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CASE NO.: Appeal (civil)  6482 of 2001

PETITIONER: State of Orissa and another

RESPONDENT: M/s Asiatic Gases Ltd

DATE OF JUDGMENT: 16/05/2007

BENCH: S.H. KAPADIA & B. SUDERSHAN REDDY

JUDGMENT: J U D G M E N T

KAPADIA, J.

       This civil appeal is directed against the judgment and order  dated 21.9.2000 passed by the Orissa High Court in SJC No.157 of  1996 holding that the consideration received by the manufacturer for  over-retention of gas cylinders did not constitute ’sale price’ as  defined under Section 2(h) of the Orissa Sales Tax Act, 1947.  According to the impugned judgment there was no transfer of right to  use the cylinders and that the charge levied by the respondent-assessee   for over-retention of the gas cylinders was in the nature of penalty,  and therefore, the same did not form part of the sale price as defined  in Section 2(h) of the 1947 Act.  The impugned judgment has been  challenged by the Department.

(2)     The short question which arises for determination in this civil  appeal is whether there was transfer of the right to use the goods for  consideration under the extended definition of the word ’sale’ under  Section 2(g) (iv) of the said 1947 Act which incorporates the concept  of transfer of the right to use any goods from Article 366 (29A)(d).   

(3)     The assessee was a registered dealer during the assessment year  1986-87.  During that year it carried on business in manufacture and  sale of medical oxygen and industrial gases by filling in cylinders.    The assessee collected Rs.42,500 (approximately) from its customers  during the aforesaid year for over-retention of gas cylinders.  The  question before us is whether the said amount was includible in the  sale price as defined under Section 2(h) of the said Act.    In this  connection we have examined the contract between the assessee and  its customers. In clause 3 of the contract it was provided that  the  assessee shall deliver cylinders containing medical oxygen and collect  empty cylinders from the buyers after specified period of two weeks.  Clause (iv) of the contract stipulated that the consumer/ buyer  (customer) shall deposit by way of security certain amount which  would be refunded on termination of the contract. The said clause  further stated that the return of the security deposited was subject to  the customer returning the cylinder in good condition. Clause (v) of  the contract provided that the cylinder was the property of the  assessee; that it was given on  loan for 14 days free from payment of  any charges; that if the customers retained the said cylinders beyond  the period of 14 days then the customer was liable to pay 0.50 paise  per day in respect of each cylinder for certain number of days and  thereafter Rs.2 per day.  In the event of loss or damage of the cylinder  the customer was required to compensate the assessee such loss in  terms of the schedule mentioned in the contract. In terms of the said  contract as stated above the assessee collected Rs.42,500 (approx.)  during the year 1986-87 as charges for over-retention from its

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customers.

(4)     We find merit in this civil appeal filed by the Department.   Firstly, in the present case the commodity in question is medical- oxygen/industrial gases.  The said commodity  requires a container.  The said commodity cannot be sold without the containers.  The  property in goods (oxygen/gas) cannot pass to the customers without  such containers. Therefore, containers constitute an integral part of the  commodity in question.  The word ’goods’ has been defined in  Section 2(d) to mean all kinds of moveable property other than the  actionable claims shares, security and stocks and include goods used  in words "whether as goods or in some other form".  Therefore goods  do have what is called ’composite personality’.  In the present case the  said cylinders together with its content namely gas/oxygen constitute  ’goods’.        Secondly, it is not in dispute that under the contract in the  present case it was open to the customer to buy  the gas cylinder or to  borrow  it on loan from the assessee.  For the first 14 days  the loan  was free from payment of any charges.  However, thereafter a fixed  amount was levied by the assessee as a charge for over-retention.   According to the impugned judgment the said charge for over- retention was in the nature of penalty imposed on the customer in  order to dissuade  the customer from retaining the cylinders. The  assessee required empty cylinders to be returned so that the said  cylinders could be refilled and sold/transferred by way of loan.  In our  view when the said goods (cylinder containing medical oxygen) were  given on loan to the customer the transfer of the right to use the said  goods came into existence.  It may be that for the first 14 days the said  loan is free from payment of any charges.  However, exemption from  payment would not militate against the concept of transfer of the right  to use the goods. Thirdly, in the impugned judgment the High Court  has failed to notice the provisions of Section 2(g)(iv) which states that  the sale shall mean any transfer of property in goods for cash or defer  payment or for any other valuable consideration and that it shall  include transfer of the right to use such goods for any purpose,  whether or not for specified period for cash, deferred payment or any  other valuable consideration. Lastly, it is important to bear in mind  that Section 2(g)(iv) was placed on the statute in terms of Article  366(29A)(d) of the Constitution. In the case of  Aggarwal Brothers v.  State of Haryana and another (1999) 9 SCC 182) a Division Bench  of this Court has held that the provision under Section 2(l)(iv) of  Harayna General Sales Tax Act, 1973 (which was similar to Section  2(g)(iv) of this Act) expressly spoke of "transfer of the right to use  goods’ and not ’transfer of goods’.  In that matter it was argued on  behalf of the assessee that in the case of a deemed sale within the  meaning of Section 2(l) (iv) there must be a legal transfer of goods.   This arguments was rejected by this Court stating that the levy of tax  was not on transfer of the goods itself but the levy was on the transfer  of the right to use such goods for consideration.  In our view, the  judgment of this Court in Aggarwal case (supra) would squarely apply  to the present case.  In the present case as stated above the cylinders  filled with medical oxygen/industrial gas were loaned to the  customers.  The loan was free from payment of charges for 14 days.   The over-retention charges were levied after 14 days.  In the  circumstances the levy was on the transfer of the right to use the  goods for consideration.

(5)     For the aforestated reasons, we set aside the impugned  judgment and  hereby allow the appeal with no order as to costs.