Telangana High Court
M/S. Sde Engineers Limited vs Commercial Tax Officer on 3 July, 2026
Author: P.Sam Koshy
Bench: P.Sam Koshy
IN THE HIGH COURT FOR THE STATE OF TELANGANA:
HYDERABAD
***
W.P.Nos.9991, 3865 & 3866 of 2009 AND T.R.E.V.C.No.52 of 2008
Between:
M/s.SDE Engineers Limited and Others.
...Petitioners
VERSUS
Commercial Tax Officer,
Jubilee Hills Circle, Mayur Kushal Complex,
Abids, Hyderabad and Others.
...Respondents
COMMON ORDER PRONOUNCED ON: 03.07.2026
THE HON'BLE SRI JUSTICE P.SAM KOSHY
AND
THE HON'BLE SRI JUSTICE SUDDALA CHALAPATHI RAO
1. Whether Reporters of Local newspapers
may be allowed to see the Judgments? : Yes
2. Whether the copies of judgment may be
marked to Law Reporters/Journals? : Yes
3. Whether His Lordship wishes to
see the fair copy of the Judgment? : Yes
________________
P.SAM KOSHY, J
Page 2 of 62
* THE HON'BLE SRI JUSTICE P.SAM KOSHY
AND
THE HON'BLE SRI JUSTICE SUDDALA CHALAPATHI RAO
+ W.P.Nos.9991, 3865 & 3866 of 2009 AND T.R.E.V.C.No.52 of 2008
% 03.07.2026
# Between:
M/s.SDE Engineers Limited and Others.
...Petitioners
VERSUS
Commercial Tax Officer,
Jubilee Hills Circle, Mayur Kushal Complex,
Abids, Hyderabad and Others.
...Respondents
! Counsel for Petitioner(s) : Mr. Raghavan Ramabadran,
appearing on behalf of M/s. Lakshmi Kumaran Sridharan, and
Mr. Shaik Jeelani Basha along with Mr. I. Sudhakar Reddy.
^Counsel for the respondent(s) : Mr. Swaroop Oorilla, learned
Special Government for State Tax.
<GIST:
> HEAD NOTE:
? Cases referred
1) [2000] 119 STC 182 (SC)
2) 2006 (2) STR 161 (SC)
3) (2023) 5 SCC 469
4) (2011) 43 VST 323
5) (2024) 122 GSTR 1 : 2024 SCC OnLine SC 28
6) (2011) 43 VST 424 : 2011 SCC OnLine AP 1089
7) (1999) 9 SCC 182
8) (2007) 8 VST 314
9) (2008) 46 APSTJ 49
Page 3 of 62
IN THE HIGH COURT FOR THE STATE OF TELANGANA
AT HYDERABAD
THE HON'BLE SRI JUSTICE P.SAM KOSHY
AND
THE HON'BLE SRI JUSTICE SUDDALA CHALAPATHI RAO
W.P.Nos.9991, 3865 & 3866 of 2009 AND T.R.E.V.C.No.52 of 2008
DATE: 03.07.2026
Between:
M/s.SDE Engineers Limited and Others.
...Petitioners
AND
Commercial Tax Officer,
Jubilee Hills Circle, Mayur Kushal Complex,
Abids, Hyderabad and Others.
...Respondents
COMMON ORDER:
(per Hon’ble Sri Justice P.Sam Koshy)
Heard Mr. Raghavan Ramabadran, appearing on behalf of M/s.
Lakshmi Kumaran Sridharan, and Mr. Shaik Jeelani Basha along with
Mr. I. Sudhakar Reddy, learned counsel for the petitioners; and
Mr. Swaroop Oorilla, learned Special Government for State Tax
appearing on behalf of the respondents.
Page 4 of 62
2. These are batch of petitions wherein the question of law raised
by the respective assessees were similar. Since the question of law
involved is similar and the outcome either the claim involved by the
petitioners being allowed or the issue stands in favour of Revenue, we
proceed to decide these batch matters by thisCommon Order.
3. There are three writ petitions of the similar nature i.e. Writ
Petition No.9991 of 2009 being the lead one along with Writ Petition
Nos.3865 and 3866 of 2009. Along with this there is a Tax Revision
Case raising out of / if not identical issue i.e., Tax Revision Case
No.52 of 2008.
4. Writ Petition No.9991 of 2009 has been filed seeking an
appropriate relief to be issued holding the action of the respondent
No.1 in levying tax on the rental income received by the petitioners
on immovable property along with facilities of generators, air
conditioners, transformers, lifts and other amenities like furniture, fit
outs to the lessees not being exigible to tax under Section 4(8) of the
Andhra Pradesh Value Added Tax, 2005 (for short ‘APVAT Act,
2005) and the demand raised being arbitrary and contrary to law and
Page 5 of 62
without jurisdiction and also in violation of principles of natural
justice.
5. Similar was the relief sought for in Writ Petition No.3865 and
3866 of 2009. Similar again is the issue that needs to be considered in
Tax Revision Case No.52 of 2008. In Tax Revision Case No.52 of
2008, though the demand seems to be identical, however it is raised
under the provisions of APGST Act.
6. In all these cases, the questions of law are that “whether the
rent received by the petitioners towards immovable property would be
amenable to tax under the APVAT Act and under Section 5A of the
APGST Act and whether the petitioners are liable to pay tax for the
rental income received on the supply of interiors, furniture and
fixtures?”
7. The parties were also contending that the movables in the
kitchen and the cafeteria and the income generated on that also has to
be borne in mind in the course of adjudication of the dispute.
8. In all the Writ Petitions and Tax Revision Case, the common
contention of all the petitioners is that the petitioners are engaged in
Page 6 of 62
construction of high rise building in the industrial technology park
and the same are let out to software companies. The petitioners
entered into an agreement with the tenants i.e. the various IT
companies for lease of immovable properties. In terms of the lease
agreement, the facilities and amenities, both were to be provided by
the petitioners such as IP floor, centralized air conditioning, raw
power supply upto the distribution board, light fittings and functional
toilets. In addition to these, the petitioners who are the developers
were also required to provide portable drinking water facility,
electricity, sub-station, DG Power Pack, sewage power plant, fully
equipped kitchen and cafeteria, and also the furniture and other
fixtures required for the amenities and facilities that the petitioners
were to provide which were taken on lease on rental basis. The
movability of these amenities is not disputed by the petitioners.
According to the petitioners the taxable event is the transfer of right
and not any delivery of goods or possession or the use of goods. It
was contended that transfer of right is sine qua non for the right to use
any goods is concerned.
Page 7 of 62
9. The primary contention of the petitioners was that the entire
consideration received by them from the IT companies was by way of
rent, and that service tax had been paid on the entire consideration so
received. However, the Department, taking note of the fact that the
petitioners were also receiving rent in respect of certain movable and
immovable fixtures and furniture attached to the premises, and that
the agreement bifurcated the consideration into two components —
namely, rent for the building and rent towards the movable and
immovable fixtures and furniture attached to the premises — held that
the rent received towards such fixtures and furniture constituted a
transfer of the right to use goods and was, therefore, amenable to tax
under the APVAT Act and APGST Act.
10. In all these cases, the contention of the petitioners has also been
that they have merely granted permission to the lessee to use these
products and as such there is only delivery of goods for use in
furtherance of the lease of immovable property, no right whatsoever
stands transferred. It was also the contention of all the petitioners that
there being no transfer of right created in favour of the lessee stands
proved from the fact that the control and possession of these goods
Page 8 of 62
still remains with the petitioners and that the lessee only has a right to
use the same.
11. It was the categorical contention of all the petitioners that even
though the tenants who were using these common facilities, the same
by no stretch of imagination can be brought within the ambit of
“deemed sale” of a “deemed transfer”. Further, these facilities are
being extended as being incidental to and also being a means of
rendition of services of renting of the immovable property. The very
fact that the substantial control over these fixtures and furniture and
other immovable articles being with the petitioners would got to show
that the control vests with the petitioners and transfer has not occurred
or happened.
12. It was also the contention of all the petitioners that since there
was no such control of goods vested with the person to whom the
lease has been made, the transaction will be of rendering services
within the meaning of Section 65(105)(ZZZZJ) of the Finance Act. It
was also contended that mere providing of services of certain
furniture, fixtures and equipment would in itself not amount to a
“deemed sale” in terms of Article 366(294) of the Constitution of
Page 9 of 62
India and the transaction is also not leviable to sales tax under Section
5(E) of the APGST Act.
13. The further contention of the petitioners is that the Revenue has
carried out an artificial valuation by impermissibly dissecting the
contract and treating the movable and immovable furniture and
fixtures as goods, the right to use which was allegedly transferred to
the IT companies, thereby subjecting the same to taxation. According
to the petitioners, the entire contract has to be treated as a single,
indivisible arrangement constituting a service contract. All facilities
and amenities provided by the petitioners are merely incidental to the
said service. It is for this reason that the petitioners had been paying
service tax on the entire consideration received by them.
14. According to the petitioners, the statute itself places the burden
of proof upon the Revenue to establish the nature of the transaction,
which, in the present case, is alleged to be a transfer of the right to use
goods. The orders passed by the tax authorities have also failed to
deal with the essential ingredients necessary to establish a transfer of
the right to use. A plain reading of the contract itself would make it
clear that the arrangement is indivisible and, therefore, ought to be
Page 10 of 62
treated as a service contract amenable only to service tax and not to
tax under either the APVAT Act or the APGST Act.
15. Referring to the judgments of the Hon’ble Supreme Court in
20th Century Finance Corprn. Ltd. and Another vs. State of
Maharashtra1 and subsequently in Bharat Sanchar Nigam Limited
vs. Union of India2, the petitioners strongly contended that the nature
of the contract itself establishes that no right whatsoever was
transferred by the petitioners to the occupants. Since the arrangement
was essentially a contract for services, the amenities and facilities
provided thereunder merely conferred a right to use and did not
amount to a transfer of the right to use goods. According to the
petitioners, many of the facilities constituted common amenities
enjoyed by more than one occupant at the same point in time. In
several instances, such common facilities were made available on
common floors having access to multiple companies. Having paid
service tax on the entire consideration received, the bifurcation of the
contract undertaken by the tax authorities is wholly impermissible.
The findings of the tax authorities have been recorded without
1
[2000] 119 STC 182 (SC)
2
2006 (2) STR 161 (SC)
Page 11 of 62
properly examining whether any transfer of the right to use had, in
fact, taken place. There was also no cogent material placed on record
by the Revenue authorities regarding the nature of the goods sought to
be subjected to tax.
16. Per contra, the contention of the learned Special Government
Pleader for State Tax was that the list of items i.e. furniture, fixture
are all leased out properties to the IT Companies. Further, these are
movable items and cannot be treated or equated as an immovable
property.
17. The contention of the learned Special Government Pleader for
State Tax in the course of subjecting the movability of the furniture
and fixtures to tax, both under the APVAT Act as also under the
APGST Act, was holding that these facilities which have been
provided by the petitioners amounts to transfer of right to use goods.
It was the further contention that such transfer of right to use goods
amounts to a “deemed sale” as per Article 366 (29A)(D) of the
Constitution of India read with Section 5E of the APGST Act.
Page 12 of 62
18. It was further contended by the learned Special Government
Pleader for State Tax that it is also a case where some of the goods are
found to have been attached to the super structure of wall, thus
making it immovable, and since the taxable goods, movable
properties or immovable properties are not shown separately, the
factor pertaining to transfer of right to use goods stands proved.
19. It was further contended by the learned Special Government
Pleader for State Tax that if the furniture are used by several IT
Companies by itself would not be sufficient to hold that there is no
transfer of right to use goods. For transfer of right to use goods it is
seen if the lessee is enjoying those goods or not, if the lessee is using
those goods even if it being used by more than one lessee.
20. Learned Special Government Pleader for State Tax further
submitted that the terms of the agreement and the various clauses
contained in the lease deeds must be examined in their entirety before
appreciating the factual matrix. Referring to the lease deeds and the
clauses contained therein, the learned Special Government Pleader
contended that the very bifurcation of rent clearly demonstrates that
the arrangement was a composite contract. In support of this
Page 13 of 62
contention, it was submitted that the rent was payable separately for
individual items and components, which by itself establishes that the
consideration attributable to the fixtures and furniture was distinct and
identifiable.
21. Learned Special Government Pleader for State Tax further
contended that there is a substantial distinction between movable and
immovable properties. The dispute involved in the present batch of
cases pertains only to movable properties, which are either movable in
the ordinary sense or, though affixed to the premises for convenience,
nevertheless retain their character as movable goods for all practical
and legal purposes.
22. With regard to the contention concerning the bifurcation of rent
and the allegation that the contract had been artificially dissected, the
learned Special Government Pleader for State Tax, referring to the
lease deeds and agreements entered into between the parties,
submitted that the rent had been fixed item-wise and that the
quantification was based upon the actual rent received in respect of
each item, as reflected in the agreements and lease deeds themselves.
Page 14 of 62
23. In support of his submissions, he placed strong reliance upon
the judgments of the Hon’ble Supreme Court in Commr. of Service
Tax vs. Quick Heal Technologies Limited3, the decision of this
Court in G.S. Lamba & Sons vs. State of Andhra Pradesh4.
24. Having heard the contentions put forth on both sides, it is seen
that the goods in question includes the fixtures and furniture affixed
to the leased premises. In addition to these there are also raw power
supply upto the raw power distribution board, light fittings, functional
toilets, building management system, portable drinking water,
electrical sub-station, DG sets and sewage treatment plant, and fully
equipped kitchen and cafeteria were also given to the tenants / lessees
through a permission to use for the relevant material time as per the
agreement signed between them.
25. However, before dealing with the arguments advanced by
respective parties, it would be appropriate at this juncture to take note
of the definition of taxable service as defined under Section 65(105)
of the Service Act, which reads as under:
3
(2023) 5 SCC 469
4
(2011) 43 VST 323
Page 15 of 62“65(105) “taxable service” means any service provided or to be
[provided]”
26. The next relevant provision on the basis of which the
petitioners are paying tax is clause (zzzz), which again for ready
reference is reproduced hereunder:
(zzzz) [to any person, by any other person, by renting of immovable
property or any other service in relation to such renting, for use in
the course of or for furtherance of, business or commerce.]
Explanation 1. – For the purposes of this sub-clause, “immovable
property includes-
…………
(iv) in case of a building located in a complex or an industrial
estate, all common areas and facilities relating thereto, within such
complex or estate.
…………
Explanation 2.- for the purposes of this sub-clause, an immovable
property partly for use in the course or furtherance of business or
commerce and partly for residential or any other purposes shall be
deemed to be immovable property for use in the course of
furtherance of business or commerce;”
27. The next article which needs to be appreciated at this juncture
is the provision of Article 366 (29A), which again for ready reference
is reproduced hereunder:
“(29A) “tax on the sale or purchase of goods” includes–
Page 16 of 62
(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) ……………
(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;”
28. Likewise, the definition of ‘sale’ and ‘tax’ as defined under
Section 2(n) and Section 2(q) of the APGST Act, also is reproduced
hereunder:
“2(n) “Sale” with all its grammatical variations and cognate
expressions means every transfer of the property in goods whether
as such goods or in any other form in pursuance of a contract or
otherwise by one person to another in the course of trade or
business, for cash, or for deferred payment, or for any other
valuable consideration or in the supply or distribution of goods by
a society (including a co operative society), club, firm or
association to its members, but does not include a mortgage,
hypothecation or pledge of, or a charge on goods.”
2(q) “tax” means a tax on the sale or purchase of goods payable
under this Act and includes,-
i. 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;
Page 17 of 62
ii. 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;
iii. a tax on the delivery of goods on hire purchase or any
system of payment by instalments;
iv. 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;
v. a tax on the supply of goods by any un incorporated
association or body of persons to a member thereof for
cash, deferred payment or other valuable consideration; or
vi. 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;)”
29. Chapter 5(E) of the APGST Act which deals with the tax on the
amount realised in respect of any right to use goods is also reproduced
hereunder:
“5E. Tax on the amount realised in respect of any right to use
goods-Notwithstanding anything contained in this Act;-
(a) Every dealer who transfers the right to use any goods for any
purpose, whatsoever, whether or not for a specified period, to any
lessee or licensee for cash, deferred payment or other valuable
consideration, in the course of his business shall, on the total
amount realised or realisable by him by way of payment in cash or
otherwise on such transfer or transfers of the right to use such
goods from the lessee or licensee, pay a tax at the rate of eight
Page 18 of 62paise on every rupee of the aggregate of such amount realised or
realisable by him during the year.
(b) the transfer of right to use any such goods entered into by any
dealer, shall be deemed to have taken place in this State whenever
the goods are used within the State, irrespective of the place where
the agreement whether written or oral for such transfer of right is
made. Provided that no such tax shall be levied if the total turnover
of the dealer including such aggregate is less than rupees two
lakhs.”
30. It would be also necessary at this juncture to take note of a few
judgments on the subject matter.
31. In the case of Bharat Sanchar Nigam Limited (supra) it was
held as under:
“31. It was submitted that the mere fact that the Union was levying
tax on certain taxable services could not be used to deny the State’s
powers to tax the objects/provisions in the service. Therefore, the
State’s powers must be read harmoniously with the Union’s power
and it is only when such reconciliation is impossible that the
primacy should be given to the non obstante clause under Article
248(1). Alternatively it was submitted that the theory of aspect
would apply so that what was service in one aspect was a sale in
the other. It was also submitted that because in sub-clauses (b) and
(f) of clause (29-A) of Article 366 the tax on a component in a
transaction of works is permissible, it cannot be assumed that in
sub-clause (d) tax could not be imposed on an element of the sale
component of that transaction. The sub-clause has no words or
limitations and must be read as broadly as the language permitted.
Page 19 of 62
It was submitted that the test of dominant object of a composite
works contract was no longer relevant after the Forty-sixth
Constitution Amendment. It was submitted that the service
providers transfer the right to use radio frequency channel to a
subscriber for a specific duration and thus have effected a deemed
sale of goods under Article 366(29-A)(d).
32. These broadly speaking are the respective contentions and in
our opinion, the issues which arise for consideration in these
matters are:
(A) What are “goods” in telecommunication for the purposes of
Article 366(29-A)(d)?
(B) Is there any transfer of any right to use any goods by
providing access or telephone connection by the telephone service
provider to a subscriber?
(C) Is the nature of the transaction involved in providing
telephone connection a composite contract of service and sale? If
so, is it possible for the States to tax the sale element?
(D) If the providing of a telephone connection involves sale, is
such sale an inter-State one?
(E) Would the “aspect theory” be applicable to the transaction
enabling the States to levy sales tax on the same transaction in
respect of which the Union Government levies service tax?
33. Before taking up the issues for decision seriatim, it is necessary
for us to deal with the two further preliminary objections raised by
the respondents on the merits. Regarding the first of such
objections that the writ petitions have become infructuous–it may
be true that in relation to the U.P. Trade Tax Act, 1948 the
challenge to Sections 2(h) and 3-F which have basically
reproduced Article 366(29-A) has not been pressed by the
petitioners. What has been argued, however, is for a construction
Page 20 of 62
of Article 366(29-A), particularly sub-clause (d) thereof. That
construction, if accepted by the Court, would be sufficient to grant
the petitioners the relief claimed. The issue of interpretation of
Article 366(29-A) is, therefore, a live one.
40. Recommendation (c) of the Law Commission to amend Article
366 by expanding the definition of sale to include the transactions
negatived by the courts, was accepted by the Government. The
Constitution (Forty-sixth Amendment) Bill, 1981 which was
subsequently enacted as the Constitution (Forty-sixth Amendment)
Act, 1982 set out the background in which the amendment to
Article 366(29-A) of the Constitution was amended. Having noted
the various decisions of the Supreme Court as well as of the High
Courts excluding certain transactions from the scope of sale for the
purpose of levy of sales tax, it was said that the position had
resulted in scope for avoidance of tax in various ways. In the
circumstances, it was considered desirable to put the matter
beyond any doubt. Article 366 was therefore amended by inserting
a definition of “tax on the sale or purchase of goods” in clause
(29-A). The definition reads:
“366. (29-A) ‘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 instalments;
Page 21 of 62
(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;”
41. Sub-clause (a) covers a situation where the consensual element
is lacking. This normally takes place in an involuntary sale. Sub-
clause (b) covers cases relating to works contracts. This was the
particular fact situation which the Court was faced with in Gannon
Dunkerley [State of Madras v. Gannon Dunkerley & Co. (Madras)
Ltd., (1958) 9 STC 353 : AIR 1958 SC 560 : 1959 SCR 379] and
which the Court had held was not a sale. The effect in law of a
transfer of property in goods involved in the execution of the works
contract was by this amendment deemed to be a sale. To that extent
the decision in Gannon Dunkerley [State of Madras v. Gannon
Dunkerley & Co. (Madras) Ltd., (1958) 9 STC 353 : AIR 1958 SC
560 : 1959 SCR 379] was directly overcome. Sub-clause (c) deals
with hire-purchase where the title to the goods is not transferred.
Yet by fiction of law, it is treated as a sale. Similarly the title to the
goods under sub-clause (d) remains with the transferor who only
Page 22 of 62
transfers the right to use the goods to the purchaser. In other
words, contrary to A.V. Meiyappan decision [(1967) 20 STC 115
(Mad)] a lease of a negative print of a picture would be a sale.
Sub-clause (e) covers cases which in law may not have amounted
to sale because the member of an incorporated association would
have in a sense begun as both the supplier and the recipient of the
supply of goods. Now such transactions are deemed sales. Sub-
clause (f) pertains to contracts which had been held not to amount
to sale in State of Punjab v. Associated Hotels of India Ltd. [(1972)
1 SCC 472 : (1972) 29 STC 474] That decision has by this clause
been effectively legislatively invalidated.
42. All the sub-clauses of Article 366(29-A) serve to bring
transactions where one or more of the essential ingredients of a
sale as defined in the Sale of Goods Act, 1930 are absent, within
the ambit of purchase and sales for the purposes of levy of sales
tax. To this extent only is the principle enunciated in Gannon
Dunkerley Ltd. [State of Madras v. Gannon Dunkerley & Co.
(Madras) Ltd., (1958) 9 STC 353 : AIR 1958 SC 560 : 1959 SCR
379] (sic modified). The amendment especially allows specific
composite contracts viz. works contracts [sub-clause (b)]; hire-
purchase contracts [sub-clause (c)], catering contracts [sub-clause
(e)] by legal fiction to be divisible contracts where the sale element
could be isolated and be subjected to sales tax.
43.Gannon Dunkerley [State of Madras v. Gannon Dunkerley &
Co. (Madras) Ltd., (1958) 9 STC 353 : AIR 1958 SC 560 : 1959
SCR 379] survived the Forty-sixth Constitutional Amendment in
two respects. First with regard to the definition of “sale” for the
purposes of the Constitution in general and for the purposes of
Entry 54 of List II in particular except to the extent that the clauses
in Article 366(29-A) operate. By introducing separate categories of
“deemed sales”, the meaning of the word “goods” was not altered.
Page 23 of 62
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. [See Attorney General v. Edison Telephone
Co. of London Ltd., (1880) 6 QBD 244 : 43 LT 697] 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 [State of Madras v. Gannon Dunkerley & Co. (Madras)
Ltd., (1958) 9 STC 353 : AIR 1958 SC 560 : 1959 SCR 379] 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 Sale of Goods Act, 1930 for the
purpose of levy of sales tax.
91. As far as the question whether providing of a telephone
connection involves inter-State sales, now that it has been clarified
that electromagnetic waves or radio frequencies are not goods, the
issue is really academic.
111. Traditionally, a contract for carriage of goods or passengers
is by roadways, railways, airways and waterways. This is
associated with carriage of tangible goods. Such a carrier has no
right over the goods of the customer and does not effect transfer of
right to use any goods used by the carrier for goods. On this
analogy, the petitioners carry messages. They are only carriers and
have neither property in the message nor effect any transfer to the
subscriber. The advancement of technology should be so absorbed
Page 24 of 62
in the interpretation that this method of carriage of message should
also be understood as carriage of goods and not a transfer of a
right to use goods, if any.”
32. In the case of K.P. Mozika vs. ONGC Ltd. 5 it was held as
under:
28. Clause (29A) of article 366 was inserted on February 2, 1983,
thereby introducing the concept of “deemed sale”.We are
concerned with sub- clause (d) of clause (29A), which we have
reproduced earlier. As noted earlier, the condition for applicability
of the sale of goods under the Sale of Goods Act is that apart from
the transfer of possession of the goods, there must be a transfer of
the property in goods to the buyer. However, sub- clause (d) of
clause (29A) refers not to the transfer of property in the goods to
the buyer but to the transfer of the right to use any goods for any
purpose for consideration as mentioned in sub-clause (d) of clause
(29A). The transfer of the right to use any goods can be for any
purpose (whether or not for a specified period) for cash, deferred
payment or other valuable consideration. Only because a person is
allowed to use certain goods of the owner, per se, there is no
transfer of the right to use any goods. The transaction can be either
of transfer of right to use the goods or granting mere permission to
use the goods without transfer of the right to use the goods.
29. This court has interpreted sub-clause (d) of clause (29A) in
various decisions. The first important decision on this aspect is a
decision of the Constitution Bench in the case of 20th Century
Finance Corporation Limited [20th Century Finance Corporation
Limited v. State of Maharashtra, (2000) 119 STC 182 (SC); (2000)
6 SCC 12.] . This was a case where the appellant had entered into5
(2024) 122 GSTR 1 : 2024 SCC OnLine SC 28
Page 25 of 62a master- lease agreement with the lessee. The lessee was a party
that desired to take equipment for use on hire. Under the
agreement, the appellant agreed to give diverse
machinery/equipment listed in the Schedule to the master- lease
agreement. The master-lease agreement provided that the
appellants would place the orders for individual equipment on the
request made by the lessee, and the equipment to be leased would
be dispatched by the manufacturer or supplier concerned to the
location specified in the lease agreement. At the instance of the
lessee, the appellant used to place purchase orders to the suppliers
or manufacturers for the supply of individual items or equipment.
After the equipment was delivered and put to use, the lessee used to
execute supplementary lease schedules acknowledging the receipt
of the leased equipment. Such supplementary lease agreements
used to form an integral part of the master-lease agreements. The
controversy arose because some States started levying tax merely
because the goods were found to be located in their States at the
time of executing the master contract. The States where the goods
were delivered started levying taxes on the said goods. In
particular, the challenge was to the validity of legislations of
various States on the ground that one transaction of transfer of the
right to use goods was subjected to tax in different States. In the
facts of the case, the issue considered by the Constitution Bench
was “where is the situs of the taxable event on the transfer of right
to use goods under article 366(29A)(d) of the Constitution.” In
paragraph 27 of the aforesaid decision, the Constitution Bench
held that the levy of tax in accordance with clause (29A)(d) is not
on the use of goods but on the transfer of the right to use goods. In
other words, it was held that the right to use goods accrues only
because of the transfer of the right to use goods. It was held that
the transfer is sine qua non for the right to use any goods. It was
Page 26 of 62
held that if the goods are available, the transfer of the right to use
goods occurs when the contract for the goods is executed. In other
words, if the goods are available, irrespective of whether the goods
are delivered and the written agreement is entered into between the
parties, a taxable event on such a deemed sale would be executing
a contract to transfer the right to use goods. However, when there
is no written agreement but an oral or implied transfer of the right
to use goods, it may be effected by the delivery of goods. Only in
such cases the taxable event would be the delivery of goods. In this
context, in paragraph 28, the Constitution Bench held that it
cannot be said that there would be no complete transfer of the right
to use goods unless the goods are delivered. When the goods are in
existence, the taxable event for the transfer of the right to use
goods occurs when a contract is executed between the lessor and
the lessee, and the situs of sale of such a deemed sale would be
where the agreement in respect thereof is executed.
30. There is another decision of this court in the case
of BSNL [Bharat Sanchar Nigam Limited v. Union of India, (2006)
3 VST 95 (SC); (2006) 145 STC 91(SC); (2006) 282 ITR 273 (SC);
(2006) 6 RC 276; (2006) 3 SCC 1.] . This case was decided by a
Bench of three honourable Judges of this court. The question
decided in this case was about the nature of the transaction by
which mobile phone connections were provided. The question was
whether it was a sale of goods that would attract sales tax or a
service that would attract service tax under entry 97 of List I of the
Seventh Schedule to the Constitution of India. There were several
issues, including an issue of whether there is any transfer of the
right to use any goods by providing access to telephone connection
by the telephone service provider to the subscriber. Another issue
was whether a transaction of providing a telephone connection was
a sale, which is an inter-State sale. There were separate but
Page 27 of 62
concurring judgments delivered. Justice Ruma Pal authored the
leading judgment for herself and Justice Dalveer Bhandari. In this
decision, reference was made to the decision in the case of Gannon
Dunkerley & Co. [State of Madras v. Gannon Dunkerley & Co.
(Madras) Ltd., (1958) 9 STC 353 (SC); AIR 1958 SC 560.] . It was
held that even after clause (29A) of article 366 was introduced, the
meaning of the word “goods” was not altered. It was held that
even after clause (29A) was introduced, the ingredients of the sale
of goods continue to have the same definition as discussed in the
case of Gannon Dunkerley & Co. [State of Madras v. Gannon
Dunkerley & Co. (Madras) Ltd., (1958) 9 STC 353 (SC); AIR 1958
SC 560.] It was held that the transactions which are mutant sales
are limited to clause (29A) of article 366. However, all the
transactions must qualify as sales within the meaning of the Sales
Tax Act to levy sales tax. In paragraph 74, the decision in the case
of 20th Century Finance Corporation Limited [20th Century
Finance Corporation Limited v. State of Maharashtra, (2000) 119
STC 182 (SC); (2000) 6 SCC 12.] was interpreted. In paragraphs
74 and 75 of the judgment in the case of BSNL [Bharat Sanchar
Nigam Limited v. Union of India, (2006) 3 VST 95 (SC); (2006)
145 STC 91(SC); (2006) 282 ITR 273 (SC); (2006) 6 RC 276;
(2006) 3 SCC 1.] , Justice Ruma Pal observed thus [ Page 124 in
145 STC.] :
“74. In determining the situs of the transfer of the right to
use the goods, the court did not say that delivery of the
goods was inessential for the purposes of completing the
transfer of the right to use. The emphasised portions in the
quoted passage evidences that the goods must be available
when the transfer of the right to use the goods takes place.
The court also recognised that for oral contracts the situs
Page 28 of 62of the transfer may be where the goods are delivered (see
para 26 of the judgment).
75. In our opinion, the essence of the right under article
366(29A)(d) 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.”
Thus, this court held that to attract sub-clause (d) of clause (29A)
of article 366, the goods must be available at the time of transfer,
must be deliverable and delivered at some stage. If the goods are
not deliverable at all by the service provider to the subscriber, the
question of the right to use those goods would not arise.
32. The view taken by Dr. AR Lakshmanan, J has been consistently
followed thereafter by this court in various decisions. In the case
of Great Eastern Shipping Co. Ltd. [Great Eastern Shipping Co.
Ltd. v. State of Karnataka, (2020) 72 GSTR 341 (SC); (2020) 3
SCC 354.], paragraph 97 of the view expressed by Dr. AR
Lakshmanan, J was quoted with approval. A Bench of three
honourable Judges of this court in the case of Commissioner of
Service Tax, Ahmedabad v. Adani Gas Ltd. [(2020) 81 GSTR 1
(SC); 2020 SCC OnLine SC 682.] quoted paragraph 97 of the view
expressed by Dr. AR Lakshmanan, J with approval. In fact, in
paragraph 17, the Bench observed that the tests laid down in
paragraph 97 of the decision in the case of BSNL [Bharat Sanchar
Page 29 of 62
Nigam Limited v. Union of India, (2006) 3 VST 95 (SC); (2006)
145 STC 91 (SC); (2006) 282 ITR 273 (SC); (2006) 6 RC 276;
(2006) 3 SCC 1.] have been applied to determine whether the
transaction involved the transfer of the right to use any goods
under sub-clause (d) of clause (29A) of article 366 of the
Constitution of India.
40. On a conjoint reading of the clauses mentioned above, it is
apparent that there is no intention to transfer the use of any
particular tank truck in favour of ONGC. The contract is to provide
tank trucks for the transportation of goods. Once the tank trucks
provided by the contractor are loaded with goods, the entire
responsibility of their safe transit, including avoiding
contamination, delivery, and unloading at the destination, is of the
contractor. The test (c) is not satisfied in this case. Therefore, it is
impossible to conclude that there is a transfer of the right to use
tank trucks in favour of IOCL. Essentially, it is a contract to
provide the service of transporting the goods using tank trucks to
IOCL. Therefore, even in this case, all the five tests laid down by
Dr. AR Lakshmanan, J are not fulfilled.”
33. In the case of Viceroy Hotels Ltd. vs. Commercial Tax
Officer6 it was held as under:
“36. In the impugned order of assessment dated April 8, 2010, the
assessing authority notes that the sample bill, produced as part of
the objections, revealed that the petitioner-hotel was providing
equipment to its customers on rental basis ; this amounted to a
“deemed sale” under Explanation (iv) to section 2(28) of the Act ;
the bill produced for verification did not reveal that technicians6
(2011) 43 VST 424 : 2011 SCC OnLine AP 1089
Page 30 of 62were provided along with the LCD projectors or audio/video
equipment; consideration was charged exclusively for the
equipment; effective control over the said goods had been
transferred to the ultimate customer for use in their functions ; the
petitioner had given the LCD projectors and audio/video
multimedia equipment on hire to their customers without rendering
any other service, i.e., they merely delivered the equipment to their
customers on hire ; the customer could use the equipment in any
manner he wanted, and had to return the equipment at the end of
the event ; possession and effective control was transferred to the
customer during the event, and the customer had the right to use
the same ; in view of Explanation (iv) to section 2(28), the activity
of renting of LCD projectors and audio and video equipments was
“sale” attracting tax under section 4(8) of the Act ; and, in the
judgments relied on by the petitioner possession vested with the
service provider, whereas, in the present case, the petitioner had
transferred possession and control of the equipment rented to their
customers.
37. Admittedly, there is no privity of contract between the
outsourcing agency and the petitioner’s customers. It is the case of
the petitioner that they hire audio-visual equipment from the
outsourcing agency for consideration and, in turn, provide the
facility of audio-visual equipment to their customers for
consideration. On the petitioners’ own admission, they do not
render any service to their customers in relation to the audio visual
equipment. The contract between the petitioner and their customers
is not a contract of “service” as it is not even the petitioner’s case
that they render any service to their customers with regards the
audio visual equipment facility provided to them. Section 16(1) of
the Act places the burden of proving that any sale, effected by a
dealer, is not liable to tax on the dealer. The assessing authority
Page 31 of 62has held that the bill produced by the petitioner does not disclose
that technicians were provided along with LCD projectors or the
audio-video equipment. In the absence of any evidence being
produced by the petitioner in this regard, the assessing authority
was justified, in view of section 16 of the Act, in holding that, since
the bill merely reflected audio-visual equipment rentals, there was
a transfer of the right to use the audio-visual equipment. As section
16 of the Act casts the onus on the petitioner to establish that the
transaction is not one of “deemed sale” involving transfer of the
right to use goods, the petitioner’s contention, that it was for the
assessing authority to enquire and satisfy himself to the contrary,
does not merit acceptance. To establish that the outsourcing
agency had deputed their men to operate the audio-visual
equipment, and the A. V. equipment remained under the control
and possession of the outsourcing agency during the customer’s
conference, the petitioner should have produced the agreement
between them and the outsourcing agency and other documents in
support thereof. No copy of any such agreement was placed either
before the assessing authority or before this court.
38. The assessing authority has recorded the finding that the audio
visual equipment was delivered to the customer who paid rental
charges for such equipment ; the petitioner nowhere figured in the
process of the customer putting the audio-visual equipment to use ;
and, during the period of the conference, it was the customer who
was using the said audio-visual equipment. It is thus evident that
effective control over the audio-visual equipment has been
transferred to the customer who pays rental charges to the
petitioner. The assessing authority was, therefore, justified in
treating the said transaction as a transfer of the right to use goods,
and levying tax thereupon under section 4(8) of the Act.”
Page 32 of 62
34. In the case of Aggarwal Bros. vs. State of Haryana7 it was
held as under:
“3. The argument of learned counsel for the assessees goes thus:
Entry 54 of Part II of Schedule VII of the Constitution enables the
State to levy “taxes on the sale or purchase of goods other than
newspapers …”. Article 366 sets down definitions for the purposes
of the Constitution. Clause (29-A) thereof refers to “tax on the sale
or purchase of goods” and it includes
“(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”.
In the submission of learned counsel, having regard to Entry 54 of
Part II of Schedule VII, the transfer contemplated by sub-clause (d)
of clause (29-A) of Article 366 is a legal transfer of the right in the
goods. It has to be a transfer of goods. It has to be permanent. It
has to be something like a lease. The giving of goods on hire is not
such a transfer and, therefore, falls outside the ambit of sub-clause
(d) of clause (29-A) of Article 366. Learned counsel referred to
para 40 of the judgment of this Court in Builders’ Assn. of
India v. Union of India [(1989) 2 SCC 645 : 1989 SCC (Tax) 317]
which says: (SCC p. 675)
“As the Constitution exists today the power of the States to
levy taxes on sales and purchases of goods including the
‘deemed’ sales and purchases of goods under clause (29-
A) of Article 366 is to be found only in Entry 54 and not
outside it.”
7
(1999) 9 SCC 182
Page 33 of 62
4. The language used in Section 2(j)(iv) and 2(l)(iv) of the said Act
is the language used in Article 366(29-A)(d), Section 2(j) dealing
with purchase and Section 2(l) with sale. The argument before us
is, therefore, not an argument on the constitutionality of these
provisions of the said Act but of their interpretation and the
application thereof to the facts of the present case.
5. The said Act defines “sale” to mean the transfer of property in
goods for cash or deferred payment or other valuable
consideration and includes 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”. Such
transfer of the right to use goods for consideration is “deemed” to
be a sale. The provision expressly speaks of “transfer of the right
to use goods” and not of transfer of goods. There is, therefore, no
merit in the submission that to be a deemed sale within the
meaning of the above-mentioned provision of the said Act there
must be a legal transfer of goods or that the transaction must be
like a lease.
6. Where there is a transfer of a right to use goods for
consideration, the requirement of the above-mentioned provision of
the said Act is satisfied and there is deemed to be a sale. In the
instant case, the assessees owned shuttering. They transferred the
shuttering for consideration to builders and building contractors
for use in the construction of buildings. There can, therefore, be no
doubt that the requirements of a deemed sale within the meaning of
the above-mentioned provision of the said Act are satisfied.
35. In the case Quick Heal Technologies Ltd. (supra) it was held
as under:
Page 34 of 62
“68. In such circumstances referred to above, the appellant herein
has come up before this Court by filing the present appeals. These
appeals should succeed in the light of the reasoning assigned by us
while dismissing Civil Appeal (Diary No. 24399 of 2020), as above.
69. However, while allowing these appeals, we may only observe
that in Infotech Software Dealers Assn. v. Union of India [Infotech
Software Dealers Assn. v. Union of India, 2010 SCC OnLine Mad
4503 : (2010) 20 STR 289 (Mad)] the challenge was to the validity
of Section 65(105)(zzzze) levying service tax on the information
technology software service. The High Court held that the question
whether the software is “goods” or not would depend on the facts
and circumstances of individual case. It is evident on plain reading
of the judgment rendered by the Madras High Court in Infotech
Software Dealers Assn. [Infotech Software Dealers Assn. v. Union
of India, 2010 SCC OnLine Mad 4503 : (2010) 20 STR 289 (Mad)]
that it has not referred to the decision of this Court in Tata
Consultancy Services [Tata Consultancy Services v. State of A.P.,
(2005) 1 SCC 308] .
70. We take notice of the fact that the appellant herein had also
filed Review Petition No. 205 of 2021 against the order dated 5-8-
2021 [K7 Computing (P) Ltd. v. Commr., 2021 SCC OnLine Mad
16525] in Writ Appeal No. 1881 of 2021, which came to be rejected
vide order dated 20-12-2021 [K7 Computing (P) Ltd. v. Commr.,
2021 SCC OnLine Mad 16524] .
71. In view of the judgment [ Set out in paras 2 to 59, above.]
rendered above in Civil Appeal (Diary No. 24399 of 2020), these
appeals should succeed and deserve to be allowed.
72. In the result, the appeals are allowed. The impugned order
passed by the High Court dated 5-8-2021 [K7 Computing (P)
Ltd. v. Commr., 2021 SCC OnLine Mad 16525] in Writ Appeal No.
Page 35 of 62
1881 of 2021 as also the order dated 20-12-2021 [K7 Computing
(P) Ltd. v. Commr., 2021 SCC OnLine Mad 16524] passed in
Review Petition No. 205 of 2021 in Writ Appeal No. 1881 of 2021
are hereby set aside.
73. There shall be no order as to costs. Pending application(s), if
any, also stands disposed of.”
36. In the case of HLS Asia Ltd. vs. State of Assam8 it was held
as under:
“26. The judicially evolved principles to identify a transaction
involving the transfer of right to use goods to be a sale under the
Act clearly exclude the indispensability of delivery of physical
possession thereof as an essential pre-condition. The other
ordained features of such a transaction are, in our considered
opinion, present in the instant case. The equipment, plants and
machinery were available and identified by the parties. Under the
contract, OIL derived the legal right to use the goods having hired
the same on payment of charges. Customs duty had also been paid
by it on the equipment imported by the contractor for executing the
works. Under the stringent contractual terms, the contractor was
bound to keep the equipment engaged exclusively for the works.
The fact that the same had been operated by its technically
qualified personnel does not militate against the element of
exclusiveness in the use thereof for the services and benefit of OIL.
During the subsistence of the contract, the appellant-company was
neither authorised nor permitted to transfer the equipment or detail
the same for others. The parties consciously limited the tax liability
to the rental component only.
8
(2007) 8 VST 314
Page 36 of 62
27. The provisions of the contract understandably have to be
construed in the context of the service accorded to be rendered.
The transfer of right to use the equipments has to be perceived in
the context of the nature, manner and extent of engagement thereof.
The retention of physical possession thereof by the appellant-
company cannot be decisive. The parties entered into the contract
understanding the implications of each and every provision thereof,
which according to us, demonstrate an obvious dominion and
control of OIL over the equipment used by the appellant for the
execution of the works during the period of the contract. We, thus,
have no hesitation to hold that the transaction in question involved
transfer of right to use the equipment, plants and machinery under
the lease within the meaning of section 2(33)(iv) of the Act.”
37. In the case of G. S. Lamba & Sons (supra) it was held as
under:
“2. The undisputed factual matrix is in a narrow compass. The
petitioners M/s. G. S. Lamba & Company, G. S. Lamba & Sons,
and G. S. L. Coal Sales Pvt. Ltd.,–are dealers on the rolls of the
Commercial Tax Officer (CTO), Begumpet Circle. In pursuance of
the inspection and investigation by the Vigilance and Enforcement
Wing, the CTO assessed tax for 2001-02 and 2002-03 under
section 5E of the Act in respect of the taxable event, namely, the
petitioners hiring their fleet of transit mixers to M/s. Grasim
Industries Ltd., Secunderabad, a unit of M/s. Birla Ready Mix
Concrete (hereafter, “Grasim”). The Appellate Deputy
Commissioner agreed with assessees and treated the hiring of
transit mixers as contract of transport service, and not the transfer
of the right to use the goods. The Additional Commissioner (Legal),
in exercise of the revisional jurisdiction, levied sales tax under
Page 37 of 62section 5E of the Act. The petitioners then went in further appeals
before the learned Tribunal, which were dismissed.
3. The case of the petitioners is that Grasim manufactures Ready
Mix Concrete (RMC), according to the specifications depending on
the site requirements of a customer, at its batching plants in
Miyapur and Nacharam in Hyderabad. RMC is a homogenized and
a precise mixture. Its use reduces work at the site, minimises space
requirements and allows smooth progress of the construction. It
has a very short shelf life of 3 to 4 hours from the time of its
manufacture at the batching plant, and has to be used within that
period. Keeping all these in view the petitioners entered into
agreements with Grasim. These contracts are for providing
transportation service for shipping RMC by hiring specially
designed transit mixers. Under the contracts, the transit mixers are
never transferred and the effective control over running and using
of these vehicles, as well as the disciplinary control over the
drivers, always remained with the petitioners. They point out that it
is their responsibility to obtain route permits, to take the risk or
loss of transportation, to decide shifts for drivers and vehicles, to
maintain and upkeep the vehicles in good condition. It is also their
plea that damages to the goods, during the period of
transportation, and the risk of loss of the vehicles have to be
incurred by the petitioners, and that registration of the vehicles is
never transferred to Grasim. They further contend that, if on
reading the contract, two views are possible, revision by the
Additional Commissioner, under section 20(2) of the Act, would not
lie.
9. It is axiomatic that the machinery provisions of a taxing statute
have to be interpreted in such a manner that they are workable
(Commissioner of Income-tax, Central, Calcutta v. National Taj
Traders [1980] 121 ITR 535 (SC) ; AIR 1980 SC 485 and J. K.
Page 38 of 62Synthetics Ltd. v. Commercial Taxes Officer [1994] 94 STC 422
(SC) ; AIR 1994 SC 2393). It does not, however, mean that the
interpreter can interpolate something not intended by the
Legislature, by supplying caususomissus (Illachi Devi (Dead) by
Lrs. v. Jain Society, Protection of Orphans India (2003) 8 SCC 413
; AIR 2003 SC 3397 and Sankar Ram & Co. v. Kasi Naicker (2003)
11 SCC 699 ; AIR 2003 SC 4156). If the plea of the petitioners is
accepted, we have to read section 20(1) of the APGST Act as
empowering revision, only when an order of assessing
officer/appellate authority is erroneous in so far as it is prejudicial
to the interest of revenue. This is plainly not permissible.
11. The petitioners allege that the contract with Grasim is for
transportation service. They deny that it is for the transfer of the
right to use the goods. Transit mixers are indisputably goods as
defined in section 2(h) of the Act. Section 2(n) defines “sales” to
mean transfer of the property in goods for cash in the course of
trade or business and includes mortgage, hypothecation, pledge or
charge on goods. This definition has eight Explanations. Fourth of
them was inserted by Andhra Pradesh Act No. 18 of 1985 with
effect from February 2, 1983. It is to the effect that “a transfer of
the right to use any goods for any purpose” shall be deemed to be
sale. When is the right to use goods said to have been transferred ?
To appreciate this, a brief journey into the past relating to tax on
sale of goods under entry 54 of List II of the Seventh Schedule to
the Constitution of India may be necessary.
20. In I. T. C. Classic Finance and Services v. Commissioner of
Commercial Taxes [1995] 97 STC 330 (AP) ; (1995) 20 APSTJ
150, the assessee, a finance company, was in the business of hiring
out machinery, plant and equipment for rent. After purchasing the
goods of required specifications, the manufacturer was advised to
consign them directly to the customer on hire under an agreement
Page 39 of 62
of lease of the equipment for a period of sixty months or more. As
these goods were moved out of the State during the course of inter-
State trade, in their sales tax return for the year 1988-89, the
assessee claimed exemption on the ground that the transaction was
not excisable to tax under section 5E of the Act. The original
authority rejected the contention. The assessee was successful
before the Appellate Deputy Commissioner. However, the
Commissioner following the judgment of the Bombay High Court in
20th Century Finance Corporation Limited v. State of Maharashtra
[1989] 75 STC 217 (Bom) in suo motu revision, set aside the
appellate order restoring the original assessment order. The
assessee then filed special appeal before this court, inter alia,
contending that deemed sales cannot be distinguished from
ordinary sales for the purpose of taxation under the Act, and that,
the taxable event of delivering the goods having occurred in the
State of Tamil Nadu, the same is not excisable under section 5E of
the Act. Relying on Builders Association of India and Gannon
Dunkerley & Co. v. State of Rajasthan [1993] 88 STC 204 (SC) ;
(1993) 1 SCC 364 the contention was accepted observing thus
(page 349 in 97 STC)
“.. . In the determination of the inter-State character of a
sale, the situs is immaterial. When goods are entrusted to
a common carrier for delivery, it amounts to delivery to
the consignee and when it takes place outside the State,
the fact that subsequently the goods have reached the
State where the tax is sought to be imposed, cannot be a
ground for determining the tax liability. The decision of
the Bombay High Court in 20th Century Finance
Corporation Limited [1989] 75STC 217 (Bom), proceeds
on the footing that a transfer of the right to use is different
Page 40 of 62
from sale without considering the fiction introduced by
clause (29A) of article 366 of the Constitution.
The principle that where a State law while defining the
expression ‘sale’ makes the situs a relevant consideration for the
purpose of determining a deemed sale, the same cannot bring
within its ambit inter-State sales or sales in the course of import
and export was again emphasized by the Supreme Court in
Builders’ Association of India v. State of Karnataka [1993] 88 STC
248 (SC) ; AIR 1993 SC 991.
21. In order to get over the above dicta, by A. P. Act No. 22 of
1995, section 5E was substituted, which reads as under.
5E. Tax on the amount realised in respect of any right
to use goods.–Notwithstanding anything contained in this
Act,–
(a) Every dealer who transfers the right to use any
goods for any purpose, whatsoever, whether or not for a
specified period, to any lessee or licencee for cash,
deferred payment or other valuable consideration, in the
course of his business shall, on the total amount realised
or realisable by him by way of payment in cash or
otherwise on such transfer or transfers of the right to use
such goods from the lessee or licencee, pay a tax at the
rate of five paise in every rupee of the aggregate of such
amount realised or realisable by him during the year ;
(b) the transfer of right to use any such goods entered
into by any dealer, shall be deemed to have taken place in
this State whenever the goods are used within the State,
irrespective of the place where the agreement whether
written or oral for such transfer of right is made
Page 41 of 62
Provided that no such tax shall be levied if the total
turnover of the dealer including such aggregate is less
than Rs. two lakhs*.
26. At this stage, the following principles to the extent relevant may
be summed up
(a) The Constitution (Forty-sixth) Amendment Act intends to
rope in various economic activities by enlarging the scope of “tax
on sale or purchase of goods” so that it may include within its
scope, the transfer, delivery or supply of goods that may take place
under any of the transactions referred to in sub-clauses (a) to (f) of
clause (29A) of article 366. The works contracts, hire-purchase
contracts, supply of food for human consumption, supply of goods
by association and clubs, contract for transfer of the right to use
any goods are some such economic activities.
(b) The transfer of the right to use goods, as distinct from the
transfer of goods, is yet another economic activity intended to be
exigible to State tax.
(c) There are clear distinguishing features between ordinary
sales and deemed sales.
(d) article 366(29A)(d) of the Constitution implies tax not on
the delivery of the goods for use, but implies tax on the transfer of
the right to use goods. The transfer of the right to use goods
contemplated in sub- clause (d) of clause (29A) cannot be equated
with that category of bailment where goods are left with the bailee
to be used by him for hire.
(e) In the case of article 366(29A)(d) the goods are not
required to be left with the transferee. All that is required is that
there is a transfer of the right to use goods. In such a case taxable
event occurs regardless of when or whether the goods are delivered
Page 42 of 62
for use. What is required is that the goods should be in existence so
that they may be used.
(f) The levy of tax under article 366(29A)(d) is not on the use of
goods. It is on the transfer of the right to use goods which accrues
only on account of the transfer of the right. In other words, the
right to use goods arises only on the transfer of such right to use
goods.
(g) The transfer of right is the sine qua non for the right to use
any goods, and such transfer takes place when the contract is
executed under which the right is vested in the lessee.
(h) The agreement or the contract between the parties would
determine the nature of the contract. Such agreement has to be
read as a whole to determine the nature of the transaction. If the
consensus ad idem as to identity of the goods is shown the
transaction is exigible to tax.
(i) The locus of the deemed sale, by transfer of the right to use
goods, is the place where the relevant right to use goods is
transferred. The place where the goods are situated or where the
goods are delivered or used is not relevant.
40. There is no dispute that the agreement between the petitioners
and Grasim satisfies all conditionalities except that it does not
contain the date and place of execution. Does it render it ineffective
and unenforceable? We are afraid the answer cannot be in abstract
or simplistic. If the agreement contains sufficient indication with
regard to the grant and creation of rights and obligations with
reference to such grant for the specified period therein, it would be
sufficient to bind the parties to the agreement. The mere absence of
date and place does not militate against the parties nor can they
escape regulation by the applicable statute. It is also a well-settled
rule of interpretation that even in the absence of a formal
Page 43 of 62
agreement, a contract can be inferred from the pre and post
contract correspondence between the parties. In this case, clause
(L) gives sufficient indication when it says that, “the agreement will
come into force from October 1, 2002 and remain in effect till
March 31, 2006, with liberty to parties to terminate the contract by
giving three months notice in writing to the other party”. The
reading of the agreement does not anywhere indicate that it was
entered into between the parties elsewhere than at Secunderabad.
The first page of the agreement in its footnote contains the address
of the Marketing Department of Grasim sufficient enough to
conclude that it was entered into between the parties at
Secunderabad. Even otherwise it is fairly well- settled that the
transfer of the right to use goods can be effected even under an
oral agreement. Hence, submission of the special counsel is
rejected.
* (1) The clause usually following the granting part of the deed
which defines the extent of the ownership in the thing granted to be
held by the grantee. “The purpose of the Habendum is to limit the
estate so that the genaral implication of the estate which by
construction of law passeth in the primises is by the Habendum
Controlled and qualified (Advanced Law Lexicon by P. Ramanatha
Aiyar 3rd edition reprint 2007). (2) The part of a deed or
conveyance which states the estate or quantity of interest to be
granted, e.g., the term of a lease (The New Oxford Dictionary of
English Fourth Impression 2002)
42. As mentioned supra, whether the transaction amounts to
transfer of right or not cannot be determined with reference to a
particular word or clause in the agreement. The agreement has to
be read as a whole to determine the nature of the transaction
(RashtriyaIspat Nigam Ltd. [1990] 77STC 182 (AP)). We may, for
ready reference extract important clauses from the agreement.
Page 44 of 62
A. That the second party will maintain and provide a dedicated
fleet of five vehicles to transport the produce of the first party from
their plant to the various customers in the cities of Hyderabad. The
number of vehicles required to be dedicated for the use will be
subject to change and the parties will mutually agree to the new
fleet size. This number shall not change unless otherwise indicated
by the first party and agreed to by the second party and the
remaining terms and conditions of this agreement will remain
unaffected by this change.
B. That the second party will ensure that adequate number of
vehicles are made available on a 24/7 basis, i.e., 24 hours and
everyday of the weeks as per the instructions of the officials of the
first party. If the second party fails to provide the vehicles as
desired it shall attract penalties as prescribed later in this
document. The first party agrees that the second party will require
up to two days a month for the maintenance and upkeep of the
vehicles and will, therefore, allow two days a month for this
activity and will not demand any penalty for these days.
C. That the second party will be solely responsible for ensuring
that the produce of the first party reach the destination in time and
as per the agreed schedule. No delay on any account will be
acceptable and the second party must ensure safe delivery of the
produce.
D. That the produce of the first party has a strong brand equity
in the market and they would like the vehicles to be painted in a
particular style and color. The second party has agreed to get the
same done at their cost and have also assured the first party that
they shall paint the vehicles every six months.
E. That the second party has also agreed that the drivers will
be suitably dressed in a uniform at all times and the uniform would
Page 45 of 62
be neat and clean. The drivers will be qualified and licensed and
will not consume any intoxicating substance while on job-whether
at the plant or at the site of the customers of the first party. The
staff of the second party engaged in providing services to the first
party will also ensure that they obey all the lawful instructions of
the officials of the first party and conform to the norms of decency
while interacting. All the personnel of the second party will carry
identification cards with them at all times.
F. and G. omitted
H. That the second party will obtain proper receipts from the
customers of the first party after the goods are delivered and also
submit reports to the first party in the formats supplied by the first
party at the required intervals.
I to K omitted
L. That this agreement will come into force from the 1st
October, 2002 and remain in effect till March 31, 2006. However,
the parties will be at liberty to terminate this contract at any time
by giving three months notice in writing to the other party. The first
party will be at liberty to terminate this agreement at any time if
the second party violates any of the terms of the agreement or if the
quality of the services provided it not to its satisfaction. The
decision of the first party as to the quality will be final.
M. That the second party will indemnify the first party against
statutory claim being made by any authority on the first party for
an act of omission or commission by the second party.
(emphasis supplied)”
38. It would be also necessary at this juncture to take note of the
lease deed signed between the parties on 28.10.2002 which sheds
Page 46 of 62light on the nature of transaction of the contract between them. The
relevant portions / paras of the lease deed for ready reference are
reproduced hereunder:
“SECTION 4. RENT
Commencing on the Lease Commencement Date, Tenant covenants
and agrees to pay to landlord a Monthly Rent of Rs. 694,666/-
(Rupees Six Hundred Ninety Four Thousand Six Hundred and Sixty
Six Only) as follows subject to the Rebates and Reductions
described in Special Condition 2 of Exhibit “C”.
(a) Rs.528,938/- (Rupees Five Hundred Twenty Eight
Thousand Nine Hundred and Thirty Eight Only) for the
demised premises (Hereinafter “Base Rent”) based on
the computations described in Exhibit ‘D’ and subject
to the conditions described in GTC-13 of Exhibit ‘B’.
The base rent shall remain the same for the first twenty
four (24) months after the lease Commencement Date
and thereafter shall be increased by 10% at the
beginning of the each year for the remaining period of
the Term as described in Section 3(b) of the Lease.
(b) Rs.75,000/- (Rupees Seventy Five Thousand Only) for
the use of the Cafeteria (hereinafter “Cafeteria Usage
Charges”) subject to the conditions described in GTC-
13 of Exhibit ‘B’. The Cafeteria Usage Charges shall
remain the same for the first twenty four (24) months
after the Lease Commencement Date and thereafter
shall be increased by 10% at the beginning of the each
year for the remaining period of the Term as described
in Section 3(b) of the Lease.
Page 47 of 62
(c) Rs.28,500/- (Rupees Twenty Eight Thousand and Five
Hundred Only) for use of Parking Areas (hereinafter
“Parking Charges”) based on the computations
described in Exhibit ‘D’ and subject to the conditions
described in GTC-9 of Exhibit ‘B’.
(d) Rs.62,228/- (Rupees Sixty Two Thousand Two Hundred
and Twenty Eight Only) for common area and
equipment maintenance as described in GTC-3(a) of
Exhibit ‘B’ (hereinafter “Maintenance Charges”) based
on the computations described in Exhibit ‘D’. The
Maintenance Charges ‘shall remain the same for the
first twelve (12) months after the Lease Commencement
Date and thereafter shall be increased in accordance
with the provision of GTC-3(c) of Exhibit ‘B’.”
GTC-1: FACILITIES & AMENITIES TO BE PROVIDED BY
LANDLORD
Landlord agrees to provide the following amenities and facilities
apart from the super built-up areas described in Exhibit ‘D’ for
which sums mentioned in Section 4(a), Section 4(b) and Section
4(c) of the Lease Deed shall be payable by Tenant
(a) Demised Premises with
(i) IPS Flooring
(ii) Central Air-conditioning system from 4 x 180 TR air
cooled screw chillers with ducting upto the AIIU Room
(subject to the conditions described in GTC-7 of Exhibit ‘B’).
(iii) Raw power supply upto the distribution boards of the
Demised Premises.
Page 48 of 62
(iv) One Raw Power Distribution Board and separate
Distribution Boards for lighting within the Demised Premises
(v) Functional Toilets
(vi) Access control system (for entrance to Demised Premises)
with proximity cards,
(vii) Building Management System
(viii) Fire escape staircases (external)
(b) Lobby Areas in the Main Building with
(i) Central Air-conditioning system from 4 x 180 TR air cooled
screw chillers with ducting and grills (subject to the conditions
described in GTC-7 of Exhibit ‘B’)
(ii) Complete Lighting system
(iii) Eight (8) numbers 13-passenger elevators
(iv) Fire detection and Fire Fighting system
(v) Building Management System
(vii) Lift Walls cladding with granite and painting in other
areas.
(viii) Public Address System
(ix) Internal Staircases
(c) Other Utilities and amenities
(i) Adequate potable drinking water
(ii) 33 KV Electrical Sub-station with 2300 KVA connected
load
Page 49 of 62
(iii) 100% power back-up with 3 x 750 KVA synchronized
Diesel Generating Sets
(iv) One emergency power pack for 1 KVA load
(v) Sewerage Treatment plant with a treatment capacity of 100
cubic meters/day
(vi) Complete Fire Fighting system with hydrants. Sprinklers
in the stilt floor of Building “H”
(vii) Parking for four-wheelers and two-wheelers (subject to
the conditions described in GTC-9 of Exhibit ‘B’)
(viii) Integrated Building Management System
(ix) Fully equipped kitchen and cafeteria in two (2) levels to
accommodate One thousand and One hundred (1,100) people
at a time (subject to the conditions described in GTC-8 of
Exhibit ‘B’).
GTC – 8 : CAFETERIA
(a) Landlord shall provide for a common cafeteria (usage
mandatory for all tenants-lunch rooms inside Demised Premises
not permitted) for all the occupants of the Campus with the
following facilities
(i) Two (2) numbers 13-passenger elevators
(ii) Centralised air-conditioning from 4 x 180 TR air-cooled
screw chillers
(iii) Furniture
(iv) Kitchen Equipment
(v) Cutlery & Crockery
Page 50 of 62
(b) The Cafeteria is a self-service facility where disposal of used
plates and glasses shall be done bythe users.
(c) Tenant will pay for the consumption of food & beverages
directly to the cafeteria management at rates mutually agreed upon
by Tenant and Cafeteria Management.
(d) The Cafeteria shall be used for the purpose of consumption of
food & beverages only by Tenant’s employees during working
hours
(e) Tenant shall not utilize the cafeteria to conduct any meetings,
discussions or any other group of individual activity without the
prior consent of Landlord.
GTC-21 : FURNITURE AND EQUIPMENT
Beyond the maximum weight of 350 kgs per square meter,
Landlord shall have the right to prescribe the weight, and method
of installation and position of safes or other heavy fixtures or
equipment and Tenant shall not install in the Demised Premises
any fixtures, equipment or machinery that shall place a load upon
the floor exceeding the floor load per square foot area which such
floor was designed to carry. All damage done to the Demised
Premises or the Property by taking in or removing a safe or any
other article of Tenant’s office freight, furniture, or equipment, or
due to its being in the Demised Premises, shall be repaired at the
expense of Tenant. No freight, furniture or other bulky matter
beyond the maximum weight of 350 kgs per square meter shall be
received onto the Property or into the Demised Premises or carried
in the elevators, except as approved by Landlord. Moving of
furniture and equipment beyond the maximum weight of 350 kgs
per square meter shall be under the direct control and supervision
of Landlord, who shall, however, not be responsible for any
Page 51 of 62
damage (unless caused by gross negligence or willful misconduct
of Landlord, its agents or employees) to or charges for moving
same.
GTC-22 : REPAIRS AND INSPECTION
(a) Tenant shall after receiving prior written notice, permit
Landlord, its employees, agents, contractors, and representatives,
to enter the Property, the Buildings, and the Demised Premises at
reasonable times and in a reasonable manner to inspect and
protect the same, and to make such alterations or repairs as
Landlord may deem necessary, or to exhibit the same to
prospective purchasers. In the event of an emergency, Landlord
may enter the Property and any part thereof with a shorter notice
and make whatever repairs are necessary to protect the same;
provided, however, that Landlord is required and shall act
carefully and reasonably when exercising any right of access to the
Demised Property and ensure that any repairs or inspection
undertaken by Landlord shall not interfere with the business of
Tenant. Landlord shall use reasonable efforts to minimize
interference to Tenant’s business when making repairs, but
Landlord shall not be required to perform such repairs at a time
other than during normal working hours. There shall be no
abatement of Rent and no liability by reason of any injury or
inconvenience to or interference with Tenant’s business arising
from the making of any repairs, alterations or improvements in or
to any portion of the Property, unless caused by the gross
negligence or willful misconduct by Landlord, its agents or
employees.
(b) Tenant shall take good care of the Demised Premises and the
fixtures and appurtenances therein. Tenant shall, at its expense,
Page 52 of 62
repair all damage thereto and any fixtures and equipment therein
and otherwise to the Property to Landlord’s reasonable satisfaction
caused directly or indirectly by Tenant, its employees, agents,
invitees, licensees, subtenants, or contractors. If Tenant fails to
make such repairs, the same may be made by Landlord and the
expense thereof shall be deemed Reimbursements due and payable
by Tenant within fifteen (15) days after the sending of a statement
thereof by Landlord to Tenant.
39. There is yet another lease deed again signed between the parties
on 01.07.2003. The relevant portions / paras of the said lease deed, for
ready reference, is reproduced hereunder:
“SECTION 4. RENT
Notwithstanding anything to the contrary provided in the Exhibits, the
Tenant covenants and agrees to pay to Landlord, and Landlord agrees to
accept from the Tenant, a Monthly Rent for the Demised Premises
(together with easements, rights and advantages appurtenant thereof, for
setting up their office premises and together with the right of Tenant, its
employees, agents, contractors and servants to the use of the Demised
Property) as follows:
(a) For the first Two (2) months of the Term Rs.176,155/- (Rupees One
Hundred Seventy Six Thousand One Hundred and Fifty Five only) per
month. For the next Four (4) months of the Term Rs.352,310/- (Rupees
Three Hundred Fifty Two Thousand Three Hundred and Ten Only) per
month and Rs.528,465 (Rupees Five Hundred Twenty Eight Thousand
Four Hundred and Sixty Five Only) per month thereafter for the Demised
Premises (hereinafter “Base Rent”) based on the computations described
in Exhibit ‘D’ (subject to reductions specified herein for the initial months)
and subject to the conditions described in GTC-13 (e), (g) and (h) of
Page 53 of 62Exhibit ‘B’. The Base Rent shall remain the same for the first twenty four
(24) months of the Term and shall be increased by 10% thereafter at the
beginning of the each year for the remaining period of the Term as
described in Section 3(b) of the Lease.
(b) Commencing on September 15th, 2003 for the first Four (4) months
Rs.50,000/- (Rupees Fifty Thousand only) per month and Rs.75.000%
(Rupees Seventy Five Thousand Only) per month thereafter for the use of
the Cafeteria (hereinafter “Cafeteria Usage Charges”) subject to the
conditions described in GTC-13 (e) and (h) of Exhibit ‘B’. The Cafeteria
Usage Charges shall remain the same for the first twenty four (24) months
of the Term and shall be increased by 10% thereafter at the beginning of
the each year for the remaining period of the Term as described in Section
3(b) of the Lease.
(c) Commencing on September 15th, 2003 Rs.28,500/- (Rupees Twenty
Eight Thousand and Five Hundred Only) per month for use of Parking
Areas (hereinafter “Parking Charges”) based on the computations
described in Exhibit ‘D’ and subject to the conditions described in GTC-9
of Exhibit ‘B’
(d) Commencing on September 15th, 2003 for the first Four (4) months
Rs. 40,264/- (Rupees Forty Thousand Two Hundred Sixty Four Only) per
month and Rs.60,396/- (Rupees Sixty Thousand Three Hundred and
Ninety Six Only) per month thereafter for common area and equipment
maintenance as described in GTC-3(a) of Exhibit ‘B’ (hereinafter
“Maintenance Charges”) based on the computations described in Exhibit
‘D’ (subject to the reductions in Maintenance Charges for the initial
months as specified herein). The Maintenance Charges shall remain the
same for the first twelve (12) months after the Lease Commencement Date
and thereafter may be increased in accordance with the provision of GTC-
3(c) of Exhibit ‘B’, subject to the Landlord providing proper justification
for such increase to the Tenant.”
Page 54 of 62
40. From the submissions advanced on behalf of all the parties in
the present batch of petitions and upon perusal of the materials placed
on record, particularly the contents of the lease deeds, it is evident
that a reading of Article 366(29A) of the Constitution clearly reveals
that tax can be levied only on the sale or purchase of goods, which
includes any transfer of the right to use goods for cash, deferred
payment, or other valuable consideration. It is also well settled that
unless there is a transfer of the right to use goods from one person to
another, the essential ingredients of a sale or purchase are not satisfied
and, consequently, the transaction would not be liable to tax.
41. A similar principle emerges from a reading of the definition of
“tax” under Section 2(q) of the APGST Act. The provision reiterates
the same principle embodied in Article 366(29A). The definition
contemplates the levy of tax only where there is a transfer of the right
to use goods pursuant to a contract. Such transfer necessarily requires
that the transferee be vested with the right to use the goods, implying
effective possession and control over them. Where the transfer does
not involve parting with possession or exclusive control over the
goods, the transaction would not attract tax.
Page 55 of 62
42. In the facts of the present batch of petitions, as is evident from
the various clauses of the lease deeds, the petitioners have not parted
with possession or control of the properties, except to the limited
extent of permitting the tenants to use them as part of the common
amenities and facilities provided under the lease. In several instances,
such facilities are intended for the common use of more than one
tenant. Further, a perusal of the lease agreements reveals that the
petitioners have challenged the levy of tax on lease rentals, which are
charged on a per square foot basis and not separately in respect of
furniture and fixtures. Therefore, the revisional authority could not
have, merely on the basis of presumption, bifurcated the composite
lease rentals into components attributable to movable and immovable
properties.
43. In Bharat Sanchar Nigam Limited (supra), while deciding the
issues, the Hon’ble Supreme Court held that the goods involved in a
transaction of transfer of the right to use must be in existence,
deliverable, and actually delivered. However, a reading of the various
clauses of the lease deeds in the present batch of matters shows that
the facilities such as lifts, the sewage system, bathrooms, and the
Page 56 of 62
cafeteria are common facilities shared by more than one tenant.
Consequently, they are incapable of being exclusively delivered or
made deliverable to any particular tenant.
44. The authorities, particularly the STAT as well as the appellate
authorities, failed to consider that the transfer of right to use goods is
complete only when the assessee obtains effective control or
exclusive domain over the goods that are the subject matter of the
lease transaction. The aforesaid principle stands affirmed by the
Andhra Pradesh High Court in the case of Barat Coca-cola South
East Private Ltd. vs. State of Andhra Pradesh 9.
45. For the aforesaid reasons, this Bench is of the considered
opinion that the finding of the Deputy Commissioner in the revisional
assessment order, holding that the petitioners are liable to pay tax
under Section 5E of the APGST Act on the lease rentals realized in
respect of interiors, furniture and fixtures, as well as movable items
provided in the kitchen and cafeteria, cannot be sustained.
9
(2008) 46 APSTJ 49
Page 57 of 62
46. A reading of the judgment in Bharat Sanchar Nigam Limited
(supra) shows that paragraph 97 lays down five essential ingredients
for constituting a transfer of the right to use goods. When these five
ingredients are examined in the light of the clauses contained in the
lease deeds relating to the furniture and fixtures, it becomes evident
that the lease deeds executed between the petitioners and their
respective tenants do not satisfy these essential requirements.
Accordingly, the transactions cannot be construed as constituting a
transfer of the right to use goods so as to attract tax under Section 5E
of the APGST Act.
47. The first ingredient laid down by the Hon’ble Supreme Court in
Bharat Sanchar Nigam Limited (supra) is that there must be goods
available for delivery. Upon comparing the said ingredient with the
facts of the present batch of cases and the terms and conditions of the
lease deeds, this Bench finds that the said requirement is not satisfied
since the goods were not specifically identified for delivery as per any
clause of the lease deeds.
48. The second ingredient laid down in the said judgment is that
there must be a consensus ad idem as to the identity of the goods.
Page 58 of 62
On examining the lease deeds in the present batch of cases, this Bench
finds that the said ingredient is also not fulfilled since the agreement
did not make provision for supply of specific goods which were
identified for transferring the right to use such goods. The agreement
only prescribed that the petitioners shall provide the service of
making available certain facilities and amenities that could be
suspended by the petitioners and that the furniture, fixtures and
equipment were replaceable. Exhibit ‘B’ of lease deed dated
28.10.2002 entails common facilities and amenities.
49. The third ingredient laid down in the said judgment is that the
transferee should have a legal right to use the goods —
consequently all legal consequences of such use including any
permissions or licenses required therefore should be available to
the transferee. Upon consideration of the covenants contained in the
lease deeds governing the present batch of cases, this Bench is of the
view that this ingredient also remains unfulfilled since:
(a) There is no legal right to use goods, insofar as the agreement
does not specifically prescribe the same.
Page 59 of 62
(b) Effective control and possession is with the landlord as per
Exhibit B. GST 10 permits the landlord to suspend, delay or
discontinue providing any facility. GTC 15 restricts the use of
demised property and facility by tenant. GTC 17 precludes the
tenant from further assigning, subleasing, transferring or
encumbering the lease without prior permission of the landlord.
GTC 19 prevents tenant from making any alterations.
(c) The legal consequences of use are not transferred to the tenant:
GTC 28(a) requires the landlord to indemnify the tenant against
all legal consequences arising from use, occupation and
possession of demised premises. GTC 28(g) provides that all
legal problems from use of demised premises will be total
liability of landlord. Therefore, no legal consequences are
borne by the lessee.
50. The fourth ingredient laid down in the said judgment is that for
the period during which the transferee has such legal right, it has
to be to the exclusion of 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. A
Page 60 of 62
comparison of this requirement with the factual matrix of the present
batch of cases demonstrates that this ingredient is likewise absent and
not satisfied since the transfer of property involved by the lease
agreement is not to the exclusion of the petitioners. No clause as per
the agreement restricts use of goods by the petitioners during the
lease. Further, common facilities including cafeteria as admitted in the
STAT’s order are not to the exclusion of the transferor and is
commonly used by employees of several IT companies including the
employees of petitioners stationed in the building.
51. The fifth ingredient laid down in the said judgment is that
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. Tested on the touchstone of the facts of
the present batch of cases, this Court finds that this ingredient is also
not satisfied since the common facilities and amenities are being used
by numerous IT Companies. Admittedly in para 64 of the STAT order
it was held that the leased goods were used by several IT companies.
Further, GTC 28(h) provides that the landlord is free to dispose of or
Page 61 of 62
encumber its interest in the demised premises by way of sale, transfer,
charge, mortgage or otherwise.
52. For all the aforesaid reasons, justifications, and the judicial
precedents referred to in the preceding paragraphs, we are of the
considered opinion that the finding arrived at by the STAT affirming
the orders of the Assessing Officer, the Appellate Deputy
Commissioner, and the Deputy Commissioner is not sustainable in
law. Accordingly, all these petitions, to the aforesaid extent, deserve
to be allowed. Consequently, the orders passed by the STAT
affirming the orders of the Assessing Officer, the Appellate Deputy
Commissioner, and the Deputy Commissioner are held to be bad in
law and are accordingly set aside. We further hold that the rent paid
by the tenants to the petitioners / landlords towards the furniture,
equipment, and other movable items provided in the kitchen and
cafeteria, in respect of which the tenants have paid rent, would not be
amenable to tax under the APGST Act, as such payments arise out of
a contract of service. Therefore, they cannot, in any manner, be
brought within the purview of a sale or purchase, nor can they be
construed as involving a transfer of the right to use such goods.
Page 62 of 62
53. Accordingly, Writ Petition Nos. 9991, 3865, and 3866 of 2009,
along with Tax Revision Case No.52 of 2008, are allowed. The
impugned orders in all these cases are set aside / quashed.
54. As a sequel, miscellaneous petitions pending if any, shall stand
closed. However, there shall be no order as to costs.
_________________
P. SAM KOSHY, J
_______________________________
SUDDALA CHALAPATHI RAO, J
Date : 03.07.2026
Note: LR Copy to be marked.
(B/o) GSD / AQS
