
of the respondent State carrying on business of leasing diverse equipments,
entered into Master Lease Agreements with lessees i.e. the party who desired
to take equipment for use on hire. The petitioners agreed to give on lease
various machinery/equipments listed in the Lease Summary Schedule, subject
E
to terms and conditions stipulated in the Master Lease Agreements. The Lease F
Summary Schedule only mentions the broad category of equipment proposed
to be leased and the correct value thereof. The Master Lease Agreement
provides that orders for individual equipment will be placed by the appellants
at the instance of lessees and that the equipment to be leased will be dispatched
by the manufacturer or supplier concerned to the locations specified in the G
lease. Thereafter, at the instance of the lessees, the appellants placed purchase
orders to the suppliers or manufacturers for supply of individual items or
equipments fal!ing within the category and correct value mentioned in the
Master Lease Agreement Schedules. They disburse the value of equipment
to the suppliers and at the instance of the appellants and the petitioners the
suppliers deliver the equipments to the lessees at the specified locations for H
122
SUPREME COURT REPORTS [2000] SUPP. I S.C.R.
A use. After the equipments are delivered and put to use, the lessee exec11tes
supplementary lease schedules acknowledging due receipt of the lease
equipments, and such supplementary lease deeds from an integral part of the
Master Lease Agreement The appellants/petitioners contended before the
High Court that one transaction of transfer of right to use goods is subjected
B to sales tax by more than one State. On such a transaction, some States levy
tax on them, merely because the goods were found to be located in their States
at the time of execution of contract which has taken place outside the State,
that some States levy tax when the goods were delivered in their States for
use in pursuance of agreements of transfer executed outside their States and
States tax such transactions of deemed sales on the premise that agreements
C for transfer of right to use have been executed within their States. Therefore,
they, challenged the validity of the legislations by various States whereby one
transaction of transfer of right to use goods has been subjected to tax by more
than one State.
The appellants/petitioners contended before the High Court that the
D Maharashtra Act, particularly Section 3 read with Section 2(10), purports to
levy tax not due only the transfers of right to use goods which takes place
within the State of Maharashtra, but also upon the transfer which occasions
the movement of leased or to be leased goods from one State to another, and
upon the transfers effected during movement of goods from one State to another
E and, therefore, the Act is ultra vires Articles 269(3) and 246 read with Entry
92 A of List I of the Seventh schedule of the Constitution; that the Act imposes
sales tax upon transfers of the ri1iht to use goods which takes place outside
the State of Maharashtra and also in the course of import of the goods into
the territory of India and as such the Act is ultra vires Article 286(l)(a) and
(b) of the Constitution. The High Court dismissed the writ petition and held
F that the transaction of transfer of right to use goods is a species of bailment,
as there is no transfer of ownership in such transaction and since such
transactions are in the nature of contract of bailment, the transfer is
completed only upon the delivery of the goods and, therefore, situs of sale
created by the Explanation to Section 2(10) of the Act is valid.
G
In appeal to this Court the appellants/petitioners contended that there
are two independent limitations upon the taxing power of the State based on
situs of the sale, one engrafted in Article 286 and the other where the sale
occurs within the State that it cannot by virtue of Entry 54 of List U read with
Entry 92A of List I levy a tax on a sale which is in the course of inter-State
H trade or commerce, therefore, Section 3 and Explanation to Section 2(10) of
20TH CENTURY FINANCE CORPN. LTD."· STATE OF MAHARASHTRA
123
the Maharashtra Act which seeks to levy tax on mere location of goods at the A
time of their use within the State, are ultra vires Articles 286 and 269 of the
Constitution; that taxable event of such transaction of sale would be upon the
transfer in law of the right to use goods in question and, therefore, the situs
of transaction of sale would, on first principle, be the situs of the contract
which has the effect in law of transferring the right to use goods and that, B
therefore, no such tax can be levied merely on location of goods in that State.
The Respondent-State of Maharashtra contended that, in the absence of
any enactment by the parliament, the transfer of right to use goods is to be
determined with reference to law dealing with contract; that the transfer of
the right to use goods being in the nature of a contract of bailment, there C
must be delivery or possession of goods before it can be said that the right to
use is transferred; and that until the goods are delivered to the lessee it is
only an agreement to give it on bailment and, in fact, the delivery of goods is
sine qua non of the transfer of right to use goods and that the State legislature
was fully competent to enact the Explanation to Section 2(10) of the Act. The
other respondent States contended that the taxable event of such transaction D
of deemed sale would be on the location of goods the delivery of which is to be
effected for use within the State; that in view of the decision in the second
Gannon Dunkerley's case, the provisions of Section 4 of the Central Sales
Tax Act are applicable to deemed sales envisaged under clause (29A)(d) of
Article 366 of the Constitution and, that therefore, the States legislatures E
were fully competent to levy sales tax if the goods at the time of their use are
located within their States; and that the location of goods where they are put
to use would furnish the situs of sale and that if Section 4 of the Central
Sales Tax Act is not applicable to the transaction of deemed sale under Art.
366(29A)(d), the same may be applied by analogy for determining the situs of
sale of the transfer of the right to use goods.
F
Disposing of the Appeals and Writ Petitions, the Court
HELD: Per (Khare, J. for himself, Bharucha J and Mohapatra, J.) :
I. The power of State legislatures to enact law to levy tax on the transfer G
of right to use any goods, under Entry 54 of List II of Seventh Schedule has
two limitations - one arising out of the Entry itself; which is subject to Entry
, 92-A of List I, and the other flowing from the restrictions embodied in Article
286. By virtue of Entry 92-A of List I, parliament has power to legislate in
regard to taxes on sales or purchase of goods other than newspapers where H
124
SUPREME COURT REPORTS [2000] SUPP. I S.C.R.
A such sale or purchase takes place in the course of inter-State trade or
commerce. Article 269 provides for levy and collection of such taxes. Because
of these restrictions, State legislatures are not competent to enact law
imposing tax on the transactions of transfer of right to use any goods which
take place in the course of inter-State trade or commerce. Further, by virtue
of clause (1) of Art. 286, the State legislature is precluded to make law
B imposing tax on the transactions of transfer of right to use any goods where
such deemed sales take place (a) outside the State and (b) in the course of
import of goods into the territory of India. Yet, there are other limitations on
the taxing power of the State legislature by virtue of clause (3) of Article
286. Although parliament has enacted law under clause (3)(a) of Article 286
C but no law so far has been enacted· by Parliament under clause (3)(b) of Article
286. When such law is enacted by Parliament, the State legislature would be
required to exercise its legislative power in conformity with such law. These
are the limitations on the powers of State legislatures on levy of sales tax on
deemed sales envisaged under sub-clause (d) of clause (29A) of Article 366
D of the Constitution. (144-G-H; 145-A-C]
Builders Association of India and Ors. v. VOi and Ors., [1989](2) SCC
645; Mis Gannon Dunkerley & Co. and Ors. v. State of Rajasthan and Ors.,
[1993)1 SCC 364; State of Bombay and Anr. v. United Motors (India) Ltd.
and Ors., [1953) SCR 1069; The Bengal Immunity Company Ltdv. The State
E of Bihar and Ors., [1955) SCR 603 and State of Madras v. Gannon Dunkerley
& Co., (Madras) Ltd., [1959) SCR 379, referred to.
2. The location or delivery of goods within the State cannot be made a
basis for levy of tax on sale of goods. Under general law, merely because the
goods are located or delivery of which has been effected for use within the
F State would not be the situs of deemed sale for levy of tax if the transfer of
right t11use has taken place on another State. The State cannot levy a tax on
the basis that one of the event in the chain of events has taken place within
the State. The delivery of goods may be one of the elements of transfer of
right to use, but the same would not be the condition precedent for a contract
G of transfer of right to use goods. Where a party has entered into a formal
contract and the goods are available for delivery irrespective of the place
where they are located, the situs of such sale would be where the property in
goods passes, namely, where the contract is ended into. [149-G-H; 150-A-B)
Indian Copper Corporation Limited v. The State of Bihar and Ors.,
H [1961) 2 SCR, 276; The Bengal Immunity Co. Ltd v. The State of Bihar &
20THCENTURYF!NANCECORPN. LTD. v. STATE OF MAHARASHTRA
125
Ors., (1955] SCR 603 and A. V. Thomas & Co. Ltd. v. Deputy Commissioner of A
Agricultural Income Tax, [1963) 2 SCR, 608, referred to.
3. On a plain construction of sub-clause (d) of Clause (29A) of Article
366, the taxable event is the transfer of the right to use the goods regardless
of when or whether the goods are delivered for use. What is required is that B
the goods should be in existence so that they may be used. And further
contract in respect thereof is also required to be executed. Given that, the
locus of the deemed sale is the place where the right to use goods ~s
transferred. Where the goods are when the right to use them is transferred
is of no relevance to the locus of the deemed sale. Also of no relevance to the
deemed sale is where the goods are delivered for use pursuant to the transfer C
of the right to use them, though it may be that in the case of an oral or implied
transfer of the right to use goods, it is effected by the delivery of the goods.
[150-G-H; 151-A)
4. 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 D
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 E
where the contract is executed. (151-E-FJ
5. After Forty-sixth amendment of the Constitution, the definition of
'Sale' in the Central Sales Tax Act has not been amended and further this
Court in second Gannon Dunkerley 's case was dealing with the question of
levy ofsales tax on works contract as envisaged in Article 366(29A)(b) and F
not under Article 366(29A)(d). In second Gannon Dunkerley's case, this Court
has construed sub-clause (b) of clause (29A) of Article 366 as conferring
power to split the single and indivisible contract into one for sale of goods
and other for supply of labour and services and as a result such a contract
which was sing1e and indivisible has been brought at par with a contract G
containing two separate agreements. Since tax was held as tax on sales of
goods, it was held that principles contained in Section 4 of the Central Sales
Tax Act would apply to transaction of works contract as envisaged in clause
(29A)(b) of Article 366. Moreover, the transactions contemplated under Section
4 of the Central Sales Tax Act involve series of events and for that reason it
has no application to the present case. (152-B-E)
H
A
126
SUPREME COURT REPORTS [2000] SUPP. I S.C.R.
6. The reasoning of the High Court in upholding the Explanation to
Section 2(10) of the Act is not correct. In view of the fact that the transaction
in question is deemed sale and definition of 'sale' in the Central Sales Tax
Act is not amended, the reasoning of the High Court is not only erroneous,
but runs contrary to the decisions of the Court, wherein, it was categorically
B held that, in the determination of inter-State character of sale the situs of
sale is immaterial. When goods are entrusted to a common carrier for delivery,
it amounts to delivery to consignee. If it takes place outside the State, the fact
that subsequently goods have reached the State where they are put to use,
cannot be ground for determining the tax liability on the ground that the goods
are located in that State for use. !153-A-E)
c
D
20th Century Finance Corporation Ltd v. State of Maharashtra, (1989)
75 STC 217, reversed.
ITC Classics Finance & Services v .. Commissioner of Commercial Taxes,
(1995) 97 STC 330, affirmed.
Builders Association of India & Ors. v. U.O.L & Ors., (1989) 2 SCC
645 and Mis Gannon Dunkerley & Ors. v. State of Rajasthan & Ors., (1993)
1 sec 364, referred to.
7. Since the Explanation to Section 2(10) has not been amended in
E conformity with Section SA of the Act, the Explanation to Section 2(10) of the
Maharashtra Act transgresses the limits of legislative power confirmed on
the State legislature under Entry 54 of List D and instead of striking it down,
Explanation to Section 2(10) of the Act shall be read down to the effect that it
would not be applicable to the transactions of transfer of right to use any goods
if such deemed sale is (i) and outside sale, (ii) sale in course of the import of
F the goods into or export of the goods out of the territory oflndia and (iii) an
inter-state sale. (155-F-G]
8. Explanation (3)(d) to Section 2(1) of the Kamataka Sales Tax Act, 1957
has to be held in excess of legislative power conferred on the State legislature
G under Entry 54 of List n of the Seventh Schedule of the Constitution following
the reasoning given while discussing the Maharashtra Act. It is, therefore,
directed that Explanation 3(d) to Section 2(t) of the Act shall be read down to
this effect that it would not be applicable to the transactions of transfer of
right to use any goods if such deemed sale is (i) an outside sale, (ii) sale in
course of the import of the goods into or export of the goods out of the territory
H of India and {iii) an inter-State sale. [157-E-F)
20THCENTURYF!NANCECORPN. LTD. I'. STATE OF MAHARASHTRA
J27
9. Explanation 3(a) to Section 2(n) of the Tamil Nadu General Sales Tax A
Act, 1959 is in excess of power under Entry 54 of List II of the Seventh
Schedule so far as it relates to the transactions of transfer of right to use
any goods are concerned. Since the said Explanation is in the general
provisions of the Explanation 3(a) to Section 2(n) of the Act shall be read down
to this effect that it would not be applicable to the transactions of transfer of B
right to use any goods if such transaction of deemed sale is (i) an outside
sale; (ii) the sale which occasioned the import of goods into India; and (iii)
and inter-state sale. (158-G-H; 159-A)
10. Note (4) of Section 2(e) of the Haryana General Sales Tax Act, 1973
widens the ambit of definition of 'sale' by including outside sale, inter-State C
sale and import into the territory oflndia. Note (4) to Section 2(e) of the Act
shall be read down to the effect that it would not be applicable to the transactions
of transfer of right to use any goods if such deemed sale is (i) an outside
sale; (ii) sale in course of the import of the goods into or export of the goods
out of the territory oflndia and (iii) an inter-state sale. [159-G)
II. Clause (ii) of Explanation I of Section 2(h) of the U.P. Trade Tax Act,
1948 is in excess of legislative power under Entry 54, List II of Seventh
Schedule and, therefore, clause (ii) of Explanation I of Section 2(h) of the Act
shall be read down to the effect that it would not be applicable to the transaction
D
of transfer of right to use any goods if such deemed sale is (i) an outside E
sale; (ii) sale in course of the import of the goods into or export of the goods
out of the territory oflndia and (iii) an inter-state sale. [161-G-H; 162-AJ
12. By virtue of Explanation II(b) of Section 2(38)(4) of the Rajasthan
Sales Tax Act, 1994 the definition of 'sale' is enlarged and it include sales
outside the State or sales which are inter-State sales have been made F
chargeable if goods are used within the State. Therefore, the said Explanation
is in excess of legislative power under Entry 54 of List 11 of Seventh Schedule
and Explanation II(b) of Section 2(38)(4) shall be read down to the effect that
it would not be applicable to the transaction of the transfer of right house any
goods if such deemed sale is (i) an outside sale; (ii) sale in course of the G
import of the goods into or export of the goods out of the territory oflndia;
and (iii) an inter-State sale. [162-H; 163-A-BJ
13. Clause (b) of section 5-E of the A.P. General Sales Tax Act, 1957 is
in excess of legislative power of the State under Entry 54 of List II of Seventh
Schedule. It is, therefore, directed that clause (b) of Section 5-E of the Act H
128
SUPREME COURT REPORTS [2000) SUPP. I S.C.R.
A shaU be read down to the effect that it would not be applicable to the transaction
of transfer of right to use any goods if such deemed sale is (i) an outside
sale; (ii) sale in course of the import of the goods into or export of the goods
out of the territory oflndia and (iii) an inter-State sale. (165-C-D)
B
HELD: Per Quadri, J. himself and Kirpal, J. (Dissenting)
1. A combined reading of the first and second limb of Clause (29A) of
Article 366, suggests that mere execution of a document de hors passing the
domain of the goods does not result in transfer of right to use any goods and
will not constitute a 'deemed sale' within the meaning of clause (29A). The
C 'deemed sale' envisaged in sub-clause ( d) involves not only a verbal or written
transfer of right to use any goods but also an overt act but which the transferor
places the goods at the disposal of the transferee to make their use possible.
On this construction, it is explicit that the transfer of right to use any goods
involves both passing of a right in as well as domain of the goods in which
right to use is transferred. [169-8-D)
D
The New Shorter Oxford English Dictionary: 1993 Edn. Vol.2 Pg.3367;
Corpus Juris secundum: Vol.87 Pg.892 and Black's Law Dictionary: Vi Eng.
Pg.1497, referred to.
2. A sale of any goods is complete when the property in the goods passes
E to the purchaser pursuant to a contract of sale of those goods. So, also, a
deemed sale of goods under sub-clause (d), will be complete when the control
of the goods in which the right to use is transferred, passes to the transferee
under the contract to transfer. Such a transfer of right to use any goods may
be effected either by the execution of a written contract between the parties
indicating the mode by which giving the control or domain of the goods to the
F heir is contemplated or by oral. contract coupled with delivery of the goods to
the hirer. There can be no oral contract with regard to unascertained goods
because there can be no delivery of such goods. Where a written contract
exists whether in regard to ascertained goods or unascertained goods, the
intention of the parties as evidenced by the terms of the contract to 'transfer
G of right to use the goods' is determinative of the fact as to when, how and
where the right to use the goods is transferred. It is a well-settled principle
of interpretation of contracts that the contract must be construed as a whole.
When and where such a deemed sale, under sub-clause (d), takes place is a
question of fact which has to be decided on the facts and circumstances of
each case, including the terms and conditions of the contract evidencing the
H transaction. [171-C-E)
20TH CENTURY FINANCE CORPN. LTD. 1•. STA TE OF MAHARASHTRA
129
Rashtriya !spat Nigam Ltd. v. Commercial Tax officer, Company Circle, A
Visakhapatnam, 77 STC 182 (1990); I.T.C. Classic Finance and Services v.
Commissioner of Commercial Taxes, 97 STC 330 (1995); 20th Century
Finance Corporation Ltd. v. State of Maharashtra, 75 STC 217 (1989);.
Upasana Finance Ltd. v. State of Tamil Nadu and Anr., 113 STC 403 (1999)
and Krushna Chandra Behera and Anr. v. State of Orissa and Ors., 83 STC · B
325 (1991), referred to.
Introduction to the Law of Property by Mr. F.H. Lawson; 1958 Edn. 117;
The Halsbury's Laws of England describes 'Hire of Chattels; JV Edn. Vol.2
para 1551 and Bailment by Palmer; 1979 Edn. Page 88, referred to.
3. A transfer under sub-clause (d) will not be complete on execution of C
the master lease. It will be completed when the supplier delivers the equipment
to the appellants or hand it over to a carrier or a bailee or as per the
instructions to the hirer, which is deemed unconditional appropriation of goods
to the contract of sale and then only the transfer under clause (d) will take
· effect. After execution of the master lease when the control of the equipment
passes to the hirer that the transfer of right to use the goods will be complete. D
And it is at that stage that the liability of the appellants to pay sales tax will
arise. The consequence of acceptance of the contention that on execution of
the master lease, the transfer under sub-clause (d) is complete, will be to give
the revenue the legitimacy to tax the consideration mentioned in the master
lease even before the appellants acquire a right to receive the same. This will E
be not only an unintended consequence of enacting sub-clause (d) of clause
(29A) but also an improper and unjust action having approval of the court.
(172-E-H; 173-Al
4. Till the equipment is handed over to the carrier to be delivered to the
hirer, the sale of the equipment itself, ordered by the appellants, will not be p
complete much less can it be said that the deemed sale in favour of the.hirer
will be complete on execution of the master lease in respect of non-existent/
unspecified goods. That is why it has been held that on execution of the master
lease, there can be no transfer of right to use the unascertained goods giving
rise to the liability to pay sales tax on the deemed sale under sub-clause (d).
(173-G-H; 174-Al G
Halsbury's Laws of England-Vol. 41-para 708-709, referred to.
5. The contention that for determining the question as to whether a 'sale'
is inside one State and outside all other States or whether it is in the course
of inter-State trade or commerce. recourse cannot be had to the provisions H
130
SUPREME COURT REPORTS [2000] SUPP. I S.C.R .
.. A of Sections 3 and 4 of the Central Sales Tax Act, is untenable. The taxable event
in regard to the sale of goods is passing of the property in the goods or
appropriation of goods. In regard to each of the deemed sales the taxable event
are specified in sub-clause (a) to (f) of clause (29A) of Article 366 of the
Constitution. For purposes of levy of a tax on transactions referred to in subclause (a) and (b) the taxable event is transfer of property in goods, in sub-clause
B (c) it is delivery of goods in sub-clause (d) it is transfer of right to use any
goods, whereas in sub-clause (e) and (f), supply of goods is postulated as taxable
event It is made clezr that no tax can be levied under a legislation enacted by
•irtue of power conferred in Entry 54 List II of the Seventh Schedule of the
Constitution on the agreement for sale; necessarily therefore the taxable event
C has to be on the completion of deemed sale. [175-G-H; 176-A-C)
A. V. Thomas & Co. Ltd. v. Deputy Commissioner of Agricultural Income
Tax, [1963) 2 SCR 608, referred to.
6. In the case of a deemed sale of goods , whether specified or
unspecified, under sub-clause (d), where more States than one are involved,
D the taxable event will arise where the transfer is complete; if the contract is
oral at the place of the delivery of the goods in which the right to use is
transferred but if the contract is in writing, subject to the terms and conditions
of the contract evidencing the intention of the parties, where giving the
controVdomain ofthe goods is postulated. In other words, the transfer will be
E complete where the contract is executed and the controVdomain of the goods
which are the subject matter of the contract, is given to the hirer. [176-C-EJ
Halsbury's Laws of England: Vol. 41-Para 711, referred to.
7. It is evident that the taxable event in respect of the deemed sale under
sub-clause (d) is treated not at the place where the transfer of the right to
F use the goods is complete but is fixed by a deeming provision contained in the
impugned Explanation in the State of Maharashtra. It is also apparent that
this deeming provision runs counter to the import of sub-clause (d) of clause
(29A); it has no nexus to the taxable event, that is, to the transfer of right to
use any goods. Indeed, it appears that in the guise of fixing the situs of the
G sale by the legislation, which is held permissible by the decisions of the
Constitution Benches of this Court, the very taxable event has been altered
from 'the transfer of the right to use the goods' to the situs of the goods in
the State of Maharashtra at the time of their use. [179-C-F)
Tata Iron & Steel Co. Ltd. v. The State of Bihar, (1958] SCR 1355 and
H Gannon Dunkerley & Co. and Ors. v. State of Rajasthan, [1993) 1 SCC 364.
l
J
20TH CENTURY FINANCE CORPN. LTD. v. STATE OF MAHARASHTRA
131
referred to.
A
8. A definition of 'sale' with reference to the situs of goods has to
conform to the requirements of Articles 286 and 269 of the Constitution as
also to the provisions of Sections 3 to 5 of the Central Sales Tax Act. The
State Legislature cannot so frame its law as to convert an outside sale or a
sale in the course of import or export into a sale inside the State. The question B
whether a sale is an outside sale or an inside sale with reference to a State
or whether it is a sale in the course of import or export, will have to be
determined on the facts of each case in accordance with the principles
contained in Sections 3 to 5 of the Central Sales Tax Act and a State
Legislature while enacting the sales tax legislation for the State cannot make C
a departure from those principles. A legislation of a State which purports to
fix situs of sale in that State cannot tax a deemed sa\e which is completed in
another State and it cannot create a taxable event de hors the ingredients of
deemed sale under clause (29A) of Article 366. [180-D-G)
9. The impugned Explanation to Section 2(10) of the Maharashtra Act D
cannot be sustained, being violative of Article 286(1)(a), Articles 269(1)(g)
and 269(3) read with Sections 3 and 4 of the Central Sales tax Act. The same
result follows in the case of the impugned legislation of the Haryana Act Note
(4) of Section 2(e), Andhra Pradesh Act clause (b) of Section SE of the Act,
the U.P. Act clause (ii) of Explanation I to Section 2(h) and in the Rajasthan E
Act, the definition of sale contained in Section 2(38)-Explanation II. Though
they are differently worded, they convey the same meaning as contained in
the Explanation to Section 2(10) of the Maharashtra Act, and for the same
reason, they are also illegal and unconstitutional. The impugned provisions
of the Tamil Nadu Act and Karnataka Act also cannot be sustained. They are
declared illegal and unconstitutional. [181-F-G]
F
10. The transaction in question, namely, entering into master lease
between the hirer and the respondent and placing the order for purchase of
an equipment desired to be taken on lease by the hirer as an order for purchase
of an equipment at the instance of the hirer is an attempt to save sales tax
either on sale of the equipment or on the deemed sale. The Revenue can have G
no grudge against a person who so arranges his affairs as to minimise his
tax liability under the provisions of a taxing statute. Indeed, it is expected of
the Revenue to ensure that correct tax as ordained by the Statute is paid by
every assessable person - no more no less. But that does not mean the tax
evasion should be equated with tax planning. The tax evasion has to be dealt H
132
SUPREME COURT REPORTS (2000) SUPP. I S.C.R.
A with promptly under the provisions of the relevant taxing statute. The clubbing
of two transactions-the master lease and the purchase of the equipment
pursuant thereto purporting to be at the instance of the hirer with instructions
to the manufacturer/supplier to deliver the same to the hirer, to wit, as if the
transaction under sub-clause (d) is also an inter-State transaction whereas
the sale alone will be an inter-State transaction-cannot but be an attempt to
B evade the tax leviable on transaction under sub-clause (d) of clause (29A) of
Article 366 of the Constitution. (183-E-H; 184-A)
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4500of1989.
C
From the Judgment and Order dated 12.9.89 of the Bombay High Court
in W.P. No. 2632 of 1986
WITH
Writ Petition (C) No. 671of1990, W.P. (C) 641of1992 C. A. No 3438/
D 1990 C. A. No. 3436/1990, C. A. No. 3437of1990, C. A. No. 3435of1990, C.
A. No. 3347/1990, T. C. No. 91/1991, W.P. (C) No. 638of1992, W.P. (C) No.640
of 1992, W.P. (C) No. 642/1992, W.P. (C) No. 964/1992, W. P. (C) No. 965/1992
and C. A. Nos. 6218-23/1995.
C.S. Vaidyanathan, Additional Solicitor General, K. Parasaran, R. F.
E Nariman, Harish N. Salve, Sunil Dogra, R.B. Mehrotra, S.K. Dholakia, B. Sen,
A.K. Ganguli, Adarsh Goel, Dr. V.Gauri Shankar, K.J. John, P. Venugopal, P.
Sudhir, V. Balachandran, Parag P. Tripathi, Ms. Swati Singh, Ms. Neelima
Tripathi, S. Aravindh, Senthil Jagadeesan, Ms. Monica Sharma, A.K. Goel
Additional Advocate General for U.P. Kavin Gulati, R.B. Misra, C. Sidharth,
R.C. Verma, Krishnamurthi Swami, G. Umapathy, Pradeep P.Tiwari, A.
F Raghunath, S. Srinivasan, Ms. Nina Gupta, Ms. Arpita Roy Choudhary, Ms.
Tania Bery, Sanjay Katya), Sanjay Chaudhary, VineetKumar, Yashank Adhyaru,
P.K. Jain, Mrs. Unnila Sirur, Mrs. B. Sunita Rao, D.P. Mukherjee, Mrs. Kamini
Jaiswal, G.B. Sathe, Ashish Dholakia Dilip Sen, J.R. Das, D. Krishnan, V.
Krishnamurthy, A. Mariarputham, T. Harish Kumar, V. Rama Subramaniam, D.
G Goburdhan, Ms. Pinky Anand, Ms. Geeta Luthra, M. Veerappa, Kh. Nobin
Singh, Manish Mohan, Neeraj Kr. Jain, Ms. Arnita Gupta, Mahabir Singh, A.S.
Bhasme, K.R. Nambiar, Ranjan Mukherjee, Sumita Mukherjee, K. Ram Kumar,
Ms. Santinarayan, Y. Subba Rao, B. Sridhar for G. Prabhakar, Sushi! Jain,
Pradeep Agrawal, Prakash Shrivastava, A. Mishra, Ms. Anjali Doshi, Dilip
Tandon, Ms. Neera Gupta, M. Shivram, R.C. Verma, P. Panneswaran and S.N.
H Terdol and Shureshtha Bagga for the appearing parties.
20TH CENTURY FINANCE CORPN. LTD. 1•. STATE OF MAHARASHTRA [V.N. KHARE. J.] J33
The Judgments of the Court were delivered by
A
V.N. KHARE, J. (I) Despite the decisions of this Court in Builders'
Association of India and others v. Union of India and others, [ 1989] 2 SCC
645 and Mis. Gannon Dunkerley & Co. and others v. State of Rajasthan and
Ors., [ 1993] I SCC 364, the controversy as regards the power of the State
legislature to levy sales tax under clause (29A)(d) of Article 366 of the B
Constitution in the context of the question where is the taxable event on the
transfer of right to use any goods remained unresolved. In this group of
cases, we are concerned with the power of States legislatures to levy sales
tax on the transfer of right to use any goods envisaged under clause (29A)( d)
of Article 366 of the Constitution on the premise that goods put to use are C
located within their States. Several States by their legislations have levied tax
on the transactions of transfer of right to use goods on the location of goods
at the time of their use within their States irrespective of the place where the
agreement for such transfer of the right to use such goods is made. The
questions, therefore, that arise for consideration in these cases are, whether
a State can levy sales tax on transfer of right to use goods merely on the basis D
that the goods put to use are located within its State irrespective of the facts
that - (a) the contract of transfer of right to use has been executed outside
the State; (b) sale has taken place in the course of an inter-State trade; and
(c) sales are in the course of export or import into the territory of India. The
appellants' case is that, the State legislature cannot so frame its law as to E
convert an outside sale or a sale in the course of import or a sale in the course
of an inter-State trade or commerce into a sale inside the State.
(2) The appellants in civil appeals and the petitioners in the writ petitions
filed under Article 32 of the Constitution and transferred petition, and
respondent in Civil Appeal Nos. 6218- 23/95 are the companies incorporated F
under the Companies' Act, and some have their registered offices at places
outside the respondent States and others have inside the States. They cariy
on business of leasing diverse equipments. According to them, they entered
into Master Lease Agreements with the lessee i.e. the party who desired to
take equipment for use on hire. The appellants and the petitioners agree to G
give on lease diverse machinery/equipments listed in the Lease Summary
Schedule, subject to terms and conditions stipulated in the Master Lease
Agreements. The Lease Summary Schedule only mentions the broad category
of equipment proposed to be leased and the correct value thereof. The Master
Lease Agreement provides that orders for individual equipment will be placed
by the appellants at the instance of lessees and that the equipment to be H
134
SUPREME COURT REPORTS [2000) SUPP. I S.C.R.
A leased will be dispatched by the manufacturer or supplier concerned to the
locations specified in the lease. Thereafter, at the instance of the lessees, the
appellants place their purchase orders to the suppliers or manufacturers for
supply of individual items or equipments falling within the category and
correct value mentioned in the Master Lease Agreement Schedules. The
B appellants' and the petitioners' further case is that, they disburse the value
of equipment to the suppliers and at the instance of the appellants and the
petitioners the suppliers deliver the equipments to the lessees at the specified
locations for use. After the equipments are delivered and put to use, the
lessee executes supplementary lease schedules acknowledging due receipt of
the lease equipments, and such supplementary lease deeds form an integral
C part of the Master Lease Agreement. Such is the nature of business carried
on by the appellants and the petitioners in this group of cases. According
to the appellants and the petitioners, one transaction of transfer of right to
use goods is subjected to sales tax by more than one States. On such a
transaction, some States levy tax on the appellants and the petitioners, merely
because the goods were found to be located in their States at the time of
D execution of contract which has taken place outside the State. Some States
levy tax when the goods are delivered in their States for use in pursuance of
agreements of transfer executed outside their States and some States tax such
transactions of deemed sales on the premise that agreements for transfer of
right to use have been executed within their States. The appellants and the
E petitioners, therefore, have challenged the validity of the legislations by
various States whereby one transaction of transfer of right to use goods has
been subjected to tax by more than one States.
(3) The petitioners by means of writ petitions under Article 32 and
transferred petition have challenged the validity of the provisions relating to
F imposition of tax on transfer of right to use goods contained in the sales tax
laws of States of Maharashtra, Kamataka, Tamil Nadu, Haryana, Uttar Pradesh,
Rajasthan and Andhra Pradesh. Civil Appeal Nos. 6218-23/95 are directed
against the judgment of the Andhra Pradesh High Court allowing the writ
petitions filed by the respondents therein. We will separately deal with the
G sales tax laws of other States.